European Competition Law Annual 2008: Antitrust Settlements under EC Competition Law 9781472560650, 9781841139586

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PERMANENT SPONSORS OF THE A N N UA L E U I C O M P E T I T I O N WORKSHOPS

Blake, Cassels & Graydon LLP Contact: Calvin S. Goldman Commerce Court West 199 Bay Street Toronto, Ontario Canada M5L 1A9 Tel.: +1 416 863 22 80 Fax: +1 416 863 26 53 E-mail: [email protected] Cleary, Gottlieb, Steen & Hamilton Contact: Prof. Mario Siragusa Rome Office Piazza di Spagna, 15 I-00187 Rome Italy Tel.: +39 06 695 221 Fax: +39 06 692 00 665 E-mail: [email protected] CRA International Contact: Lorenzo Coppi Vice President 99 Bishopsgate London EC2M 3XD UK Tel.: +44 20 7438 8117 Fax: +44 20 7240 6136 E-mail: [email protected] Hengeler Müller Contact: Jochen Burrichter Benrater Strasse 18-20 D-40213 Düsseldorf, Germany Fax: +49 211 83 04 222 E-mail: [email protected]

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Sponsors

Howrey LLP Contact: James Rill Esq. 1299 Pennsylvania Ave., NW Washington, DC 20004 USA Tel.: +1 202 383 65 62 Fax: +1 202 383 66 10 E-mail: [email protected] LECG Contact: Atilano Jorge Padilla Managing Director Park Atrium 11 Rue des Colonies B-1000 Brussels, Belgium Tel.: +32 2 517 6070 Fax: +32 2 788 1211 E-mail: [email protected] Martínez Lage & Asociados Contact: Santiago Martínez Lage Claudio Coello 37 ES-28001 Madrid Spain Tel (34) 91 426 44 70 Fax (34) 91 577 37 74 E-mail: [email protected] RBB Economics Contact: Andrea Lofaro RBB Economics London The Connection 198 High Holborn London, WC1V 7BD UK Tel.: +44 20 7421 2414 Fax: +44 20 7421 2411 E-mail: [email protected]

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Sponsors vii Skadden, Arps, Slate, Meagher & Flom LLP Contact: James Venit Brussels Office 523 Avenue Louise B-1050 Brussels Belgium Tel.: +32 2 639 03 00 Fax: +32 2 639 03 39 E-mail: [email protected] White & Case LLP Contact: Prof. Ian S. Forrester Brussels Office 62, rue de la Loi B-1040 Brussels Belgium Tel.: +32 2 219 16 20 Fax: +32 2 219 16 26 E-mail: [email protected] WilmerHale LLP Contact: John Ratliff Bastion Tower Place du Champ de Mars/ Marsveldplein 5 B-1050 Brussels Belgium Tel.: +32 2 285 49 08 Fax: +32 2 285 49 49 E-mail: [email protected]

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1 3 T H A N N UA L E U C O M P E T I T I O N L AW AND POLICY WORKSHOP: ANTITRUST SETTLEMENTS U N D E R E C C O M P E T I T I O N L AW

Chairs John Fingleton, Office of Fair Trading, London Massimo Motta, EUI, Florence and University of Bologna Heike Schweitzer, EUI, Florence

List of Participants Rafael Allendesalazar Albrecht Bach Stefano Bartolini Simon Bishop Joachim Bornkamm Onno Brouwer Jochen Burrichter John Cooke Lorenzo Coppi Kris Dekeyser Claus-Dieter Ehlermann Ian Forrester Shepard Goldfein Pieter Kalbfleisch William Kovacic Bruno Lasserre Mel Marquis Lynda Martin Alegi Santiago Martínez Lage

Howrey, Madrid Oppenländer Rechtanswälte, Stuttgart and Mannheim University Robert Schuman Centre, EUI, Florence RBB Economics, London and Brussels Judge of the German Federal Court of Justice, Karlsruhe Freshfields Bruckhaus Deringer, Amsterdam Hengeler Müller, Düsseldorf Judge of the European Court of First Instance, Luxembourg CRA International, London DG Competition, European Commission, Brussels WilmerHale, Brussels White and Case, Brussels Skadden Arps, New York Netherthlands Competition Authority, The Hague U.S. Federal Trade Commission, Washington, D.C. French Competition Authority, Paris Robert Schuman Centre, EUI, Florence and University of Verona Baker McKenzie, London and Rome Howrey, Madrid

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List of Participants

Kirtikumar Mehta Eric Morgan de Rivery Grant Murray Ali Nikpay Ann O’Brien Jorge Padilla Emil Paulis John Ratliff Andreas Reindl Daniel Rubinfeld Mario Siragusa Vincent Smith John Taladay Maria Luísa Tierno Centella James Venit Wouter Wils Stephen Wilks Diane Wood

Fabien Zivy

DG Competition, European Commission, Brussels Jones Day, Paris and Brussels Baker McKenzie, London Office of Fair Trading, London Antitrust Division, Department of Justice, Washington, D.C. LECG, London, Brussels and Madrid DG Competition, European Commission, Brussels WilmerHale, Brussels Fordham University School of Law, New York University of California at Berkeley, School of Law Cleary Gottlieb Steen Hamilton, Rome and College of Europe, Bruges Hausfeld LLP, London Howry, Washington, D.C. DG Competition, European Commission, Brussels Skadden, Arps, Brussels Legal Service, European Commission, Brussels and King’s College London University of Exeter, Devon Judge of the US Court of Appeals for the Seventh Circuit, Chicago and University of Chicago School of Law French Competition Authority, Paris

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TABLE OF CASES I. Judgments of the European Courts European Court of Human Rights OOO Neste St Petersburg v. Russia (App. No 69042/01), judgment of 3 June 2004 .......................................................................................460 Borghi v. Italy (App. No. 54767/00), judgment of 20 June 2002 .......................................................................................6, 43, 45, 506 Deweer v. Belgium, (1980) 2 E.H.R.R. 439 ......................................6, 45, 506 Saunders v. United Kingdom (1997) 23 E.H.R.R. 313..................................43

Courts of the European Communities Case 155/79, AM & S v Commission [1982] ECR 1575 ..............................531 Joined Cases C-89/85 etc., Ahlström Osakeyhtiö and others v Commission (“Wood Pulp II”) [1993] ECR I-1307............................................420, 573 Case T-260/94, Air Inter v Commission [1997] ECR II-997........................651 Case T-330/01, Akzo Nobel v Commission [2006] ECR II-3389 .................531 Joined Cases T-125/03 and T-253/03, Akzo Nobel and others v Commission, [2007] ECR II-3523, on appeal: Case C-550/07 P, not yet decided ......................................................................................313 Case T-112/05, Akzo Nobel and others v Commission, [2007] ECR II-5049, on appeal: Case C-97/08 P, not yet decided; Opinion of Advocate General Kokott (proposing that the ECJ should dismiss the appeal) delivered 23 April 2009 .......................................................464 Case T-170/06, Alrosa Company Ltd v Commission [2007] ECR II-2601, on appeal: Case C-441/07 P, Commission v Alrosa, not yet decided ............................xvii–xviii, xxvii–xxviii, xxx, xlv–xlvii, li–liii, lviii, 31, 39, 44, 105, 118, 127, 132, 186–92, 202, 263–67, 270, 314, 525, 527–30, 532–36, 541, 543, 547, 550, 552, 556–60, 562, 565, 568–73, 575–78, 584, 588, 590–95, 597–99, 641, 645, 647, 651 Case C-176/99 P, ARBED SA v Commission [2003] ECR I-10687.............418 Case C-397/03 P, Archer Daniels Midland v Commission [2006] ECR I-4429 ...........................................................................................198 Case T-329/01, Archer Daniels Midland Co. v Commission (sodium gluconate) [2006] ECR II-3255, appeal dismissed: Case C-510/06 P, judgment of the Court of Justice of 19 March 2009, not yet reported ...418

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Joined Cases T-191/98 etc., Atlantic Container Line and Others v Commission [2003] ECR II-3275............................................................418 Case T-16/02, Audi v OHIM, [2003] ECR II-5167, appeal dismissed: Case C-82/04 P (Ordonnance de non-lieu de statuer à défaut d’intérêt d’agir)....................................................................................................404 Case 64/89, Automec Srl v Commission [1990] ECR II-367........................531 Case T-24/90, Automec v Commission (“Automec II”) [1992] ECR II 2223 ...................................................................537, 575, 599, 633 Case T-198/03, Bank Austria Creditanstalt AG v Commission [2006] ECR II-1429...........................................................140, 254, 257–58 Case T-15/02, BASF AG v Commission [2006] ECR II-497 ...404, 415, 418–20 Joined Cases T-101/05 and T-111/05, BASF and UCB v Commission [2007] ECR II-4949........................................................17, 28 Joined Cases 142/84 and 156/84, BAT and Reynolds Industries v Commission [1986] ECR 1899................................................................310 Case C-63/94, Belgapom v ITM Belgium and Vocarex [1995] ECR I-2467.............................................................................................24 Case C-56/93, Belgium v Commission [1996] ECR I-723............................254 Case T-219/99, British Airways v Commission [2003] ECR II-5917, upheld: Case C-95/04 P, [2007] ECR I-2331............................586, 610, 629 Bronner – see Oscar Bronner, infra Case T275/94, CB v Commission [1995] ECR II2169.................................634 Joined Cases T-39/92 and T-40/92, CB and Europay v Commission [1994] ECR II-49 ...................................................................................418 Case T-282/02, Cementbouw Handel and Industrie BV v Commission [2006] ECR II-319, upheld: Case C-202/06 P, [2007] ECR I-12129..................................................................................529, 573 Case 41/69, Chemiefarma v Commission [1970] ECR 661 ..........................418 Joined cases T-10/92, etc., Cimenteries CBR and others v Commission [1992] ECR II-2667 ...............................................................................418 Joined Cases C-94/04 and C-202/04, Cipolla and Macrino [2006] ECR I-11421 ...........................................................................................25 Case C-137/94 P, Commission v BASF and others [1994] ECR I-2629 .........36 Case C-110/05, Commission v Italy, judgment of the Court of Justice of 10 February 2009, not yet reported.....................................................24 Joined Cases C-359/95 and C-379/95, Commission v Ladbroke Racing [1997] ECR I-6265 .....................................................................648 Case C-301/04 P, Commission v SGL Carbon [2006] ECR I-5915 ..........42, 45 Case C-198/01, Consorzio Industrie Fiammiferi (CIF) v Autorità Garante della Concorrenza e del Mercato [2003] ECR I-8055 ..................23 Case C-453/99, Courage and Crehan [2001] ECR I-6297.......................xxxiii, xlviii, xlix, lv, 123, 136, 206, 239, 259, 677, 679 Case 231/83, Cullet v Centre Leclerc [1985] ECR 305..................................25 Danone – see Group Danone v Commission, infra

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Case C-350/88, Delacre and others v Commission [1990] ECR I-395 .....................................................................................122, 254 Case T?274/06, Estaser El Mareny v Commission [2007] ECR II-143 (application dismissed by Order of the CFI of 25 October 2007) .......................................................31, 186, 555, 562, 645 Case T-374/94, European Night Services v Commission [1998] ECR II-3141.....................................................................................lii, 648 Case 392/85 R, Finsider v Commission [1986] ECR 959 .............................634 Case 314/85, Foto-Frost [1987] ECR 4199 .................................................634 Case T-339/04, France Télécom SA. v Commission [2007] ECR II-521 ....................................................................................408, 461 Joined Cases T-391/03 and T-70/04, Franchet and Byk v Commission [2006] ECR II-2023............................................................258 Case T-38/96, Guérin Automobiles v Commission [1997] ECR II-1223 ..................................................................................................530 Case C-3/06 P, Group Danone v Commission [2007] ECR I-1331.................17 Case 86/82 R, Hasselblad v Commission [1982] ECR 1555 ........................634 Case 85/76, Hoffmann-La Roche v Commission [1979] ECR 461 ...............418 Case T28/03, Holcim (Deutschland) v Commission [2005] ECR II-1357 ...........................................................................................634 Case C-418/01, IMS Health [2004] ECR I-5039.................................545, 611 Case 13/77, Inno-GB v ATAB [1977] 2115 ...................................................24 Joined Cases C-267 and 268/91, Keck and Mithouard [1993] ECR I-6097 .......................................................................................24–25 Case T-301/94 R, Laakman v Commission [1994] ECR II-1279 .................634 Joined Cases C-238/99 P etc., Limburgse Vinyl Maatschappij (LVM) and others v Commission [2002] ECR I-8616 ..............................36 Case T-16/99, Lögstör Rör v Commission [2002] ECR II-1633, upheld: Case C-189/02 P, Dansk Rørindustri and others v Commission [2005] ECR I-5425.................................................................................419 Magill – see Radio Telefis Eireann, infra Joined Cases C-295-298/04, Manfredi [2006] ECR I-6619 .........................xxix, xlix, lv, 136, 140, 206, 232, 256, 259, 677 Case T-44/00, Mannesmannröhren-Werke v Commission [2004] ECR II-2223 ..................................................................................415, 419 Case C-344/98, Masterfoods Ltd v HB Ice Cream [2000] ECR I-11369 ...............................................xlvi, xlix, 535–37, 541, 574, 600, 682 C-2/91, Meng [1993] ECR I-5751 ................................................................24 Case 322/81, Michelin v Commission [1983] ECR 3461 ......................419, 586 Case T-201/04, Microsoft v Commission [2007] ECR II-3601 (no appeal) ...............................................................................39, 127, 433 Case T-167/08, Microsoft v Commission, not yet decided, 2008 OJ C171/41 (application).................................................................xvii, 13 Case C-283/98 P, Mo och Domsjö v Commission [2000] ECR I-9855 .........420

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xviii Table of Cases Joined Cases 100 to 103/80, Musique Diffusion Française v Commission (“Pioneer”) [1983] ECR 1825............................................139 Joined Cases 296/82 and 318/82, Netherlands and Leeuwarder Papierwarenfabriek v Commission [1985] ECR 809................................254 Joined Cases T-129/95, T-2/96 and T-97/96, Neue Maxhütte Stahlwerke and Lech-Stahlwerke v Commission [1999] ECR II-17 ...........................404 Case C-7/97, Oscar Bronner GmbH & Co. KG v Mediaprint Zeitungsund Zeitschriftenverlag GmbH & Co. KG, Mediaprint Zeitungsvertriebsgesellschaft mbH & Co. KG and Mediaprint Anzeigengesellschaft mbH & Co. KG [1998] ECR I-7791...........lii, 611, 647 Case C-180/98, Pavlov and others [2000] ECR I-6451..................................24 Case T-474/04, Pergan Hilfsstoffe für industrielle Prozesse GmbH v Commission [2007] ECR II-4225 ....................................................140, 257 Case T-193/02, Piau v Commission [2005] ECR II-209, appeal dismissed by Order of the ECJ, Case C-171/05 P ..................................................633 Joined Cases C-241/91 P and C-242/91 P, Radio Telefis Eireann (RTE) and Independent Television Publications Ltd (ITP) v Commission (“Magill”) [1995] ECR I-743 ........................................................545, 611 Case T-259 to 264/02 and T-271/04, Raiffeisen Zentralbank Österreich v Commission [2006] ECR II-5169, on appeal: Case C-125/07 P, Erste Bank der österreichischen Sparkassen v Commission, not yet decided ....122 Respol – see: Estaser El Mareny v Commission, supra; and Transportes Evaristo Molina SA v Commission, infra Case C-411/04 P, Salzgitter Mannesmann v Commission [2007] ECR I-959 .......................................................................................................45 Case T-11/89, Shell v Commission [1992] ECR II 757................................418 Case 350/88, Société Française des Biscuits Delacre SA et al. v Commission [1990] ECR 395 ..........................................................122, 254 Joined Cases 40/73 etc., Suiker Unie and others v Commission [1975] ECR 1663 ......................................................................................418, 682 Case C-367/95 P, Sytraval v Commission [1998] ECR I-1719.....................254 Case C-13/03 P, Tetra Laval v Commission [2005] ECR I-1113 .................635 Joined Cases C-65/02 P etc., ThyssenKrupp Stainless and others v Commission [2005] ECR-16733 ...............................................................43 Case T-504/93, Tiercé Ladbroke SA v Commission [1997] ECR II-923 ......611 Case T-236/01, Tokai Carbon [2004] ECR II-1181, judgment partially set aside, Case C-301/04 P, Commission v SGL Carbon [2006] ECR I-5915 ..........................................................................17, 42, 45, 634 Case T-45/08, Transportes Evaristo Molina SA v Commission, application for annulment dismissed by Order of the CFI of 14 November 2008, [2009] OJ C6/31, on appeal: Case C-36/09 P, not yet decided ..............................................................31, 186, 192, 555, 562, 578 Case T-148/89, Tréfilunion v Commission [1995] ECR I-1063 ....................632 Case C-119/97 P, Ufex v Commission [1999] ECR I-1341..........................633

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Case T-65/98, Van den Bergh Foods v Commission [2003] ECR II-4653, appeal dismissed by Order of the ECJ, Case C-552/03 P, Unilever Bestfoods (Ireland) Limited (formerly HB Ice Cream Limited) v Commission [2006] ECR I-9091 .................................36, 535, 545, 638, 651 Joined Cases 209/78 etc., Van Landewyck and others v Commission [1980] ECR 3125 ...................................................................................418 Case T-266/97, Vlaamse Televisie Maatschappij NV v Commission [1999] ECR II-2329........................................................................537, 682 Case 238/87, Volvo/Veng [1988] ECR 6211 ...............................................611 Wood Pulp II – see Ahlström Osakeyhtiö and Others v Commission, supra

II. Decisions, market test Notices and informal settlements of the European Commission Notice published pursuant to Article 27(4) of Regulation (EC) No 1/2003 in Case COMP/37.749, Austrian Airlines/SAS cooperation agreement, 2005 OJ C233/18........................186, 191–92, 526, 552–54, 579, 582–83, 590, 601, 653, 657 Bank charges for euro zone currency exchange, XXXIst Report on Competition Policy, 2001, p. 20 and Press Releases IP/01/1159 of 31 July 2001; IP/01/690 of 14 May 2001; IP/01/650 of 7 May 2001; IP/01/554 of 11 April 2001.....................................................................496 Notice published pursuant to Article 27(4) of Council Regulation (EC) No 1/2003 in Cases COMP/39.152, BUMA and COMP/C2/39.151, SABAM (Santiago Agreement – COMP/38.126), 2005 OJ C200/11 .........................................186, 526, 552–54, 579, 582–83, 601, 653 Commission Decision 2005/396/EC of 19 January 2005 (Case COMP/37.214 – Bundesliga), 2005 OJ L134/46................186, 191, 551–54, 578, 582–83, 589, 601, 652 Commission Decision 2007/735/EC of 4 October 2006 (Case COMP/38.681 – The Cannes Extension Agreement), 2007 OJ L296/27 ...........................................186, 552–53, 582–83, 601, 653, 658 Notice published pursuant to Article 27(4) of Council Regulation No 1/2003 in Case COMP/38.698, CISAC......................186, 526, 552, 653 Commission Decision of 16 July 2008 (Case COMP/38.698 – CISAC), 2008 C323/12, http://ec.europa.eu/competition/antitrust/ cases/decisions/38698/en.pdf ....................................186, 526, 551–53, 558, 579, 582-83, 601, 653, 658 Commission Decision 2005/670/EC of 22 June 2005 (Case COMP/39.116 – Coca-Cola), 2005 OJ L253/21 .....................191, 531, 552, 555, 578, 585, 601, 612, 652 Commission Decision of 13 September 2007 (Case COMP/39.140 – DaimlerChrysler), 2007 OJ L317/76............186, 551–52, 578, 601, 611, 653

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Commission Decision 2006/520/EC of 22 February 2006 (Case COMP/38.381 – De Beers), 2006 OJ L205/24, annulled: Case T-170/06, Alrosa Company Ltd v Commission [2007] ECR II-2601, on appeal: Case C-441/07 P, Commission v Alrosa, not yet decided ........................................xvii–xviii, xxvii–xxviii, xxx, xlv–xlvii, li–liii, lviii, 31, 39, 44, 105, 118, 127, 132, 186–92, 202, 263–67, 270, 314, 525, 527–30, 532–36, 541, 543, 547, 550, 552, 554–57, 559–60, 562, 565, 568–73, 575–78, 584, 588, 590–95, 597–99, 601, 641, 645, 647, 651 Commission Decision of 11 October 2007 (Case COMP/37.966 – Distrigaz), 2008 OJ C9/8, http://ec.europa.eu/comm/competition/ antitrust/cases/decisions/37966/en.pdf ........................lii–liii, 186, 188, 544, 551–52, 555–56, 570–71, 579, 582–83, 590, 601, 649–54 Commission Decision of 11 June 1993 (Case IV/32.150 – EBU/ Eurovision System), 1993 OJ L179/23 ............................................640, 658 E.ON – see German Electricity Wholesale Market and German Electricity Balancing Market, infra Commission Decision of 13 September 2007 (Case COMP/39.141 – Fiat), 2007 OJ L332/77.....................................................186, 551–52, 579, 582–83, 601, 611, 653 FIPCOM/Koninklijke Philips Electronics N.V., Press Release IP/06/139 of 9 February 2006 ................................................................530 Commission Decision of 14 November 2006 (Case COMP/M.4180 – Gaz de France/Suez) ..............................................................................655 Gazprom/ENI, Press Release IP/03/1345 of 6 October 2003 ......................530 Gazprom/E.ON Ruhrgas, Press Release IP/05/195 of 17 February 2005 ......................................................................................................530 Gazprom/OMV, Press Release IP/05/710 of 10 June 2005 .........................530 Notice published pursuant to Article 27(4) of Council Regulation (EC) No 1/2003 in Case COMP/39.316, GDF – Gas market foreclosure, OJ C156/25.........................................................................526 Commission Decision of 26 November 2008, Cases COMP/39.388 – Germany Electricity Wholesale Market and COMP/39.389 – Germany Electricity Balancing Market .....................186, 501, 526, 528, 549, 551–52, 556–57, 559–60, 571, 579, 582–83, 601, 610 GFU, Case COMP/36.072, XXXIInd Report on Competition Policy, 2002, point 85 and pp. 207-208 ......................................................440, 496 Notice published pursuant to Article 27(4) of Council Regulation (EC) No 1/2003 in Case COMP/39.416, IACS – Ship classification, OJ C131/20............................................................................................526 IBM undertaking, XIVth Report on Competition Policy 1984, points 94-95 ...............................................................................4, 581, 640 Commission Decision of 18 September 1987 (Case IV/31.739 – Internationale Dentalschau), 1987 OJ L293/58.......................................649

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Commission Decision of 27 February 2008 (Case COMP/C-3/34.792 – Microsoft), on appeal: Case T-167/08, Microsoft v Commission, not yet decided, 2008 OJ C171/41 (application)................xvii, 13, 612, 648 Mobile roaming, Commission Press Releases IP/04/994 of 26 July 2004; IP/05/161 of 10 February 2005; IP/07/1113 of 18 July 2007 ...................609 Commission Decision 94/663/EC of 21 September 1994 (Case IV/34.600 – Night Services), 1994 OJ L259/20, annulled: Case T-374/94, European Night Services v Commission [1998] ECR 3141 .................................lii, 648 Norwegian gas – see GFU, supra Commission Decision of 13 September 2007 (Case COMP/39.143 – Opel), 2007 OJ L330/44 ...............186, 552, 578, 582–83, 601, 611, 653, 656 Commission Decision of 22 March 2006 (Case COMP/38.173 – Premier League), 2008 OJ C7/18 ...........186, 552–54, 578, 582–83, 601, 652 Notice published pursuant to Article 27(4) of Council Regulation (EC) No 1/2003 in Case COMP/38.636, Rambus, OJ C133/16 .......................526 Commission Decision 2006/446/EC of 12 April 2006 (Case COMP/ 38.348 – Repsol CPP), 2006 OJ L176/104 ........................31, 552, 554, 557, 578, 588, 601, 652 Commission Decision of 18 March 2009, Case COMP/39.402 – RWE Gas Foreclosure ......................xviii–xix, 186, 501, 526, 528, 549, 551, 556–57, 559–60, 571, 579, 582–83, 601, 610 SABAM – see BUMA, supra Santiago Agreement – see BUMA, supra Notice published pursuant to Article 27(4) of Council Regulation (EC) No 1/2003 in Case COMP/37.984, SkyTeam, 2007 OJ C245/46 ......................................................186, 191, 526, 552, 570, 653 Commission Decision 94/296/EC of 29 April 1994 (Case IV/34.456 – Stichting Baksteen), 1994 OJ L131/15....................................................632 Commission Decision 84/380/EEC of 4 July 1984, Synthetic Fibres, 1984 OJ L207/17 ...................................................................................632 Commission Decision of 13 September 2007 (Case COMP/39.142 — Toyota), 2007 OJ L329/52 .............186, 551–52, 582–83, 601, 611, 653, 657 Commission Decision 89/467/EEC of 12 July 1989 (Case IV/30.566 – UIP), 1989 OJ L226/25..........................................................................640 Notice pursuant to Article 19 (3) of Council Regulation No 17 concerning Notification No IV/35.436, Van den Bergh Foods, 1995 OJ C211/4 .....................................................................................545 Commission Decision of 11 March 1998, Van den Bergh Foods, OJ L246/1, upheld, Case T-65/98, Van Den Bergh Foods v Commission [2003] ECR II-4653............................................................545 Commission Decision 86/499/EEC of 30 September 1986 (Case IV/28.959 – VIFKA), 1986 OJ L291/46..................................................649

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xxii Table of Cases III. US cases (courts and the Agencies) American Banana Co. v. United Fruit Co., 213 U.S. 347 (1909) .................232 Apprendi v. New Jersey, 530 U.S. 466 (2000)...............................................57 Re Auction Houses Antitrust Litig., 197 F.R.D. 71 (S.D.N.Y. 2000)..............................................................................................222, 224 Re Auction Houses Antitrust Litig., 2001 WL 170792, 2001-1 Trade Cas. ¶ 73,170 (S.D.N.Y. 2001) ....................................................223 Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) ....................225–27, 327 Blackledge v. Allison, 431 U.S. 63 (1977).....................................................49 Blakely v. Washington, 542 U.S. 296 (2005) ................................................57 Bodenkircher v. Hayes, 434 U.S. 357 (1978) ................................................49 Bogosian v. Gulf Oil Corp., 561 F.2d 434 (3rd Cir. 1977)...........................222 Brady v. United States, 397 U.S. 742 (1970).....................................43, 48–49 Re Cardizem CD Antitrust Litig., 218 F.R.D. 508 (E.D. Mich. 2003) .......223 Caribbean Broadcasting Sys., Ltd. v. Cable & Wireless Plc, 148 F.3d 1080 (D.C. Cir. 1998)....................................................................232 Conley v. Gibson, 355 U.S. 41 (1957).........................................................226 Re Corrugated Container Antitrust Litigation, 643 F.2d 195 (5th Cir. 1981)................................................................................205, 223 Cosmetic Gallery, Inc. v. Schoeneman Corp., 495 F.3d. 46 (3rd Cir. 2007).......................................................................................226 Credit Suisse Securities (USA) LLC v. Billing, 551 U.S. 264 (2007) .........226 Den Norske Stats Oljeselsap As v. HeereMac Vof, 241 F.3d 420 (5th Cir. 2001) .......................................................................................232 Devlin v. Scardelletti, 536 U.S. 1 (2002).....................................................283 Eastern States Retail Lumber Dealers’ Ass’n v. United States, 234 U.S. 600 (1914)......................................................................................353 Re Elevator Antitrust Litig., 502 F.3d 47 (2007) ........................................226 Emerson Elec. Co. v. Le Carbone Lorraine, 500 F. Supp. 2d 437 (D.N.J. 2007) ........................................................................................233 Empagran S.A. v. F. Hoffmann-La Roche Ltd., 315 F.3d 338 (D.C. Cir. 2003), rev’d, F. Hoffmann-La Roche Ltd. v. Empagran S.A., 542 U.S. 155 (2004)...........................................xxviii, 121, 232–34, 325–26 Empagran v. F. Hoffmann-La Roche Ltd., 417 F.3d 1267 (D.C. Cir. 2005) (on remand)..........................................................................233 Guernsey v. Rich Plan of the Midwest, 408 F. Supp. 582 (D. Ind. 1976) .....................................................................................................216 Gutta v. Standard Select Trust Ins. Plans, 530 F.3d 614 (7th Cir. 2008) .....................................................................................................219 Hanover Shoe, Inc. v. United Shoes Mach. Corp., 392 U.S. 481 (1968) .......................................................................................232, 369–70 Hartford Fire Ins. v. California, 509 U.S. 764 (1993) .................................232 F. Hoffmann-La Roche Ltd. v Empagran S.A., 542 U.S. 144 (2004) ..........226

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Holloway v. Bristol-Myers Corp., 485 F.2d 986 (D.C. Cir. 1973) ..............216 Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977) .................219, 232, 326, 370 Illinois Tool Works Inc. v. Independent Ink, Inc., 547 U.S. 28 (2006) .........225 Re Intel Corp. Microprocessor Antitrust Litig., 452 F. Supp.2d 555 (D. Del. 2006) .......................................................................................233 Justine Realty Co. v. American Nat. Can Co., 976 F.2d 385 (8th Cir. 1992) .......................................................................................219 Kendall v. Visa U.S.A., Inc., 518 F.3d 1042 (9th Cir. 2008) .......................226 Kruman v. Christie’s Int’l PLC, 284 F.3d 384 (2d Cir. 2003), abrogated by F. Hoffmann-La Roche Ltd. v. Empagran S.A., 542 U.S. 155 (2004)........................................................................232, 234 Leegin Creative Prods., Inc. v. PSKA, Inc., 551 U.S. 877 (2007)................225 Lowendahl v. Baltimore & O. R. Co., 247 A.D. 144, 287 N.Y.S. 62, (N.Y. App. Div. 1936), aff’d, 272 N.Y. 360, 272 N.Y. (N.Y.S.) 360, 6 N.E.2d 56 (1936).........................................................................322 Re Matzo Food Prods. Litig., 156 F.R.D. 600 (D.N.J. 1994).....................224 Re Methionine Antitrust Litigation, Case No. C-99-3491 CRB (JCS) MDL No 1311 (N. D. Cal. 29 July 2002).........................................83, 383 Re Monosodium Glutamate Antitrust Litig., 477 F.3d 535 (8th Cir. 2007) .......................................................................................233 Mylan Labs. Inc. and E. Merck oHG, Agreement Containing Consent Order, FTC File No. 071-0164 (20 September 2007) .............................217 N-Data, FTC Press Release of 23 January 2008........................................211 New York v. Microsoft Corp., 224 F. Supp.2d 76 (D.D.C. 2002)...............215 NicSand, Inc. v. 3M, 507 F.3d 442 (6th Cir. 2007).....................................226 D. H. Overmyer Co. v. Loflin, 440 F.2d 1213, 1215 (5th Cir. 1971) ...........219 Re Parcel Tanker Shipping Servs. Antitrust Litig., 2008-1 Trade Cas. ¶ 76,080, 541 F. Supp. 2d 487 (D. Conn. 2008) ........................................226 Rickets v. Adamson, 483 U.S. 1 (1987) ........................................................51 Robertson v. NBA, 556 F.2d 682 (2d Cir. 1977).........................................223 Re Rubber Chem. Antitrust Litig., 504 F. Supp.2d 777 (N.D. Cal. 2007)...233 Rufo v. Inmates of Suffolk County Jail, 502 U.S. 367 (1992)......................279 Santobello v. New York, 404 U.S. 257 (1971).......................................50, 283 Société Internationale Pour Participations v. Rogers, 357 U.S. 197 (1958) ....................................................................................................324 Standard Oil Company of New Jersey v. United States, 221 U.S. 1 (1911) ....................................................................................................352 State Oil Co. v. Khan, 522 U.S. 3 (1997)....................................................225 Texaco Inc. v. Dagher, 547 U.S. 1 (2006) ..................................................225 Theatre Enterprises., Inc. v. Paramount Film Distrib. Corp., 346 U.S. 537 (1954)......................................................................................353 Twombly – see Bell Atlantic Corp. v. Twombly, supra U.S. Postal Service v. Flamingo Indus. (USA) Ltd., 540 U.S. 736 (2004) ....................................................................................................226

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United States v. Adams, 634 F.2d 830 (5th Cir. 1981)............................49, 53 United States v. Andreas, 216 F.3d 645 (7th Cir. 2000) ...............................11 United States v. ASCAP, 1941-1943 Trade Cas. (CCH) ¶ 56, 104 (S.D.N.Y. 1941) ......................................................................................13 United States v. ASCAP, 1950-1951 Trade Cas. (CCH) ¶ 62, 595 (S.D.N.Y. 1950) ......................................................................................13 United States v. ASCAP, 1960 Trade Cas. (CCH) ¶ 69, 612 (S.D.N.Y. 1960) ......................................................................................13 United States v. ASCAP, 2001 WL 1589999 (S.D.N.Y. 2001).....................13 United States v. AT&T, 552 F. Supp. 131 (D.D.C. 1982) ............................13 United States v. BMI, 1940-1943 Trade Cas. (CCH) ¶ 56, 096 (E.D. Wisc. 1941)....................................................................................13 United States v. BMI, 1966 Trade Cas. (CCH) ¶ 71, 941 (S.D.N.Y. 1966) ......................................................................................13 United States v. BMI, 1996-1 Trade Cas. (CCH) ¶ 71, 378 (S.D.N.Y. 1994) ......................................................................................13 United States v. Booker, 543 U.S. 220 (2005).......................................57, 130 United States v. Brady, 397 U.S. 742 (1970).....................................43, 48–49 United States v. Culbro Corp, 504 F. Supp. 661 (S.D.N.Y 1981) ...............213 United States v. Eastman Kodak Co., 63 F.3d 95 (2d Cir. 1995) ................213 United States v. Embree, 2008 WL 268911 (4th Cir. 2008) ..........................51 United States v. Giordano, 261 F.3d 1134 (11th Cir. 2001) ........................352 United States v. Josefik, 753 F.2d 585 (1985) ..............................................51 United States v. Mezzanatto, 513 U.S. 196 (1995) .................................51–53 United States v. Microsoft Corp., 159 F.R.D. 318 (D.D.C.), rev’d, 56 F.3d 1448 (D.C. Cir. 1995) ..............................................128, 215 United States v. Microsoft Corp., 56 F.3d 1448 (DC Cir. 1995) .......................................................................128, 205, 213, 215, 279 United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir. 2001).............15, 90 United States v. Miles, 10 F.3rd 1135 (5th Cir. 1993) ............................49, 53 United States v. Motor Vehicle Manufrs. Assoc., 643 F.2d 644 (9th Cir. 1981) .......................................................................................213 United States v Ruiz, 536 U.S. 622 (2002) ...................................................43 United States v. Showa Denko Carbon, Criminal No. 98-CR-85-1 (E.D. Pa. 1998) ..................................................................................63–64 United States v. Socony-Vacuum Oil Co., 310 U.S. 150 (1940) ..................352 United State v. Stolt-Nielsen S.A., 524 F. Supp.2d 586 (E.D. Pa. 2007) ....210 United States v. Thomson Corp., 949 F. Supp. 907 (D.D.C. 1996).............213 United States v. United States Gypsum Co., 438 U.S. 422 (1978)...............207 United States v. Verizon Communications Inc. and MCI, Inc., Civil Action No. 1:05CV02103 (EGS) (D.D.C. 31 May 2006) ...................205–6 United States v. Verizon Communications. Inc., Final Judgment, Civil Action No. 1:05CV02103 (EGS) (D.D.C. 27 March 2007)....................216 Re Uranium Antitrust Litigation, 480 F. Supp. 1138 (N.D. Ill. 1979) ........323

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Verizon Comms. Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398 (2004)......................................................................................226 Re Visa Check/MasterMoney Antitrust Litigation, 297 F. Supp.2d. 503 (E.D.N.Y 2003), aff’d sub nom. Wal-Mart Stores, Inc. v. Visa U.S.A., Inc., 396 F.3d. 96 (2d Cir. 2005) ...............................................224 Re Visa Check/MasterMoney Antitrust Litig., 280 F.3d 124 (2d Cir. 2001) .....................................................................................................222 Re Vitamins Antitrust Litigation, Misc. No. 99-197 (TFH) MDL No. 1285 (D.D.C. 2002).................................................................334, 383 Wal-Mart Stores v. Visa U.S.A., Inc., 396 F.3d 96 (2d Cir. 2005)........223–24 Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., Inc., 549 U.S. 312 (2007) ...............................................................................226 Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100 (1969).........219

IV. Other national jurisdictions Belgium Decision No 2005-I/O-52 of 30 November 2005, Distri-One S.A./ Coca-Cola Enterprises Belgium S.P.R.L, Official Gazette of 22 December 2005, 55.371 .........................................................................531 Canada Alfresh Beverages Canada Corp. v. Archer Daniels Midland Co., [2001] O.J. No. 6028 (S.C.J.) (QL) ........................................................389 Alfresh Beverages Canada Corp. v. Hoeschst AG, [2002] O.J. No. 79 (S.C.J.) (QL) .........................................................................................389 Axiom Plastic Inc. v. E.I. DuPont Canada Co. (2007), 87 O.R. (3d) 352....385 Bona Foods Ltd. v. Ajinomoto U.S.A., Inc., [2004] O.J. No. 908 (S.C.J.) (QL) ......................................................................................................390 Chadha v. Bayer Inc., [2003] O.J. No. 27 (C.A.), leave to appeal to SCC denied, [2003] SCCA No. 106 (QL)..........................................369–70 Harmegnies c. Toyota Canada, [2007] J.Q. No. 1072 (C.S)., aff’d, [2008] J.Q. No. 1446 (C.A.) (QL) ..........................................................369 Janelle Pharmacy Ltd. v. Blue Cross of Atlantic Canada (2003), 27 C.P.R. (4th) 19 (N.S.S.C.) ................................................................368 Morguard v. De Savoye, [1990] 3 S.C.R. 1088 ...........................................382 Option Consommateurs c. Infineon Technologies a.g., [2008] J.Q. no 5796 (C.S.) .......................................................................................369 Price v. Panasonic Canada Inc. (2002), 22 C.P.C. (5th) 379 (Ont. S.C.J.) (QL) ......................................................................................................369 Pro-Sys Consultants Ltd. v. Infineon Technologies AG et al., [2008] B.C.J. No. 831 (B.C.S.C.) (Q.L.) .....................................................369–70

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R. v. Armco Canada Ltd. and 9 Other Corporations (No. 2) (1975), 19 C.P.R. (2d) 273.................................................................................376 R. v. Libman, [1985] 2 S.C.R. 178..............................................................382 R. v. Nova Scotia Pharmaceutical Society, [1992] 2 S.C.R. 606 .................361 Stinchcombe v. The Queen (1991), 68 C.C.C. (3d) 1...................................383 Vitapharm Canada Ltd. v. Hoffmann-Laroche Ltd., [2005] O.J. No. 1118 (S.C.J.) (Q.L.).................................................................367, 390 Western Canadian Shopping Centres Inc. v. Dutton (2000), 201 D.L.R. (4th) 305 (S.C.C.)......................................................................367 2038724 Ontario Ltd. v. Quizno’s Canada et al., [2008] O.J. No. 883 (S.C.J.) (QL), appeal pending ........................................................369, 385 France Building maintenance, Decision No 08-D-13 of the Competition Council of 11 June 2008 ........................................................................465 Canal 9 / GIE Les Indépendants, judgment of the Cour d’Appel de Paris of 6 November 2007 .....................................................................460 Cathedral of Trégiuer, Decision No 04-D-42 of the Competition Council of 4 August 2004......................................................................454 Electricity supply, Decision No 07-MC-04 of the Competition Council of 28 June 2007 ........................................................................142 Funeral services in Val-de-Marne, Decision No 04-D-37 of the Competition Council of 27 July 2004 ....................................................467 Heating, sanitation, plumbing, air conditioning, Decision No 06-D-03 of the Competition Council of 9 March 2006 ........................................457 Hi-fi and home cinema equipment, Decision No 06-D-28 of the Competition Council of 5 December 2006 ............................................468 High-speed internet access (France Télécom), Decision No 07-D-33 of the Competition Council of 15 October 2007 ..........151, 159, 167, 461, 463 High-voltage electric cables, Decision No 07-D-26 of the Competition Council of 26 July 2007 ...........................................147, 149, 158, 465, 467 Laundry cleaning and renting, Decision No 07-D-21 of the Competition Council of 26 June 2007.....................................147, 149, 158, 462, 465–67 Mutuelle Assurance Artisanale de France (MAAF), judgment of the Cour de cassation of 12 December 2007................................................324 National and international moving, Decision No 07-D-48 of the Competition Council of 18 December 2007 ...................................159, 465 Plywood, Decision No 08-D-12 of the Competition Council of 21 May 2008..........................................................................................465 Port of Marseille, Decision No 03-D-10 of the Competition Council of 20 February 2003.......................................................................................454 Postal services (La Poste), Decision No 04-D-65 of the Competition Council of 30 November 2004..................................................155, 462–63

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Pre-recorded video tapes, Decision No 05-D-70 of the Competition Council of 19 December 2005 ........................................................464, 467 Procurement contracts for waste disposal in Seine-Maritime, Decision No 07-D-02 of the Competition Council of 23 January 2007........155, 465 Procurement contracts for waste management in the Vosges, Decision No 07-D-40 of the Competition Council of 23 November 2007.......465–66 Procurement practices – school transport in Haut-Corse, Decision No 04-D-30 of the Competition Council of 7 July 2004.................462, 467 Société Dexxon Data Media et autres, judgment of the Court d’Appel de Paris of 21 September 2004...............................................................462 Société Le Goff, judgment of the Cour d’Appel de Paris of 29 January 2008 ......................................................................................................460 Société OGF c. Société Lamotte, judgment of the Cour de cassation of 28 November 2006.....................................................................427, 462 TGV Nord et Pont de Normandie, judgment of the Cour de cassation of 5 October 1999..................................................................................426 Tourism monographs, Decision No 08-D-08 of the Competition Council of 29 April 2008 ....................................................................................468 Watches (Festina France), Decision No 06-D-24 of the Competition Council of 24 July 2006 .........................................................................468 Germany Décor paper, Bundeskartellamt Press Release of 5 February 2008 ............434 E.On Ruhrgas, Bundeskartellamt Press Release of 17 January 2006, upheld, judgment of 4 October 2007 of the Higher Regional Court (OLG) in Düsseldorf, NJW 2007 p. 399 ................................................433 Vitamins cartel, judgment of 28 January 2004 of the Higher Regional Court (OLG) in Karlsruhe, NJW 2004 p. 2243 .....................................433 The Netherlands Amsterdam childcare, NMa Press Release 08-17 of 30 June 2008..............436 Interpay, Nma Press Releases 04-10 of 29 April 2004 and 05-46 of 22 December 2005 ...........................................................................483–84 Mojo, NMa Press Release 06-25 of 20 July 2006.......................................483 Spain Coca-Cola, Decision of the Spanish Competition Authority of 15 July (Case 2146/00)...........................................................................531 United Kingdom Air Passenger Fuel Surcharges, OFT Press Release 113/07 of 1 August 2007 ............................................16, 499, 502, 507, 511, 516, 520

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xxviii Table of Cases Construction, OFT Press Release 49/07 of 22 March 2007 .........511, 514, 516 Dairy, OFT Press Release 170/07 of 7 December 2007 .............................................................445, 499, 502–4, 507, 511, 521 Devenish Nutrition Limited & Others v. Sanofi-Aventis SA (France) [2007] EWHC 2394 (Ch) .......................................................................679 Case No 1077/5/7/07, Emerson Electric Co and others v. Morgan Crucible Company Plc and others, [2008] CAT 8 ...................................693 English, Welsh and Scottish Railway, ORR Decision of 17 November 2006........................................................................................503, 511, 518 Independent fee-paying schools, OFT decision of 20 November 2006 (Case CE/2890-03) ..........................................248, 444, 499–500, 502, 504, 507–8, 511, 513, 519–20 Morrison Supermarkets, OFT Press Release 54/08 of 23 April 2008..........518 Case No 1017/2/1/03, Pernod Ricard SA and Campbell Distillers Limited v. Office of Fair Trading, [2005] CAT 9 ....................................253 Replica Kit, OFT decision of 1 August 2003 (Case CP/0871/01) ...............511 Tobacco, OFT Press Release 82/08 of 11 July 2008 ...................499, 502, 504, 507, 511, 513, 518

V. Miscellaneous GIE ELIS, Decision No 2007-341 of the CNIL (French Data Protection Authority) of 22 November 2007 ..........................................................466 Initial BTB, Decision No 2007-340 of the CNIL (French Data Protection Authority) of 22 November 2007 ..........................................................466

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I N T RO D U C T I O N

Cartel Settlements and Commitment Decisions Mel Marquis* This Volume contains a collection of written contributions prepared for the 13th edition of the Annual EU Competition Law and Policy Workshop, held on 6–7 June 2008 at the Robert Schuman Centre for Advanced Studies of the European University Institute in Florence. It also includes edited transcripts of several rounds of debate held on that occasion. The unenviable task of drawing overall conclusions from the proceedings was handled with grande adresse by Emil Paulis of the European Commission.1 Background. The EU Competition Law and Policy Workshop is designed to explore topical policy and enforcement issues in the area of EU competition law and economics. In this connection, the increasingly global character of competition law plays an important role. Each year the Workshop brings together a group of top-level EU and international policy makers, judges, legal practitioners, economic experts and scholars to take part in an intensive roundtable debate regarding specific competition-related issues in an informal and non-commercial environment. The 13th edition of the Workshop was devoted to Antitrust Settlements under EC Competition Law.2 And without wishing to suggest that substance and procedure are separate spheres, the contributions and debates presented in this Volume lay rather more stress on procedure. Two procedures, in particular, are given close attention.3 Each of them is characterized here as a form of * European University Institute, Florence, and University of Verona. On a couple of specific propositions I’ve benefited from the reactions of Paul Craig and Eddy De Smijter, to whom I am grateful. It is redundant to thank Claus and express my admiration for him, but I’ll do it anyway. On short notice he very helpfully reviewed a draft of this chapter. I wrote it in memory of my friend and father, Randall Marquis, attorney, judge, man of faith, scout, thespian, metteur en scène, late-life convert to rock music. 1 See pp. 631–635. 2 For information concerning previous editions of the Workshop and the corresponding European Competition Law Annuals series, see the website of the Robert Schuman Centre: www.eui.eu/RSCAS/Research/Competition/. 3 For another project treating cartel settlements and commitment decisions as sharing common conceptual elements, see Charles Gheur and Nicolas Petit, eds., Alternative enforcement techniques in EC competition law, Bruylant, 2009. In addition to the papers appearing in the volume just cited, see also Fabio Polverino, “Procedure ‘negoziate’ in materia antitrust: impegni e accordi transattivi”, 16 Concorrenza e Mercato 411 (2009) (discussing pros and cons for public enforcement and the balance between repressione ottimale and the need to ensure that such alternative instruments remain complements and not substitutes for ordinary enforcement tools).

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“settlement” between undertakings and competition authorities, insofar as it concerns a surrender of certain rights in exchange for some perceived advantage, such as economic benefits or procedural efficiency. First, there is the newcomer to the European Union’s antitrust enforcement regime—the European Commission’s cartel settlement procedure. In rough terms, this procedure involves a voluntary acknowledgement by an undertaking of responsibility for collusive behaviour, in return for which some discount against the applicable fine is granted by the Commission. The “efficiency gains” produced by this system may include a reduction of translation work,4 reduced scope for oral hearings and access to the Commission’s file, or possibly a reduced frequency of appeals.5 At the time of the Workshop, the draft texts regulating this procedure had been subject to public review and comment,6 and the final texts were on the point of being finalized and published in the EU’s Official Journal.7 The rules and contours of the procedure are set forth in a Commission Notice (the “Settlements Notice”)8 and in certain accommodating amendments that had to be made to Commission Regulation 773/2004 (the “Implementing Regulation”),9 which lays down detailed procedural rules for antitrust enforcement pursuant to a delegation of powers under

4 The running total of EU languages has reached 23, with Croatian and other languages in the waiting room. See Commission, Multilingualism: an asset for Europe and a shared commitment, COM(2008) 566 final of 18 September 2008. 5 It will be a difficult but important task to carefully measure the savings gained as a result of appeals that would have been brought before the Community Courts but for the Commission’s settlement procedure. While the resources expended by the Commission defending its cartel decisions are considerable, two related factors suggest that the incidence of foregone appeals might not be reduced to any great degree. The first is the rather significant tendency of the Courts to reduce the fines imposed by the Commission (see the written contribution of Aurora Ascione and Massimo Motta at p. 67 et seq.), although the magnitude of the fine reductions has diminished significantly since the Commission adopted its Leniency Program in 1996. Second, the most typical motivation for the Courts to grant those fine reductions is a miscalculation of the fines by the Commission (see, e.g., Jean-François Bellis, “Foreword”, in Gheur and Petit, eds., Alternative enforcement techniques, cited supra note 3, at p. 5). It is not really the purpose or the effect of the Commission’s settlement procedure to address either of these factors. For discussion, see Andreas Stephan, “The Direct Settlement of EC Cartel Cases”, 58 International and Comparative Law Quarterly 627, 637–640 (2009), with references. Stephan expects rather pessimistically that “European settlements are unlikely to curb the level of costly appeals”, at least without greater predictability as regards the calculation of fines. Ibid., at p. 653. This will depend on several variables, however, which is why continued empirical assessment will be useful. 6 See “Public consultation (October–December 2007)”, with corresponding texts, at http://ec.europa.eu/competition/cartels/legislation/settlements.html. 7 For an extended summary of the final texts, see Van Bael & Bellis, Competition Law of the European Community, 5th edition, Kluwer Law International, 2010, at pp. 1170–1184. See also Richard Whish, Competition Law, 6th edition, OUP, 2008, at pp. 258–261, with references. 8 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, 2008 OJ C167/1. 9 Commission Regulation (EC) No 622/2008 of 30 June 2008 amending Regulation (EC) No 773/2004, as regards the conduct of settlement procedures in cartel cases, 2008 OJ L171/3.

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Article 33 of Regulation 1/2003.10 As formal adoption of this relatively new procedure was imminent, the related analysis and commentary contained in this Volume draw on experience from various jurisdictions, but with little in the way of a Community praxis they are essentially forward-looking.11 As the thinking and discourse on cartel settlements in the Community context were also necessarily as yet undeveloped, the Workshop devoted ample space to this theme. The Commission itself sees the procedure as being to some extent a prototype to be developed and refined over time.12 The second procedure discussed in this Volume is the Commission’s commitment procedure under Article 9 of Regulation 1/2003.13 This form of settlement14 may be possible in non-cartel cases where an undertaking suspected of less egregious conduct—involving, for example, vertical restraints or abuse of dominance—proposes remedies which the Commission may make legally binding in order to close the case without taking a conclusive position as to the suspected infringement. Compared to the Commission’s cartel settlement procedure, the commitment procedure under Article 9 has been the subject of far more scrutiny by commentators. This does not mean, however, that the provision’s purpose, nature and application are entrenched and uncontroversial. To the contrary, the practice in this area is still under construction15 and 10 Article 33 of Regulation 1/2003 provides that the Commission “shall be authorised to take such measures as may be appropriate in order to apply this Regulation”. 11 By the fall of 2009, no settled cases had yet been reported but some appeared to be in the pipeline. See Neelie Kroes, “Tackling cartels—a never-ending task”, presentation in Brasilia, SPEECH/09/454 of 8 October 2009 (hoping to see “the first cases” being finalized in the near future). 12 See the oral remarks of María Luisa Tierno Centella, at p. 337 (noting that some “spaces” in the procedure were left open to be filled later in light of experimentation and best practices). 13 Article 9(1) of the Regulation provides: “Where the Commission intends to adopt a decision requiring that an infringement be brought to an end and the undertakings concerned offer commitments to meet the concerns expressed to them by the Commission in its preliminary assessment, the Commission may by decision make those commitments binding on the undertakings. Such a decision may be adopted for a specified period and shall conclude that there are no longer grounds for action by the Commission.” See also Recitals 13 and 22 and, for additional procedural details, Articles 27(4) and 9(2). See also Van Bael & Bellis, cited supra note 7, at pp. 1159–1170. 14 One may object to this arguably loose use of the word “settlement”. As Heike Schweitzer stressed in her written contribution, the Court of First Instance in Alrosa regarded the Article 9 procedure not as a settlement device but as an instrument of public law enforcement, exactly as it regards Article 7. See Schweitzer, this Volume, pp. 568, 570 and 575. Similarly, see Schweitzer’s oral remarks at p. 528. 15 Of course, settlements of competition cases did not appear out of the blue with the adoption of Regulation 1/2003. For critical discussion of the informal practice under Regulation 17, see, e.g., Valentine Korah, “Comfort letters—Reflections on the perfume cases”, 6 European Law Review 14 (1981); Ivo Van Bael, “Comment on the EEC Commission’s Antitrust Settlement Practice: The Shortcircuiting of Regulation 17?”, 22 Swiss Review of International Competition Law 67 (1984); Ivo Van Bael, “The Antitrust Settlement Practice of the EC Commission”, 23 Common Market Law Review 61 (1986). Other well-known settlements from the 1990s include Microsoft (per-processor license fees), A.C. Nielsen and Digital. Article 9 decisions have also sometimes been compared, by Workshop participants and others, to the old “positive” (and formal) Article 81(3) exemption decisions. But there seem to be several differences, including for

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xxxii Cartel Settlements and Commitment Decisions lingering questions abound. Some of these questions prompted a fascinating debate during the course of the Workshop, particularly with regard to Article 9’s procedural and institutional dimensions, and its role in the context of private litigation.16 In light of a provocative Opinion adopted by the Advocate General in Alrosa,17 it remains for the European Court of Justice to “choose sides” (or to set out on some unexpected path) and to jeter les bases in this domain. With regard to the menu of remedies available under Article 9, one participant highlighted certain doubts about how far the Commission is entitled to venture.18 Others echoed a question posed previously by another wellexample their preclusive effects (consider the written contributions and roundtable discussion in Panel V), or the fact that a preliminary assessment may imply a somewhat more abbreviated investigation). With the adoption of Regulation 1/2003, the procedure as regards what used to be informal settlements seems to have improved. For example, in addition to the market test mechanism under Article 27(4) of the Regulation (which often yields real results), Article 30(1) requires the Commission to publish any commitment decision it adopts. These features appear to respond to some of Van Bael’s criticisms relating to transparency. Furthermore, from a public enforcement standpoint the procedure appears more efficient in that the Commission may now enforce commitments made binding under Article 9 directly and immediately with the imposition of fines or periodic penalty payments, whereas in previous practice the Commission first would have had to re-open its procedure and establish an infringement. In most cases this probably does not make a difference, but in exceptional cases of non-compliance the advantage will be significant. Finally, there is a lingering debate about whether Article 9 commitments may be enforced by third parties in national litigation. See infra notes 153–154 and accompanying text. 16 See infra notes 106 to 131 and accompanying text. 17 Opinion of Advocate General Kokott of 17 September 2009 in Case C-441/07 P, Commission v Alrosa Company Ltd., not yet decided. Cf. Case T-170/06, Alrosa Company Ltd v Commission [2007] ECR II-2601. 18 I will not return to this particular issue in this chapter, but I will pause here to include a few brief notes. First, a recent opinion expressed by analysts working at the Commission appears to indicate that the Commission may be untroubled by the use of Article 9 in cases of conduct that is “severely detrimental to consumers”. See Philippe Chauve et al., “The E.ON electricity cases: an antitrust decision with structural remedies”, forthcoming Competition Policy Newsletter No 1—2009, pp. 3 (quoted text) and 4–5 of the advance sheet. It is tempting to think that the Commission’s point of view is reflected in the following pragmatic comments of Eric GippiniFournier: “It would indeed be paradoxical to interpret [Recital 13 of Regulation 1/2003] rigidly as meaning that cases that would justify a fine should never be dealt with under Article 9: if a fine were completely excluded, there would be little incentive for the undertakings concerned to offer commitments. Yet, it seems reasonable to attach to this recital a minimal content, which in my view could be that the Article 9 route is not open for serious and clear-cut infringements which would inevitably call for a severe fine.” Gippini-Fournier, “The Modernisation of European Competition Law: First Experiences with Regulation 1/2003”, in Heribert Koeck and Margit Karollus, eds., The Modernization of European Competition Law. Initial Experiences with Regulation 1/2003: FIDE XXIII Congress Linz 2008, Congress Publications Vol. 2, 2008, at p. 399. Gippini-Fournier’s reference to “serious and clear-cut infringements”, if adopted as a standard, would provide the Commission and defendants with a good deal of latitude. Under that standard, a determination that the defendant’s conduct is serious (e.g., where the conduct consists of misleading representations to national patent offices) would not suffice, in and of itself, to preclude the use of Article 9; a further finding that the infringement is clear-cut would also have to be made. The reason why there may be significant leeway in this respect is that if the undertaking concerned proposes commitments before a persuasive case is built upon solid evidence, the infringement cannot yet be called clear-cut. The Commission is careful in its Article 9 decisions to hover within the realm of informed conjecture. Paragraph 11 of its decision in RWE

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Cartel Settlements and Commitment Decisions xxxiii known competition law specialist: que va-t-il rester aux juges? If the courts cast only the faintest of shadows when this procedure is employed, (how) can the imperatives of (i) respect for the (property) rights of the unconvicted, (ii) the public interest in consumer-friendly markets, and (iii) fully-deliberated development of the law—be effectively served? Structure of the Workshop. In the present Volume, the debates held at the 2008 Workshop are broken down into four main sessions. The first and last of these are horizontal in scope, while the second and third focus respectively on the two procedures described above: (1) (2) (3) (4)

Principles and objectives of antitrust settlements; Settlements in cartel cases. Practical experiences in major jurisdictions; Commitments decisions; and Lessons to be drawn.

In the remainder of this chapter, an overview is provided of the main points discussed, first in the written contributions and then in the course of the related roundtable debates. The overview is intended only to be a suggestive “portal” pointing in the direction of the relevant links that contain the true content. Please note that individual oral presentations are not summarized in this chapter; my accounts of the oral proceedings touch only on the debates that followed, and they are merely selective. However, both the presentations and the roundtables are reproduced verbatim and contained herein (see Panels I to VI).

1. Session One: Principles and objectives of antirust settlements; 1.1 Panel I (papers by Wils, Reindl, Ascione & Motta, Rubinfeld, Wilks) A. Written contributions The march begins with Wouter Wils’ The Use of Settlements in Public Antitrust Enforcement: Objectives and Principles. Building on themes in his previous work, Wils identifies key elements of optimal enforcement in relation to both cartel settlements and the Article 9 commitment procedure. Among the subjects he discusses are the tradeoffs of expedited procedures from a public (COMP/39.402, 18 March 2009), with emphasis supplied, serves as an example: “The Commission has gathered evidence that RWE may have abused its dominant position . . .”. The same carefully measured, not-very-clear-cut tone is used in relation to both RWE’s possible dominance (paras. 17–19) and its possible abusive behavior (paras. 21–36). Needless to say, the Commission also stresses in Article 9 decisions that the commitments made binding are not imposed but voluntarily proposed. See para. 46 of RWE.

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interest perspective, and issues pertaining to the rights of defence that arise in connection with settlement procedures, in particular the right against selfincrimination and the waiver of significant procedural rights. With respect to the latter he notes that, in the light of the jurisprudence of the European Court of Human Rights and of other courts, it appears to be generally permissible for a public authority to grant advantages to undertakings as a reward for the surrender of certain rights—provided the undertaking makes an informed, voluntary choice. In contrast to criminal enforcement procedures involving individual defendants, one would think that genuine coercion in an administrative antitrust enforcement context with sophisticated players is quite unlikely, although stranger things have happened.19 In The Legal Framework Governing Negotiated Settlements/Plea Agreements in Cartel Cases in the United States, Andreas Reindl presents a panorama of the law on cartel settlements in the US. Embedded as it is within a criminal law structure, the differences between the relatively well developed system in the US and the fledgling procedure in the EU are striking. Also striking, if not terribly surprising, is the fact that the law in the US seems to steer clear, to the extent possible, of all paternalist impulses. It is perhaps another mark of the deep influence freedom of contract has had in that country. The paper introduces key rules of procedure and evidence used in US federal courts, as well as some of the intricacies of financial penalties, some of which may be used to bypass limits established in the Sherman Act. The paper also highlights certain tactics and techniques used by the Department of Justice and delves into some of the incentives and counter-incentives involved when choices are made in the plea bargaining context. Aurora Ascione and Massimo Motta’s Settlements in Cartel Cases examines the past record and future prospects of the European Commission’s fight against cartels, taking into account indicators such as the length of time required to investigate and conclude a case. Finding that, despite its other distinct virtues, the EU leniency program has not significantly cut down the average life span of the Commission’s cartel investigations, it appears that any time saved by the introduction of the settlement procedure could have a positive impact. As was noted by many Workshop participants, the faster the Commission can achieve “closure” in a given case, the more easily it can shift resources to detecting other cartels in the economy.20 This can have a knockon effect on private enforcement as well.21 Furthermore, the resources of the 19 In his oral remarks, Wils recalls that a settlement could be attacked in cases of infringement of essential procedural requirements, or of the principle of equal treatment. See p. 135. 20 Accelerated penalties can also be relevant for specific deterrence to the extent that it decreases the likelihood of a mismatch between the identity of senior managers when the sanction is administered and their identity during the period of infringement. See the written contribution of Kirti Mehta and María Luisa Tierno Centella, at p. 394. In this regard, the five-year statute of limitations foreseen in Article 25 of Regulation 1/2003 also potentially limits the impact of such mismatches. 21 See, e.g., the oral remarks of Kris Dekeyser, p. 618.

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Commission can be spared, to some degree, if the need to defend against an appeal is obviated.22 In light of this reduced burden, one would expect that overall deterrence is enhanced. However, a number of difficult empirical issues may emerge, such as whether the cartels exposed by the Commission are: end-of-life cartels that would have decayed or imploded anyway; or fastgrowing, “pubescent” cartels with a healthy appetite, or cartels in the prime of their lives (whose members are still expecting a lucrative payoff from sticking with the team).23 Among the authors’ conclusions is a query as to whether the 10% discount that was chosen by the Commission as the standard rate to be applied to fines as a reward for undertakings willing to settle constitutes an adequate sweetener; or whether the nectar of litigation in Luxembourg will be more enticing. Dan Rubinfeld contributed a paper entitled Settlements in Antitrust Enforcement: A U.S. Economic Perspective. Though it draws on the US experience, in particular with regard to the “Amnesty Plus” program, the first part of the paper seeks to tease out principles from the law and economics literature on public enforcement that may provide useful lessons for the EU. The second part of the paper likewise aims to distill lessons, but on the private enforcement side. This is where the infamous exuberance of US-style litigation flashes its warnings to onlookers. Not only would unchecked private enforcement be socially hazardous in its own right, it can also in some cases jam the gears of the public enforcement machinery.24 As will be seen, these (potential) 22 It is not case handlers, of course, but litigation specialists who represent the Commission when a decision is appealed. However, significant savings may accrue to DG Comp if its services are not needed to support the efforts of the litigation team. 23 On uncovering decrepit cartels and avoiding the formation of new cartels, see also the oral remarks of, respectively, Simon Bishop, pp. 608–609, Ann O’Brien, p. 625, Kirti Mehta, p. 627, John Fingleton, p. 628 and Bishop again, p. 628. 24 The converse proposition is that if private litigation can be encouraged without developing a cottage industry for it, there can be positive spillovers as firms may be encouraged to act within the bounds of the law. Wouter Wils, among others, has on numerous grounds (for example, Tinbergen’s “one policy target, one instrument” principle) advanced the position that the distinct objectives of public and private enforcement—deterrence and corrective justice, respectively— must be kept separate. See Wils, “The Relationship between Public Antitrust Enforcement and Private Actions for Damages”, 32(1) World Competition 3, 6–15 (2009); and cf. the oral remarks of Jim Venit, p. 624. Wils’ arguments are forceful insofar as they imply policy approaches that do not seek to conflate objectives (as would be the case, for example, if punitive damages were allowed in private actions). Nevertheless, if an effective private enforcement regime promoting corrective justice exists in parallel with public enforcement, one would expect that the increased chance of detection (stand-alone cases) and damages (whether stand-alone or follow-on) could have an impact on the risk/reward ratio of a would-be offender. If that is so, it would mean that, quite apart from the proper aims of private damages actions, a non-trivial likelihood of such actions might (ceteris paribus) produce deterrent effects beyond those resulting from public enforcement. That would not be a bad thing. Cf. also Renato Nazzini and Ali Nikpay, “Private Actions in EC Competition Law”, 4(2) Competition Policy International 107, 114 and 137 (2008); Dekeyser et al., this Volume, p. 679; and Subgroup 1 of the ICN’s Cartels Working Group, “Interaction of Public and Private Enforcement in Cartel Cases—Report to the ICN annual conference” (May 2007), pp. 33–34 (discussing indirect benefits of private enforcement that accrue to the public enforcement system). One inference that can be drawn from the Report of the ICN’s Working Group is that

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negative externalities and their possible effect on overall deterrence were cause for concern for several commentators who took part in the Workshop.25 In the coming years, one of the great challenges of EU competition law will be to establish the necessary principles not of equality, surely, but of comity between public and private law institutions. Living outside the law and economics bubble-world as he does, it may have come naturally for Stephen Wilks to offer some outside-the-box reflections in A Political Science Approach: Restorative Justice and the “Fairness Critique”. One of the premises of the paper is linked to the chasm that seems to separate the enlightened competition policy community—most of whose members are in agreement that cartel behaviour is pernicious and contemptible—from the broader public, which may have a soft spot for cartels for cultural and/or historical reasons.26 Deliberately “moving the discussion away” from themes private enforcement can potentially provide indirect support for the public enforcement mission by giving more latitude to the enforcer in selecting cases. As for corrective justice, few would deny the “subjective” right of individual victims of anticompetitive conduct to be made whole. An antitrust system without adequate private enforcement is like “a world where a person can rob your house and be caught by the police, but still keep your television and your laptop computer!” Neelie Kroes, “Consumer welfare: more than a slogan”, SPEECH/09/486 of 21 October 2009, p. 3. 25 It is worth recalling that the US system of private antitrust enforcement is not universally condemned. Robert Lande, in particular, has emphasized that many aspects of the system that are regarded as undesirable have often been exaggerated. See, e.g., Lande, “Five Myths About Antitrust Damages”, 40 University of San Francisco Law Review 651 (2006). 26 One may glance back fondly at the sentiments of Gustav Schmoller, who in 1906 distinguished between the mercenary trusts and the more congenial institution of cartels: “[T]he managers of the cartels are educators, who intend to make the collective interests of a branch of industry prevail over egoistic individual interests. The trust system needs brutal and cunning people who, mostly without any higher intellectual or sentimental culture or any likeable and social feelings, find stabilization only in business and making money . . . The cartel system, like the cooperative society and the commercial corporation, represents an important element in the education of commercial and technical public officials, who want to earn on the one hand, but who have learned, on the other hand, to place themselves faithfully and honestly in the service of common interests . . .” Quoted in translation in Wernhard Möschel, “Competition Policy from an Ordo Point of View”, in Alan Peacock and Hans Willgerodt, eds., German Neo-liberals and the Social Market Economy, Macmillan, 1989, chapter 7, at pp. 143–144 (emphasis added). Walter Eucken, however, could not let such sentiments pass unmolested. Writing a few decades later, he opined that if Schmoller “had had personal experience of struggles between cartels and outsiders, and not simply come by his knowledge of cartels and cartel policy through books, enquiries, and interviews with industrialists and senior officials, he would have realised that what happens is not as he soothingly suggests, ‘a victory for certain common interests over greedy, short-sighted selfishness’, but that what is victorious is a form of group selfishness. He would also have been careful not to characterise the self-interest which the cartels represented as a form of common partnership.” Walter Eucken, The Foundations of Economics (trans. T.W. Hutchison), William Hodge & Co. Ltd., 1950, pp. 264–265. Finally, while Schmoller’s heroic portrayal of cartelists may seem quaint, one still finds in this day and age commentators who challenge the application of antitrust laws to punish collusive conduct. On the very different ground that cartels are like “temporary mergers”, and that if mergers are deemed compatible with the law, why object to cartels (after all, in contrast to mergers, mere collusion preserves the independent existence of the cartelists), Edwin Rockefeller proposes to dispense with anti-cartel prohibitions. Indeed, wholesale repeal of the antitrust laws should be the overriding aim. See Rockefeller, The Antitrust Religion, Cato Institute, 2007, p. 87. For discussion of the book, see the review by Matteo Negrinotti in 5(2) The Competition Law Review 215 (2009).

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such as administrative efficiency, leniency and private enforcement, Wilks draws on the concepts of restorative justice and responsive regulation and transposes them to the context of European cartel enforcement. Part of the aim is to dispense with the idea that ever-higher fines are the answer,27 although in response one might defend relatively high fines on account of their tendency to make leniency programs more tempting.28 For Wilks, however, the goal should be a transformative acceptance of responsibility, remorse, restitution and “healing”, with the active participation of cartel victims. This “soft” approach would be pursued in the shadow of escalating (and ultimately much harder) “attitude adjusters”, if contrition and rehabilitation should fail.29 Wilks’ primary inspiration here is the experience of the Australian Competition and Consumer Commission, and the related literature, but he also points to examples in the UK and the Netherlands.30 He is quite aware that the EU is not ready for a “restorative turn” in its approach to cartels; but neglecting such experiments, he says, was a missed opportunity in relation to the EU settlements procedure. Indeed, the Commission may even have hurt its own cause by exposing itself to charges of “police brutality” in a personal crusade not shared by the wider public.

B. Discussion 31 The roundtable discussion following the first panel of speakers (Wils, Reindl, Motta, Rubinfeld, Wilks) touched briefly on several themes, such as the wisdom of a harder line on fines, the scope for greater procedural economies that might be generated by the Commission’s settlement procedure, case selection and prioritization under conditions of scarce resources, and many others. 27 Making a very different point, Dan Rubinfeld noted in his oral presentation that extensions (or rather qualifications) of the seminal work by Gary Becker show that high fines may not be necessary for effective cartel enforcement, provided that firms are sufficiently risk averse. One factor that might potentially make operators more risk averse is the existence of criminal penalties for individuals where cartels are successfully prosecuted. See Rubinfeld’s oral remarks, p. 12. 28 See, e.g., Stephan, cited supra note 5, at p. 653. See also the oral remarks of John Fingleton, p. 621 (“[T]here are lots of examples of countries that have well-defined immunity tools and procedures, but they don’t have any immunity applicants, and that’s because they have no sanctions.”). 29 The concept of tapered, proportionate enforcement action can be seen, for example, in the OFT’s approach to enforcement in the consumer protection field. See Section 2.14 of the OFT’s Statement of consumer protection enforcement principles (with diagram), OFT 964 of December 2008, http://www.oft.gov.uk/shared_oft/reports/consumer_protection/oft964.pdf. It could be useful to introduce a further element explicitly within the graphic model, namely recidivism, since this factor can prompt the enforcer to skip intermediate steps. 30 For discussion of the Brazilian enforcement system which draws on similar concepts, see Leopoldo Ubiratan Carreiro Pagotto, “Are the Brazilian Competition Authorities being Responsive? An Analysis Based on the Benign Big Gun Model”, 29 World Competition 285 (2006). 31 As noted above, only the roundtable discussions, and not the oral presentations of the participants, are reviewed in this chapter. The reader is invited to refer to the Panel discussions for verbatim reproductions of the presentations.

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xxxviii Cartel Settlements and Commitment Decisions More attention was given to the matter of the converging, overlapping or diverging incentives of undertakings and public authorities to settle a case. A good deal of the discussion was thus related to the costs and benefits of exploring and ultimately accepting the settlement option. On the other side of the coin are the costs and benefits of fighting the case all the way to res judicata. One speaker noted the financial attraction of litigation due to a distinct tendency of the Luxembourg courts to recalculate fines imposed by the Commission, often to the benefit of undertakings. Enthusiasm for long battles may be tempered, though, by timing or corporate governance issues, or by the costs of long-running expert advice and representation. From the perspective of the enforcer, which must be ever mindful of the public interest (difficult as it is to define, although long-term consumer welfare should certainly be the lodestar32), expeditious case resolution has obvious appeal. Nevertheless, pragmatism may also have its costs. These may take the form of, for example: missed opportunities to clarify the law; or the risk that the wrong signal (i.e., a signal of tolerance) will be sent to operators in the wider economy, thus dampening deterrence. As John Fingleton pointed out, a further difficulty in this matrix appears to be the fact that corporate psychology can be highly unpredictable, with different operators under similar conditions making choices that are hard to reconcile. Looking ahead to prospects for further research, it would appear that in order to reach an adequate judgment concerning the efficacy of the Commission’s settlement procedure it will be necessary to establish an empirical basis and robust indicators. Another issue discussed was whether, in Europe, public opinion and the attitudes of political elites have evolved and moved closer toward an age of “antitrust enlightenment”, in which the pernicious effects of cartels are widely recognized and condemned. Although progress here is difficult to measure, it is perhaps telling to see that at least some European jurisdictions have adopted varying degrees of criminal law sanctions for horizontal price-fixing, bid-rigging and so on.33 These are only steps in a long process, part of which entails further development in the private litigation arena, but the example of the United States seems to suggest that attitudes can change over time as a result of persistent consciousness-raising efforts, and the seeming virtues of cooperation and “market stability” may be reconsidered.34 An important point that relates to both of the issues described above was raised by Massimo Motta. He underlined the following anomaly: unlike 32 Europe would not be Europe if the pre-eminence of a consumer welfare standard for antitrust were exempt from controversy. This is not the place to delve into this debate. For recent discussion, see Ehlermann and Marquis, eds., European Competition Law Annual 2007: A Reformed Approach to Article 82 EC, Hart Publishing, 2008. 33 One might tentatively say that there is a slowly emerging trend in this regard. In addition to, for example, the UK and Ireland, Greece opted for the application of criminal penalties in cartel cases in its revised competition law of 9 September 2009 (prison terms of up to five years for individual cartelists). 34 See Bill Kovacic’s oral remarks, pp. 331 et seq.

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certain other jurisdictions, the EU cartel punishment mechanism targets undertakings. It does not impose any direct sanctions on the individuals who choose to involve their firm in collusive conduct. In a sense, by sanctioning undertakings only—although the possibility of indirect adverse consequences for individuals cannot be excluded—does the EU system give rise to moral hazard problems? “I do think that something has to be done in Europe”, says Motta, “to try to bridge this gap between who is responsible and who bears the costs. The sanctions might include disqualification from managerial posts, it might include administrative fines, among other possibilities, but I think that’s the way we have to move”. The question arises, then: Can EU cartel law be truly effective without “smart sanctions”? Perhaps the obstacles to individual criminal penalties under EU law arise not from a lack of competence on the part of the EU legislator but from path dependency and the constraints of psychology.35 In future years further thought will have to be aimed in that direction.36 35 It is worth pondering the potential of Article 83(2) of the Treaty on the Functioning of the European Union. Article 83(2) provides: “If the approximation of criminal laws and regulations of the Member States proves essential to ensure the effective implementation of a Union policy in an area which has been subject to harmonisation measures, directives may establish minimum rules with regard to the definition of criminal offences and sanctions in the area concerned. Such directives shall be adopted by the same ordinary or special legislative procedure as was followed for the adoption of the harmonization measures in question [. . .].” As Wils has pointed out, the fact that the legal instruments chosen in this context are directives means that prosecution of the corresponding criminal offences would be very unlikely at the level of the EU. (In particular, the Commission would not assume a role of prosecutor, although Article 86(4) TFEU opens up a very small door through which a future European Public Prosecutor could be granted competence in relation to serious crimes with a cross-border element.) See Wouter Wils, “Is Criminalization of EU Competition Law the Answer?”, in Atanasiu and Ehlermann, eds., European Competition Law Annual 2006: Enforcement of Prohibition of Cartels, Hart Publishing, 2007, pp. 267 et seq., especially pp. 311–315, with references. Nevertheless, the central point seems to be that, if the EU legislator were motivated to do so, certain minimum rules could apply EU-wide (bearing in mind that there is some variable geometry in the area of judicial cooperation in criminal matters), and this might conceivably pave the way for action to correct the anomaly identified by Motta. For further discussion of criminalization of antitrust violations in Europe, see Katalin Cseres, Maarten Pieter Schinkel and Floris Vogelaar, eds., Criminalization of Competition Law Enforcement, Edward Elgar, 2006 (in which a version of Wils’ paper appears as chapter 4); Peter Whelan, “A Principled Argument for Personal Criminal Sanctions as Punishment under EC Cartel Law”, 4(1) The Competition Law Review 7 (2007). For discussion of the momentum towards criminal penalties in Australia, see Caron Beaton-Wells, “Criminalising Cartels: Australia’s Slow Conversion”, 31 World Competition 205 (2008) (cautioning against hasty, topdown criminalization without a sufficiently wide base of support from relevant constituencies). 36 In the interim, the prudent path forward may be along the lines described by Philip Lowe a couple of years ago: “It is unrealistic to suppose that the Commission, as the enforcer of EU law, in relation to EU-wide transactions where it is the appropriate authority, could, in the foreseeable future, propose a criminalization of the infringements and the defense of those rights at a European level. It is, however, in the medium term, probably realistic to suppose that, with further criminalization of offenses at the national level, there could be some degree of judicious combination of administrative fines on the one hand and sanctions against individuals on the other, which could work.” Lowe, oral remarks in Barry Hawk, ed., International Antitrust Law and Policy: Fordham Corporate Law 2006, Juris Publishing, 2007, at p. 121.

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1.2 Panel II (papers by Lasserre & Zivy, O’Brien, Siragusa & Guerri, Goldfein & Pak, Hausfeld et al., Bach, Cooke, Wood, Ratliff, Taladay) A. Written Contributions The contribution of Bruno Lasserre and Fabien Zivy is entitled A Principled Approach to Settlements: A Few Open Issues. Drawing on the experience and case practice of the French Conseil de la concurrence (now the Autorité de la concurrence37), which has been building a record of settled case resolution since 2001, the authors discuss the objectives, scope and timing of settlements. In France, the enforcer may grant a fine reduction if a firm waives its right to contest the Statement of Objections. In some cases the authority may also accept commitments. According to the authors, “commitments are aimed, first and foremost, at bringing about a swift market solution in cases where the simple termination of behaviour giving rise to antitrust concerns would not suffice. [. . .] By contrast, settlements are aimed, first and foremost, at bringing about a swift procedural solution in cases where a fine is warranted, where the termination of the conduct at stake is more decisive in itself, and where the crafting of a pro-competitive remedy is consequently less of an issue.”38 Clearly, in settlement cases the need to preserve deterrence is an overarching constraint. Also included as an annex to the paper is a speech by President Lasserre going into further detail about the French “non-contest” procedure (« La non contestation des griefs en droit français de la concurrence: bilan et perspectives d’un outil pionnier »). The next paper is that of Ann O’Brien, an official of the Antitrust Division at the US Department of Justice. The comparative aims of the paper may be seen from the title, Cartel Settlements in the U.S. and EU: Similarities, Differences and Remaining Questions.39 This immediately raises some difficulties given the genetically different institutional structures in these two major jurisdictions. Nevertheless, there does seem to be scope for mutual learning. One ambition of the paper is to make the following point indelibly clear: the US prosecutor, O’Brien is at pains to stress, does not “bargain away justice”.40 The concern of the author arises from the fact that the 37 For details relating to the institutional, jurisdictional and procedural reforms in France, see Bruno Lasserre, “La transformation du Conseil de la concurrence en Autorité de la concurrence, clé de voûte d’une régulation de la concurrence moderne, juste et efficace”, at: http://www. autoritedelaconcurrence.fr/doc/du_conseil_a_l_autorite_jan09_bl_journal_societes.pdf. 38 Page 146. 39 See also Stephan, “Direct Settlement”, cited supra note 5; Stefano Macchi di Cellere and Giuseppe Mezzapesa, “The Commission’s Settlement Package: EU-US Comparison”, 30(12) European Competition Law Review 604 (2009). 40 See pp. 182–183.

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Commission’s emphatic insistence that it does not negotiate settlements with undertakings (at least not with respect to the allegations of infringement, or the evidence supporting them41) may possibly have been interpreted as intimating that certain other major enforcers do. O’Brien further points out that differences between the US and the EU do not mean that similar principles cannot be applied in respect of settlements; experience has shown, for example, that whistleblowing programs have been imported into the EU’s anti-cartel policy with positive results. One preoccupation with the EU’s cartel settlement mechanism seems to be the slower tempo of the procedure compared to plea agreements in the US. This relates in particular to the fact that the Commission completes its investigation before it decides whether a case is suitable for settlement, whereas the DOJ is ready, at an early stage, to enter into (seriatim) plea agreements with firms who’ve lost the race for leniency. This may cost the Commission some “momentum”. However, it bears noting that many of the different features of the EU system are in reality traceable to constraints inherent in the EU’s enforcement system as a whole—the settlement mechanism thus had to be tailored to specific institutional and legal constraints. Europe’s Sonderweg, again. Mario Siragusa and Erika Guerri submitted a paper entitled Antitrust Settlements under EC Competition Law: The Point of View of the Defendants. Both Article 9 commitments and the draft Settlements Notice are examined by the authors.42 With regard to commitments, the Commission’s decisional practice as well as the implications of the CFI’s judgment in Alrosa 43 are discussed. As for the draft Notice, the authors run through various risks and rewards that can be discerned in connection with the settlement procedure. They also note that “the proposed settlement procedure is heavily weighted in favour of the Commission”44 since, for example, the Commission remains free to change gears and revert to the ordinary infringement procedure at any time. This impression of a stacked deck was shared by several participants.45 As a way of evening the odds, the authors stress the importance of transparent and predictable execution of procedures. Recognizing a need for effective judicial review, they also take the view that only cases fitting familiar patterns should be resolved through settlement. Novel or ambiguous issues are better left to the courts. The contribution of Shepard Goldfein and Thomas Pak is entitled Negotiated Antitrust Settlements: Some Perspectives from U.S. Defendants. The paper 41

See, e.g., MEMO/08/458 of 30 June 2008, Section 1.2 of the Settlements Notice, etc. In relation to the cartel settlements procedure, see also David Hull and Michael Clancy, “The European Commission’s New Settlement Procedure for Cartel Cases: A Defense Counsel’s Perspective”, in Gheur and Petit, eds., Alternative enforcement techniques, cited supra note 3, pp. 107 et seq. 43 Cited supra note 17. 44 Page 194. 45 For example, see the written contribution of Judge Cooke, p. 261. 42

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xlii Cartel Settlements and Commitment Decisions examines several aspects of Article 9 decisions as well as the efforts underway in Europe to kick-start private antitrust enforcement. The authors begin by providing a lush primer on criminal and civil settlements in the US. Among other issues, class action litigation is discussed in some detail. On the European side, Goldfein and Pak take the view that Article 9 commitments should not be enforceable in national courts by third parties.46 This would appear to be a point of controversy. On a different view, the bindingness, to use a hideous word, of commitments accepted in the Article 9 procedure should have erga omnes effects, at least in some cases.47 Also controversial is the authors’ contention that Article 9 decisions should not be accorded evidentiary or preclusive value in private litigation. This was the subject of much discussion in Panel V.48 With regard to private enforcement, the authors provide some critical reflections on the Commission’s White Paper on Damages Actions.49 On the basis of the White Paper the authors expect an uptick in cartel litigation in Europe, and they foresee certain unintended consequences possibly arising where anticompetitive conduct affects cross-regional or global markets. Some of these, they point out, do not seem to receive adequate attention in the White Paper. Particularly with respect to overlapping class actions (i.e., where class actions are litigated in both the US and abroad), and notwithstanding the judgment of the US Supreme Court in Empagran,50 imperfect information regarding the identity of class members may lead in some cases to double recovery against the same defendant. Next is Principles and Objectives of Formal and Informal Settlements in EU Competition Cases: The Claimant’s Perspective, by Michael Hausfeld, Brian Ratner and Scott Campbell. This paper, like that of Goldfein and Pak, appears to confirm that in the coming years undertakings and institutions will have to adapt as global private litigation comes of age. Private enforcement is portrayed very positively here as reinforcing the same objectives pursued by public enforcement, although restitution is also a key aim. Among the issues discussed is the matter of how settlements can be structured where there is actual or potential litigation in multiple jurisdictions. As the authors point out, various creative strategies and modalities of payment are available to achieve “global peace”. From the perspective of a cartel victim, it may also be possible to persuade a defendant to cooperate as the claimant pursues other cartel participants. The final part of the paper discusses not only the Commission’s cartel settlement procedure, emphasizing the importance of 46

See p. 228. This open issue regarding enforceability of binding commitments is discussed below at footnotes 153–154 and corresponding text. The CFI’s references in Alrosa to certain erga omnes effects of commitment decisions has been questioned by Gippini-Fournier, cited supra note 18, at pp. 416–417. 48 See infra notes 121–131 and corresponding text. 49 COM(2008) 165 final of 2 April 2008. 50 F. Hoffmann-La Roche LTD v. Empagran S.A., 542 U.S. 155 (2004). 47

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preserving the ability to bring follow-on actions by ensuring adequate transparency, but also the procedure employed by the UK’s Office of Fair Trading. Albrecht Bach’s paper, called Negotiated Antitrust Settlements: Some Perspectives from the Point of View of (Potential) Plaintiffs, lays still more stress on transparency, and warns that settlements by their very nature are hostile to it.51 Transparency is all the more essential, Bach says, in administrative proceedings before the Commission where there is no judge to control that the settlement and its terms serve the public interest (as in, e.g., Germany). While the Commission is itself duty-bound to protect the general interest of the Community, settling a cartel case puts the Commission in an awkward position. According to Bach, the Commission has mixed incentives because, in order to induce a settlement, it can offer prospective settlers the advantages of opacity and obscurity in the infringement decision—i.e., as a buffer against follow-on suits—at no cost to itself (but at a significant cost to the dispersed public). Keeping with the theme of transparency, Bach also points to the seemingly conflicting signals found in, on the one hand, the message that private enforcement can only get off the ground if there is adequate disclosure, and on the other hand the fact that access to the Commission’s file by third parties (i.e., potential claimants) will be severely restricted. He recalls, in this regard, that Manfredi insists on the right to damages as an essential guarantee of the effectiveness of the competition rules. Does Manfredi have specific implications for national discovery rules? Does it have implications for access to the file? Bach does not claim that Manfredi creates a right of third party access to the file.52 But he does demonstrate, by reference to case law, that the right of cartel victims to seek remedies in private litigation appears to have “penumbras and emanations” that affect the minimum transparency required in public enforcement proceedings.53 In general, the paper pits the interest of society in access to information against the interest of a settling defendant in keeping information about its misbehaviour private. For Bach it is not difficult to see which way the scales tip. John Cooke, Judge at the CFI at the time of the Workshop and now Judge at the Irish High Court, submitted a paper entitled Negotiated Settlements under EC Competition Law: A Judicial Perspective. Judge Cooke was one of the participants who felt that in the cartel settlement context the odds are stacked against defendants, and that the Commission “always has the whip hand”.54 This is partly because, as Albrecht Bach also noted in his paper, there is no possibility of intervention by a judge during the administrative procedure, where the Commission wears its many well-known hats. Among

51 52 53 54

See page 252. See Bach’s oral remarks at p. 140. See ibid. Page 262.

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xliv Cartel Settlements and Commitment Decisions his criticisms of the draft Settlements Notice,55 Judge Cooke raises questions about its application in cases of “split cartel settlements”, which during the oral discussion quickly assumed the appellation of “hybrid” cases. Such cases involve several cartel participants, some of whom opt for the settlement route while others choose to stand their ground. In an awkward scenario foreseen by Judge Cooke, an Article 7 settlement decision is adopted but the non-settling defendants promptly attack it (in an action for annulment analogous to that of Alrosa’s action against the commitments agreed between the Commission and De Beers) insofar as it implicates them as co-conspirators. If such decisions were easily to come unravelled, one might wonder whether prospective settlement candidates would lose confidence in the settlement option as soon as it becomes clear that there is a hold-out. For his part, Judge Cooke has misgivings regarding the objectivity of the Commission’s proceedings against the non-settling defendants. However, the foregoing concerns may be allayed if, as the Commission expects, hybrid case scenarios remain exceptional.56 The Commission may be particularly likely to abandon the settlement procedure as regards all parties if at first they all proceed down the settlement avenue but then some of them change course late in the day.57 On a separate note, Judge Cooke also raises an interesting question concerning the possible application of Article 81 or national competition law to undertakings after they have already settled with the Commission and been subject to an Article 7 decision. While most of his reflections pertain to cartel settlements, in an early section of the paper Judge Cooke also discusses the Article 9 commitments procedure and reviews the CFI’s judgment in Alrosa. The paper delivered by Diane Wood, Judge of the 7th Circuit in Chicago, is called Antitrust Settlements in the United States. The paper provides an overview of the US practice concerning civil settlements (in both private litigation and government civil actions) and plea agreements in the US, and discusses the most salient legal provisions governing these procedures. These include, with regard to the settlement of civil antitrust cases brought by the 55 The reader will note that Judge Cooke referred to the final version of the Notice in footnote 3 of his paper (p. 272). Predominantly, however, it is the draft version to which the paper addresses itself. 56 See, e.g., the oral remarks made by María Luisa Tierno Centella, at pp. 138 and 339, and the oral remarks of Kirti Mehta at pp. 343 and 344. The joint written contribution of Mehta and Tierno Centella does envisage the possibility of hybrid procedures. See pp. 416 and 421 (“nonzero probability”). However, the paper also states that “[i]n deciding whether or not to settle a case, the Commission will consider, in particular, the probability of reaching a common understanding with all or most of the parties on the relevant facts, the scope of the objections and of liability, and therefore the likelihood of achieving procedural economies”. Ibid., p. 402 (with further reference to paragraph 5 of the Settlements Notice, which mentions, among other factors, the existence of “foreseeable conflicting positions”). The Commission will thus consider whether “the ordinary procedure will need to be followed in parallel against other, non-settling companies that participated in the same cartel”. Ibid., p. 406. On hybrid cases, compare also the somewhat more open posture of the OFT, which is attributed to institutional differences. See pp. 508–509. 57 See the remarks of Kirti Mehta, at pp. 343 and 344 (pointing out, however, that a hybrid settlement would pose less difficulty if the only drop-out were a successful immunity applicant).

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DOJ, consent decrees under the well-known Tunney Act.58 Class actions and, on the criminal side, nolo contendere pleas are also discussed. The third part of the paper describes what amounts to an informal but influential judicial policy in favour of settlements. “Unlike the situation in Europe”, Judge Wood says, “there is no ambivalence at all in the United States about the desirability of settlement”.59 A number of mechanisms and common practices aim to provide opportunities along the way (i.e., prior to full-blown trial) for parties to civil and criminal cases to settle or reach a plea agreement. One has the impression of a system in which legal controversies are sufficiently routine that there is no realistic option other than to keep the wheels well-greased. John Ratliff’s contribution is entitled Negotiated Settlements in EC Competition Law: The Perspective of the Legal Profession. In this paper Ratliff considers the “legal correctness” of the commitments and cartel settlement procedures under Community law from the standpoint of fairness and fundamental rights. Other issues are also examined, such as the strategic desirability of settling on the part of the undertakings concerned, taking account of a variety of circumstances such as potential exposure in other jurisdictions around the world. With regard to legal correctness, Ratliff refers anecdotally to instances of rather unsound administration on the part of the enforcer,60 or to its occasional tendency of “gold-plating” antitrust remedies with collateral market-opening requirements. A more structural critique, quite familiar to EU competition lawyers (and alluded to or decried by several other Workshop participants), concerns the Commission’s “vertically integrated” nature as judge, jury and executioner.61 In light of this integrated 58 From a European perspective, the Tunney Act is also noteworthy in the sense that it was emulated, to some degree, in the content of Articles 9 and 27 of Regulation 1/2003. 59 Page 287. 60 Complaints of maladministration (such as administrative irregularities, unfairness, refusal to provide information, unnecessary delay, etc.) may be brought to the attention of the EU’s Ombudsman, who is endowed with investigative and “soft” remedial powers. See Article 195 EC. See also the overview provided in Van Bael & Bellis, Competition Law of the European Community, 5th edition, cited supra note 7, pp. 996–997. While the Ombudsman has not thus far received very many complaints with respect to competition law proceedings, it has had an opportunity to investigate and comment on certain access to file issues. See Bernard Amory and Yvan Desmedt, “The European Ombudsman’s First Scrutiny of the EC Commission in Antitrust Matters”, 30(5) European Competition Law Review 205 (2009). (More routinely, matters concerning access to file, or any due process issues, would be taken up with the Commission’s Hearing Officer.) 61 For Mario Siragusa, the Commission is nothing less than a “Moloch of power”. See p. 448. For Ivo Van Bael, feeling perhaps a bit like Josef K., the Commission’s multifarious roles are worthy of Franz Kafka. See Van Bael, “Shortcircuiting”, cited supra note 15, at p. 69. On the other hand, it is quite clear that the combination of investigative and decision-making functions within the Commission (taking account of the CFI’s unlimited jurisdiction where fines are imposed) is not incompatible with Article 6 ECHR. See Wouter Wils, “The Combination of the Investigative and Prosecutorial Function and the Adjudicative Function in EC Antitrust Enforcement: A Legal and Economic Analysis”, 27 World Competition 201 (2004); Wouter Wils, “The Increased Level of EU Antitrust Fines, Judicial Review, and the European Convention on Human Rights”, forthcoming, 33(1) World Competition, pp. 19 et seq. (of the online advance version).

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xlvi Cartel Settlements and Commitment Decisions structure, and considering, inter alia, the significant delays in the hearing of appeals (even if there have been signs of improvement in recent years), Ratliff stresses the dangers of the inégalité d’armes that characterizes the Commission’s antitrust proceedings, and further warns of the possibility of exaggerated charges of infringement in instances of institutional malfunction. Quite apart from the tentacles of the ECN, is it still premature to consider a profound re-constitution of the antitrust enforcement structure at the EU level?62 John Taladay’s paper, Implications of International Cartel Settlements for Private Rights of Action, is largely concerned with the risk assessment of global enterprises deciding whether to settle an antitrust case in an increasingly “matricized” world featuring a multitude of jurisdictions on the one hand and the interplay of public and private enforcement on the other. In the modern global environment the balance of costs and benefits of settlement in a given jurisdiction is considerably more difficult to judge, and there is a risk of “skewed outcomes”. Of course, the criss-cross of a defendant’s incentives to settle—which determines what Taladay called, in his oral remarks, its “reservation price”—is also something that must be taken into account on the supply side. “[A]n agency should not look necessarily to assist cartelists, who by definition have demonstrated the capacity to violate the law, but if parties are to reach a negotiated settlement that maximizes the benefit to the agency [producer welfare], the agency must not create unnecessary costs for defendants that do not benefit the agency or are not necessary for the administration of that agency’s antitrust laws.”63 Taladay then discusses particular kinds of risks bearing on the defendant’s choice. To mention only one of the “extraneous” factors to be considered, there is the well-known problem of (possible) discoverability by plaintiffs in a foreign jurisdiction of sensitive evidence located in the jurisdiction in question. Depending on the laws of the jurisdiction where the evidence is located, this might put the defendant in an embarrassing situation.

B. Discussion The roundtable discussion following the second panel of speakers (Lasserre and Zivy, O’Brien, Siragusa and Guerri, Goldfein and Pak, Hausfeld et al., Bach, Cooke, Wood, Ratliff, Taladay) covered issues such as: the voluntariness of settlements and vulnerability of settlement decisions on appeal; access 62 There do seem to be some ideas percolating. See, e.g., the slides presented by André Bouquet (Group III—“Enforcement by the Commission”) at the Fifth Annual GCLC Conference at College of Europe, 11–12 June, http://www.coleurop.be/template.asp?pagename= gclcfifthannual_docs. Meanwhile, in the US, reflections turn on the future of the FTC’s adjudicative powers. See William Kovacic et al., The Federal Trade Commission at 100: Into Our 2nd Century, January 2009, pp. 43 et seq. 63 Page 320.

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Cartel Settlements and Commitment Decisions xlvii by third parties to sensitive documents; and the nature of the duty to give reasons in a settlement decision (with consequences for follow-on actions). The discussion also gave officials of the Commission the opportunity to reply to charges of a tilted playing field in the context of the settlement procedure, for example by insisting that the right to be heard is in no way compromised, and that settlement discussions are in no way a game of brinksmanship. An inescapable theme here, picking up on, for example, some of the issues raised in Albrecht Bach’s paper (see above), was the relationship between public and private enforcement. It’s clear enough from cases such as Van Gend en Loos, Francovich and Courage that the European Community is a Community based on the rule of law, and rights and remedies, including in the field of competition law, are part of the patrimoine juridique of the citizens of the Member States. But how far does this heritage take them? Is it limited to the right to win or lose in court? Or does it also make them stakeholders in public enforcement procedures, and in particular, cartel settlement procedures? Does it override secondary law that limits transparency—undoubtedly to the detriment of some would-be plaintiffs—in order not to inhibit corporate statements? Another dimension of the relationship between public and private enforcement relates to John Taladay’s “reservation price” of defendant “consumers” deciding whether to “purchase” a settlement from the enforcer. Here Shep Goldfein raised the well-known spectre of US-style civil litigation. In the US, he says, “settlements are generated by the need to avoid the risk of treble damages given the uncertain outcomes of jury trials; they’re generated by the need to be done with the distractions of litigation; and they’re generated by the costs of discovery and other factors”.64 Goldfein underlined the possibility of lower reservation prices if the future design of private litigation in Europe is free of skewed incentives to settle cases of dubious merit. In Europe, certainly, observers will be watching to see, among other things, how attractive defendants find the Commission’s 10% discount in light of the risk of a clear and unequivocal acknowledgement of liability.65 64 Pages 140–141. The dreaded “threefold the damages by him sustained” clause is contained in § 4 of the Clayton Act (15 U.S.C. § 15). Its lineage is often traced back through Senator Hoar to the 17th Century British Statute of Monopolies, 21 Jac. I., ch. 3 (1623) (three times the damages sustained “by means or occasion of being so hindered, grieved, disturbed, or disquieted. . . .” See, e.g., Lynn Passahow et al. (Treble Damages Task Force), Treble-Damages Remedy, 1986, ABA Antitrust Section, at pp. 16–19. 65 See Ivo Van Bael and Etsuko Kameoka, “A Selection of Recent Developments in EU Competition Law”, 16 Concorrenza e Mercato 171, 188 (2009). According to these authors, “[a] key factor will likely be whether cartelists consider that the 10 per cent reduction in fine outweighs the possible increased risk of follow-on private damages litigation, given that a Decision following the settlement procedure establishes an infringement to the full legal standard vis-à-vis the infringing companies [and can be adduced as evidence by plaintiffs in follow-on actions]. Moreover, such a Decision constitutes a precedent for recidivism, which can lead to higher fines imposed in subsequent cases.” See also Stephan, “Direct Settlements”, cited supra note 5, at p. 640. In the view of some of the Workshop participants, the 10% figure suggested that the porridge might be too cold. See, e.g., the written contribution of Aurora Ascione and Massimo Motta, pp. 67 et seq., at p. 77.

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2. Session Two: Settlements in Cartel Cases. Practical Experiences in Major Jurisdictions 2.1 Panel III (Papers by Kovacic, Goldman et al., Mehta & Tierno Centella) A. Written Contributions Bill Kovacic’s contribution is entitled Plea Bargaining and the Enforcement of Competition Law Against Cartels in the United States. As he so often does, Kovacic in this paper steps beyond positive norms and considers issues of process and institutional change. The subject examined is the evolution of criminal prosecution and plea bargaining in the US cartel enforcement system. Since the relevant federal enforcer in this context is the Department of Justice, Kovacic speaks as an outsider. His retrospective analysis unfolds by reference to five factors which together contribute to effective cartel enforcement: liability norms (substance), burden of proof (procedure), detection of wrongdoing, success in prosecution, and dissuasiveness (or “stoutness”) of penalties. Stress is laid on the iterative nature of policy development, and on learning effects: “the development of a successful criminal antitrust program is a cumulative process through which individual enforcement techniques, such as plea bargaining, are tested, implemented, and refined”.66 One point that may be relevant for cultural change in Europe67 is that, rather than waiting for a spontaneous epiphany to convince public opinion that cartels are evil, Kovacic’s story suggests that attitudes may be shaped through the serious, consistent and transparent application of law.68 In this sense, legal institutions have the capacity to mould the logic of appropriateness69 that 66 Page 356. The message Kovacic has been sending for many years with respect to the need for ex post evaluation of policy and execution seems to be resonating in some of the current antitrust literature. See, e.g., Maurice Stucke, “Behavioral Economists at the Gate: Antitrust in the Twenty-First Century”, 38 Loyola University Chicago Law Journal 513, 579–591 (2007) (with particular emphasis on merger control). 67 This picks up on the point relating to the benign neglect or active encouragement of collusion among market operators in the European tradition. See supra note 26 and accompanying text. 68 The argument is thus implicitly one of output legitimacy. 69 For a capsule discussion, see James March and Johan Olsen, “The Logic of Appropriateness”, in Michael Moran, Martin Rein and Robert Goodin, eds., Handbook of Public Policy, OUP, 2006, chapter 34. Descriptions of the logic of appropriateness are not uniform, but “the core intuition is that humans maintain a repertoire of roles and identities, each providing rules of appropriate behavior in situations for which they are relevant. Following rules of a role or identity is a relatively complicated cognitive process involving thoughtful, reasoning behavior; but the processes of reasoning are not primarily connected to the anticipation of future consequences as they are in most contemporary conceptions of rationality. Actors use criteria of similarity and congruence, rather than likelihood and value. To act appropriately is to proceed according to the institutionalized practices of a collectivity, based on mutual, and often tacit, understandings of what is true, reasonable, natural, right, and good.” Ibid., p. 689.

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might encourage not only a habit of obedience70 on the part of market actors but also the public acceptance that underpins the legitimacy of those very institutions. When drawing lessons from the US, however, it is important not to forget that communities of different cultural roots and sensibilities may react differently to similar normative stimuli. Cal Goldman and co-authors Rob Kwinter, Navin Joneja and Litsa Kriaris submitted a paper called Cartel Settlements in Criminal and Civil Proceedings: A Canadian Perspective. This paper discusses the content and application of the Canadian Competition Act with respect to settlements, essentially covering the gamut and providing (in an annex to the paper) several examples of relevant cases. In the area of civil actions the authors note an upswing in Canadian cartel litigation (and hence settlements), following early doubts about the constitutionality of the provision in the Act that authorizes private rights of action. This is attributed to the encouragement of the Competition Commissioner and to the introduction of class action mechanisms in various provinces. On the criminal side, the paper reviews the powers of the enforcer and points out that, unlike certain other jurisdictions, prosecutorial duties are assigned to a separate agency, the office of the Director of Public Prosecutions. A number of related topics are then discussed, with modalities explained and practical considerations provided in connection with immunity, immunity “plus”, leniency71 and plea agreements (which are “trilateral” in the sense that sentencing is ultimately for a judge to decide). The authors furthermore provide an overview of available antitrust remedies, including injunctions and voluntary undertakings. Kirtikumar Mehta and María Luisa Tierno Centella, who were in charge of designing the European Commission’s cartel settlement procedure, jointly submitted a paper entitled EU Settlement Procedure: Public Enforcement Policy Perspective. This contribution contains the most comprehensive exegesis and defense of the Commission’s approach that has thus far been written. The overall aim of the paper appears to be “setting the story straight” and responding to early criticisms from those concerned that settlements are “heads I win, tails you lose” for the Commission, and from those who view settlements as lascivious fraternization between enforcer and offender. A related aim is to clear up some points that may have seemed muddy in the beginning when the idea of cartel settlements was first being floated. This 70 This Aristotelian idea was examined by Bentham in his A Fragment on Government and an Introduction to the Principles of Morals and Legislation, Cambridge University Press, 1988 (originally published in 1776), at pp. 40–43. For discussion, see, e.g., H.L.A. Hart, “Positivism and the Separation of Law and Morals”, 71 Harvard Law Review 593 (1957). See also John Austin, “The Province of Jurisprudence Defined”, 3 Quarterly Journal of Jurisprudence and Legislation 105, 120 et seq. (1832); John Austin, Lectures on Jurisprudence 220 et seq. (John Murray, 5th ed., 1885). 71 On leniency, see the Competition Bureau’s Revised Draft Information Bulletin on Sentencing and Leniency and Cartel Cases (25 March 2009), http://www.competitionbureau.gc. ca/eic/site/cb-bc.nsf/eng/03027.html.

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undoubtedly reflects a concern for achieving maximum clarity at an early stage in order to secure the credibility of the Commission’s initiative. To cite only the obvious example, the authors are at pains to stress that the cartel settlement procedure is by no means a forum for negotiation of charges or sanctions.72 This emphatic message is plainly meant to deny the explicit or implicit charge that “settlement discussions” are really “settlement negotiations” in disguise.73 Another point of emphasis is the distinctiveness of the EU legal environment, where for example the principle of non-discrimination is said to oblige the Commission to proceed with settlements on a contemporaneous, multilateral basis in contrast to the seriatim proceedings that characterize the approach of the DOJ. The paper also endeavors to show the distinctiveness of cartel settlements vis-à-vis Article 9 proceedings, and to show the high value of procedural economies in cartel cases given the comparatively onerous demands of multilateral proceedings with all the confidentiality and language issues that go along with them. Part IV of the paper, in which Mehta and Tierno Centella examine the cartel settlement procedure in detail, begins with an admonition: “The specific instruments, factors and features of any given enforcement system are closely interrelated in a subtle equilibrium, and one cannot alter them lightly or simply import them in isolation from another system [. . .].”74 Stakeholders and observers thus appear to be encouraged to resist the instinctive urge to take the starkly different US model (prosecutorial mode, higher standard of proof, close supervision of a judge, etc.) as a benchmark. The various phases of the procedure are then reviewed.75 Roughly, these are: (i) investigation and evidence collection; (ii) solicitation of interest (or in the words of the Notice, “exploratory steps”) and establishment of a deadline for undertakings to

72 See also European Commission, submission to OECD Working Group No 3 on Cooperation and Enforcement, “Settlements in Cartel Cases”, DAF/COMP/WP3/WD(2008)82, at p. 2 (EU settlement procedure “differs from existing regimes and . . . is certainly not negotiated”). 73 Several participants at least hinted that the notion of discussions that are devoid of negotiation is wishful thinking. See, e.g., the papers of Albrecht Bach or Judge Cooke; or the oral remarks of Stephen Wilks, Judge Cooke or Vincent Smith. In reality, though, terms such as “discussion” and “negotiation” may both be regarded as inadequate for different reasons. The word “discussion” fails to convey the fact that each side has definite stakes in the process which can won, lost, enhanced or diminished. The word “negotiation” begs the question of what is subject to negotiation. In this respect, Mehta and Tierno Centella note in their paper that charges and sanctions are off limits, and paragraph 2 of the Notice states that neither the existence of an infringement nor the appropriate sanction may be negotiated. On the other hand, in her oral remarks (at p. 339), Tierno Centella indicates that in the context of the procedure the Commission can be persuaded to drop charges or to alter the period of infringement. Perhaps there is no tension between these positions if “negotiate” is interpreted as a perfunctory process of haggling whose main objective is to cut a deal. In any event, for the sake of convenience the term “discussion” is used here. 74 Pages 403–404. 75 See also María Luisa Tierno Centella and Eric Cuziat, “La procédure de transaction communautaire”, Concurrences, No 2 (2008), pp. 76 et seq.; European Commission, “Settlements in Cartel Cases”, cited supra note 72, at pp. 3 et seq.

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respond;76 (iii) bilateral “rounds” of discussions with DG Competition (access to evidence and disclosure of envisaged fine, argumentation, arrival at a “common understanding” regarding the scope of potential objections and the range of likely fines);77 (iv) settlement submission communicated (possibly orally) to the Commission; and (v) streamlined Statement of Objections faithfully reflecting the parties’ settlement submissions,78 followed soon thereafter by (vi) a streamlined decision under Articles 7 and 23 which grants a uniform fine discount of 10%79—unless, in the end, the Commission exercises its “all bets are off” option, e.g., if the NCAs in the Advisory Committee object, or if the College of Commissioners is unpersuaded.80 For obvious reasons of credibility, a last-minute change of heart by the Commission (in which case the ordinary procedure kicks in, with fully battle-tested SO81) is expected to be rare. Part V of the paper sets out (again, painstakingly) to reassure prospective settlement participants that the procedure in no way calls on them to relinquish their rights of defense. In line with paragraph 41 of the Notice, which reaffirms the appellate jurisdiction of the CFI and ECJ, Mehta and Tierno Centella underline the non-derogable legal right to appeal a 76 See paragraph 11 of the Notice. Since paragraph 13 of the Notice indicates that the Commission may disregard any leniency application received after the deadline established for expression of interest in settling the case, one might witness, in some cases, a mad dash to make it through the window in time. 77 Regarding confidentiality, inter se between defendants, of their bilateral discussions with the Commission, Mehta and Tierno Centella note that “[n]othing prevents parties from encouraging others to take part in settlement discussions. Nor does anything prevent them from telling each other that they actually intend to settle. However, just as the Commission does not bargain or negotiate with companies but simply relies on the compelling value of the evidence gathered and the benefits of the procedure in order to get companies to settle, it would not be appropriate to rely on undertakings bargaining or negotiating joint settlement terms amongst themselves or providing persuasive positive or negative incentives to each other.” Pages 410–411. Needless to say, coordinated attempts to “game” the procedure or distort or destroy evidence can trigger certain sanctions. See ibid., p. 411 (with reference to paragraph 5 of the Settlements Notice). 78 In contrast to an ordinary investigation, where complainants receive non-confidential versions of the SO, in the settlement context the Commission only informs complainants of the nature and subject matter of the procedure. See Article 6(1) of the amended Implementing Regulation (Commission Regulation 773/2004). 79 For the factors that led the Commission toward the 10% figure (such as the need to avoid undermining deterrence and the need to preserve the integrity of the leniency program at all costs), see pp. 414–415 and 420–421. See also the written contribution of Wouter Wils, at pp. 38 and 41. Different Workshop participants, of course, had different ideas about what the proper value of X should be. 80 See also the summary at the last page of the Notice. For that matter, “investigation as usual” and “exploratory steps” are technically not steps in the settlement procedure at all since they precede it (or preclude it, where the Commission so decides). 81 See further paragraph 29 of the Settlements Notice. In cases where settlement talks are derailed and the ordinary procedure is restored, some commentators underline the Commission’s inability to “unremember” the parties’ confidences. This calls for additional safeguards such as, at a minimum, a replacement of the “settlement” team with a fresh “ordinary procedure” team, and a thick Chinese wall. See Van Bael & Bellis, Competition Law of the European Community, 5th edition, cited supra note 7, p. 1183. Lynda Martin Alegi and Grant Murray recommend such a substitution in the context of UK procedures as well. See their written contribution to this Volume, at p. 519.

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lii Cartel Settlements and Commitment Decisions settlement decision,82 even if exercising that right—absent unusual circumstances, such as a breach of essential procedural requirements—would in most cases be a pointless gesture.

B. Discussion The third panel of speakers discussed practical experience with settlements in the US and Canada (Kovacic, Kwinter) and looked ahead to what might be expected of the EU cartel settlements procedure (Tierno Centella, Venit). The roundtable that followed touched on several subjects such as: how the cartel settlement procedure might progress in hybrid cases with one or more holdouts;83 other procedural aspects of cartel settlements; the degree of unicité in Europe in terms of institutional constraints and, conversely, the scope for convergence with US enforcement precepts; and others. As the discussion was brief, it suffices here to mention only the rather popular matter of hybrids. With regard to these kinds of cases, the concerns on the part of the European Commission include the likelihood that split cartel proceedings will often be too fragmented and will defeat the purpose of the exercise, namely procedural efficiency. Thus, for example, if just one or two defendants change their minds at a late stage and decide to take the case to Luxembourg, the Commission is likely to pull the plug on settlement with respect to all the remaining defendants. It was also suggested that the Commission would not benefit from efficiencies if it were to spend its energy on so-called “partial settlements” (i.e., a kind of pre-settlement settlement where the Commission and an individual defendant could find ways to narrow down issues in a case insofar as that defendant is concerned). With regard to the scenario above in which some settlement candidates “defect” at a late stage, some of the private practitioners, such as Lynda Martin Alegi, expressed concern. If some parties remain willing to settle, the Commission should think twice about sinking the ship and depriving them of that opportunity, or else the credibility of the procedure will suffer. While it remains to be seen how these situations will play out, it would seem that such fragmentation can be minimized where the Commission’s case against all the parties is solid.

82 Cf. also Koen Lenaerts, “Some Thoughts on Evidence and Procedure in European Community Competition Law”, 30 Fordham International Law Journal 1463, 1491 (2007) (noting that the ECJ has impliedly recognized the right of an undertaking to appeal a Commission decision before the CFI notwithstanding the undertaking’s prior admission of incriminating facts), and case law cited therein. 83 See also Hull and Clancy, cited supra note 42, at p. 116.

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2.2 Panel IV (papers by Morgan de Rivery, Burrichter, Kalbfleisch, Brouwer, Nikpay & Waters, Martin Alegi & Murray) A. Written contributions The paper submitted by Eric Morgan de Rivery is entitled The French “NonContest Procedure”: A Practitioner’s Point of View. This contribution may be considered in light of that of Bruno Lasserre and Fabien Zivy of the French national competition authority.84 The non-contest procedure (NCP) should not be confused with pleas of “no contest” or nolo contendere. It is a type of settlement that has been used in France along with other alternative procedures, including commitment procedures. Pursuant to the NCP, a defendant in a cartel or abuse of dominance case that did not contest charges in the SO and agreed to change its behaviour was subject to an adverse decision but, in light of this cooperation, the maximum penalty that could be imposed on the defendant was cut in half (i.e., from 10% of worldwide turnover to 5%). To cite only one of several criticisms levelled at the NCP, Morgan de Rivery underlines the difficulties associated with the institutional particularities of the enforcer, in particular the functional division between its services d’instruction, which handle investigations under the supervision of the rapporteur général, and its decision-making body, the collège, which is free to deviate from the views of the investigating team and which has not been shy about doing so.85 According to the author, this mutual independence of the two bodies does little to promote legal certainty. He proposes certain procedural solutions that would entail greater involvement of the collège in the NCP, taking into account the requirements of the ECHR as interpreted by French courts. In this regard there is a conceptual issue: by the time the enforcer and the defendant discuss what commitments are needed and how to resolve the enforcer’s concerns, the case has already passed from an investigatory phase to the state of decision-making.86 However, the French legislator, in modernizing the country’s competition law regime, does not seem to have been moved by this argument. Jochen Burrichter’s paper is called Settlements in Cartel Cases: Practical Experience in Germany. Burrichter points out that the Bundeskartellamt has been settling cartel cases since the earliest days of its half-century of existence.

84

The paper of Lasserre and Zivy begins at page 143. In light of the relatively high incidence of divergence between the investigation body and the decision-making body (see the oral remarks of President Lasserre at p. 450), and in order to moderate the potential vagaries that might flow from it, Fabien Zivy noted that the collège had taken to the habit of remanding cases to the investigation team. Undertakings may thus engage in further discussions if they wish, or they may opt instead for an adversarial proceeding. See p. 427. 86 See also Morgan de Rivery’s oral remarks at p. 428. 85

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liv Cartel Settlements and Commitment Decisions Relevant to such cases are both the well-known Gesetz gegen Wettbewerbsbeschränkungen, Germany’s antitrust law, and the Ordnungswidrigkeitengesetz, which covers administrative offences.87 In contrast to the French case described above, settlement candidates engage in discussions with the same officials (i.e., the same “decision department”) that are responsible for taking decisions. The shadow cast over such discussions may be somewhat longer than the one at the European level: German law takes a step further by imposing (administrative) “smart sanctions”, up to the equivalent of a year’s income, on acting company managers. However, since sanctioned managers are often indemnified by their employers, there are doubts regarding the effectiveness of these penalties.88 Burrichter highlights several points of procedure in relation to cartel settlements, including the right to be heard, third party rights to see the case file, appellate modalities and others. He also briefly reviews Section 32b of the GWB, which lays down Germany’s “commitments” procedure. Pieter Kalbfleisch’s paper describes The Dutch Experience with Plea Bargaining/Direct Settlements. Commissioner Kalbfleisch begins by pointing out that in the Netherlands the enforcer developed its cartel settlement practice in the absence of a formal procedural instrument. Settlements were therefore traditionally executed against the “background radiation” of Dutch administrative law.89 Much of the experience in the Netherlands springs from a wellknown cartel case involving around 1300 undertakings (over a quarter of whom applied for leniency) in the construction industry.90 The paper recounts the case in some detail. Settlement cases involving ticket agencies and bank service charges are also reviewed. In contrast to these cases of suspected or confirmed collusion, other kinds of cases may now be resolved under a commitment procedure established by Dutch law in late 2007. The paper is also noteworthy in that it provides an example of the self-understanding of a competition authority, and some of the conflicts that can potentially arise with other public authorities at the national level in a complex institutional environment. 87 Only bid-rigging is currently subject to criminal penalties in Germany. The heavier sanctions in such cases are easily explained by the identity of the victims. On bid-rigging more generally, see the OECD’s Guidelines for Fighting Public Bid Rigging, at http://www.oecd.org/ dataoecd/27/19/42851044.pdf. 88 In an OECD discussion on the possibility of penal sanctions imposed against individuals, the German delegation indicated that “ces sanctions ne sont pas très efficaces dans la mesure où ce sont les sociétés qui acquittent les amendes auxquelles sont condamnées les personnes physiques. L’application de sanctions pénales serait certainement fructueuse à cet égard.” See OECD, “Compte rendu”, 9(3) Revue de l’OCDE sur le droit et la politique de la concurrence 40, 52 (2009). For a broader discussion of criminal penalties for individuals, see Andreas Reindl’s Note de référence in OECD, ibid. at 12 et seq. 89 As a consequence, the NMa has “ample powers, ample discretion and an ample margin of appreciation”, subject to principles of fundamental rights and good governance. See oral remarks, p. 435. 90 The Dutch Competition Authority (the NMa) even has a web page dedicated to this operatic case. See http://www.nmanet.nl/engels/home/News_and_publications/Theme_files/ Construction_ case/Construction_case_mainpage.asp. Other national competition authorities have been active in this sector as well. See, e.g., OFT Press Release 114/09 of 22 September 2009 (bid-rigging cartel involving about a hundred companies and two hundred construction projects).

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Turning to the views of a Dutch private practitioner, Onno Brouwer submitted a paper entitled Antitrust Settlements in the Netherlands: A Useful Source of Inspiration? Like Kalbfleisch, Brouwer focuses on the construction cartel cases and the pragmatic procedural devices fashioned to dispose of them. He notes that cartelists that opted for the “fast-track” procedure91 and agreed not to contest the essence of the facts or legal assessment of the NMa were granted a uniform 15% fine discount over and above any reduction granted under the Dutch leniency program. Moreover, and apparently to guarantee the success of the expedited procedure, a sector-specific approach was taken with respect to calculation of the fines. According to Brouwer, this “tailor-made” solution resulted in “much lower fines” than would otherwise have been the case.92 For good measure, the Dutch Government (itself having been stung by the cartel) indicated that construction firms which failed to apply to the NMa for leniency by 1 May 2004 but which were later found to have participated in the cartel would be ineligible for future calls for tender.93 One aspect of the case highlighted by Brouwer is that it was in fact a “hybrid” case, with many companies opting for the accelerated procedure while others (about 10% of the vast multitude) took their chances with the full-blown procedure. Like Judge Cooke does in his paper, Brouwer raises the question of whether the two-track solution introduces a bias to the detriment of those who choose to stand their ground. Taking the construction cartel as a backdrop, Brouwer then examines a number of aspects of the Commission’s proposed settlement procedure, such as timing of the settlement in relation to the SO, and the need for an individualized approach to settlement discussions where appropriate to take account of facts specific to a given firm. Two further procedural aspects are to be recommended, he says: the possibility to agree not to contest the facts, as opposed to a mandatory admission of guilt, with the risks that come with it; and the possibility for defendants exploring settlement to make known their willingness to settle to other defendants. The Commission’s system appears to permit the latter,94 but not the former. 91 In an annex to his paper Brouwer reproduces the NMa’s Model Statement whereby a firm could elect to participate in the accelerated procedure. See pp. 497–498. 92 See p. 490. 93 This interesting form of (punitive) remedy seems to be discouraged in the UK by both the OFT and the UK’s Office of Government Commerce. See OFT Press Release 114/09, cited supra note 90, stating that joint guidance of the OFT and the OGC “cautions procurers against excluding the infringing firms from future tenders, as the practice of cover pricing was widespread in the construction industry and those that have already faced investigation can now be expected to be particularly aware of the competition rules”. However, this raises the further question of whether the position ought to be different once recidivism is established. 94 See supra note 77. See also footnote 16 of the paper by Lynda Martin Alegi and Grant Murray, where the authors note the (barely perceptible) difference between paragraph of the draft Settlement Notice (embargo on disclosures to “any other undertaking”) and paragraph 7 of the Notice as adopted (using the expression “any third party” instead, although the term “third party’ could be regarded as ambiguous). Inter se communication is also possible in other jurisdictions including Germany. See the oral remarks of Jochen Burrichter at p. 432.

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lvi Cartel Settlements and Commitment Decisions The joint contribution of Ali Nikpay and Deirdre Waters is entitled The Emerging Settlements Regime in the UK: The Use of “Settlements” in Competition Act Cases. The UK is another jurisdiction in which the enforcer is developing its practice of settling horizontal infringement cases (sometimes called “early resolution”) in the absence, so far, of a precise procedural mandate.95 The authors draw on the OFT’s case practice and suggest that, “as authorities develop a better understanding of the impact of settlements on the leniency regime and deterrence, their use may increase”,96 whereupon such a mandate will presumably become a necessity. Other factors bearing on the suitability of settling a case, besides the integrity of the leniency program and effect on deterrence, include scope for resource savings, specific case characteristics and the possible need for a full-merits review by the UK’s appellate courts to clarify the law. With respect to appeals, it is also interesting to note that when cartelists settle a case in the UK but then later attack the OFT’s infringement decision, the OFT reserves the right to apply to the Competition Appeal Tribunal for a harsher penalty.97 Nikpay and Waters point out that this tactic is linked to the fact that judicial review in the UK is essentially de novo. For that reason, post-settlement appeals, absent the risk of triggering a higher fine, may be unusually enticing. Reducing exposure to appeal seems to be of great interest to the OFT, as this is where it most expects to save resources by settling cases.98 Two other points may be highlighted briefly here. First, the infringement decision adopted by the OFT when it settles a case is a fully reasoned decision—not a streamlined one—and this is deliberately geared to prompt greater private enforcement activity.99 Second, while the OFT intends to limit settlement initially to cartel cases only, the authors suggest a possible future extension to non-cartel cases. Nikpay and Waters’ opposite numbers were Lynda Martin Alegi and Grant Murray, who delivered a paper called Settling an Appropriate Policy: Reflections on OFT Work in Progress. Martin Alegi and Murray detect a divergence on certain points depending on whether one looks at the settlement practice of the OFT or the now-formalized system established by the European Commission. One difference, they suggest, is the OFT’s preference, at least at the present stage, for a supple framework (except as regards its continued commitment to full-blooded infringement decisions). Other differences may be linked to the OFT’s heightened sensitivity as regards the possibility of appeal (see above). As the OFT expects that there may well be cases 95 The modalities outlined by the authors at pages 504–508 provide a helpful glimpse of how the procedure presently works. 96 Page 502. 97 A similar reservation is seen, for example, in Germany, as pointed out by Jochen Burrichter. See p. 430. 98 See page 508. Indeed, Nikpay observed, in his oral remarks, that appeals in the UK are “almost automatic”. See p. 442. 99 With respect to the encouragement of private enforcement in Europe, see supra note 24, with references, and accompanying text.

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Cartel Settlements and Commitment Decisions lvii of a “hybrid” nature (with some defendants settling and some fighting), settling defendants are conscripted as allies in later legal battles. In that light, Martin Alegi and Murray suggest implicitly that the repose offered by a settlement, and hence its value, may be limited. Among the aspects of the OFT’s procedure discussed by the authors are the determinants relevant to the selection of cases suitable for settlement, timing, the iterative format of the settlement discussions, and procedural rights. With regard to the nature of the discussions, the authors speak of a sometimes blurry dividing line between negotiable and non-negotiable aspects of cartel cases and of the possibility, in some cases, that discussions between the enforcer and defendant A might prejudice discussions with defendants B and C. They also draw attention to the special issues arising from individual criminal penalties in the UK regime (recommending the use of no-action letters100 or comfort letters101 so as not to discourage settlement). In closing they insist on the ripeness of published guidance and point out that further delay entails a prolonged risk of inconsistent outcomes as between the OFT and the UK’s rail regulator.

B. Discussion The fourth panel of speakers (Zivy, Morgan de Rivery, Burrichter, Bornkamm, Kalbfleisch, Brouwer, Nikpay, Martin Alegi) dealt with a variety of themes in connection with cartel settlements in certain Member States. These themes included, among others: the need for a special procedure in France for such cases (rather than bringing them within the rubric of the commitment procedure); the separation of the investigation and decision-making functions and the complications it poses; transparency regarding fines; due process; the Dutch construction cartel; the political capital of competition agencies and their ability to promote public comprehension of and support for their mission; and the popular subject of hybrid cases. To pluck out just one of the issues discussed in the roundtable, Ali Nikpay’s remark that in the UK an admission of liability is an indispensable condition of settlement102 attracted comment from several participants. With respect to the Commission’s settlement procedure, one wonders why simply remaining passive and declining to contradict the Commission’s finding of facts would 100 A no-action letter provides immunity from criminal prosecution in England and Wales (but is unavailable for offenses committed in Scotland). See, most recently, OFT, Leniency and no-action: OFT’s guidance note on the handling of applications, OFT 803, December 2008, http://www.oft.gov.uk/shared_oft/reports/comp_policy/oft803.pdf. See also OFT, Guidance on the issue of no-action letters for individuals, April 2003, http://www.oft.gov.uk/shared_oft/ business_leaflets/enterprise_act/oft513.pdf. 101 The OFT may provide a comfort letter if, in contrast to no-action letter scenarios, it considers that there is no risk of prosecution. See Sections 7.4 and 7.5 of OFT, Leniency and no-action; and Section 3.9 of OFT, Guidance on the issue of no-action letters, each cited in the previous footnote. 102 See p. 441.

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lviii Cartel Settlements and Commitment Decisions not be enough. Provided those facts are sufficient under the law, and provided the Commission indeed finds an infringement, Article 7 of Regulation 1/2003 requires no more than this, as underscored by Judge Cooke. Yet Article 10a2 of Regulation 773/2004 (as amended) calls for a settlement submission “reflecting the results of the settlement discussions and acknowledging their participation in an infringement of Article 81 of the Treaty as well as their liability”. Similarly, Paragraph 20 of the Settlements Notice requires (albeit using the word should rather than must) “an acknowledgement in clear and unequivocal terms of the parties’ liability for the infringement summarily described as regards its object, its possible implementation[103], the main facts, their legal qualification, including the party’s role and the duration of their participation in the infringement in accordance with the results of the settlement discussions”. It would appear that, in this context, Article 7 must henceforth be read in light of Article 10a2 and the Notice. Plainly, an acknowledgement of liability provides a degree of comfort to the Commission with regard to the prospects of an appeal.104 On the other hand, if such an acknowledgement also brings added value for private plaintiffs, as pointed out earlier this may affect the “reservation price” of parties thinking about whether settlement with the Commission is desired.105

3. Session Three: Commitment Decisions 3.1 Panel V (papers by Schweitzer, Allendesalazar & Martínez Lage) A. Written contributions The two papers described here turn the discussion away from cartel settlements and concentrate on the other principal form of “settlement” or “early resolution” procedure at EU level, that is, commitment procedures.106 In her 103 The words “its possible implementation” were inserted following public review and comment, evidently to allow for the possibility that the anticompetitive conduct might not have been implemented. Andreas Stephan observes that this somewhat softer language “provides some protection from private parties using the settlement submission to prove that they suffered an injury as a consequence of the cartel”. Stephan, cited supra note 5, at p. 646. 104 See the written contribution of Kirti Mehta and María Luisa Tierno Centella at p. 415, and the oral remarks of Tierno Centella at p. 451 (recalling the Commission’s 1996 Leniency Notice, whereby a 10% fine discount was granted for non-contestation of facts, and pointing out that appeals were nevertheless brought before the CFI). 105 See, e.g., the oral remarks of John Taladay at p. 450. 106 Further discussion of Article 9 may also be found in the written contributions of: Kirsten Edwards and Jorge Padilla; Ian Forrester; Kris Dekeyser, Rainer Becker and Daniele Calisti; and Mario Siragusa and Erika Guerri.

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paper entitled Commitment Decisions under Article 9 of Regulation 1/2003: The Developing EC Practice and Case Law, Heike Schweitzer joins a lively discussion started by J. Temple Lang, W. Wils, D. Waelbroeck, L. Pace, C. Cook and other commentators, later joined by the CFI107 and now Advocate General Kokott.108 The point of this discussion is to ponder questions regarding the principles underlying Article 9, its role, its texture, and its proper application. Given the unmistakable attractiveness of Article 9 both to the Commission and to firms under investigation, and given the fact that several Member States have emulated the Article 9 procedure to some extent,109 much is riding on how those questions are resolved. Schweitzer’s paper begins with an exposition of the mechanics of the Article 9 procedure and a summary of the first batch of decisions adopted under Article 9 between May 2004 and June 2008. In this connection, the practice illustrates the celerity of the procedure as well as its versatility with regard to various dimensions: timing, publicity, negotiations, subject matter and remedies. This versatility is an inevitable source of both praise and lament, depending on the eye of the beholder. The next section of the paper, “Concerns and open questions”,110 lays out a number of issues to be discussed by reference to the CFI’s judgment in Alrosa v Commission.111 In presenting these issues, Schweitzer highlights the inherently ambivalent role of the Article 9 procedure.112 Is it properly understood as a tool of expediency and throughput? Or do the demands of the rule of law in a civil society oblige the enforcer to ensure the full vindication of the public interest?113 Another of the open questions described by Schweitzer is the matter of third-party procedural rights, which are not entirely spelled out either by Article 9 itself or in the CFI’s judgment.114 Illumination in that

107 Case T-170/06, Alrosa Company Ltd v Commission [2007] ECR II-2601, on appeal: Case C-441/07 P, not yet decided. 108 See Opinion of Advocate General Kokott in Case C-441/07 P, cited previous footnote. 109 For a discussion of the national mechanisms in Italy, France, Spain and Germany, see Alberto Pera and Michele Carpagnano, “The Law and Practice of Commitment Decisions: A Comparative Analysis”, 29(12) European Competition Law Review 669 (2009). 110 Page 558 et seq. 111 Cited supra note 107. 112 See also the emphatic view expressed at p. 577. 113 This dilemma, of course, is not unique to competition authorities. It is a common task of any public authority vested with a degree of discretion to carefully consider its own selfregarding priorities in the light of its broader mission and its “superego”. On the margins, where the self-interest of the enforcer and the public interest diverge, the task of finding the right balance falls ultimately to the courts to which such authorities are subject. However, in individual cases there may simply be no appeal. For this reason, it is particularly important for the courts to take account of the system-wide effects of their judgments when cases do come their way. 114 In its investigation of De Beers under Article 82, the Commission treated Alrosa as an interested third party (see Article 27(4)) but the CFI went further and regarded Alrosa, in light of its close commercial dealings with De Beers, as an undertaking concerned with full rights to express its views regarding De Beers’ unilaterally proposed commitments. See para. 187 of the CFI’s judgment. As indicated in the following footnote, however, Advocate General Kokott disagreed with that assessment.

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regard will have to await the ECJ’s disposal of the case115 and/or further litigation. There is also the question of the precise legal effects of Article 9 decisions vis-à-vis national courts and NCAs, taking account of Article 10 EC, the judgment of the ECJ in Masterfoods,116 and Article 16 (and Recitals 13 and 22) of Regulation 1/2003. Does an undertaking immunize itself, insofar as its future conduct is concerned, i.e., its conduct subsequent to the adoption of an Article 9 decision, if it faithfully respects the commitments that bind it?117 This subject attracted much interest during the roundtable debate following Panel V (see below). Part III of Schweitzer’s paper provides a detailed summary of the CFI’s judgment in Alrosa, while part IV discusses its implications. In this context, five issues are addressed: the nature of the term “preliminary assessment”, left undefined in Article 9 itself; application of the proportionality principle and the question of how close-fitting the remedies must be to the suspected infringement; the right to be heard and access to file; the right of the undertakings concerned to appeal the Commission’s decision; and the legal effects of an Article 9 decision in future national proceedings. The overriding aim of the CFI’s judgment, as Schweitzer points out, is to resolve the dilemma described above by insisting on the full vindication of the public interest. Now that the Advocate General has just as forcefully expressed the quite different view that Article 9 must be clearly distinguished from Article 7,118 and that the 115 In paragraph 176 of her Opinion of 17 September 2009, the Advocate General took the view that the CFI had erred in elevating Alrosa (with respect to the Article 82 investigation) to the rank of “undertaking concerned” (see previous footnote). As an “interested third party”, Alrosa had “less extensive rights than an ‘undertaking concerned’ within the meaning of Article 9(1) and Article 27(1) and (2) of Regulation 1/2003. In particular, Alrosa had no right to be notified of the statement of objections or a comparable document, or to access to file [. . .]”. Ibid., para. 192. The Advocate General indicated that interested third parties such as Alrosa need to be able to comment meaningfully on the content of the Commission’s envisaged decision. Accordingly, the Commission must provide them with information about the substance of the proposed commitments and must inform them of the “main reasons” for which the Commission considers them acceptable. See ibid., paras. 198–199. She added that, “[a]s an interested third party, Alrosa had no right in any event to any written information, let alone to a document which would be comparable in scope with a statement of objections”. Ibid., para. 205. 116 Case C-344/98, Masterfoods Ltd v HB Ice Cream Ltd [2000] ECR I-11369. 117 Some observers have indeed expressed this view. See, e.g., Lorenzo Pace, Diritto Europeo della Concorrenza, Cedam, 2007, at p. 264 (“Con riferimento ai rapporti tra la decisione della Commissione sugli impegni delle imprese ed (eventuali) decisioni successive della Autorità nazionale o delle giurisdizioni nazionali, la decisione ex art. 9 reg. 1/03—dal momento che essa accerta a seguito degli impegni che non è più giustificato un intervento per la relativa fattispecie— esclude che i comportamenti oggetto dell’‘impegno’ costituiscano una violazione di cui agli artt. 81 o 82 TCE. A fronte di ciò le Autorità e le giurisdizioni nazionali per il periodo successivo alla decisione di ‘impegno’—dovranno pervenire ai sensi del diritto antitrust CE ad un provvedimento di ‘archiviazione’.”). Implicit in Pace’s understanding of Article 9 decisions, perhaps, is attention to the need for uniform application of EU competition law, and a need for legal certainty. 118 See AG Kokott’s Opinion of 17 September 2009, at paras. 47–62 (stressing “fundamental differences”, in light of Article 9’s “spirit and purpose”, including in particular the fact that an Article 7 decision would require “much more extensive and lengthy investigations and also a fuller assessment of the facts”; interestingly, in paragraph 60 the Advocate General indicates implicitly that speed and economy go beyond the Commission’s self-interest and promote the general interest).

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former must thus be seen as a device facilitating flexible and expedient case resolution, it falls to the ECJ to select its preferred enforcement paradigm. It appears that, if the ECJ were to uphold the CFI’s judgment in its entirety, the Commission’s own efforts to transform a dodgy settlement practice under Regulation 17119 into a more formal and relatively more transparent means of disposing of its cases will have backfired. Also addressing Article 9 decisions is the written contribution of Rafael Allendesalazar and Santiago Martínez Lage, entitled Commitment Decisions ex Regulation 1/2003: Procedure and Effects. The authors are generally pleased with Article 9’s performance so far, and they highlight its advantages both for companies under investigation and for the Commission. The legal aspects of the procedure are reviewed, as is the potentially delicate question of the application of Article 11(6) when the Commission is inclined to “commandeer” a case of Community-wide significance for the purpose of adopting an Article 9 decision. The authors proceed to discuss the elements that might set a preliminary assessment apart from a Statement of Objections, taking account of paragraph 100 of the CFI’s judgment in Alrosa. The CFI’s distinction between establishing the existence of an infringement, which by definition is required for the adoption of an Article 7 decision, and establishing “the reality” of the Commission’s competition concerns, might seem a bit slippery, but it does at least indicate that the “test” is not a purely subjective one (i.e., the fact that the Commission had concerns, without more, seems to be insufficient). What also appears meaningful, though one could equally regard it as tautological, is the CFI’s insistence that the preliminary assessment must be “sufficient to allow a review of the appropriateness of the commitment”. One thing seems clear from Article 9: in reaching a preliminary assessment the Commission can avoid the Full Monty of proving its case to the requisite legal standard. The authors oppose the suggestion that a preliminary assessment necessarily implies that the Commission has demonstrated fumus boni iuris (i.e., a prima facie case of infringement) and the CFI’s requirement of a real concern, and its reference in paragraph 87 to a “potential infringement”, seem to support the contention that there is indeed a difference. The word “preliminary” itself is probably a good clue. The authors also discuss the contents of proposed commitments in the light of Alrosa, as well as the operation of the market test under Article 27(4). In the final part of the paper, devoted to the civil law consequences of Article 9 decisions, the authors conclude that “[a]s long as the company abides by [the commitments made binding], and provided none of the limited circumstances contemplated in Article 9(2) arises, the company should be fully protected against possible challenges to its future conduct before a national court or an 119 For the lack of transparency generally and the lack of visible criteria by which the Commission determined the propriety of informal settlements under the old regime, see, inter alia, the articles by Van Bael, cited supra note 15 (also noting the concerns of the European Parliament).

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lxii Cartel Settlements and Commitment Decisions NCA”.120 The question of the legal effects of such decisions with respect to national courts and NCAs was taken up in the roundtable debate (see below).

B. Discussion The discussion following the presentations of Schweitzer and Allendesalazar concerned various aspects of the commitment procedure under Regulation 1/2003. The topic that drew the most attention related to what binding constraints an Article 9 decision imposes, if any, in cases before national courts and national competition authorities.121 The debate regards, in particular, the consequences of such a decision in cases relating to the “future conduct” of the undertaking concerned assuming it acts consistently with the commitments made binding. Much more agreement could be discerned with respect to the proposition that private plaintiffs must retain the possibility, subsequent to the adoption of a commitment decision, of bringing the undertaking concerned before the national court and seeking damages for past anticompetitive behavior, assuming that the past infringement, the plaintiff’s losses and causation are all established in the national proceedings.122 By its nature and by the explicit terms of Regulation 1/2003, (most participants agreed that) a commitment decision cannot be deemed to have dispositive effect in that regard. Hypothetically speaking, even if secondary law did seek to eliminate such rights, it would collide against a dense barricade of norms: the effet utile of Community norms having (in this case, horizontal) direct effect;123 120

Page 600 (footnote omitted). The issues raised in this connection may recall the concerns of old with respect to the degree of comfort provided by the comfort letters DG IV used to sign as an amicable way of not deciding cases. For some, those letters were not very comforting because, while national courts and NCAs were free to take them into account, there was no obligation to do so. See Giry and Guerlain [1980] ECR 2327; L’Oreal and others v De Nieuwe AMCK [1980] ECR 3775. The chief virtue of comfort letters was that they assured notifying undertakings that the Commission’s priorities lay elsewhere. A future revisitation of the case by the Commission (as opposed to other authorities) was likely precluded on grounds of estoppel. See MacKenzie Stuart, “Legitimate Expectations and Estoppel in Community Law and English Administrative Law”, 10 Legal Issues of European Integration 53, 64 (1983) (taking the view that re-opening a case should only be permitted in light of new facts or if later jurisprudence revealed that the comfort letter had been granted under a misapprehension of the law). With respect to the latter point, the reopening of a case by the Commission subsequent to the adoption of an Article 9 decision is today regulated rather clearly by Article 9(2). But how has Regulation 1/2003 changed the picture as regards subsequent national proceedings? This was the main issue discussed in the roundtable, summarized below in the main text. 122 It seems clear that recovery of damages under those circumstances is not incompatible with the principle of ne bis in idem. For discussion, see Gippini-Fournier, cited supra note 18, at p. 401, with references to case law. 123 See (in addition to Francovich, Brasserie du Pêcheur, Courage, etc.) the Opinion of Advocate General Van Gerven of 27 October 1993 in Case C-128/92, Banks [1994] ECR I-1209, paras. 36–45. (In Banks, a case decided under the Coal and Steel Treaty, the ECJ precluded a stand-alone action for damages under the competition provisions of that Treaty because they did not have direct effect; since there was no comparable obstacle as regards Article 81 or 121

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Article 13 ECHR and Article 6(2) TEU (Article 6(3) post-Lisbon); and Article 47 of the Charter read together with Article 6(1) TEU post-Lisbon. The hypothetical Community instrument would have to be annulled. With regard to future conduct, no consensus was reached. Indeed, nearly as many views were expressed as there were speakers to express them. This aspect of Regulation 1/2003 was even described as a matter of “tremendous murkiness” and of a “great deal of uncertainty”.124 The lack of consensus is perhaps no surprise, as the issues touch on a range of fundamental themes including: principles of federalism, primacy, the effectiveness of Community law, its uniform application, the right to an effective remedy as enshrined in the norms recited above, and the policy interest in preserving the attractiveness of “consensual”, relatively expedited procedures. The reader is encouraged to read the transcript,125 taking account of the authorities cited in the footnotes, and to conclude from it what she will. I will be brief and simply suggest what I take to be the right legal answer. In my view, the correct approach is generally in line with the oral remarks of Wouter Wils and Mario Siragusa, and their persuasive reading of Masterfoods and Article 16 of Regulation 1/2003.126 Taking account of the quasi-consensus on the question of damages for past infringing conduct, and extrapolating from a few points that were made, the overall position can arguably be represented as follows.

82, the door was left open for plaintiffs bringing actions under the EC Treaty such as in Courage and Manfredi.) Cf. also Commission, XVth Report on Competition Policy (1985), point 39 (listing benefits that could be gained if the potential for private litigation under Articles 85 and 86 EEC were better exploited). 124 Cf. the assessment of Veljko Milutinoviç: “In the private enforcement context, a commitment decision seems to be the perfect vehicle for confusion and uncertainty for would-be infringers and would-be plaintiffs alike.” Private litigation “becomes somewhat of a gamble, as the commitment decision will act as a ‘two-sided bluff’: it will give the plaintiffs ammunition to the effect that ‘something is going on’ while at the same time giving defendants ammunition to the effect that it has all been ‘taken care of’”. Milutinoviç, “Enforcement of Articles 81 and 82 EC before National Courts Post-Courage: Enhancing a Community Policy or Shifting a Community Law Paradigm?”, Ph.D thesis, EUI, Florence, 2008, at p. 385. 125 The Panel V transcript begins at page 525. The roundtable debate begins at page 534. 126 In a similar vein, see Gippini-Fournier, cited supra note 18, at pp. 402 and 416. Cf. also Commission, Staff Working Paper accompanying the Report on the functioning of Regulation 1/2003, (SEC(2009) 574 final of 29 April 2009, para. 107 (citing Gippini-Fournier).

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lxiv Cartel Settlements and Commitment Decisions Legal effects of an Article 9 commitment decision in subsequent national proceedings Article 9 decision Past conduct alleged to making commit- constitute an infringement ments binding on the undertaking concerned Actions before national courts

For damages. No preclusive effect. The Commission, by making commitments binding, in no way provides a warranty for the compatibility of past conduct with competition law. It might be relevant if a plaintiff failed to participate in the Commission’s market test (and, if unsatisfied, further failed to seek annulment of the Commission’s decision), but that would depend on national principles of estoppel, subject to the principles of effectiveness and equivalence. For injunctions. Negative injunctions (i.e., prohibitions) seem unlikely to conflict with binding commitments. Affirmative injunctions (i.e., mandatory obligations) might conceivably create a conflict (in which case, see third column).

Future conduct alleged to constitute an infringement

Conflict and hence preclusion if and only if it is demonstrated (by a defendant) that the damages and/or injunction sought by the plaintiff are materially inconsistent with: (i) The operative part of the Article 9 decision;127 (ii) The necessary grounds underpinning the operative part of that decision (provided they are explicitly and clearly expressed);128 and/or (iii) The effective operation of the binding commitments, in the sense that adherence to the national remedy would make it unreasonably difficult (or impossible) for the defendant to give full effect to those commitments.129 As regards damages, national courts in Member States that make tort liability conditional on a finding of fault may conclude, as a matter of national law, that a defendant did not act wilfully or negligently if it duly respected the binding commitments.

127 See, e.g., Gippini-Fournier, cited supra note 18, at p. 402, and cf. the case law he cites at footnote 87. 128 Cf. the oral remarks of Wouter Wils at pp. 536–537 and the references there cited. 129 As is clear from the “and/or” in (ii), the conflict may well arise simultaneously with respect to the effet utile of the commitments and the operative part of the decision. This would seem to be the case in the example given by Gippini-Fournier (ibid., p. 416) of a court ordering specific performance of a contract which according to the binding commitments must be rescinded.

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Cartel Settlements and Commitment Decisions Investigations by For injunctions and/or fines. No national competi- preclusive effect, but likelihood tion authorities of action limited since, in practice, NCAs will be able to express their views regarding the commitments in the context of the ECN and the Advisory Committee. If there were a real risk to the uniform application of Community law, the Commission could resort to Article 11(6) (possibly in conjunction with Article 9(2)).

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For injunctions and/or fines. Conflict and preclusion if and only if it is demonstrated that the injunction and/or fine sought by the NCA is materially inconsistent with (i), (ii) or (iii) above.130 In practice, likelihood of action limited. Uniform application of the law presumably guaranteed by Article 11(6) (possibly in conjunction with Article 9(2)).

The assumptions underlying the above approach would be called into question, however, if the Court of Justice, in deciding the Alrosa appeal, were to endorse the CFI’s vision according to which there is an alignment or virtual identity between the role and function of Article 9 decisions and those of Article 7 decisions.131 At all events, national courts will always have the option, and possibly the obligation, to refer questions to the ECJ with respect to the proper interpretation of EU law—Commission decisions being one of the sources thereof.

Panel VI (papers by Forrester, Edwards & Padilla, Dekeyser, Becker & Calisti, and Coppi & Levison) A. Written contributions Ian Forrester’s paper, Creating New Rules? Or Closing Easy Cases? Policy Consequences for Public Enforcement of Settlements under Article 9 of Regulation 1/2003, begins with words of advice from a bearded sage from near Appalachia about the efficiencies generated by consensual case resolution.132 Forrester’s tale is one of the promise and peril of Article 9 settlements. This tantalizing mechanism, he suggests, puts public enforcement on a razor’s edge

130 Consider also the Commission’s somewhat brazen statement that commitment decisions do not conclude “that an infringement would be terminated as a consequence of the commitments”. Commission, Staff Working Paper, cited supra note 126, para. 94. The Staff Working Paper stresses that the Article 9 procedure is “often guided by considerations of expediency” (para. 99) and by the goal of procedural efficiency (para. 100), the implication being that some matters might (exceptionally) slip through the cracks. 131 See the oral remarks of Heike Schweitzer, p. 543. 132 A popular sage was he. Also conjured up by William Kovacic, oral remarks, in Hawk, ed., Fordham Corporate Law 2006, cited supra note 36, at p. 149.

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lxvi Cartel Settlements and Commitment Decisions between the undeniable benefits of early settlement and the risks posed to the broader development of the antitrust “common law” under the supervision of the CFI and the ECJ. Included in Forrester’s broad discussion is a consideration of the procedure’s allure from the perspectives of the undertaking and of the enforcer. For the Commission, one of the attractions is precisely the source of the ambivalence, i.e., the ability to use Article 9 as a tool to advance policy innovations. If Article 9 decisions were routinely appealed this would be of little moment, but typically they are not.133 Indeed, it is often the mutual interest of the regulator and the regulated in avoiding protracted proceedings that drives each, respectively, to propose and accept commitments, and this is reflected in the remarkably frequent use of this instrument.134 When Forrester says that the future of Article 9 is “possibly too bright”, he does not question the desirability of commitments in individual cases; his concern is for the aggregate effects of the procedure and the risk that the concessions offered up by undertakings (which despite Alrosa may go further than necessary) could lead to regulatory straitjacket effects that chill desirable aggressive commerce in the wider economy. Care must therefore be taken to ensure that Article 9 does not untune Article 7’s string, as another bearded sage from near Cephalonia might say—unless there are good reasons to court discord and flirt with wayward planets, menacing tides and hungry wolves. The point becomes quite vivid when Forrester ponders an imagined history in which, due to the availability of a commitment procedure, judgments like European Night Services and opinions such as that of AG Jacobs in Oscar Bronner, never saw the light of day. On the one hand, Article 9 has its opportunity costs in terms of legal development and legal certainty, and on the other hand it risks error costs in areas of competition law where the Commission’s predilections go further than what Articles 81 and 82 require.135 Another risk Forrester sees (as the title of his paper suggests) is that, driven by pressure to produce “deliverables”, the Commission as a public authority may aim for relatively soft targets and cheap victories while neglecting matters of greater qualitative importance. Resolution of complex cases via Article 9 is another source of concern, and while a case like Distrigaz may create a “focal point” effect leading companies to use it as a template, long-term contracts between dominant firms and willing customers might perhaps be an area where full litigation of the issues and authoritative judgments would be helpful. For Forrester, the handling of Distrigaz is perhaps explained more by the Commission’s legislative agenda than by past infringing conduct.136 The 133

Alrosa was clearly not a typical case. Between 2005 and 2009, the Article 9 mechanism was employed in approximately 20 cases (with several of these still pending). 135 One example given to illustrate this in relation to Article 82 is an imaginary “Mediaprint Commitment”, which once upon a time the Commission might have supposed to reflect sound law and policy. 136 Energy is one of the sectors Forrester has in mind when he airs his concerns about the temptation of regulatory tinkering in certain industries. For a favorable view of the outcome in 134

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Cartel Settlements and Commitment Decisions lxvii Commission’s practice in other “target” sectors is also explored, and the proportionality of commitments made binding is discussed in light of the CFI’s judgment in Alrosa. A concluding admonition calls for vigilance against creeping regulation that stunts commerce. With the current institutional and legislative framework, and with the diminished incidence of adversarial proceedings, the ancient, foreboding question of quis custodiet ipsos custodes is as pertinent as ever. Kirsten Edwards and Jorge Padilla submitted a paper entitled Antitrust Settlements in the EU: Private Incentives and Enforcement Policy. In this contribution the authors focus on the Article 9 procedure and its impact on deterrence and consumer welfare. Summing up some of the older literature on settlements in general, where the main area of concern is the potential divergence between the private interest in settling cases and the social welfare that accrues from litigation in a public forum, the authors explain that there may be excessive litigation or not enough, and it is difficult to know when one or the other will be the case. Transposed to the Article 9 context, one question is: can the Commission and defendants impose external costs on the public at large by too frequently reaching an Article 9 “settlement” as opposed to litigating, regard being had to the strong “pull” of the commitment procedure for both sides?137 The authors also consider the opposite case, in which too few settlements are reached. In seeking to identify the optimal circumstances in which Article 9 should be used, and drawing on earlier work by Wouter Wils, the authors take up some of the points and misgivings expressed by Ian Forrester (see above). Following a rich law and economics analysis, the authors provide a list of policy conclusions taking account of varying assumptions, to which the reader is referred.138 They conclude by pointing toward further extensions that could examine how (for example) network effects or switching costs, or the fact that the defendant operates on multiple markets, might affect incentives to settle. As Europe inches closer to reforms designed to stimulate private antitrust litigation and thus promote compensation and corrective justice, Kris Dekeyser, Rainer Becker and Daniele Calisti’s paper offers reflections on the

Distrigaz, see Adrien de Hauteclocque, “Legal Uncertainty and Competition Policy in European Deregulated Electricity Markets: the Case of Long-term Exclusive Supply Contracts”, 32(1) World Competition 91 (2009). 137 As a public authority subject to some forms of accountability (only a few would seriously contend that the Commission is “running wild”, to borrow an old term from Hjalte Rasmussen), the model adopted to compare settlements between private litigants has to be adapted to take account of the fact that the Commission does listen to its superego and cannot be regarded as acting solely out of self-interest. As the authors suggest, there may be divergence between the Commission’s interest and the public interest in individual cases due to agency problems including, e.g., career concerns. See pp. 670–672 and 675. But as they also suggest, there are accountability and management techniques that can mitigate the possibility of rogue regulators. 138 See pp. 674–675.

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lxviii Cartel Settlements and Commitment Decisions Impact of Public Enforcement on Antitrust Damages Actions: Some Likely Effects of Settlements and Commitments on Private Actions for Damages. The issues raised here are of obvious importance, considering that efforts to find legislative and other means to establish a more effective “federal” system of redress for victims of anticompetitive behavior seems destined to be an important policy aim for the Commission and possibly the Parliament139 over the next five years (i.e., from the end of 2009 to the end of 2014), even if certain Member State governments have expressed their doubts.140 Indeed, the Commission has now taken the next step by preparing an (as of yet informal) Proposal for a Council Directive on rules governing damages actions for infringements of Articles 81 and 82 of the Treaty.141 This early draft has already raised eyebrows in that Article 5(4) contemplates opt-out collective actions as opposed to the opt-in actions contemplated in the White Paper.142 In other respects, the draft has been characterized as a “simple copy-paste” job, which would be a negative assessment coming from any of the White Paper’s critics, such as EP Rapporteur Klaus-Heiner Lehne (CDU).143 On the whole, the proposal is not terribly ambitious,144 and one may anticipate that the draw of litigation will depend mightily on the national forms and methods (in respect of which, for the foreseeable future, a good deal of space will remain).145 In any event, though the kinks will have to be worked out, and though a legal battle

139 But see MEP Klaus-Heiner Lehne (Rapporteur), Report on the White Paper on damages actions for breach of the EC antitrust rules (2008/2154(INI)), Document A6-0123/2009, at pp. 9–12 (generally advocating a methodical approach, and cautioning against coming within miles of the unedifying US model). 140 On the doubts, see Jeroen Kortmann and Christof Swaak, “The EC White Paper on Antitrust Damage Actions: Why the Member States Are (Right to Be) Less Than Enthusiastic”, 30(7) European Competition Law Review 340 (2009). 141 See http://allegati.unina.it/postlaurea/perf/Exclusiva_Juridico.pdf. 142 Article 5(4) of the draft provides that: “Member States shall ensure that any injured party can exercise its right not to be represented by the qualified entity in the representative action.” This will come as an unwelcome surprise to those in the business community who “could not hide the sense of relief which they experienced upon reading the White Paper”. See Bellis, cited supra note 5, at p. 4. 143 See Lehne’s letter to Neelie Kroes, dated 15 April 2009 (in light of Parliament’s distaste for “US-style” opt-out class actions, “I regret that the existing proposal can only be understood as an affront to Parliament [shortly before the June 2009] elections.”). See http://www.svensktnaringsliv. se/multimedia/archive/00017/Letter_EP_to_Kroes_17913a.pdf. Press reports indicated that EPP head Joseph Daul, equally opposed to the opt-out option, was in correspondence with Commission President Barroso concerning the matter. 144 Kortmann and Swaak (supra note 140, p. 341) lay it on a bit thick when they suggest that the Commission “intends to press ahead and introduce far-reaching legislative measures to facilitate antitrust damages claims, as contemplated in the White Paper” (emphasis added)). 145 Cf. Bellis, cited supra note 5, at p. 4.

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over the Community’s legislative competence may have to be fought,146 it would be difficult now to get the (slow but heavy) train to roll backwards.147 Taking the White Paper of April 2008 and the proposals it contained as their compass, Dekeyser, Becker and Calisti explore some of the complementarities and potential tensions between the imperatives of public law 146 See ibid., pp. 349 and 351. Following the German Government and the Bundeskartellamt, Kortmann and Swaak correctly observe that “there is little in [Courage and Manfredi] to suggest that the Commission has a mandate to harmonise certain aspects of the law of antitrust damages”. Nevertheless, the Commission quite reasonably claims that Article 83 (i.e., Article 103 TFEU) is a proper legal base for a Council Directive that effectuates a degree of minimum harmonization. (See the preamble to the Proposal and point 3.1 of the explanatory memorandum, available at the link provided supra note 141.) Contra Rapporteur Lehne (supra note 139, who for unelaborated reasons opines, at page 9 of his report, that “the Commission can certainly not base its measures in the area of national damages and procedural law on Treaty Article 83”. As is clear from judgments such as those in Case 32/65, Italy v Council and Commission and Case 14/68, Walt Wilhelm, Article 83(2)(e) authorizes the Council of Ministers to determine the relationship between national laws and the Community rules on competition. Article 83(1) indicates that the Council may do so in directives or regulations that give effect to the principles set forth in Articles 81 and 82. It may not be obvious to Lehne that this might include minimum harmonization of national procedural rules with a view to ensuring that victims’ rights to damages are assured, but in light of the quite general and unqualified terms of Article 83(2)(e) it is not obvious why such a possibility should be excluded either. Is the link between rights and remedies so tenuous? In any case, according to Article 1(1) of the unofficial draft Council Directive, “[t]he purpose of this Directive is to ensure that consumers and undertakings can effectively enforce their right, guaranteed by the Treaty, to full compensation for harm caused to them by an infringement of Article 81 or 82 of the Treaty”. This arguably “gives effect” to (or perhaps more precisely, contributes to the effectiveness of—cf. Articles 1(3) and 3(1)) the principles set forth in those provisions. Rapporteur Lehne then calls (still at page 9 of his Report) for a more detailed examination of the suitability of Article 65 and Article 95, leaving the question open. Yet, tobacco advertising aside, Article 95 is known more for its promiscuity than for its chaste heart. As for Article 65 (Article 81(!) TFEU), this erstwhile “third pillar” provision provides, inter alia, for the elimination—by way of approximation via the co-decision (or “ordinary legislative”) procedure—of obstacles to the good functioning of civil proceedings, if necessary by promoting the compatibility of civil procedure rules in the Member States. Article 65 only enables the Community to act if the measure contributes to the proper functioning of the internal market (cf. Article 95: “measures . . . which have as their object the establishment and functioning of the internal market”) and where the civil matters concerned have “cross-border implications” (see, e.g., Case C-14/08, Roda Golf & Beach Resort, not yet reported), but presumably at least the latter criterion is fulfilled ratione materiae where Article 81 or Article 82 is triggered. One may also take note of Article 81(2)(e), which introduces an open-textured reference to Community action aimed at ensuring “effective access to justice”. The fallback provision, in the unlikely event that it proves necessary, is Article 308 EC (Article 352 TFEU). Article 308/352 is designed to allow the EU “to attain one of the objectives set out in the Treaties”, where the Treaties have not provided the necessary powers. The “Treaty objective” criterion would presumably be satisfied, given that the right to compensation for harm caused by antitrust malfeasance is “guaranteed by the Treaty itself” (point 1.1 of the explanatory memorandum) and taking account of the principle of the effectiveness of Community law. However, since this “flexibility clause” can only be used where the Council of Ministers votes unanimously (and where, post-Lisbon, the Parliament consents), a very gray cloud would hang over the Directive’s future if it had to be relied on. 147 One could speculate, in the Lisbon era, that a certain number of national parliaments, suffering from sovereignty anxiety, could join Kortmann and Swaak (supra note 140, p. 350) and insist on the absence of a “clear need” and “sound basis” for legislative intervention, which they would presumably do under the post-Lisbon Protocol on Proportionality and Subsidiarity.

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enforcement and the more diffuse interests of actual and potential plaintiffs in Europe, who generally face high relative costs and barriers when they endeavor to go to court. The authors recognize the acute need for a proper conceptualization of the roles of public and private enforcers as a precondition for the effectiveness of the two quite different frameworks in which they operate. Consistent with the White Paper, the authors emphasize two related points. First, the goals of the public and private enforcer must be clearly distinguished: the Commission detects infringements, punishes corporate wrongdoers, and in doing so achieves a degree of specific and general deterrence.148 The European private plaintiff, alone or as part of a coalition of litigants, brings his case before the national courts to claim compensation. From this perspective, the second point stands out conspicuously: what is needed is a “truly European approach”,149 which is synonymous with a “truly non-American approach”. No treble damages, no automatic megaton document disclosure, no notice pleading.150 The authors do recognize that, in executing their tasks, the public and private enforcer may each advance the objectives of the other.151 Indeed, they argue that public and private enforcement should be regarded as faux ennemis. But on the margins (and the margins are not so small), where their interests may diverge, there can be no mistake: the integrity of the Commission’s function is paramount. Limited inter partes discovery is encouraged, but if plaintiffs in national proceedings seek disclosures from the Commission they will have to wait until the need for secrecy has passed. In any case, the corporate statements of leniency applicants must be kept off limits.152 148 For discussion of specific and general deterrence, see, e.g., the authorities cited at page 624, footnote 31. 149 See, for example, Neelie Kroes, “Collective redress—delivering justice for victims”, SPEECH/09/88 of 4 March 2009 (“truly European model”). 150 Until the Commission’s early draft Directive emerged (see supra notes 141–142, one would have thought that opt-out class actions were to be included in this list. 151 See the discussion supra note 24. 152 Leniency is perhaps an area where the faux ennemis might be, at least potentially, ennemis sincères. This would appear to be the case if, say, a cartel victim who was a direct or indirect purchaser of the products of a successful leniency applicant were simply deprived by fiat of the opportunity to be made whole. An admittedly rare (but hardly inconceivable) example would be where the successful leniency applicant is the only solvent firm among the cartelists and where protection of that firm would leave the applicant with no effective remedy despite the formal availability of joint and several liability as regards the other firms. If such a rule did put compensation at risk, then whatever its virtues it would appear dubious from the perspective of effective judicial protection. And would its virtues be so compelling in the first place? In many cases, the primary motivation that spurs companies to apply for leniency may not be security from tort liability but rather the horror of not being first in. The incentive to act on that fear might be particularly acute where cartels have been active in jurisdictions which have credible individual sanction regimes and/or which operate an informant reward program, such as the UK. This horror theorem obviously depends on a range of variables such as, for example, the expected future payoff from loyal cooperation with the cartel and the potential exposure in case of private suit, additional risks where a given cartel is only one among a dense thicket of cartels on multiple markets, and so on. Wouter Wils cautions against swallowing the horror theorem too easily. Following the core logic of tacit collusion, he says: “[o]ne might counter argue that leniency applicants will still come

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In the second part of their paper, Dekeyser, Becker and Calisti discuss, inter alia, the ways in which the Commission’s commitment and cartel settlement procedures can be useful tools for private plaintiffs. While Article 9 decisions and “streamlined” Article 7 decisions may lack valuable information, the authors point out that such decisions at least pave the way to further inter partes discovery. Furthermore, with regard to Article 9 decisions they take the view that “directly concerned” plaintiffs should be able to enforce binding commitments in national courts—a position that seems both sensible and perhaps legally correct,153 even if there is arguably room for doubt.154 forward for fear that another co-conspirator would otherwise apply for leniency first. This argument is only partially convincing, however, because the negative effect of the prospect of followon damages actions also applies to all the other co-conspirators, and any potential leniency applicant will understand this.” Wils, “Leniency in Antitrust Enforcement: Theory and Practice”, 30(1) World Competition 25, 58 fn. 185 (2007). It seems a safe assumption that this line of logic will indeed occur to the cartelists. But how can each potential leniency applicant be sure that each of the others will be reasoning with the same equanimity? Wils himself has underlined the temptation to defect where there is uncertainty and where dithering is penalized. See Wils, “The Commission Notice on the Non-Imposition or Reduction of Fines in Cartel Cases: A Legal and Economic Analysis”, 22 European Law Review 125, 133 (1997) (“From the moment that one cartel member perceives the risk that another enterprise may take this step, there will be a race to denounce the cartel.”); and cf. Wils, “Leniency in Antitrust Enforcement”, cited above, at p. 41 (“Such a ‘race to cooperate’ may amplify the positive effects of leniency, but again such a race can only start if there is a risk that the competition authorities will detect and establish the antitrust violation without recourse to leniency, or at least a belief by at least one of the conspirators that at least one of the other co-conspirators may believe that there is such a risk.” (emphasis added)). Some commentators accept the principle of insulating successful leniency applicants from the consequences of private claims. The chief rationale, of course, is that leniency is the hand that feeds, so let’s not bite it. Indeed, it is not only the enforcer that is being fed, but private plaintiffs too. Such plaintiffs owe the very possibility of bringing follow-on actions to the leniency applicant, and this may be regarded as “compensation” in lieu of damages. I can see the value of this reasoning, but why be hasty? There is hardly any shortfall in leniency applications—the trend is quite to the contrary. To my mind, the EU should only be prepared to limit plaintiff’s rights to recovery insofar as strictly necessary to preserve the integrity of leniency. “Strictly necessary” means that, before the rewards of coming clean are extended beyond immunity from fines to immunity from (single) damages as well, there should at least be a robust empirical case demonstrating the inverse relationship between a single damages regime and applications for leniency. (Despite the existence of de-trebled damages under ACPERA in the US, unfortunately the comparison does not seem promising given the additional incentives to race to the DOJ that result from criminal penalties for individuals.) And until such evidence is assembled, I would suggest that a rule excluding recovery of single damages should be rebuttable so that plaintiffs have the opportunity to show that, under the circumstances of the case, operation of the rule would lead to under-compensation. 153 As private enforcement of commitments would likely save the Commission time and money it’s hardly surprising that this is the official position. See MEMO/04/217 of 17 September 2004. Consider also John Temple Lang, “Commitment Decisions under Regulation 1/2003”, in Gheur and Petit, eds., Alternative enforcement techniques, cited supra note 3, pp. 121 et seq., at p. 138 (CFI’s remarks in Alrosa “about the effects erga omnes of commitment decisions seem to confirm that third parties who are beneficiaries of commitments (e.g., commitments not to discriminate) have the right to rely on the decisions before national courts and national competition authorities, whenever appropriate”.). In their written contribution (see p. 228), Shep Goldfein and Thomas Pak suggest some policy grounds on which third-party enforcement of commitments might be undesirable. 154 See Richard Whish, “Commitment Decisions under Article 9 of the EC Modernisation Regulation: Some Unanswered Questions”, in Martin Johansson, Nils Wahl and Ulf Bernitz,

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lxxii Cartel Settlements and Commitment Decisions Lorenzo Coppi and Robert Levinson delivered a paper entitled The Interaction between Settlements and Private Litigation—An Economic Perspective, and this brings me to the last of our thirty written contributions. Whereas Edwards and Padilla provided an economic (i.e., incentiveregarding) analysis of the Article 9 procedure, Coppi and Levinson focus on the cartel settlement procedure. The impression one has from reading their contribution and others in this collection is that the settlement is a bit of a curious creature and it is indeed destined for some experimentation and evolution. The paper conveys a strong sense of complex balancing, and in his oral presentation Coppi referred to slides depicting scales that illustrated quite vividly some of the tradeoffs at stake—tradeoffs, for example, between the size of the reward and the defendant’s appetite for a fight. In this regard, the authors indicate several times that the Commission appears to have been too frugal in fixing the fine discount at 10%, in particular in the absence of any clear possibilities for adjustments (though I suspect there may well be hidden ones). On the assumption that the risk of follow-on damages actions implies that the reward will have to be supplemented with additional “sweeteners”, the authors anticipate that the Commission may compensate by reducing the information available in the Article 7 cartel decision. This in itself is no great surprise since everyone agrees that these decisions will be “streamlined”; the

eds., Liber Amicorum in Honour of Sven Norberg—A European for All Seasons, Bruylant, 2006, pp. 555 et seq., at pp. 569–570. If NCAs and national courts are not bound by an Article 9 decision, Whish queries, “how can they, nevertheless, be bound by a duty to enforce the same decision?” To Whish and others Dekeyser et al. would respond by insisting on the distinction between the obligation to respect the competition rules (breach of which has not been proved) and the obligation to respect the commitments made binding). See also Gippini-Fournier, cited supra note 18, at p. 401 (distinguishing, with regard to fines for failure to respect commitments, between the issue of culpability for past conduct and “subsequent and distinct” behavior). John Davies and Manish Das study the jurisprudence of the ECJ and find no clear precedent supporting generalized direct effect for commitment decisions. Davies and Das, “Private Enforcement of Commission Commitment Decisions: A Steep Climb, Not a Gentle Stroll”, 29 Fordham International Law Journal 917 (2006). One case of some resonance is Case C-253/00, Muñoz v Frumar. There the Court (at paragraph 29) examined the purpose of a CAP Regulation (Regulation 2200/96) and determined that it was intended to facilitate trade between individuals on the basis of fair competition. It followed that the Regulation had horizontal direct effect. But can this logic be transposed to an Article 9 decision? Not a gentle stroll, it seems. As a potential alternative argument, Davies and Das suggest that the principles of Article 10, as expressed, e.g., in Case C-94/00, Roquette Frères, might be a basis on which to conclude that national courts are obliged to assist the Commission in its task of enforcing the competition rules. Wouter Wils states that “[t]here is certainly no obstacle in Community law to national law providing for the possibility of [private actions to enforce Article 9 commitments]. Less obvious is the question whether Community law requires that such actions can be brought.” Wils, 29(3) World Competition 345, 358–361 (2006), with references. As he observes, it follows from the principle of equivalence that such actions would have to lie in a Member State that has installed a national commitments-type mechanism. But as regards national systems in which the legislator has not acted, Wils expresses some skepticism, partly because Article 9 decisions abstain from any finding, positive or negative, of infringement. The point will surely have to be litigated and decided by the Court of Justice, although its forthcoming judgment in Alrosa may provide a few tempting clues.

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question will be how much streamlining is necessary?155 Undoubtedly, as the procedure progresses through its growing pains many observers will be paying close attention to see how the Commission is calibrating the risks. Overall, the paper underlines very nicely the two-way feedback between the private enforcement apparatus in Europe, such as it is, and the cartel settlement procedure. Going forward, an empirical challenge, as Coppi and John Fingleton both observed in their oral remarks, will be to consider psychological factors that may not easily fit on the scales, but which might be “measured” by the influence they have on them.

B. Discussion Before Emil Paulis proceeded with his overall round-up of some of the main topics discussed during the Workshop, and before the proceedings were brought to a close by Judge Cooke and Claus Ehlermann, there remained the final panel, consisting of Mehta, Bishop, Forrester, Padilla, Dekeyser and Coppi. The roundtable following their presentations covered numerous issues, including a few reprised themes from earlier panels, and several new ones. A few selected points may be highlighted here in brief. With his inimitable style, Simon Bishop took aim at one of antitrust’s sacred cows by suggesting that cartel enforcement might be more nuanced, with a differential posture depending on whether a given cartel can be verified as having concrete detrimental effects for consumers, i.e., whether the cartel is merely bad for aesthetic reasons (where settlement might be an option) or really bad for economic ones (where the enforcer might want to insist on the full penalty of law).156 Just as inimitably, though, John Fingleton defended the principle of equal treatment, even in a world of cartel pluralism. Kirti Mehta was equally unimpressed with such niceties.157 And while Bishop’s suggestion may in fact not be so far outside the box as it appears to be, it is just the same a non-starter.158 There might be more room for debate

155 Cf. Stephan, cited supra note 5, at p. 646 (“Settlements in Europe may serve [an . . .] ‘information limiting’ function for firms, depending on how ‘streamlined’ the final decision following settlement will be.”). 156 “([A]lthough the courts have said that the very act of concluding a collusive agreement must have an adverse effect on competition, that’s not correct from an economic perspective. If we accept that there are bad cartels and then really bad cartels, where only the really bad cartels have an adverse effect on competition, why don’t we think about using that as a filter for evaluating when to consider settling a case?” Oral remarks, p. 608. The “full penalty of law” is a reference to Roger Waters. 157 “[W]here there are big cases where the evidence is very good, consumer harm is going to be very, very likely, so you don’t have to scratch your head about that.” Oral remarks, p. 626. 158 Bishop was not the only one around the table to think the unthinkable, however.

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lxxiv Cartel Settlements and Commitment Decisions regarding a more economic approach to horizontal information exchange,159 but this was not specifically discussed. On settlements or “early resolution” generally, whether consummated under Article 9 of Regulation 1/2003 or within the framework of the cartel settlement procedure, many participants throughout the two days of proceedings, including Ian Forrester in his Panel VI presentation (and in his paper—see above) and Bill Kovacic in the roundtable that followed, underlined the need to preserve the law’s organic integrity and its capacity to evolve by virtue of authoritative judicial pronouncements. Settling too many cases too frequently can crowd out the necessary process of a full airing out of issues and a “periodic re-conditioning and re-validation of doctrine” by a fully independent arbiter.160 In Europe at present, the danger of a “shadow” jurisprudence consisting of accumulated settlements and policy trends seems to be more pertinent for Article 9 cases than for cartel settlement cases.161 It is to be hoped that third parties whose concerns are neglected at the market test stage and who can meet the standing test will challenge Article 9 decisions of dubious merit before the Court of Justice and the “General Court”,162 seeking annulment under Article 263 TFEU, or challenge them indirectly in national proceedings by prompting judges to seek preliminary rulings under Article 267 TFEU. Furthermore, of course, it is a cardinal task of the Commission itself to exercise impeccable judgment in filtering out bad candidate cases for settlement. As for the Courts in Luxembourg who will hear these cases that are better suited for a fully litigated process, it is true that in certain fields of competition law the jurisprudence of the European Courts is unsatisfactory, but the cunning of reason is undoubtedly at work and we have yet to see the full blueprint.

159 See RBB Economics, “Catch-22: The role for economics in the assessment of information exchanges under Article 81”, RBB Brief No. 31, September 2009, http://www.rbbecon.com/ publications/downloads/rbb_brief_31_print.pdf. In their brief, RBB refer to an information exchange between banana suppliers which led to the adoption of a prohibition decision and fines totaling 60 million euros. See Commission Decision C(2008) 5955 final of 15 October 2008 (Case COMP/39.188—Bananas). The Commission’s decision is subject to pending appeals before the CFI. See Case T-587/08, Fresh Del Monte Produce v Commission and Case T-588/08, Dole Food and Dole Germany v Commission, neither yet decided. 160 The quoted language is that of Bill Kovacic, p. 625. 161 Fear of a marginalized judiciary is not shared by all, of course. See Bellis, cited supra note 5, at p. 5. 162 See Article 19 TEU post-Lisbon, and Article 256 TFEU.

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SESSION FOUR

LESSONS TO BE DRAWN PANEL VI PART ONE: Policy consequences for public enforcement PART TWO: Part two: Policy consequences for private enforcement PART THREE: Overall conclusions

1 PANEL DISCUSSION

C HAIR : Massimo Motta P ARTICIPANTS : Rafael Allendesalazar Albrecht Bach Simon Bishop Onno Brouwer John Cooke Lorenzo Coppi Kris Dekeyser Claus-Dieter Ehlermann John Fingleton Ian Forrester

Bill Kovacic Lynda Martin Alegi Kirti Mehta Ann O’Brien Jorge Padilla Emil Paulis Dan Rubinfeld Jim Venit Stephen Wilks

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Panel VI—part one: policy consequences for public enforcement 605

Panel VI, part one: Policy consequences for public enforcement MASSIMO MOTTA: Let’s get back to work, now. The focus of the following speakers will be the lessons to be drawn, from our reflections and discussions, as regards public enforcement. Kirta Mehta and Simon Bishop will be talking about settlements in cartel cases, and then Ian Forrester and Jorge Padilla will address Article 9 commitment cases.

䉴

KIRTI MEHTA: Thank you. The discussion yesterday showed that we all have different motivations for adopting a settlement procedure at the level of the EU. We need to bear in mind that this procedure is part of a broader program of a fight against cartels. We are developing a good record on that score, but it is not a very old record. So we still have to be concerned about establishing and maintaining the credibility of the program, and we have to reinforce its deterrent effects. In our paper,1 you will see that we have confined this procedure to cartel cases, and within that context we suggest that the impact we can have in some cases will be stronger than in others. A company has neither the obligation nor the right to settle, although in the draft Notice2 there is a discussion of some of the factors that will affect whether it is advisable or not to settle in a given case. We have proposed doing this in the time interval between a full investigation and the preparation of an SO. Normally, in a cartel case that is triggered by a leniency application, after a maximum of a year we have a very good idea about the nature of the cartel: the identity and role of the parties, the products, the geographic scope, the conduct, and so on. From that point on, the procedure is quite heavy. Much of what we do, during and after the investigation is screening for confidentiality and business secrets. We have documents, prices, microeconomics, information exchange, discussions, all of that goes in the file. But then much of this is claimed to be confidential between the parties. And the screening has to be done not just once, it may have to be done a few times because once the parties receive our requests for information, they see where the investigation is going and they review a document that they submitted previously and they’ll claim that other documents should also be confidential, and they’ll take something out and so on. All of that is part of the normal preparation of the file. If we then had to fully prepare an SO before going forward with a settlement, we would not save very much time or

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1 Kirtikumar Mehta and María Luisa Tierno Centella, “EU Settlement Procedure: Public Enforcement Policy Perspective”, this Volume, p. 391. 2 Draft Commission Notice on the conduct of settlement proceedings, 2007 OJ C255/51. The final version of the Notice was adopted as 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, 2008 OJ C167/1.

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resources in the procedure, even if we would likely have a more solid case in the event of an appeal. A second point relates to “hybrid” cases. The draft Notice doesn’t really exclude the possibility of settling with some parties but not others. But as I said yesterday, in that case the settlement would not result in the savings we are looking for. Already today we often have cases where some of the parties waive some of their rights, such as the right to an oral hearing. The only way for us to have a sufficient mass of savings is if there is a settlement across the board. We would also like to obtain these procedural economies, and a reduction in the length of procedure, while maintaining the full effectiveness of our leniency program. Leniency now is in its third version. It is now in a state in which it works extremely well. We don’t want to do anything that would reduce the incentives for parties to come forward and seek leniency. Often parties come to us the day after the inspection and they want to settle. “Just tell me what the fine is, I want to settle.” That is certainly a premature moment for us to think about settling. Before we do that we need to have done a sufficiently thorough investigation. And the parties need time too. They need to do due diligence, and then both sides, after developing an adequate understanding of the case, can have a fruitful discussion. On the use of the word “discussion”, I don’t think this is just semantics. We’re really not having negotiations. In a first phase, the Commission will have to assess whether all the parties might settle. If you see already at that stage that there are different opinions, and different level of contestation, then we should simply follow the normal procedure. It might take a year longer, but at least it’s on its way. In other more appropriate cases, we will request permission from our Commissioner to go ahead and explore the possibility of settlement. In that case we can talk about things such as our understanding of the infringement, the product and geographic scope, the nature of the cartel and so on. We would also discuss leniency with a party and we would discuss where they are in the band and what we think their contribution of the evidence has been. The other item to discuss would be the fine range. Some people have said that the Fining Guidelines3 are not so transparent, and that it’s not easy to carry out the calculation and get a number. What has changed is that now you have to look at the affected direct or indirect sales of each party. And already today in this context there is always a discussion. The party says, “These sales are not covered by this infringement,” or “The parties did not discuss this in the meeting that you have evidence of,” and so on. But none of this is a negotiation. We share with the parties what we think is at stake, and they try to persuade us that we are right or wrong about certain points. 3 Commission, Guidelines on the method of setting fines imposed pursuant to Article 23(2)(a) of Regulation 1/2003, 2006 OJ C210/2.

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Panel VI—part one: policy consequences for public enforcement 607 In the second part of the Fining Guidelines, once you have the affected sale, then you also have the issue of the percentage that will be applied. As people have found out, the Commission has not simply applied 30% in all instances. Instead, we have looked at each case and applied a percentage that we find proportionate under the circumstances. So we have things that we can discuss, and then the parties will be in a position to take an informed decision about whether they want to make a settlement submission, or whether they want to walk away. Of course, if they walk away at a late stage, that’s quite a problem for us. We would like to be sure that we don’t end up with a double procedure. Then there is the question of how much of a discount the Commission should offer, and Massimo has suggested 15%. This is something that has to be decided. We also have to consider the impact on leniency, because number two is already in the band of 30 to 50 percent. The settlement discount will be added on top of that. We also have to bear in mind that we are proposing a uniform reduction. It will not vary according to when you come in. In some systems it varies: it’s higher in the beginning and lower later on. In our system the leniency program will reward basically up to three applicants, but not much more. All of that suggests that the discount for a settlement will be quite small. Our assessment is that parties will settle cases if they know that the options are: either you settle, or there will be a decision anyway. Finally, as to the impact on private litigation. There I think there may potentially be some acceleration or private suits, but those are precisely the cases where the parties have already decided to take care of their private litigation. And from this you can see that there is a linkage between the fines and the leniency policy. Leniency doesn’t work if the fines are very low, and we’ve known that for a long time. You also have a linkage between leniency and private litigation. Parties will not come in as a leniency applicant if doing so will expose them to costly private litigation. 䉴 SIMON BISHOP: I’m supposed to talk about things I ought to know, but after this morning’s discussion I realize that I’m going to be talking about things I clearly don’t know. And I’ll make four points from a position of ignorance. The first is that the settlement process is part of a wider effort to maximize deterrence. So that should be our principal question: what is the impact of a settlement procedure on the deterrence of cartels? Now I’ll make two vague, bold statements, and then I’ll raise a question. The first vague, bold statement is: the leniency program will be much more effective in deterring cartels than the settlement procedure. Why? Because the leniency program goes directly to destabilizing cartels. So we should make sure that anything that we do with settlements doesn’t undermine the deterrence effect of leniency. The second vague, bold statement is that settlements don’t necessarily free up resources. When I read this proposal, and when I read about bilateral negotiations, I don’t imagine that these bilateral

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negotiations will be a half-hour and that’s it. For a number of participants they’re going to be drawn out over time. The question is: what has been the impact on deterrence? We’ve got the leniency program, and we’ve had increased fines. What has been the impact? Are we actually just seeing more discovery of old cartels, or are we—more importantly—deterring the emergence of new cartels? More research on that would be an important area of work. The second point is another question. When should authorities use a settlement procedure? Should they use it when they have a weak case or a strong case? If they’ve got a weak case, then a settlement is just a cop-out. But in that case, why would a firm ever accept that? On the other hand, if the authority has a very strong case, why would you ever let these firms off easy? Why not follow through to the end of the case and maximize the penalty in order to improve deterrence? Let me make an alternative suggestion which is based on two heretical points in the cartel area. Just as we know that traffic offences have different outcomes, we also know that different cartels have different impact on consumer welfare. Yes, all cartels are per se illegal, but not all cartels have a significant adverse impact on welfare. Some only have a minor impact, and some have none at all. We know that from the economic theory on the stability of cartels. And although the courts have said that the very act of concluding a collusive agreement must have an adverse effect on competition, that’s not correct from an economic perspective. If we accept that there are bad cartels and then really bad cartels, where only the really bad cartels have an adverse effect on competition, why don’t we think about using that as a filter for evaluating when to consider settling a case? As with any proposal, there are benefits and costs. The benefits of an effects-based system would be that you only settle with those cartels that have not had significant negative effects on consumer welfare. Yesterday Dan Rubinfeld pointed out that people might not settle if they fear private actions. If the authority only settled with cartels that haven’t had a significant impact on competition, you won’t eliminate private litigation, but you will put a ring fence around it and provide firms with stronger incentives to settle. What are the costs? Typically, the Commission and other authorities have quite rightly steered well away from trying to prove effects in cartel cases. It’s difficult, it’s time-consuming, the Commission doesn’t have the time or the data, and it would run contrary to the whole idea of freeing up some resources. But what if the onus were placed on the firms? What if they could come forward with evidence of the effects of the cartel? Then it would be up to the Commission to make a judgment as to whether that evidence is sufficiently robust to make the case appropriate for settlement rather than litigation. My third point is yet another question. What’s the rush? Does it really matter if decisions take an average of three years instead of an average of two years? Once a cartel has been uncovered, then typically the behaviour in

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Panel VI—part one: policy consequences for public enforcement 609 question ceases. So what is the rush to invite these people to settle? Do we need more and more resources because we believe that cartels are being formed on a daily basis, in which case we’d better hurry up and catch all of them? Or is leniency actually having a genuine effect on deterring the formation of new cartels? The final point is: we need to be careful about what we do with the resources that we save by way of settlements, assuming that they are freed up in the first place. It is important not to engage in fishing expeditions. And if there are expeditions, it’s important to ensure that those are quickly closed down. The example that I’ll give here is the mobile roaming case.4 There the companies were raided on suspicion of cartel behaviour, but so far as I’m aware no documentary evidence was found. It was translated into a collective dominance case, and then a single dominance case, at which point it was finally closed. 䉴 MASSIMO MOTTA: Thank you very much. Now we will hear about Article 9 commitment cases from Ian and Jorge.

IAN FORRESTER: I’m going to make a few remarks from the point of view of a practitioner and an occasional teacher. As always, it’s useful to begin with history. I’d suggest that European competition law has always been characterized by an element of private negotiation between the public authority and the private party, a certain confessional closeness between the official and the company. These negotiations in some cases may be exasperating, hostile, maybe bad-tempered, quite lengthy, with a lot of horse trading and concessions made back and forth, and finally, if all goes well, a successful conclusion. That was how it was with notifications. Exemptions were rare, occasional grants of legal stability in exchange for heavy commercial concessions. And the exemption decisions made new law. So in theory, the new law advanced by the decisions of the Commission was produced by a bargaining process initiated by a request by the company for a stamp of approval. Exemptions were the vehicle for advancing new legal principles. The next point is that there is very much to be said for made-to-measure negotiations between the party and the public authority, rather than the notion of block exemptions. However, I suspect that the new decisions will become as block exemptions: new standards for behaviour in the marketplace. So a decision with respect to how much information is supplied by car companies to independent repair shops is going to set a standard followed, in effect, by all car companies if they’re wise. A consequence of that is that the new Article 9 principles are likely to become a kind of mandatory practice, in reality if not in theory. This is perhaps a far-fetched analogy, but I’m

䉴

4 See Press Releases IP/04/994 of 26 July 2004; IP/05/161 of 10 February 2005; IP/07/1113 of 18 July 2007.

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reminded of the precautionary principle used in scientific regulation: if there’s doubt, if there’s controversy, then it’s appropriate for the public authority to prohibit the behaviour or the product temporarily so that it has time to think about it. The precautionary principle has a vice, and that is that it assumes that society is better off if the behaviour or product is prohibited. But that’s not necessarily the case; we simply don’t know whether it’s good or bad. I fear that there may be a certain ratchet effect of Article 9 commitment decisions which gradually impose a set of burdens on enterprise, though just yet we can’t be sure. The danger, of course, is to end up with a marketplace which is regulated by competition law enforcers acting in the best possible good faith. Let’s look at the question from the point of view of the company, particularly in Article 82 cases, which is the current intellectual wild west. There are many, many reasons why a company would prefer to settle rather than digging in and fighting out a battle. Indeed, in the context of discounts, it’s likely that a company like British Airways will be able to do a better deal with the Commission in private negotiation compared to what the outcome would be if the case were litigated in Luxembourg.5 When we have light judicial review in Luxembourg, particularly in fact-rich cases, this means that a company which is condemned has a much worse chance of prevailing on appeal as to the legality of its business model than a company that settles a case by offering commitments. So everyone agrees—I even quoted Abraham Lincoln in my paper—everyone agrees that settlements are better than litigation. You have bargained-for remedies, you have speed, and you avoid litigation with its uncertainties and its delays. For the institution there is the possibility to advance the law, and for the company there is stability as to its business model. My prediction is that respect will be given somehow to the Commission’s Article 9 decisions, although it’s clear from this morning’s discussion that we’re not sure exactly how that’s going to work constitutionally. A word on the selection of cases. Here again it’s no surprise that the cases which have thus far been taken under Article 9—which are listed in my paper, and in Heike’s paper too—are cases about foreclosure, where the competition authority changed how the marketplace worked. In the context of energy, the companies had to give very substantial commitments as to their future behaviour, commitments which aren’t obvious just from looking at Articles 81 and 82.6 And the car companies had to give, on very precise terms—how many euros per hour, how many hours per week—detailed information, secret 5 To imagine what such an outcome might look like, see Case T-219/99, British Airways v Commission [2003] ECR II-5917, upheld: Case C-95/04 P, [2007] ECR I-2331. 6 Commission Decision of 26 November 2008, Cases COMP/39.388—Germany Electricity Wholesale Market and COMP/39.389—Germany Electricity Balancing Market, http://ec.europa.eu/competition/antitrust/cases/decisions/39389/en.pdf; RWE, Commission Decision of 18 March 2009, Case COMP/39.402—RWE Gas Foreclosure, http://ec.europa. eu/competition/antitrust/cases/decisions/39402/en.pdf.

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Panel VI—part one: policy consequences for public enforcement 611 information, to independent car repairers.7 Those concessions clearly went beyond what was called for by the Block Exemption Regulation.8 That’s not necessarily a bad thing, but it’s clear in that case that, judging from what the companies committed themselves to, there was an extension of what’s required by the jurisprudence and what’s required by the Regulation. So we can imagine the creation of new law, in a very interesting and stimulating way, via commitment decisions. Now I would invite us all to go back a few years and imagine what would have happened if we had the commitment procedure say, in 1990. Imagine if Oscar Bronner 9 had been the subject of a commitment decision. Suppose Mr Bronner had come to the Commission saying: “There are generally two methods of distributing of newspapers; first, there’s the conventional method (newspaper stands and kiosks, vending machines and so on) and then there’s home delivery throughout the country. I want to use the much more efficient nation-wide home-delivery model.” Suppose the Commission had taken that up. Well, we would have missed the splendid Opinion of Advocate General Jacobs and the interesting judgment of the Court of Justice about private property. Imagine that Volvo/Veng 10 had been settled, or Tiercé Ladbroke,11 the case about horse race footage in betting shops. Or the essential facilities cases.12 On that last point, perhaps the law today would be where the law is. But if any of the other cases had been settled, I think we would be looking at law today that would be significantly different. Might be good, might be bad, but it would certainly be different. I make those points to suggest that settling cases via Article 9 has a huge attraction, but that—if we project forward five years—their impact on the law is likely to be enormous. Their constitutional status is unsure, but that will be tidied up in due course. I offer a couple of conclusions. It’s part of the genius—if that’s the word, it probably is—of this continent to prefer that which is settled to that which is litigated in court. It’s part of our history, and it’s part of how competition law is advanced in Europe. And that isn’t to be criticized. The risk that we should be concerned about is that Article 9 will be used to advance the law too far, and imprudently, in new areas that escape judicial review. 7 Commission Decisions of 13 September2007, Case COMP/39.140—DaimlerChrysler, 2007 OJ L317/76; Case COMP/39.141—Fiat, 2007 OJ L332/77; Case COMP/39.142— Toyota, 2007 OJ L329/52; Case COMP/39.143—Opel, 2007 OJ L330/44. 8 Commission Regulation (EC) No 1400/2002 of 31 July 2002 on the application of Article 81(3) of the Treaty to categories of vertical agreements and concerted practices in the motor vehicle sector, 2002 OJ L203/30. In particular, see Article 4(2) of the Regulation. 9 Case C-7/97, Oscar Bronner [1998] ECR I-7791. 10 Case 238/87, Volvo/Veng [1988] ECR 6211. 11 Case T-504/93, Tiercé Ladbroke SA v Commission [1997] ECR II-923. 12 Joined Cases C-241/91 P and C-242/91 P, Radio Telefis Eireann (RTE) and Independent Television Publications Ltd (ITP) v Commission [1995] ECR I-743; Case C-418/01, IMS Health [2004] ECR I-5039.

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My final word is about the procedure of the Commission today in taking decisions. At the moment, those procedures simply are not adequate. Politicians who don’t know the case should not decide the case. Hearings should be proper hearings. And there is an intoxication with fines which is embarrassing. Those weaknesses, and others, make settlements via commitment decisions all the more attractive for the private company. Faced with a choice between a possible condemnation and the chances of ultimately winning in several years’ time, on the one hand, and an unattractive but potable settlement commitment on the other, almost any company would say, “I’ll take the settlement, thank you.” Therein lies the danger. And the opportunity. So those features which make commitments attractive to the company do not exempt the Commission from considering further reforms to its own procedures. And I hope it does. 䉴 JORGE PADILLA: First of all, thanks to Claus, Mel and the three chairpersons for a super event. Before being invited to participate, all that I knew about Article 9 were five things. First, a client of mine had tried to settle an Article 82 case, but the Commission wanted to use the case to clarify the law and establish a precedent. Second, two other Article 82 clients considered whether to offer commitments, but they declined because they argued that the Commission, thinking that it had a strong case, would refuse to enter into negotiations. To be frank, it was not clear to me that the clients really wanted to try to negotiate. Third, IBM settled with the Commission in 1984.13 There was no formal decision, but there was a settlement. I thought that was interesting, in particular because of the parallels between that case and the Microsoft case, including the fact that they both involved interoperability and bundling.14 Fourth, Coca-Cola also settled.15 I was not involved in that case, but I read the commitments and they seemed to be quite harsh for the company. I couldn’t tell whether that implied bad negotiations, or whether the negotiations were simply taking place in the shadow of bad case law.16 Fifth, a group of Article 81 clients were convinced that, unless they followed the “suggestions” of the Commission’s case team, they would not be able to settle the case. This was not because of the net effects of the conduct on competition and consumer welfare, but because of wider—much wider—

13 See Bulletin of the European Communities, 10-1984 (point 3.4.1); Commission, XIVth Report on Competition Policy, 1984, points 94–95. See also Commission Press Release IP/88/814 of 15 December 1988 14 For discussion of these parallels, see John Vickers, “A Tale of Two EC Cases: IBM and Microsoft”, 4(1) Competition Policy International 2 (2008). 15 Commission Decision of 22 June 2005, Case COMP/39.116—Coca-Cola, available (in French) at http://ec.europa.eu/competition/antitrust/cases/decisions/39116/commitments_ en.pdf. 16 For a walk through that shadowy place, see Robert O’Donoghue and Jorge Padilla, The Law and Economics of Article 82 EC, Hart Publishing, 2006, pp. 381 et seq.

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Panel VI—part one: policy consequences for public enforcement 613 regulatory and industrial policy concerns. Whether they were right or not, I don’t know. These five observations raise a number of questions. The first is: what are the public interests and the private interests in reaching a settlement? Are the incentives of the enforcer and the firms likely to diverge, and if so, why? Second, from a social perspective, and taking into account ex ante deterrent effects but also future implications, will there be too many settlements? Too few? Second, what can be done to mitigate any adverse effects that settlements might have on social welfare? How can potential negative effects, in terms of deterrence, be mitigated? Are there complementary measures that can be adopted together with a settlement policy to ameliorate potential problems that might result from settlements? These are the questions that I tried to answer in the paper I wrote for this Workshop with Kirsten Edwards.17 The paper benefits from the work of Wouter Wils,18 and some would say that the paper explains, in Greek letters, what Wouter has already explained in plain English. The paper is still a work in progress, but let me tell you about our preliminary conclusions. Some are not surprising. Others are a little bit surprising, and I hope you will see there the added value of the Greek letters. The first point is that the private incentives to settle are greater when—this is no surprise—they are greater when litigations costs are large, when the expected fine is large, when there is a significant probability of an adverse decision that will be upheld by the courts, and when (in particular in Article 82 cases where there might be Article 9 negotiations) the additional profits that the defendant can achieve by continuing with its anticompetitive strategy during and after the litigation period are small. That’s when a defendant will be willing to settle. And note the last point about extra profits. Those extra profits, i.e., the profits the defendant make by delaying and continue litigating and appealing may be particularly large in industries where, due to consumer switching costs, consumer inertia or network effects, tomorrow’s profitability is positively affected by today’s actions. The second result is that the incentive of a competition authority to settle is greater when, first of all (and this is the mirror image of the last effect I just mentioned), the sacrifice in consumer welfare resulting from continued or unsuccessful litigation is large. Second, and this is more standard, the authority’s incentive to settle are greater when litigation costs saved by the settlement exceed the costs of the settlement, both in terms of lost fines and, more importantly, in terms of diminished deterrence. Third, when the preferences of the competition authority in terms of consumer welfare and deterrence faithfully reflect those of society, then we 17 Edwards and Padilla, Antitrust Settlements in the EU: Private Incentives and Enforcement Policy, this Volume, p. 661. 18 See Wils, “Settlements of EU Antitrust Investigations: Commitment Decisions under Article 9 of Regulation No. 1/2003”, 29 World Competition 345 (2006).

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prove that there may be too few settlements, but never too many. In those cases, it may be optimal to adopt measures such as, for example, cost-shifting provisions that increase the incentive of the defendants to settle so as to minimize the negative impact of delay on consumer welfare and efficiency. Fourth, when the preferences of the authority are biased towards deterrence—and there are reasons to believe that they may be, due to things such as career concerns—if there is such a bias, then we may see an insufficient number of settlements. Conversely, if the preferences of the authority are biased towards short-term consumer welfare due to, for example, populistic preferences, and if the authority undervalues the long-term effects of its decisions on deterrence, then you may have too many settlements, and diminished deterrence. The next result is that defendants are less likely to offer commitments precisely in those cases where commitments are more valuable from a social perspective. That is more likely to happen, ceteris paribus, in industries where today’s actions have an impact on tomorrow’s profitability, which is to say industries characterized by consumer inertia, switching costs and network effects. Competition authorities, as I said, may settle too often or too seldom, when there are biases in their preferences with respect to the preferences of society. Those agency problems have to be taken into account dealt with. To do that, there are several possibilities, both organizational and institutional. For example, one factor is that level at which the decision whether or not to settle, since a more senior decision-maker may be less influenced by career concerns. As for institutional factors, judicial review, for example, might alleviate those agency problems. There may also be agency problems on the side of the defendant. The preferences of those who represent the defendant may not be perfectly with the preferences of the defendant’s shareholders. That may happen because managers have diverging interests, or it may happen because some people earn fees out of long processes. The next result is that, as Massimo and Wouter both noted yesterday, the option to settle may also have perverse effects on deterrence. To counter those effects, there is a need for complementary measures. When a settlement procedure is introduced, more money and human resources need to be devoted to the task of detecting infringements. Otherwise, if settlements ramp up without an increase in the likelihood of detection, deterrence may be undermined. Finally, the impact of private enforcement on defendants’ incentive to settle is likely to be positive. Here there is a positive complementarity between private enforcement and settlement policy. Remember, one of the key reasons why a defendant may not want to settle is because it thinks that by drawing out the litigation, in the end perhaps there may be no finding of infringement. This can affect future profits, since today’s actions can affect the structure of the market in the future. To the extent that, through private litigation, those extra profits can be taken away, the incentive to settle will be aligned with

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Panel VI—part one: policy consequences for public enforcement 615 those of the competition authority and society, and the bias towards too few settlements may be corrected. We need to do several other things to complete the paper. Among other things, we’d like to examine the implications of a repeated game in which my decision to settle today may signal what kind of individual I am and what kind of exposure I have to the competition authority. And in the end we’d like to be able to rationalize why, in the two cases I mentioned earlier about interoperability and bundling, one was settled and the other was not. What were the reasons for that, and what were the implications for social welfare of these two different outcomes. That’s a very difficult task, and I’m not sure that our Greek letters, as they are, help us much. 䉴 MASSIMO MOTTA: Thank you, Jorge. Now we can proceed with discussions of how the settlement procedures we’ve been talking about might affect private litigation in Europe.

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Panel VI, part two:

Policy consequences for private enforcement

KRIS DEKEYSER: I’ll be talking about the interaction between public and private enforcement, and about the effects which cartel settlements and Article 9 commitments may have on private enforcement, but I think our discussions from yesterday and today show that we are still facing a learning curve. It is not so obvious to predict how all of these relatively new initiatives would or should interact. As John Fingleton said yesterday, the European system is far from being mature, and both public and private enforcement are still evolving. So I will follow the advice of an English law professor, who told his students a couple of years ago to treat the questions in the bar exam the way they treat the Ten Commandments: under no circumstances should you attempt more than five. So I will limit my intervention to five points. First, I will review some of the principles underlying the White Paper,19 because I think there are still some important misunderstandings. Second, I will touch upon the effects of public enforcement on private enforcement on a general level. Then I will look at the impact of cartel settlements and Article 9 commitments on private damages actions from three perspectives: that of an enforcer, that of victims and that of infringers. Beginning with the White Paper, if we recall certain underlying principles, this may explain why some policy options were preferred over others. The first principle is compensation. This distinguishes the White Paper from the US model of private enforcement. There, for historic reasons, private enforcement was seen as a means of achieving deterrence. In Europe, our aim is to ensure that victims are compensated. This is the reason why in Europe, for example, we do not envisage multiple damages. The principle is single damages for losses sustained—not only actual losses but also lost profits, plus interest. So this is a European approach, and you will see a European approach if you look at the proposals on access to evidence,20 for example, or collective redress.21 You will see that we have built-in filters to avoid excessive litigation. But another important principle underlying the White Paper is that we want to preserve strong public enforcement of Articles 81 and 82 by the Commission and by the European Competition Network as a whole. So we want to optimize the relationship between public and private enforcement so that they can mutually strengthen each other. This means that measures that 䉴

19 White Paper on Damages actions for breach of the EC antitrust rules, COM(2008) 165 final of 2 April 2008. 20 Ibid., point 2.2, pp. 7–8; Staff Working Paper, SEC(2008) 404 of 2 April 2008, chapter 3. 21 White Paper, point 2.1, p. 4; Staff Working Paper, chapter 2. See also European Parliament resolution of 26 March 2009 on the White Paper on damages actions for breach of the EC antitrust rules, 2008/2154(INI). The corresponding Report of Rapporteur KlausHeiner Lehne of 9 March 2009 is available at http://www.europarl.europa.eu/sides/getDoc. do?pubRef=-//EP//NONSGML+REPORT+A6-2009-0123+0+DOC+PDF+V0//EN.

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Panel VI—part two: policy consequences for private enforcement 617 are put forward to facilitate private enforcement should not jeopardize our public enforcement. There are a number of consequences flowing from those principles for the general regime of damages actions. A clear example is the so-called “investigative privilege”, which is also put forward in the White Paper.22 We must avoid any undue requests for disclosures in ongoing antitrust investigations when they are still in a phase in which they are rather critical. That’s why we have proposed a rule according to which courts hearing actions for damages should temporarily refrain from adopting a disclosure order if it would jeopardize an ongoing antitrust investigation. The same need to preserve the effectiveness of public enforcement implies absolute protection of corporate statements. As we all know, leniency is critical for detecting cartels, and it is therefore also essential for follow-on actions. For that reason we insist on absolute protection for corporate statements submitted to any enforcer within the ECN, regardless of whether the application for leniency has been accepted or rejected, and regardless of whether it was submitted before or after the decision. Even voluntary disclosure by leniency applicants should be prohibited, at least until after the SO is issued; otherwise, such disclosure might jeopardize our investigation. The same logic applies for settlement submissions. Another mechanism often discussed in order to protect leniency programs is the preclusion of joint liability of the successful immunity and/or leniency applicants. On this point our ideas are less crystallized. What we have put forward in the White Paper is more typical of a Green Paper; it’s certainly not a fully-fledged recommendation, so there we’d like to have extensive feedback. The possibility that we raise there is to limit the liability of successful immunity applicants to claims made by their own direct and indirect contractual partners. So successful immunity applicants would remain liable on the civil side, but the scope of damages to be paid would be more limited and more predictable. Before reaching clear conclusions on this we need to consider how that fits in with the principle of compensation, and how it would impact other leniency applicants, in particular the highest-ranked leniency applicants. Coming to the specific effects of commitment decisions on private enforcement, in conferences you often hear the question: “If the Commission wants to promote more damages actions, does that it mean it will be more reluctant to take commitment decisions?” The answer, of course, is clearly no. The Commission acts in the public interest, and not necessarily in the interest of private plaintiffs. We have already heard this morning that, unlike Article 7 decisions, an Article 9 decision does not contain any finding of an infringement. Therefore a private plaintiff in a case concerning the same facts would have to establish the illegality of the agreement or practice, as a first step toward obtaining damages. One could argue that an Article 9 decision would nevertheless 22

See Staff Working Paper, cited supra note 20, point 119.

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be helpful because, in the White Paper, we suggest that national courts should be able to order the disclosure of certain categories of evidence provided that the claim is plausible and provided that the disclosure request is proportionate.23 An Article 9 decision could help plaintiffs meet the plausibility test, depending on the weight the national court gives to the decision. What about cartel settlements? These are Article 7 decisions, which means they are binding on national courts as regards the existence of an infringement. It is true that a decision adopted following a cartel settlement procedure will be less rich in facts than a normal Article 7 decision, but victims can rely on such a decision before a national judge in order to meet the threshold for inter partes evidence disclosure. In any event, it is clear that victims will need much more than just the establishment of an infringement. Obtaining an evidence disclosure will be crucial to establishing a causal link between the infringement and the plaintiff’s damages, and to quantify those damages. Finally, settlements in cartel cases would facilitate a better management of enforcement resources. This will lead to more decisions, and to that extent it will generally contribute to more private enforcement. From the perspective of infringing parties, a cartel settlement is only an option where there is a common understanding on the part of both the enforcer and the company on the main parameters of the case, i.e., the object of the cartel, the duration and the main facts. So the real issue will be the amount of the fines, and the level of detail in the decision. As Kirti said, some people argue that defendants will be less likely to settle if they think there will be immediate follow-on actions. I would respond that this is by no means certain, for a couple of reasons. First, if one day an effective system of private enforcement emerges, we would expect that those private actions will be brought anyway. So the incentive to settle would be entirely preserved. Second, opting for a delay rather than settling may not be the most intelligent strategy. If follow-on actions are brought three or four years later, the infringer will have to pay interest at the legal rate, which can amount to a significant sum of money. Finally, today companies are increasingly developing a multi-jurisdictional leniency and settlement strategy. They put all the parameters on the white board: exposure to civil, criminal and administrative penalties, both for companies and employees, and jurisdiction by jurisdiction but also on a cumulative basis. This may result in an overall strategy by the firm to cover itself as much as possible on the public side, and to turn the page as quickly as possible to get back to normal business. If this is the business strategy which has been adopted worldwide, the European settlement scenario may very well fit in that strategy. I don’t think I need to cover the effects of Article 9 decision on private enforcement, as we discussed that extensively this morning. Let me just 23 White Paper, cited supra note 19, p. 5; Staff Working Paper, cited supra note 20, paras. 98–109.

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Panel VI—part two: policy consequences for private enforcement 619 conclude by saying that I would call public enforcement through settlements and commitments and private enforcement faux ennemis. It is true that some safeguards must be put in place, such as investigation privilege and so on. It is also true that the choice as to the type of procedures can have implications for victims claiming damages. But if you have effective and efficient public enforcement, that should only present advantages for plaintiffs who have suffered harm. LORENZO COPPI: Like Kris I’ll be addressing the interaction between settlements and private litigation. I’ll begin with a series of remarks and I’ll finish with some policy considerations. The first observation is that there are two effects which are consistently referred to in the context of settlements and their impact on private litigation. Settlements bring forward the time at which private damages must be paid; and they may affect the amount of information available to plaintiffs. On this last point, there does not seem to be a consensus on how it affects the information available. There may be more or less information, or it may have no effect, and all of that is relevant for the award of damages, but we don’t know yet how it will play out in practice. What can we say about that from the perspective of economics? When a firm deliberates on whether to settle, it will weigh the pros and cons of settling rather than appealing. On the one hand, appealing may allow a firm to delay payment. Kris has just made the point that this factor may not be particularly important, and for some firms that is true. Firms in a good financial position which would expect to pay high interest charges in the future won’t have a strong incentive to delay payment. By contrast, other firms may have an interesting in delaying payment if their CEO has a low horizon, or if they have a cash flow problem (e.g., a company like General Motors, borrowing at 12 percent interest). On the other hand, there is also an incentive to close the book. This is related to financial factors, but it can also be related to the personal preferences of the CEO, the CFO or other key managers. Corporate governance can be another factor. What would incline a firm to appeal? The objective, of course, is to obtain a reduction in fines. Massimo has told us that a purely risk-neutral firm should expect about a 25 percent reduction just from looking at past court decisions. Now, a firm will discount that figure if it is risk-averse, and so it may prefer a certain 15 or 20 percent reduction of the fine to an uncertain 25 percent reduction. On the other hand, by settling a firm avoids legal costs, including the internal resources used by the company in litigating. Those costs may be significant, and their relative importance will depend on course on how high the fines are. Now these are the pros and cons of appealing, and in principle the competition authority does not have any effect on these, they are independent of the authority’s policies. However, a settlement policy, and the way it is designed, can have some effect. In particular, this relates to the possibility that more or

䉴

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less information in a decision will lead to higher or lower expected damages. The final instrument that the authorities have in influencing a firm’s decision of whether or not to settle is obviously the settlement discount. How do we weigh all of these factors and evaluate a firm’s incentives? Quantitative values can be assigned to the expected costs and the expected benefits of settling a case, and for those of you who like formulas, equations and Greek letters, we have included a few of those in our paper.24 A firm that is in a good financial position and derives no benefit from delaying and litigating will require a relatively low discount to be persuaded to settle. The main tradeoff is the loss of the right to appeal, which has some value due to an expected fine reduction, and we discount that value on the assumption that the firm will to some extent be risk-averse. In the other scenarios I mentioned, where a firm has a cash flow problem, or it’s borrowing at 12 percent, or the CEO is at the end of his tenure and prefers to let the next CEO deal with the case, in these types of situations the required discount may increase dramatically. We have to consider another factor as well, because the Commission can decide how much information is included in the settlement decision. This may have an effect on the expected amount of private damages. If a settlement decision contains all of the information found in a normal decision, which is the OFT approach, then this effect will be neutral. On the other hand, if the Commission issues a settlement decision that is streamlined in such a way as to result in lower damages, then we would expect that the discount offered to a settling firm could be lower. My final two policy considerations are the following. First, we have carried out our analysis under what is called an “indifference” condition. That is to say the firm, when carrying out this cost-benefit analysis is indifferent between settling and appealing. The Commission should not necessarily be concerned about offering a high discount from the fine because a high discount does not necessarily result in underdeterrence. If the Commission also considers the effects of private litigation, it can offer a higher discount while still maintaining a level of deterrence. Second, as I said, the Commission can decide on the fine discount and it can control the amount of information in the settlement decision. In the rarefied world of economic theory and policy, one could argue that the Commission should offer a relatively high discount and put a lot of information in its decision. This would maintain a strong deterrent effect; it would promote compensation to plaintiffs, which is a stated objective of the Commission; and it would induce firms to settle, resulting in the procedural efficiencies that the Commission is hoping for. However, in real life, as my five-year old likes to say, I can see why the Commission might not want to do that. This is because 24 Lorenzo Coppi and Robert Levinson, “The Interaction between Settlements and Private Litigation—An Economist’s Perspective”, p. 687.

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Panel VI—part two: policy consequences for private enforcement 621 overall deterrence would remain constant, but the onus of deterrence would be shifted from public enforcement to private enforcement. The Commission would effectively be subcontracting deterrence to private claimants. So I can see why that would not be the Commission’s preferred approach. MASSIMO MOTTA: Thank you, Lorenzo. Now we open the debate, and I have a long list of people waiting to intervene. First is John Fingleton. 䉴

䉴 JOHN FINGLETON: I have four quick points. I like Simon Bishop’s attentiveness to the degree of consumer harm. But in cartel cases I don’t think we should be moving toward a system where agencies have to prove significant consumer harm. That would have the kind of impact on deterrence that we definitely don’t want. And I certainly don’t think it’s incentive-compatible to have companies measuring the harm for us—that creates all kinds of incentive problems. So I don’t think that’s going to be the answer, and it’s a difficult question. Coming to the question of “what’s the rush”, apart from the fact that there is huge pressure on agencies to deliver results, it’s important to underline that the cartel immunity tool provides no deterrence in and of itself; it is an investigative tool. It’s the sanctions that provide deterrence, and there are lots of examples of countries that have well-defined immunity tools and procedures, but they don’t have any immunity applicants, and that’s because they have no sanctions. But countries with strong sanctions have lots of applicants. And if the sanction comes earlier, then the deterrent effect will be felt earlier too. Waiting three or four years for a decision would make a difference. Third, heads of agencies have the difficult job of incentivizing staff to deliver results on time, and that will create pressure for settlements, and at the same time there is also the task of ensuring consistency and quality, and making sure consumer welfare is taken into account. One of the things that might be nice to bring out in Jorge’s paper 25 is the internal structure of the agency. At the OFT, Ali Nikpay and our Chief Economist, Amelia Fletcher, both have to be happy with the overall framework of a decision. Tensions might arise in some instances between the case team’s rush to get things done or to settle a case and the other objectives, in performance management terms, that we have on the policy side. And you might see similar tensions within the Commission, whether it’s internally within DG Comp, or between DG Comp and the Legal Service. So I think that the internal structure of the agencies can be a terribly important safeguard and it helps to sustain the balance between the need to deliver and the need to do what is in the public interest in the long term.

25 Kirsten Edwards and Jorge Padilla, “Antitrust Settlements in the EU: Private Incentives and Enforcement Policy”, this Volume, p. 661.

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I can introduce the fourth point with the famous story about an economics professor looking for his car keys under the light of a car park at the university, and a student comes and says “Can I help?” He explains that he’s looking for his car keys. She says, “Where did you drop them?” and he points to the dark part of the car park and says, “I dropped them over there.” And when she asks, “Well, then why are you looking here?”, he says, “I’m looking here because there’s some light here.” So what does that story mean, in our context? Well, there’s a great tendency to focus on firms’ incentives to settle by looking at things like the fine and the legal fees and so on. But in my experience, the incentive to settle has much more to do with the psychology of the individuals, reputational effects and a whole range of other factors. These may be much more subtle to model, but they’re not impossible to model, and they’re certainly not impossible to think about in a conceptual framework. So just because we can’t measure them quantitatively, we shouldn’t leave them out of the models. 䉴 DAN RUBINFELD: I have two points. First, I’m in agreement with most of what Simon Bishop said, but I wanted to raise one concern. Simon had suggested that it might make sense to settle weaker cases and proceed with stronger cases. But once an authority develops a reputation for settling weaker cases, you might have a potential unravelling. The parties will be aware of this strategy, and they may hold back on settling in the hope that the case will fade away and disappear. So it’s not clear that this kind of approach would be successful. More importantly, as some here have suggested, it’s appropriate for the public authorities to think about the precedential effects of their actions. And it’s entirely appropriate and desirable for the authorities to decide which cases really ought to proceed in order to establish good precedents. In the US, we have relatively few legal precedents each year, but if the agencies are careful in influencing the right cases and helping to make sure those cases are resolved with clarity, that can have great social value. The second point is that settlements happen, of course, because parties come to the conclusion that they’re better off settling than contesting the case further. That’s very clear. But it does not follow that settlements lead to less deterrence. It may be true, but there’s nothing automatic about that. Parties settle because by doing so they avoid risks, and one risk that is avoided is that of the substantial cost of embarking on a long adversarial endeavour. And deterrence is not measured just in terms of what the fine is; it also has to take account of the avoided costs of litigation. You can actually get very substantial deterrence in settlement cases, and indeed you can have more deterrence in a settlement case than you would if you held out and went to trial.26 26 See, e.g., A. Mitchell Polinsky and Daniel L. Rubinfeld, “A Note on Optimal Public Enforcement with Settlements and Litigation Costs”, 12 Research in Law and Economics 1 (1991).

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Panel VI—part two: policy consequences for private enforcement 623 RAFAEL ALLENDESALAZAR: On Article 9 cases, I think commitments should be reserved for those cases where a cease-and-desist order would be inefficient. And it is very difficult to design and apply sound remedies in an adversarial setting under Article 7. The authorities should avoid bright ideas, and the version of Windows which the Commission compelled Microsoft to offer is a good example of just how badly remedies can be designed.27 Now compare that with what happened in the Coca-Cola case.28 There the Commission had originally thought about imposing the same idea for drink dispensers as for freezers. So there would have been no exclusivity for dispensers. But then Coca-Cola explained that if someone got sick after drinking from a dispenser, and if it was not clear whether the faulty product was Coca-Cola’s own product or the product of a competitor, this could cause enormous difficulties. In the end, the Commission did not insist on that condition, and this shows how flexibility on remedies under Article 9 can produce workable measures that meet the goal of eliminating restrictive practices with a minimum and proportionate disruption of the defendant’s business.

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ALBRECHT BACH: I’m tempted, like Ian Forrester, to start with history, though I won’t go back to Adam and Eve. But when the proposals for modernizing the European competition enforcement system were discussed, clearly private litigation was seen by the Commission as a sort of substitute for a lessening of enforcement which was foreseen as a corollary of the abolition of the notification and exemption procedure. Are we able, at this stage, to “subcontract” some part of deterrence function to private plaintiffs? Clearly not. The discussion of private enforcement reminds me rather of Loch Ness. We talk a lot about it, and sometimes the head is seen, but it has yet to really make its presence felt, at least in most European countries. I understand that it is in the Commission’s interest to avoid stimulating private actions if there is any risk that this will have a negative effect on its enforcement activities. The question is whether, at this stage, the Commission should block access to any documents created under leniency or even under settlements. Unless the Commission firmly believes that it is capable of convincing the Member States that an inter partes discovery process should be established throughout Europe, the Commission can’t walk away and leave these crucial evidence problems to the unsatisfactory procedural mechanisms that are currently in place. What puzzles me is that, in Europe, the sorts of efforts made in the US to reconcile private action and leniency29 are not even explored. Why isn’t the

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27 See, e.g., Hewitt Pate, “The Thirteenth Chime of the Clock”, 4(1) Competition Policy International 50 (2008). 28 Cited supra note 15. 29 See the DOJ’s contribution to the OECD’s Roundtable Discussion on Private Remedies, DAF/COMP/WP3/WD(2006)34 of 31 May 2006, http://www.ftc.gov/bc/ international/docs/RdtbleOnPrivateRemediesUnitedStates.pdf, points 31 et seq.

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Commission able to ask someone who comes in for immunity to cooperate in the effort to ensure redress for those who have been harmed by the cartel. Whether that takes the form of a full disclosure or whether it is some other means of compensation, as has been proposed in the Netherlands, I simply don’t understand why solutions of that nature couldn’t be explored at the European level. It would come at a very low price, or no price at all, to the Commission. For that matter, why hasn’t the Commission explored the approach of the OFT, as described by Ali Nikpay, where the OFT says they will not settle unless they are sure that no harm is done to the prospects of redress for victims? 䉴 JIM VENIT: If we had been here ten years ago, we would have seen resistance from the Commission to leniency and certainly to private damage actions. I think we need to understand the roles of the different institutions involved in market regulation. The role of the enforcer is to detect, and to some extent, to deter. Detection means a leniency program—that’s been proven to be the most powerful means of detecting cartels. As for deterrence, it’s clear that criminal systems deter much more effectively than non-criminal systems. They also produce settlements faster, because individuals don’t want to go to jail. In terms of compensation for harm, and the redistribution of wealth, I think that is an area that’s best left to private actors litigating before courts. It’s true that there should also be a balance between that legitimate role of private enforcement and the needs of public enforcement. In the US, the DOJ was able to provide an additional strong incentive to leniency applicants by de-trebling private damages.30 But in the EU we don’t have treble damages, so we can’t hold out that carrot. But in addressing these questions, we should always be aware of what is the role of the institution concerned, and of what its proper function is. In the case of the enforcer, it should be detection and deterrence, but not redistribution and not regulation.

ANN O’BRIEN: I would agree with Dan Rubinfeld’s point that settlements can actually increase deterrence, and this is for a very practical reason. We should recall that there is specific deterrence and general deterrence.31 If you look at the speeches of the DOJ, you’ll see that our focus is predominantly on general deterrence. And as a result of the combination of our leniency and settlement programs, we are bringing more cases, and this is how we can 䉴

30 See Antitrust Criminal Penalty Enhancement and Reform Act of 2004, Pub. L. No. 108-237, § 215, 118 Stat. 665, 668 (2004). 31 Specific deterrence refers to particular sanctions and their effects on the incentives and/or capacity of individuals to violate norms; general deterrence refers to the much broader mechanism of social control arising from a system of sanctions. See, e.g., Dan Kahan, “The Secret Ambition of Deterrence”, 113 Harvard Law Review 413 (1999); Gary Kleck, Brion Sever, Spencer Li, Marc Gertz, “The Missing Link in General Deterrence Research”, 43 Criminology 623 (2005).

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Panel VI—part two: policy consequences for private enforcement 625 maximize the deterrent effect of our enforcement policy. Bringing more cases enables us to increase the overall number of convictions, and this enhances general deterrence. To put a finer point on that, our plea agreements are designed to induce cooperation and acceptance of responsibility, and these agreements result in convictions that we might not obtain otherwise. Furthermore, we might uncover one cartel thanks to our leniency program, but then with our Amnesty Plus program and the settlement process it’s not uncommon for a settling party to disclose to us the existence of multiple other cartels that we would otherwise never have detected. And from this progression of disclosures there emerges a “cartel tree” that we use to chart our enforcement actions. As for the question about whether competition authorities merely uncover old cartels as opposed to deterring new cartels, in the US we have the added deterrence of criminal sanctions. So a corporate executive sitting in a meeting between competitors, I think we can pinpoint this as a very effective element of deterrence. I do not say that in order to advocate criminal sanctions in other jurisdictions, but it is something we know very well from our experience. Certainly an executive will not tell you that he or she engages in a cost-benefit analysis before going into a cartel meeting, but corporate legal advisors in the US have told me that executives tell them they will not participate in a cartel in the US, because they don’t want to go to jail. So the criminal regime has very real deterrent effects, and I’d encourage you to talk to members of the bar and to the business community to understand how that calculation is made. BILL KOVACIC: This last round of presentations usefully illustrates three things that can go wrong in settlement or bargaining scenarios. First is the risk that the competition authority will take cheap deals, for one of two reasons. Either it is risk-averse and maybe has doubts about its capacity to execute, or else it just wants to run up the numbers. To the extent that the larger community of competition officials counts numbers as being the measure of performance, you run up the stats by settling lots of cases. The second thing that can go wrong is that you can simply make good faith errors. You either ask for too much, that is to say, more than you might need, especially where the authority insists on conduct or structural undertakings on the civil side; or you ask for too little, for example you establish a short conspiracy period when it should have been longer. The third risk, and Dan Rubinfeld mentioned this a moment ago, the authority can pay too little attention to the creation of binding doctrine. I think settlements over time can become a narcotic, where the agency begins to think, since it’s reaching a lot of settlements, that it’s re-setting the boundaries of law. But of course the only way you can do that is by going before tribunals and securing judgments. If you rely too much on settlements then you’re not promoting the periodic re-conditioning and re-validation of doctrine which is a primary role of the courts.

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From our discussion I also see two kinds of antidotes. One kind consists of things the agency can do itself. It can make a conscious effort to ask questions such as: what savings are we achieving and how will we use these resources? How do settlements relate to a larger framework in which other key variables include liability standards and the quality of punishment, all of which are interrelated. Second, the discussion underscores once again the importance of having an effective evaluation program. The point is to measure actual effects of policy, and to ask basic questions about how things are turning out. Third, we can see the importance of transparency and the importance of explaining to outsiders what’s taking place, at least for the purpose of stimulating a debate. As a second kind of antidote, there are two devices outside the agency. First is a mechanism of robust review by a third party. In the case of plea agreements, as Diane Wood and Ann O’Brien described yesterday, judicial oversight can be important. Then we come to private enforcement, and its links with public enforcement. Here it’s necessary to ask whether it’s useful to have multiple rounds of enforcement, so that, for example, if one actor gets it wrong, then others can fill the gap. That requires careful efforts to decide where and to what extent the intervention of private plaintiffs is welcome. ONNO BROUWER: I have a question about Lorenzo Coppi’s paper, which I found very interesting. Yesterday we said there may not be much information in the file of a competition authority which could be used as a basis to claim damages, and that’s why inter partes discovery can be important. So the authority’s options as to how much useful information it can include in its decision might be limited to some extent. But the question I have is: to what extent does your paper imply that the competition authority has a lot of leeway in terms of what information it disseminates and what information it does not disseminate. I can see that you will not disseminate information which would undermine your investigation (up to the SO), or which would undermine your leniency program, but beyond that I’m not sure that there’s much leeway for a competition authority to withhold objective information that it has, if that would have an impact on private enforcement. 䉴

KIRTI MEHTA: I agree with Dan’s point that settlements do not reduce deterrence. And where there are big cases where the evidence is very good, consumer harm is going to be very, very likely, so you don’t have to scratch your head about that. Many of the cartels we see, when we have a lot of information about them, is that they have very strong mechanisms for organizing the cartel. One has to be careful about calling a case weak or strong on the basis of whether the cartel has a strong impact on consumers. On the subject of private litigation, we should remember that the payoffs for the parties are very different. If you are a leniency applicant and you get a reduction of

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Panel VI—part two: policy consequences for private enforcement 627 50 percent, and then if you get another reduction for coming in and settling, that is a substantial fine reduction. Then the third one is better off not coming in at all because he is better off settling and not disclosing any evidence. But my main point is that the objective of anti-cartel policy is not to adopt more decisions with fines, but we want to see an end to cartel activity. Are we deterring new cartels? Well, anytime we carry out an inspection, that’s an ongoing cartel. But over time the policy is aimed at reducing participation in those cartels. Looking back over the results under the three Leniency Notices that we have adopted, there is a trend going in that direction and this will become very apparent in the future. I also agree that in some cases it’s necessary to go to court. In cartel cases there are lots of issues that have become clearer following litigation. I think that can only help. Furthermore, an important cartel decision that is upheld is a very important source of deterrence. So we should not underestimate that. 䉴 LYNDA MARTIN ALEGI: Like Bill, perhaps, I’ve been reflecting on the importance for an agency of maintaining the credibility of its system by having an adequate record of well-reasoned and robust decisions, some of which have been challenged in court as a background to settlements, which are then effective not only in individual cases but also more broadly from the standpoint of the public interest. It strikes me that when the Commission’s proposed settlements system is implemented, or maybe already, there may be a soft harmonization effect, as so many Commission policies have. But my question is whether the Commission has given further thought to that process of soft harmonization in this instance. It may be that not all national competition authorities have the same record of strong, well-reasoned, robust decisions, against which a settlement regime can be most effective. It seems to me that the Commission might help them to avoid premature addiction to the narcotic of settlements.

STEPHEN WILKS: I’m tempted to reflect on a lot of the discussion we’ve heard. I will resist that temptation, not least because Emil Paulis will be doing that in a little while. But the discussion over the last day and a half has been fascinating. It has answered a lot of questions that I came here with, but then it also generated a lot of questions that hadn’t even occurred to me before I got on the plane for Florence. I have two questions that I would have liked to have heard more discussion on, although Simon Bishop helped to clarify these. One is whether deterrence means detecting old cartels that are just coming out of the woodwork, or whether deterrence is about preventing new cartels from forming. And Kirti, you began to address that as well. It’s almost an impossible question, of course. The second question concerned Simon’s point about bad cartels and very bad cartels. That’s a lovely idea, and you cited consumer welfare as a criterion for distinguishing between the two. But in terms

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of a competition authority’s ability to prioritize and choose the right instrument, I would think these kinds of distinctions could be helpful in that regard. JOHN FINGLETON: On Stephen’s question about late-life cartels, one of the key features of the OFT’s evaluation work on cartels is that we do not measure and take credit for the cartel that existed. We do take credit for ending the cartel, and we try to do an estimate of when we think the cartel would have ended in the absence of enforcement. That’s part of our published methodology. And we provide that information not just to be honest about what we’re doing, but to incentivize staff within the agency to come up with ever-cleverer ways of raising that figure, because it’s a key performance indicator. We have also just introduced an informant reward program,32 because we think that, in addition to an immunity program, rewards are also a very useful tool for destabilizing cartels earlier in their lives. Part of the reason why our staff in the agency were so keen to have that informant reward program in place was because of the way in which we measure the deterrent effect. So the whole thing comes together as a virtuous circle, with different tools complementing each other and helping to enhance the performance of the agency. 䉴

SIMON BISHOP: Dan’s comment demonstrated that I’m not only ignorant but also inarticulate. What I meant by a weak case was a case where the Commission doesn’t have the documentary evidence to support, for example, the whole cartel period in which the cartel was actually operating, while a strong case would mean that the Commission does have strong documentary evidence. I wasn’t suggesting that they should go for weak cases, I was trying to flag which of those kinds of cases the authority should crack down on. My point was really that, if the Commission is settling cases, it should be doing so in cases of bad cartels and not very bad cartels. John made the point that leaving it up to the parties to say whether the cartel was bad or very bad raises incentive compatibility issues. But that’s true of any economic submission, or any evidence in any kind of antitrust case. The parties always want to submit their best arguments. It’s up to the authorities to assess whether that evidence is acceptable or not; no one is compelling them to do that. A final point relates to Ann’s suggestion about the effectiveness of individual sanctions and the positive impact they can have on deterrence. My question is: where is the proof? Is there actually proof that fewer cartels get started in countries where they have established criminal prosecution relative to their experience before criminal sanctions were adopted?

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32 See http://www.oft.gov.uk/advice_and_resources/resource_base/cartels/rewards. For discussion of such programs, see, e.g., William Kovacic, “Private Monitoring and Antitrust Enforcement: Paying Informants to Reveal Cartels”, 69 George Washington Law Review 766 (2001).

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Panel VI—part two: policy consequences for private enforcement 629 䉴 IAN FORRESTER: A few quick comments. Whether we’re talking about Article 7 and cartel settlements or Article 9 commitments cases, I think everyone around the table is happy that these instruments exist, but I think everyone on both sides has the feeling that they require some calibration and fine-tuning. I echo what Kirti Mehta said, and I would suggest to put it in the following way: the proper role of a competition authority shouldn’t be that of chief of police, but maybe that of public health supervisor. It’s not your goal to send people to the electric chair, it’s your goal quietly to eliminate the underlying problem. I don’t agree that companies make a financial analysis about whether to go ahead with cartel-like behaviour on the basis of the bottom line. The person who is the boss is not the person who participates in the cartel. In my experience, the person who is the boss is almost always appalled by the immense reputational damage, the damage to the business model, the unquantifiably huge fines, and the disruption for his enterprise. So I don’t mind doing a financial analysis, but I don’t think it’s realistic to quantify carefully the benefits and drawbacks of a company that discovers that it has been involved in a cartel. With respect to Article 9, I think that workable remedies are plainly achievable far more easily in a bargained-for environment, and not where there is a condemnation. That means the authority has to make sure that the cases are well-chosen. I would suggest, provocatively, that maybe it would be a good idea to look for a couple of illustrious cases under Article 81 or 82 which could help to clarify the law. Under Article 82, why not settle a case involving a discount regime, and then the Article 9 decision could modernize the Commission’s rules on the subject of discounts, and that way the Commission could distance itself from British Airways.33 Under Article 81, why not look for a case where a company has engaged in an imprudent exchange of information in careless good faith, and suppose it’s not really a serious case. Settle that case with commitments under Article 9, and that way you might advance the law. Last observation. We do need more judicial oversight. That would be very wholesome, especially at the interlocutory stage. But as of now, none of those reforms is on the table. I hope that by the end of this decade they will be.

KRIS DEKEYSER: I’ll just respond briefly on the issue of whether the immunity applicant should help private plaintiffs, for example by giving evidence or, as was mentioned yesterday, the notion of making the grant of some compensation a condition for immunity, or reducing fines where there is a commitment to grant compensation. On all of these we have to be extremely careful. We cannot do anything that would create a chilling effect on our leniency program. With respect to the idea of reducing the fine where the defendant agrees 33

Cited supra note 5.

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to provide compensation, the problem is that this would oblige the public authority to identify the harm caused, and to quantify it and so on. In a cartel case, that is not our role. A cartel case is a restriction by object case, so we are not required to examine a cartel’s effects on the market. So that would be an enormous additional task for a public authority, and I think we can leave that to the private sector. 䉴 LORENZO COPPI: John Fingleton made the point that psychological factors are very important when a firm decides whether or not to settle. I wholeheartedly agree, but I would submit that you may not need to model those factors and understand them in detail if you can simply measure them. So empirical research telling us how firms behave may be more important than theoretical analysis that tells us why firms behave in a certain way. Onno Brouwer raised a very good point: do I think that the Commission has any discretion in the amount of information that it can make available to the public? My understanding is that the Commission has been increasingly redacting information in public decisions, and that may be a way of doing it. Perhaps the Commission’s discretion is very limited in single cases, but it does have some discretion ex ante as to how to design its settlement procedure. On the general interaction between settlements and leniency, we might ask whether a company that will have reductions for both leniency and for settling would be deterred from entering into a cartel. I think that even with relatively high reductions there would still be deterrence because of the likelihood of private actions. In the US, an amnesty participant doesn’t pay very much in the way of criminal sanctions or fines, but there is still deterrence due to the prospect of civil liability. Finally, authorities should not be wary of granting a high discount for settlements. A relatively high discount rate will increase a company’s incentive to settle, and it may not affect deterrence. An authority might be concerned about opening the floodgates, and they may want to manage the process so that only a few cases at a time are settled. But that’s a policy decision for the Commission, it shouldn’t be based on the dubious premise that high discounts are bad for deterrence.

䉴 MASSIMO MOTTA: Thank you, Lorenzo. Now Emil has the intimidating task of providing us with his overall conclusions.

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䉴 EMIL PAULIS: I moved on from DG Comp a week ago,34 and already after one week I have forgotten everything. (general laughter) And as I was coming to Florence to participate in the Workshop I realized how difficult it was to focus my mind again on such a complex range of issues. Let me begin with a couple of points. First of all, everyone will have appreciated that this is not just law, this is also policy. And a lot of policy choices will have to be made in relation to the settlement procedure and then, in the longer run, in relation to private enforcement. Everyone also realizes, hopefully, that we are only at the very beginning. We can expect both the law and policy in these areas to evolve. There are certain features about this process that I would like to underline. Above all, the purpose of a settlement procedure in cartel cases is to strengthen public enforcement. The point is to increase deterrence by increasing the number of cases we can bring. The procedure is certainly not intended to weaken deterrence through a reduction in fines, and it does not subcontract public enforcement to private claimants. With respect to this procedure, some have suggested that it is heavily weighted in favour of the Commission. But the comments I hear coming from the plaintiffs’ side and the defendants’ side are mutually quite opposed to each other. These opposite reactions seem to indicate that the Commission is rather in the middle, where it should be. More importantly, even if the procedure conferred substantial advantages on the Commission, do not forget that by launching the private enforcement project we have engaged in a massive enterprise in which we have looked carefully at the rights of victims. That project is aimed precisely at benefiting the consumers victimized by anticompetitive conduct. There is therefore no question of the Commission ignoring or forgetting about plaintiffs in that context. It is my personal conviction that, as the Commission goes forward with settlements it is highly important for the entire process to become more and more transparent. There needs to be greater transparency, and there needs to be more consistency with regard to the fining policy of the Commission. That is absolutely fundamental. It is equally fundamental that whatever the Commission does remains fully under the control of the European judges. If we do not have the control and support of the judges, the settlement system won’t be credible, and it’s not going to fly. So for the purpose of ensuring the legitimacy and fairness of the procedure and its application, we need to have judicial control. Another point that has been made concerns the variety of national systems, and the fact that they are not aligned. If we look at this from a long-term 34 At the time of the Workshop, Mr Paulis had just taken up his new post in DG MARKT as Director of Directorate G, “Financial services policy and financial markets”.

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perspective, just as we have seen with leniency programs, we have had major differences across jurisdictions with respect to leniency programs. In the beginning there were some Member States that had programs, others that didn’t, and those that did had different criteria and characteristics. But in this regard we have benefited from a dynamic which is built in to the European Competition Network. Today, I’m very happy to say, nearly all Member States have a leniency program,35 and we have a Model Leniency Program.36 And I think we can expect exactly the same thing with settlement programs. We will see a dynamic of convergence, and so I’m not worried at this early stage about the differences. There has also been discussion of the reward, that is, of the fine discount that will be granted to settling defendants. Different people will consider different percentages to be the appropriate one. That is something that I think you will just have to leave to the trial and error of the Commission. But it needs to be stressed that this reward is part of a larger system. As Kirti has explained, we don’t have only one rebate. We also have immunity, and we have leniency reductions, and these can combine with the reduction granted for settling. The interplay of those elements remains to be seen, but there are plenty of good incentives in the system to bring people forward, and to encourage them ultimately to settle. Some of you have questioned why, in a settlement submission, it should be necessary for a defendant to recognize liability for an infringement. That is an important issue. It’s not enough to refrain from contesting facts. Think of a crisis cartel.37 What is a crisis cartel? Should that be characterized in the same way that we would qualify a straightforward hard core cartel? This is just to exemplify the fact that many, many issues of qualification can arise in a case, and it’s very important for a settling defendant not only to concede the facts but also to accept legal responsibility where it has infringed the competition rules. In any event, where the Commission settles a case this will take the form of an Article 7 decision, which means that within a few of months of settling there will invariably be a formal finding of infringement. And under Article 35 As of 28 February 2008, 25 of the 27 Member States had adopted a leniency program, all of them except for Malta and Slovenia. See http://ec.europa.eu/competition/ecn/leniency_ programme_nca.pdf. 36 See http://ec.europa.eu/competition/ecn/model_leniency_en.pdf. 37 Historically, see, e.g., Commission, Twelfth Annual Report on Competition Policy (1982), points 38–41 (emphasizing structural overcapacity with no hope of recovery in the medium term); Synthetic Fibres, 1984 OJ L207/17 (Article 81(3) exemption); Stichting Baksteen, 1994 OJ L131/15 (Dutch brick market—Article 81(3) exemption). See also the judgment of the CFI in Case T-148/89, Tréfilunion v Commission [1995] ECR I-1063, para. 117 (describing other Commission decisions where crises in the zinc and flat glass sectors had led to a mitigation of fines). For discussion of the EC practice, see, e.g., Andre Fiebig, “Crisis Cartels and the Triumph of Industrial Policy Over Competition Law in Europe”, 25 Brooklyn Journal of International Law 607, 619 et seq. (1999). Of course, many national jurisdictions (such as Germany and the Netherlands, to cite only two examples) have had experience with crisis cartels.

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16 of the Regulation, national courts and national competition authorities will not be able to call that finding into question. So what’s the difference, then, for the defendants? What about the position of third parties? I agree with Kris Dekeyser that the Commission should be very prudent and should firmly give priority to our public enforcement system. Don’t kill the hen that lays the eggs. We have got to get the ranking of priorities right. For the Commission, there’s no doubt that public enforcement will always have priority, from our perspective, over private enforcement. Public enforcement yields many benefits, including not only deterrence but also benefits for private plaintiffs. Why should we carry the burden of individual plaintiffs? If the needs of individual private plaintiffs would lead to delays or otherwise impair public enforcement, then in fact that would be detrimental to plaintiffs overall, and that is not what we want. It should also not be forgotten that the Commission is under no obligation to reach a finding of infringement.38 We have no obligation to facilitate private enforcement. We only have to act, within the framework of the control of the Community Courts, under very limited, specific circumstances.39 So let’s keep the church in the middle of the village. The Commission will always give priority to its public enforcement priorities, and rightly so. Furthermore, if the Commission settles a case, and if this means that the decision takes advantage of shortcuts, and it doesn’t contain all the information that it would have contained if the investigation had gone on for several years, that does not preclude plaintiffs from going to court on the basis of additional facts establishing that the scope of the cartel was wider. It is true, however, that we have made a policy choice. We will focus on inter partes disclosure of evidence at the cost of the litigating parties, and not at the cost of public enforcement. We also think that, pending the period of inter partes disclosure, if we opened our files this would have a very negative impact on the efficiency of public enforcement. The next point, and I was very glad that John Fingleton insisted on this, is that as enforcers we should not be expected to prove that cartels cause consumer harm, and actual effects on prices. Sorry—that’s not our business! 38 See Case T-24/90, Automec v Commission (“Automec II”) [1992] ECR II-2223, paras. 63–69 and 72–86, especially paras 77 and 83. The ECJ has confirmed that the Commission may set its own priorities, although the Commission has a duty to state reasons sufficiently precise to enable the CFI to review the Commission’s discretion to establish those priorities. See Case C-119/97 P, Ufex v Commission [1999] ECR I-1341, paras. 88–93; Case T-193/02, Piau v Commission [2005] ECR II-209, para. 80, appeal dismissed by Order of the ECJ, Case C-171/05 P. 39 The Commission is only obliged to act in what are now the rare cases where it has exclusive competence. See Automec II, cited previous footnote, para. 75. On the basis of the cited paragraph, this would include the (very uncommon) decision to withdraw the benefit of a block exemption (Article 29(1) of Regulation 1/2003, assuming Article 29(2) does not apply). On the other hand, the same principle is unlikely to apply to Article 10 of the Regulation (famous for never having been used), despite its attribution to the Commission of exclusive powers, as that provision can only be used by the Commission on its own initiative.

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That’s not the business of a public authority. So again, let’s leave those issues to be debated in national courts. One question which has come up several times is about whether companies will have incentives to settle, or whether instead they will contest the case and appeal the Commission’s decision. And it has been suggested that perhaps if the company puts up a fight then it can delay payment, which it might want to do if it has a cash flow problem. Don’t forget that Commission decisions are immediately effective.40 So even if you appeal—and good luck to those who go to court and ask for a suspension of a cartel decision41—during the appeal, the Commission’s decision all the while has binding effects, and it can be used immediately by private plaintiffs in national courts. And a national court would only stay its proceedings if there was a real, fundamental question about the illegality of the Commission’s decision.42 In that regard, it’s worth stressing that in cartel cases where Commission decisions are annulled, they are annulled for purely procedural reasons, or because of the level of the fine. Only rarely are they annulled on grounds relating to the core finding of an infringement. And that is something which I think stands out very conspicuously in the landscape. On Article 9, Ian Forrester suggested that with these decisions the Commission might regulate markets and produce bad law beyond the reach of the Community Courts. I think we should compare Article 9 with what we had prior to Regulation 1/2003. Would you prefer informal settlements? Realistically, there will always be settlements between public enforcers and companies suspected of an infringement. Is it better to have informal settlements than to have a formal procedure, where under Article 27(4) the proposed commitments must be published and there’s at least a public debate with the possibility for third parties to challenge the commitments? I don’t think so. Furthermore, don’t forget that in Europe we are committed to an effectsbased approach. That applies as much to the remedies as it does to the 40 See, e.g., Case T-275/94, CB v Commission [1995] ECR II-2169, paras. 50 and 51; Case T-28/03, Holcim (Deutschland) v Commission [2005] ECR II-1357, para. 121. In practice, when a fine imposed by the Commission is appealed, the Commission itself refrains from collecting the amount in controversy on condition of a bank guarantee sufficient to cover the fine plus interest. See, e.g., Joined Cases T-236/01 et seq., Tokai Carbon and Others v Commission [2004] ECR II-1181, para. 475; Case 86/82 R, Hasselblad v Commission [1982] ECR 1555, paras. 2–3. Securing the guarantee, of course, is not costless for the undertaking concerned. An applicant for annulment may seek an interim order suspending such financial obligations, but such requests are generally denied. See, e.g., Case 392/85 R, Finsider v Commission [1986] ECR 959, paras. 18–19 (suggesting the undertaking concerned was large enough to have no difficulties obtaining a guarantee). 41 To secure a suspension of the obligation to provide a guarantee (see previous footnote) the legality of the Commission’s decision would have to be in “particularly serious” doubt. See Case T-301/94 R, Laakman v Commission [1994] ECR II-1279, para. 30. 42 See Cooperation Notice on the co-operation between and the courts of the EU Member States in the application of Articles 81 and 82 of the EC Treaty, 2004 OJ C101/52, para. 13 (citing Case 314/85, Foto-Frost [1987] ECR 4199, paras. 12–20).

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concept of what constitutes an infringement. And increasingly the Commission is called on to demonstrate not only the likely effects of an infringement, but also to demonstrate the proportionality of particular remedies. What is happening in the field of mergers today will happen tomorrow in the field of antitrust.43 These remedies will be controlled more and more by the Community Courts, and therefore I am less pessimistic than you, Ian, about what will happen under Article 9. On the fines, I completely disagree. If you want to move towards a world where there would no longer be fines imposed in Article 82 cases, which is not exactly what Ian said, then you would transform the ex ante dissuasive effect of Article 82 into an ex post control of behaviour. That would be totally inefficient. But you can indeed question the level of fines under the existing law. The law says that a fine can be imposed only where there is negligence or intention. So there is a spectrum of culpability which can be used by defendants and by the judges in order to assess whether, in a specific case, a fine is justified. But we should not touch the system as such. Now for the very last point and then I’m finished. The Commission will go ahead and fine-tune its proposed settlement procedure, but the Commission will also likely consider whether to develop legislative proposals in the area of private enforcement. As Commissioner Kroes has indicated, if the comments we receive44 are not destabilizing, then it is likely that a proposal will be made. So there’s plenty of interesting work ahead of you. Thank you very much. 䉴 MASSIMO MOTTA: Thank you very much, Emil. That brings this interesting session to a close. Before I pass the floor to Claus, Judge Cooke will make a short announcement.

JOHN COOKE: Thank you, Massimo. As I will be retiring from the CFI in September, I’d like to offer a few words of thanks to the Institute for the way the Workshop has been organized, and particularly to Claus-Dieter for the honour of being here in Fiesole for several editions of the Workshop over the years. For me, this is a unique forum. It’s extraordinary to have 40 people around a relatively small table who represent such a wide range of actors in the competition field. It has always been, for me, one of the most rewarding and informative forums that I’ve ever taken part in during my twelve years in Luxembourg, and I’m very grateful for that. (general applause)

䉴

䉴 CLAUS-DIETER EHLERMANN: Thank you, John. And thanks to everybody for the extremely stimulating discussions we’ve had yesterday and today. This

43

See Case C-13/03 P, Tetra Laval v Commission [2005] ECR I-1113. See http://ec.europa.eu/competition/antitrust/actionsdamages/white_paper_comments. html. 44

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is surprising to Mel and myself because we weren’t sure whether the subject would lend itself to a day and half of discussion. We thought it might be repetitive, or too narrow compared to matters we’ve discussed in earlier years. However, it has been extraordinary and rewarding. But that’s the genius of the group. You’ve said it, John, this is a unique mixture of people, and those sitting around the table certainly know of what they speak. I would like to thank the chairs for efficiently running an event which should be as rich in discussions as in presentations. This is not an academic exercise where people present papers. I would like to thank those who helped to shape the program, and it wasn’t easy. Finally, a word of thanks to our sponsors, without whom we would not have the pleasure of meeting together and learning from each other. And thanks to you all—if the Workshop is a success, it is thanks to you. And have a good trip back!

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I Wouter P.J. Wils* The Use of Settlements in Public Antitrust Enforcement: Objectives and Principles

I. Introduction A. Settlements as opposed to the fully adversarial disposal of cases This chapter discusses two general questions concerning the use of settlements in public antitrust enforcement. First, under which conditions does the use of settlements contribute to optimal antitrust enforcement? Second, under which conditions are self-incrimination and waivers of procedural rights by settlement candidates compatible with fundamental rights of defence? The discussion of these general questions will be illustrated using the specific example of the enforcement by the European Commission of the antitrust prohibitions contained in Articles 81 and 82 EC.1 The notion of “settlement” can best be understood in contrast with the normal, fully adversarial disposal of cases under the antitrust law of the European Community.2 * Member of the Legal Service of the European Commission, Visiting Professor at King’s College London. I am grateful to David Bailey, André Bouquet, Fernando Castillo de la Torre, Fanis Christoforou, Conor Clyne, Eric Gippini Fournier, Kirti Mehta, Felix Ronkes Agerbeek and Richard Whish for their comments on an earlier draft of this chapter. All views expressed herein are strictly personal, and should not be construed as reflecting the opinion of the European Commission, its Legal Service or any of the abovementioned persons. Comments are welcome at [email protected]. 1 On both the substantive content and the enforcement of Articles 81 and 82 EC, see generally Bellamy & Child, European Community Law of Competition, 6th edition (Peter Roth and Vivien Rose, eds.), OUP, 2008; Richard Whish, Competition Law, 6th edition, OUP, 2008; Jonathan Faull and Ali Nikpay, eds., The EC Law of Competition, 2nd edition, OUP, 2007). With a more specific focus on enforcement, see Luis Ortiz Blanco, ed., EC Competition Procedure, 2nd edition, OUP, 2006; Christopher Cook and Nicholas Khan, EC Antitrust Procedure, 5th edition, Sweet & Maxwell, 2005; Eric Gippini-Fournier, “Community Report”, in Koeck and Karollus, eds., FIDE 2008, Volume II: The Modernisation of European Competition Law: First Experiences with Regulation 1/2003, facultas.wuv, 2008; François Arbault and Ewoud Sakkers, “Cartels”, in Faull and Nikpay, cited above, chapterr 8; and my books The Optimal Enforcement of EC Antitrust Law, Kluwer Law International, 2002, Principles of European Antitrust Enforcement, Hart Publishing, 2005, and Efficiency and Justice in European Antitrust Enforcement, Hart Publishing, 2008. 2 The fully adversarial disposal can be said to be “normal” at least in the sense that it applies by default and by right, being substituted by settlement only with the consent of both the competition authority and the defendant.

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In the context of antitrust enforcement by the Commission, the procedural rules governing the normal, fully adversarial disposal of cases are laid down partly in the EC Treaty itself but are further elaborated in Council Regulation 1,3 Council Regulation 1/2003,4 Commission Regulation 773/2004,5 various Commission notices or guidelines, and the case law of the Community Courts.6 Cases of infringement of Article 81 or 82 EC are closed by a Commission decision, based on Articles 7 and 23 of Regulation 1/2003, finding the infringement, imposing remedies to bring the infringement to an end, and/or imposing fines. Before adopting such a decision, the Commission notifies to the defendant companies a full statement of the objections raised against them. Following receipt of the Statement of Objections, the defendants are granted access to the Commission’s file, and they can respond to the objections both in writing and orally during a hearing presided over by an independent Hearing Officer. Assuming the Commission’s investigation culminates in a decision it must be fully reasoned. The Statement of Objections and the decision must be addressed to each company in an official language of the EU Member State in which the company is based, and the companies can also use these languages in their written response and at the hearing. The Commission’s decision can be appealed before the Court of First Instance on factual and/or legal grounds.7 The CFI can entirely or partially annul the decision and cancel, reduce or increase the fine.8 A further appeal, limited to points of law, may be brought before the European Court of Justice. If the Courts annul the decision on merely procedural grounds, the Commission may, correcting the procedural defect, readopt the decision, which can then again be subjected to judicial review.9 In many cases the defendant companies fully contest the Commission’s analysis throughout the whole procedure, but this is far from always being the case. Some defendants contest the Commission’s objections during the administrative procedure but then abstain from challenging the Commission decision before the Courts. Some defendants do not contest the Statement of 3 Council Regulation No 1 determining the languages to be used by the European Economic Community, 1958 OJ B17/385 (Special English Edition 1952–58, p. 59), last amended by Council Regulation (EC) No 1791/2006, published in 2006 OJ L363/1. 4 Council Regulation 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 [2003] OJ L1/1, last amended by Council Regulation No 1419/2006, published in 2006 OJ L269/1. 5 Commission Regulation No 773/2004 of 7 April 2004 relating to the conduct of proceedings by the Commission pursuant to Articles 81 and 82 of the EC Treaty, 2004 OJ L123/18. 6 For a full description of these procedural rules, see the literature cited supra note 1. 7 Articles 229 and 230 EC, and Article 31 of Regulation 1/2003. 8 Increases have been rare, but the Court of First Instance notably used this power in Joined Cases T-101/05 and T-111/05, BASF and UCB v Commission [2007] ECR II-4949. 9 See infra notes 44 and 45 and accompanying text, discussing the PVC Cartel case. See further my paper “The Principle of Ne Bis in Idem in EC Antitrust Enforcement: A Legal and Economic Analysis”, 26 World Competition 131 (2003), and chapters 3 and 6 of Principles of European Antitrust Enforcement, cited supra note 1.

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The Use of Settlements in Public Antitrust Enforcement 29 Objections in their response to it. Defendants may also waive their right of access to the file, or their right to an oral hearing, or their language rights. Some take or announce remedial action already during the administrative procedure. Where the defendant in public antitrust enforcement proceedings abstains from using all possibilities of contesting the competition authority’s analysis, decision or action, or waives some of its procedural rights, it may do so, at least in part, in the hope of receiving some benefits, such as a faster end to the procedure, less adverse publicity, milder penalties, less burdensome remedies, or a narrower finding of infringement, or even no finding at all if the case is dropped by the competition authority. Competition authorities or legislators may encourage such non-contestation or voluntary remedial action by granting such benefits, or promising to grant them, as part of a settlement policy. This may involve the creation of specific settlement procedures, distinct from the normal, fully adversarial procedures, and designed to be used in cases where the defendant does not contest or recognizes the infringement and/or offers or accepts remedies and/or penalties. The notion of “settlement” thus refers to the disposal by a competition authority of a case of suspected antitrust infringement through a specific procedure, or in application of a policy, under which some benefit is granted to the defendant in recognition of the defendant’s admission or noncontestation of the infringement and/or offer or acceptance of remedies and/or penalties. As to the enforcement of Articles 81 and 82 by the Commission, there are now two types of settlement procedures: • the commitments procedure laid down in Article 9 of Regulation 1/2003; and • the settlement procedure in cartel cases under the new Article 10a of Commission Regulation 773/2004 and the Commission Notice on the conduct of settlement procedures in cartel cases. These two settlement procedures are summarily described in the two sections below.

B. Commitment decisions (Article 9 of Regulation 1/2003) The commitments procedure was introduced in 2004 by Article 9 of Regulation 1/2003.10 Article 9 provides that, “[w]here the Commission 10 Cited supra note 4. For a detailed analysis of this procedure, see Gippini-Fournier, cited supra note 1, in particular the text accompanying footnotes 71 to 152; Richard Whish, “Commitment Decisions under Article 9 of the EC Modernisation Regulation: Some Unanswered Questions”, in Martin Johansson, Nils Wahl and Ulf Bernitz, eds., Liber

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intends to adopt a decision requiring that an infringement be brought to an end and the undertakings concerned offer commitments to meet the concerns expressed to them by the Commission in its preliminary assessment, the Commission may by decision make those commitments binding on the undertakings”.11 Commitment decisions “are not appropriate in cases where the Commission intends to impose a fine”.12 A commitment decision “shall conclude that there are no longer grounds for action by the Commission”, “without concluding whether or not there has been or still is an infringement”.13 “Commitment decisions are without prejudice to the powers of competition authorities and courts of the Member States to make such a finding [i.e., a finding that there has been or still is an infringement] and decide upon the case”.14 The Commission may only reopen the proceedings “where there has been a material change in any of the facts on which the decision was based”, “where the undertakings concerned act contrary to their commitments” or “where the decision was based on incomplete, incorrect or misleading information provided by the parties”.15 Finally, the Commission may compel compliance with a commitment made binding by a commitment decision through periodic penalty payments (of equal severity compared to those it can use to compel compliance with a normal decision finding an infringement and ordering its termination), and it can impose fines in case of failure to comply with a commitment made binding (of equal severity compared to those it can impose for an infringement of Article 81 or 82).16 A decision under Article 9 making commitments binding is thus a substitute for a decision under Article 7 of Regulation 1/2003, where following the ordinary administrative procedure the Commission finds an infringement and imposes remedies to ensure its termination. However, Article 9 can only be used instead of Article 7 if the undertakings concerned offer commitments that meet the Commission’s concerns, and if the Commission chooses to dispose of the case in this way. As has been confirmed by the CFI, “the Commission is never obliged under Article 9(1) of Regulation No 1/2003 to

Amicorum in Honour of Sven Norberg—A European for All Seasons, Bruylant, 2006, pp. 555 et seq.; my paper “Settlements of EU Antitrust Investigations: Commitment Decisions under Article 9 of Regulation No 1/2003”, 29(3) World Competition 345 (2006); and chapter 2 of Efficiency and Justice in European Antitrust Enforcement, cited supra note 1. 11 Article 9(1), first sentence. 12 Fourth sentence of recital 13 in the preamble to Regulation 1/2003. 13 Article 9(1), second sentence, and second sentence of recital 13. 14 Third sentence of recital 13. Similarly, the third sentence of recital 21 states: “Commitment decisions adopted by the Commission do not affect the power of the courts and the competition authorities of the Member States to apply Articles 81 and 82 of the Treaty.” 15 Article 9(2). 16 Articles 24(1)(b) and 23(2)(c) of Regulation 1/2003.

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The Use of Settlements in Public Antitrust Enforcement 31 decide to make commitments binding instead of proceeding under Article 7 of that regulation”.17 A decision under Article 9 is not a substitute for a decision under Article 23 of Regulation 1/2003, whereby the Commission imposes fines for an infringement of Article 81 or 82, and an Article 9 decision cannot be combined with an Article 23 decision either. This is because the imposition of fines requires a finding of an infringement and hence a decision under Article 7 of Regulation 1/2003. As noted above, commitment decisions are inappropriate if the Commission intends to impose a fine,18 and they are thus not to be used in cartel cases, where the imposition of fines is at the heart of the Commission’s enforcement activity. In application of the general rules contained in Article 230 EC, commitment decisions can be appealed before the Community Courts by the undertakings whose commitments have been made binding. However, as the undertakings have themselves offered the commitments, one can expect that such appeals will be much less frequent than appeals by the addressees of decisions under Article 7 of Regulation 1/2003 finding an infringement and imposing remedies for its termination. Indeed, as of this writing, no Article 9 commitment decision has been the object of such an appeal.19 Commitment decisions under Article 9 are broadly comparable to the consent orders or consent decrees used in antitrust enforcement by the Federal Trade Commission and the Department of Justice in the United States.20 This is no coincidence; the introduction of the EU commitment procedure was inspired by the American example.21

17 Case T-170/06, Alrosa Company Ltd v Commission [2007] ECR II-2601, para. 130, continuing that the Commission “is therefore not required to give reasons for which commitments are not in its view suitable to be made binding, so as to bring the proceedings to an end”. An appeal is pending before the Court of Justice (see Case C-441/07 P, Commission v Alrosa, not yet decided), but this point is not contested. 18 See supra note 12. 19 In Alrosa, cited supra note 17, an application for annulment was (successfully) brought before the Court of First Instance by a third party directly and individually concerned by the commitments made binding. On this case, see E. Gippini-Fournier, cited supra note 1, text accompanying footnotes 129 to 147. See also Case T?274/06, Estaser El Mareny v Commission [2007] ECR II-143 (application dismissed by Order of the CFI of 25 October 2007), and Case T-45/08, Transportes Evaristo Molina SA v Commission, (application for annulment dismissed by Order of the CFI of 14 November 2008), on appeal: Case C-36/09 P, not yet decided. Each of these cases was initiated by a third-party application for annulment of the Commission’s commitment decision in the Repsol case. See Commission Decision 2006/446/EC of 12 April 2006 (Case COMP/38.348—Repsol CPP), 2006 OJ L176/104. 20 See Daniel Ducore, “Settlement of Competition Conduct Violations at the United States Antitrust Agencies and at the European Commission—Some Observations”, in Barry Hawk, ed., International Antitrust Law and Policy: Fordham Corporate Law 2005, Juris Publishing, 2006, chapter 11. See also footnote 63 below regarding the Tunney Act. 21 See The Optimal Enforcement of EC Antitrust Law, cited supra note 1 at section 6.5.2.2.

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C. The Commission’s settlement procedure in cartel cases In June of 2008 the European Commission introduced a settlement procedure for cartel cases, in respect of which the rules are laid down in Article 10a of Commission Regulation 773/2004 and in the Commission Notice on the conduct of settlement procedures in cartel cases (“Settlements Notice”).22 The new settlement procedure is a specific procedure which can only be used in cartel cases.23 As with the normal, fully adversarial procedure, the cartel settlement procedure is based on Articles 7 and 23 of Regulation 1/2003. The result of the settlement procedure is thus a decision which is based on Articles 7 and 23 and which finds an infringement and imposes fines. But Article 10a of Commission Regulation 773/2004 and the Settlements Notice provide for a different procedure leading to such a decision. Where the Commission, after having collected the intelligence and evidence of a cartel using the normal investigatory instruments (primarily, inspections and applications for leniency), considers the case suitable for settlement discussions, it invites all parties to declare whether they envisage engaging in such discussions.24 If all or some of the parties express such interest, and if the Commission still considers the case suitable for settlement discussions, it will proceed to discuss settlement with each settlement candidate.25 During these discussions, the Commission will inform the settlement candidates of the essential elements of the case as the Commission sees it, 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 (in the light of the Commission’s Fining Guidelines26 and Leniency Notice27), and the evidence used, thus enabling the parties to assert their 22 Commission Regulation (EC) No 622/2008 of 30 June 2008 amending Regulation (EC) No 773/2004, as regards the conduct of settlement procedures in cartel cases, 2008 OJ L171/3 and 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, 2008 OJ C167/1. 23 The notion of cartels is the same here as in the Commission Notice on immunity from fines and reduction of fines in cartel cases, 2006 OJ C298/17. 24 Notice on the conduct of settlement procedures in cartel cases, cited supra note 22, paras. 5–6 and 8–13. 25 Where proceedings are initiated against several legal entities controlled by the same undertaking, they must appoint joint representatives for the purpose of conducting the settlement discussions, without prejudice as to their individual responsibility. 26 Guidelines on the method of setting fines imposed pursuant to Article 23(2)(a) of Regulation No 1/2003, 2006 OJ C210/2. See my paper “The European Commission’s 2006 Guidelines on Fines: A Legal and Economic Analysis” 30 World Competition 197 (2007), and chapter 4 of Efficiency and Justice in European Antitrust Enforcement, cited supra note 1. 27 Cited supra note 23. See Arbault and Sakkers, cited supra note 1, and my paper “Leniency in Antitrust Enforcement: Theory and Practice”, 30 World Competition 64 (2007) and chapter 5 of Efficiency and Justice in European Antitrust Enforcement, cited supra note 1.

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The Use of Settlements in Public Antitrust Enforcement 33 views.28 The settlement discussions allow the parties to exercise their rights of defence, which ensures the accuracy of the finding of the infringement and of the setting of the fine, but the Commission “does not negotiate the question of the existence of an infringement [. . .] and the appropriate sanction”.29 If the settlement discussions are successful, each party must make a formal settlement submission, containing: a recognition of the infringement and of the party’s liability for it; acceptance of the range of likely fines; a waiver of further access to the file and of an oral hearing after the Statement of Objections; and consent to receive the decision in an agreed language.30 The Commission will then normally issue a streamlined Statement of Objections, reflecting the settlement submissions, to which the parties will respond by a simple confirmation. Finally, the Commission will adopt a streamlined final decision, again reflecting the settlement submissions.31 By way of settlement reward, the normally applicable amount of the fine will be reduced by 10%.32 The Settlements Notice explicitly confirms that the decision is subject to the normal judicial review of the Community Courts.33 However, as with Article 9 commitment decisions,34 one can expect that appeals against the Commission’s settlement decisions by the undertakings concerned will be much less frequent than appeals against decisions adopted following the normal, fully adversarial procedure. It is important to note that the settlement procedure in cartel cases is separate from the Commission’s leniency program. Under its Leniency Notice,35 the Commission grants immunity from fines as well as a reduction of fines in recognition of the voluntary provision of intelligence and evidence that enables the Commission to detect and punish the cartel. By contrast, under the settlement procedure a (further) reduction of the fine is granted in recognition of the acceptance by the undertaking concerned of: the finding of infringement; the discounted fine; and waivers of some procedural rights. There is also a clear separation between leniency and settlement in the timing of the procedures, as the settlement procedure is only started after the Commission has collected the intelligence and evidence of the cartel 28 Settlements Notice, cited supra note 22, paras. 14–18. Upon request by a party, the Commission services will also grant it access to non-confidential versions of any specified accessible document listed in the case file at that point in time, insofar 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. 29 Ibid., para. 2. 30 Ibid., paras. 17 and 20–22. 31 Ibid., paras. 23–29. If the Commission decides to depart from the settlement submissions, it has to send a new Statement of Objections, following the normal, fully adversarial procedure. The settlement submissions would be deemed to be withdrawn and could not be used in evidence. 32 Ibid., para. 32. 33 Settlements Notice, cited supra note 22, final paragraph. 34 See supra the text accompanying note 19. 35 Cited supra note 27.

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infringement.36 This separation between leniency and settlement is different from the procedures used by the United States Department of Justice with respect to cartel enforcement.37 Under its Leniency Policy, the DOJ grants immunity—not only from punishment but also from prosecution—to the first corporation or individual to provide intelligence and evidence of a cartel. Other defendants cooperating with the DOJ are granted reduced penalties through plea or plea/cooperation agreements. Under these agreements the cooperating company provides intelligence and evidence to the DOJ, accepts responsibility for the infringement and submits to the penalties, and waives of a number of procedural rights, including the right to appeal. Plea bargaining in the US system is thus simultaneously an investigatory tool and a way to dispose of cases. It corresponds not merely to the Commission’s cartel settlement procedure but to the combination of that procedure and (the reduction-of-fines part of) leniency.38

36

See supra, text accompanying note 24. See OECD, Plea Bargaining / Settlement of Cartel Cases, DAF/COMP(2007)38 of 22 January 2008, at 149–202; “Leniency in Antitrust Enforcement”, cited supra note 27, at 26–29, and Efficiency and Justice in European Antitrust Enforcement, cited supra note 1, paras. 347–361. 38 The primary explanation for this difference is historical. The plea bargaining used by the DOJ in cartel enforcement is the same sort of plea bargaining used for a long time in US criminal law enforcement in general. The Commission adopted its first Leniency Notice in 1996, and modified it in 2002 and 2006, to improve its effectiveness in collecting intelligence and evidence of cartels. The idea of a settlement procedure in cartel cases only arose more recently, and precisely as a result of the success of the Leniency Notice, in its 2002 and 2006 versions, which has led to a large increase in the number of cartels detected. See my paper “The Commission Notice on the Non-Imposition or Reduction of Fines in Cartel Cases”, 22 European Law Review 125 (1997); Principles of European Antitrust Enforcement, cited supra note 1, chapter 5 (“The Collection of Intelligence and Evidence from Antitrust Violators”); and “Leniency in Antitrust Enforcement”, cited supra note 27. Separating leniency and settlement rewards, i.e. giving separate discounts for the provision of intelligence and evidence on the one hand and for a guilty plea on the other, also has the advantage of providing more transparency as to the penalty reductions granted in exchange for the intelligence and evidence provided, thus facilitating control of proportionality and equal treatment. See “Leniency in Antitrust Enforcement: Theory and Practice”, cited supra 27, at 49–51 and 53–54; Efficiency and Justice in European Antitrust Enforcement, cited supra note 1, paras. 426–430 and 437–439). Furthermore, the separation of leniency and settlement rewards avoids excessively high settlement discounts that could undermine optimal case selection or have a coercive effect. See infra notes 65–69 and 83–90 and accompanying text; Oren Gazal-Ayal, “Partial Ban on Plea Bargains”, 27 Cardozo Law Review 2295, 2347 (2006). See also infra the text accompanying note 60, as to the risk of under-enforcement when cases are settled at a premature stage of the investigation. 37

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II. Settlements and optimal antitrust enforcement A. Enforcement benefits of fully adversarial proceedings As I have discussed in more detail elsewhere,39 the enforcement of antitrust prohibitions such as Articles 81 and 82 entails three broad tasks: clarifying and developing the content of the prohibitions, preventing violations of the prohibitions, and dealing with the consequences when violations have nevertheless occurred. The normal, fully adversarial disposal of a case by the Commission, through a decision based on Articles 7 and 23 of Regulation 1/2003 finding an infringement, imposing remedies to bring the infringement to an end, and/or imposing fines,40 can thus contribute to the enforcement of Articles 81 and 82 in the following six ways: 41 (1) the finding of the infringement can contribute to clarifying the content of the prohibitions laid down in Article 81 or 82, thus allowing better respect for these prohibitions in the future; (2) the termination order helps to bring the infringement to an end; (3) especially if accompanied by a fine, the finding of the infringement acts as a public censure, which—apart from contributing to the deterrence and punishment effects mentioned under (4) and (5) below—tends to confirm and reinforce the habits of those who already respect the prohibitions of Articles 81 and 82 in their law-abiding attitude; (4) the imposition of fines, if sufficiently high, will contribute to deterring both the undertakings concerned and others from committing future infringements; (5) to the extent that the fines equal the extra revenues obtained through the infringement, their imposition leads to disgorgement of the illicit gains; to the extent that the fines exceed this gain, they may be valued as punishment; (6) the finding of the infringement may facilitate follow-on private actions for damages, leading to compensation for the victims of the infringement.

39 See Efficiency and Justice in European Antitrust Enforcement, cited supra note 1, paras. 167–182; “Optimal Antitrust Fines: Theory and Practice”, 29 World Competition 183, 185–190 (2006); The Optimal Enforcement of EC Antitrust Law, cited supra note 1, section 2.1.3; and Principles of European Antitrust Enforcement, cited supra note 1, section 4.2. 40 See supra text accompanying notes 3 to 9. 41 See Efficiency and Justice in European Antitrust Enforcement, cited supra note 1, para. 93; “Settlements of EU Antitrust Investigations: Commitment Decisions”, cited supra note 10, at 349.

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Whereas the fully adversarial disposal of a case can thus contribute much to the enforcement of Articles 81 and 82, these results are only obtained at the end of relatively long and costly procedures.42 This can be illustrated by two examples (among others): In the Irish Ice Cream case, the Commission adopted in March 1998, after an administrative procedure which had taken several years, a decision finding that Unilever’s Irish subsidiary had infringed Articles 81 and 82 by providing its distributors with freezer cabinets free of charge on condition that they be used only to store Unilever’s ice cream products. Unilever applied to the CFI for annulment of the Commission’s cease and desist order and obtained from the President of the CFI an order staying the execution of the Commission’s decision while the case was pending. The order to terminate the infringement thus only became effective after the CFI rejected the application for annulment in October of 2003.43 In the PVC Cartel case, the Commission adopted in December 1988, following an investigation started in 1983, a decision finding that since 1980 fourteen producers of PVC had operated a price fixing cartel in violation of Article 81, and imposing fines on them. Most of the PVC producers brought actions for annulment of the decision. After a first judgment by the CFI declaring the Commission’s decision non-existent, and following an appeal against that judgment by the Commission, the ECJ in 1994 annulled the Commission’s decision because the Commission had failed to authenticate its decision in the manner provided for in its own Rules of Procedure.44 Following this judgment, the Commission re-adopted its decision, now duly authenticated, and re-imposed the same fines. The PVC producers again brought an application for annulment before the CFI, and a further appeal to the ECJ, which finally confirmed the Commission’s decision in October of 2002, almost fourteen years after the initial Commission decision.45

B. Enforcement gains and losses from settlements The use of settlements can deliver two potential enforcement gains: speed and lower costs. A settlement may enable the competition authority to obtain earlier results. Timeliness is particularly valuable for remedies that bring infringements to an end. However, it is also of value for finding infringements 42

See supra text accompanying notes 3 to 9. Unilever subsequently brought an appeal against the judgment of the CFI (rejected by Order of the ECJ of 28 September 2006 in Case C-552/03 P Unilever v Commission [2006] ECR I-9091), but pending that appeal Unilever did not seek a further suspension of the execution of the Commission’s termination order. 44 Case C-137/94 P, Commission v BASF and others [1994] ECR I-2629. 45 Joined Cases C-238/99 P etc., Limburgse Vinyl Maatschappij (LVM) and others v Commission [2002] ECR I-8616. 43

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The Use of Settlements in Public Antitrust Enforcement 37 and imposing penalties, since a shorter time distance between the infringement and the punishment tends to increase the punishment’s deterrent effects.46 The second potential enforcement gain results from cost savings. If a shorter, more streamlined procedure can be followed, and if there are no or fewer appeals, less administrative resources will have to be spent for each case. This means that, if the competition authority’s budget is fixed, more antitrust infringements can be detected and dealt with. Yet these enforcement gains can only be obtained if the defendants are willing to settle, and they will only be prepared to do so if they derive some benefit which makes settling more attractive to them than fully contesting the case. Two categories of possible benefits may be distinguished, depending on whether or not they correspond to enforcement losses. Like the competition authority, the defendant may benefit from saving some of the costs of fully contesting the case (cost of lawyers, management time, etc.). Depending on the circumstances, the defendant may also have an interest in an earlier outcome of the case. To the extent that defendants can be made to accept settlements solely for these reasons, settlements appear unambiguously desirable from the perspective of optimal enforcement. However, in many instances such benefits may not be enough to induce defendants to settle. Other benefits will have to be offered, such as lesser or no findings of infringement, lower penalties and/or less burdensome remedies. Such settlement rewards, however, directly correspond to enforcement losses. If they are granted to the defendants to induce them to settle, settlements will only be desirable from the perspective of optimal enforcement if the corresponding enforcement losses are outweighed by the enforcement gains resulting from the speedier outcome of the case and the administrative cost savings.47 The balance between the potential enforcement gains and losses obviously depends upon the type of settlement procedure used and the type of settlement reward granted. With regard to commitment decisions under Article 9 of Regulation 1/2003,48 the settlement reward consists of the absence of a finding of infringement and the absence of a fine, whereas the potential enforcement gains are the earlier termination of the infringement and the administrative cost savings. Optimally, commitment decisions should thus be used (only) in those cases where the benefit in terms of an earlier termination of the infringement and the saving of the cost of longer proceedings outweigh the enforcer’s lost opportunity to promote clarification of the law, public

46 On the difficulties for deterrence resulting from the passage of time between the infringement and the punishment, see The Optimal Enforcement of EC Antitrust Law, cited supra note 1, section 8.4.2.3; Efficiency and Justice in European Antitrust Enforcement, cited supra note 1, section 3.2.1 (footnote 41) and section 6.3.1.1 (footnote 103). 47 See supra text accompanying previous footnote. 48 See text accompanying notes 10 to 21.

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censure, deterrence, disgorgement of illicit gains and punishment, and follow-on actions for compensation.49 In the above-mentioned example of the Irish Ice Cream case,50 the Commission’s main interest in the case was probably clarification of the law, considering the novel character of the infringement.51 This required a fully adversarial disposal of the case, as an authoritative clarification of Community competition law can only be obtained when a case is litigated before the Community Courts. In the case of serious and clear-cut infringements such as cartels, the main enforcement objectives should be deterrence and public censure through a finding of infringement and imposition of penalties. Commitment decisions under Article 9 of Regulation 1/2003 would thus be inappropriate, as is indeed indicated in recital 13 of the Preamble to the Regulation.52 In non-cartel cases, if the infringement is neither novel nor very serious then the benefits of earlier termination and administrative cost savings may outweigh other considerations, and the use of commitment decisions would thus be desirable.53 As to the Commission’s settlement procedure in cartel cases, the settlement reward consists of a reduction of the fine by 10%.54 This obviously entails an enforcement loss. If the settlement procedure were to become generally used, the average expected fine would be reduced by 10%. In order to ensure that the use of the settlement procedure on the whole increases deterrence, the resulting increase in the number of cartels detected and fined due to the resources saved would thus have to exceed 11%.55 More generally, the following points may be made regarding how to ensure that the enforcement gains from settlements exceed the enforcement losses: First, defendants should not be given a right to settle. The use of settlements should be at the competition authority’s discretion, in the light of each specific case, so that the procedure can be restricted to those cases where the enforcement gains exceed the enforcement losses. This is indeed the situation with respect to commitment decisions under Article 9 of Regulation 1/2003. 49

See text accompanying notes 41 and 42. See text accompanying note 43. 51 Given the novel character of the infringement, no fine was imposed in this case. 52 See supra text accompanying note 12. See also Gippini-Fournier, cited supra note 1, text accompanying footnotes 73 and 126–127. 53 See also Gippini-Fournier, cited supra note 1, text accompanying footnotes 126–127; Philip Lowe and Frank Maier-Rigaud, “Quo Vadis, Antirust Remedies?”, in Barry Hawk, ed., International Antitrust Law and Policy: Fordham Competition Law 2007, Juris Publishing, 2008, chapter 20, at 607–609. 54 See supra, text accompanying note 32. 55 Similarly, if a competition authority were to grant a settlement rebate of 33%, an increase of more than 50% in the number of cartels detected and penalized would be required for the net enforcement effect to be positive, the general formula being that a systematically applied settlement rebate of n percent requires a compensatory increase in the number of cartels detected and penalized of at least (n * 100) / (100 – n) % in order to avoid a net reduction of the expected fine (i.e., the nominal fine discounted by the probability of detection and punishment) and hence to avoid a weakening of deterrence. 50

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The Use of Settlements in Public Antitrust Enforcement 39 As the CFI confirmed in Alrosa, “the Commission is never obliged under Article 9(1) of Regulation No 1/2003 to decide to make commitments binding instead of proceeding under Article 7 of that regulation”.56 Similarly, in the cartel context the Commission’s Settlements Notice clearly states that “the Commission retains a broad margin of discretion to determine which cases may be suitable [. . .] to settle”.57 Second, it is important for a competition authority to build and maintain a credible reputation for being able to handle cases successfully under the normal, fully adversarial procedures. Indeed, the stronger the authority’s reputation for obtaining forceful remedies and penalties through the fully adversarial route, the more defendants will be willing to settle without the need for large settlement rewards. Only if the Commission demonstrates that it can win contested cases, as it did the Microsoft case,58 can it expect to obtain good settlements in other cases under Article 9. Similarly, the introduction of the cartel settlement procedure, which provides for only a modest settlement reward, is made possible by the many fully contested cartel decisions that have been upheld by the Community Courts in the last several years.59 Third, the competition authority should avoid settling a case at a premature stage of the investigation, when it has not yet established all the relevant facts.60 Indeed, if the competition authority settles a case before it has discovered the full extent and seriousness of the infringement, it is likely to grant (unknowingly) an excessively generous (de facto) settlement reward. This is particularly important in settlement procedures such as the Commission’s cartel settlement procedure. In light of the principle of ne bis in idem,61 it would no doubt be impossible in such cases to reopen the investigation at a later point in time on the ground that the infringement was more serious than previously thought and thus deserves higher fines. As for commitment decisions under Article 9, there may be less risk of an inadequate settlement due to an incomplete investigation because Article 9(2) allows for the case to be reopened, notably where the decision was based on incomplete, incorrect or misleading information provided by the parties, and because a commitment decision under Article 9 does not prevent the competition authorities and courts of the Member States from finding an infringement of Articles 81 and 82, even if the undertaking concerned complies with the commitment

56

Cited supra note 17, para. 130. Commission Notice on the conduct of settlement procedures in cartel cases, cited supra note 22, para. 5. 58 Case T-201/04, Microsoft v Commission [2007] ECR II-3601. 59 See supra note 8 for a notable case in which the CFI even increased the fine originally imposed by the Commission. 60 See also OECD, cited supra note 37, at pp. 10 and 34. 61 See “The Principle of Ne Bis in Idem”, cited supra note 9; Principles of European Antitrust Enforcement, cited supra note 1, chapter 3 and section 2.5.2. 57

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decision.62 Also helpful in this respect is Article 27(4) of Regulation 1/2003, which provides that, where the Commission intends to adopt a commitment decision, it must first publish a summary of the case and the main content of the commitments, thus allowing third parties to provide additional relevant information as to the adequacy of the commitments offered.63 Finally, it may be useful periodically to evaluate settlement policies and procedures, so as to verify ex post whether they indeed generate the net enforcement gains that justify their use.64

C. Case selection and prioritization The above analysis of the potential enforcement gains and losses resulting from the use of settlements focused on the question of whether a given case which has been investigated by the competition authority should be disposed of through the fully adversarial route or by way of settlement. However, the possibility of disposing of cases by way of settlement may also have an impact on the initial decision of the competition authority as to whether or not to start investigating a case.65 Competition authorities inevitably have only limited resources, compared to the many cases of possible antitrust infringements that could be investigated. It would obviously be desirable for competition authorities to spend their limited resources on those investigations that are likely to lead to the finding, remedying and punishing of the most serious antitrust infringements. In a system where cases can only be disposed of through fully adversarial proceedings, there is a strong incentive for the competition authority, starting from the initial case selection, to spend its resources according to the 62 This possibility of further action at Member State level creates an incentive for the companies concerned to offer sufficiently effective commitments to the Commission in the first place. See “Settlements of EU Antitrust Investigations: Commitment Decisions”, cited supra note 10, at 361–363; Efficiency and Justice in European Antitrust Enforcement, cited supra note 1, paras. 141–150. 63 See “Settlements of EU Antitrust Investigations: Commitment Decisions”, cited supra note 10, at 355–356; Efficiency and Justice in European Antitrust Enforcement, cited supra note 1, paras. 117–118. The publication of proposed commitments, the possibility for third-party comments and the ensuing possibility for third-party complainants to bring an action before the Community Courts constitute the functional equivalent of the publication for public comment and the public interest determination by federal district courts under the Tunney Act, 15 U.S.C. § 16 (consent judgments in civil proceedings brought by the U.S. DOJ). See supra, text accompanying notes 20–21. 64 See generally William Kovacic, “Using Evaluation to Improve the Performance of Competition Policy Authorities—Background Note”, in OECD, Evaluation of the Actions and Resources of Competition Authorities, DAF/COMP(2005)30 of 16 December 2005, pp. 19 et seq. 65 See also Ronald Wright and Marc Miller, “The Screening/Bargaining Tradeoff”, 55 Stanford Law Review 29 (2002); Gazal-Ayal, cited supra note 38.

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The Use of Settlements in Public Antitrust Enforcement 41 likelihood of finding a serious infringement that can be remedied or punished. Indeed, at the end of the fully adversarial proceedings, it will become apparent whether or not such an infringement can be established. If it turns out that there is no infringement, or only a minor one, the authority will be able to show no result, or only a minor result, for all the resources spent.66 The possibility of disposing of cases through a settlement procedure may alter these incentives for optimal case selection and prioritization. If the settlement procedure allows for large settlement rewards, and if it is flexible in the sense that the size of the award can be negotiated on a case-by-case basis, there is a risk of a negative effect on case selection and prioritization incentives. Indeed, it may be feasible for a competition authority to settle a case which, if disposed of through fully adversarial proceedings, would be likely to result in no finding of infringement, or only a minor one. The defendant may agree to settle such a case provided that a sufficiently large settlement reward is granted which reflects the low probability of the authority obtaining a substantial result through fully adversarial proceedings. This possibility of settling weak cases, and thus still producing a result, could reduce the incentives for optimal case selection and prioritization. However, if the settlement procedure only allows for small settlement rewards, and if it is inflexible, in that the rewards cannot be significantly varied through case-by-case negotiation, incentives for optimal case selection and prioritization may actually be strengthened. Indeed, since the rewards under such a system are small and cannot be adapted to reflect the weakness of a case, only strong cases will be settled. And given that settlements allow resources to be saved, the authority will be induced by the foregoing logic to select cases fit for settlement, i.e. strong cases. As described above,67 the Commission’s cartel settlement procedure only allows for a fixed settlement reward of 10%. As further noted, the Settlements Notice also clearly states that the Commission “does not negotiate” either the existence of an infringement or the appropriate sanction.68 Therefore (and without excluding the possibility of an additional reward for eligible leniency applicants), no reward for settlement will be granted other than the 10% fine reduction. For the reasons described above, this system ensures that only strong cases are settled, and that the incentives for optimal case selection and prioritization between cases are strengthened rather than weakened. The commitments procedure under Article 9 of Regulation 1/2003 is much more flexible,69 and hence it presents some risk with respect to the weakening 66 On the incentives for competition authorities to show results, see my paper “The Combination of the Investigative and Prosecutorial Function and the Adjudicative Function in EC Antitrust Enforcement: A Legal and Economic Analysis”, 27 World Competition 201, 214–217 (2004); Principles of European Antitrust Enforcement, cited supra note 1, paras. 594–603. 67 See supra text accompanying note 32. 68 See supra text accompanying note 29. 69 See supra text accompanying notes 10 to 21.

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of incentives for optimal case selection and prioritization. To avoid such negative effects, it is thus important for the Commission to maintain strict and effective internal procedures and controls ensuring that it does not open weak cases or, if already open, to close them swiftly without recourse to formal commitments.

III. Settlements and fundamental rights of defence As defined above,70 settlement procedures or policies are based on the grant of some benefit to a defendant in recognition of the defendant’s admission or non-contestation of the infringement and/or offer or acceptance of penalties and/or remedies. Apart from admitting the infringement and consenting to the penalties or remedies, the defendant will usually also waive various procedural rights. For instance, under the Commission’s settlement procedure for cartel cases, the concessions required of companies that choose to settle go beyond admitting to the infringement and to their liability, and accepting a reduced fine. The companies are also required to waive their right to: separate representation in cases involving multiple companies within the same corporate group; further access to the file and a formal oral hearing after the Statement of Objections; and receipt of the decision in an official language of the Member State in which they are based.71 They are not asked to waive their right to have the Commission’s decision reviewed by the Commission Courts.72 However, their recognition of the infringement and of their liability, and their acceptance of the reduced fine, are all factors likely to affect their possibilities for successful judicial review.73 The self-incrimination and waiver of procedural rights by settlement candidates, and the encouragement thereof by the grant of settlement rewards, may raise concerns with regard to the privilege against self-incrimination and with regard to other fundamental rights of defence.74 70

See section I.A. See supra text accompanying notes 25 to 30. 72 See supra text accompanying note 33. 73 See Denis Waelbroeck, “Le développement en droit européen de la concurrence des solutions negociées (engagements, non-contestations des faits et transactions): que va-t-il rester aux juges?”, GCLC Working Paper 1/08, at pp. 23–24; Koen Lenaerts, “Some Thoughts on Evidence and Procedure in European Community Competition Law”, 30 Fordham International Law Journal 1463, 1490–1491 (2007). There will certainly remain scope for judicial review based on grounds of procedural irregularities during the settlement procedure, or on grounds of unequal treatment as between different settlement candidates. 74 On the privilege against self-incrimination, see the Opinion of Advocate General Geelhoed of 19 January 2006 and the judgment of the ECJ in Case C-301/04 P Commission v SGL Carbon [2006] ECR I-5915. See also my paper “Self-incrimination in EC Antitrust 71

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The Use of Settlements in Public Antitrust Enforcement 43 The general answer of the law appears to be that self-incrimination and waivers of procedural rights are unproblematic provided that they are voluntary, which requires both adequate knowledge and absence of improper compulsion.75 Indeed, under those conditions the values underlying both the privilege against self-incrimination and other fundamental rights of defence are not endangered. All rights of defence could generally be said to serve two purposes. First, they serve to avoid miscarriages of justice, or more generally, to ensure accuracy in the outcome of law enforcement procedures.76 Second, they serve to uphold the defendant’s dignity during the enforcement process.77 Where the outcome of the enforcement procedure is based on the

Enforcement: A Legal and Economic Analysis”, 26 World Competition 567 (2003); Principles of European Antitrust Enforcement, cited supra note 1, chapter 5. On rights of defence in general, see infra note 85 below, and the literature referred to supra note 1. 75 See, inter alia, the judgment of the European Court of Human Rights (ECtHR) in Saunders v. United Kingdom (1997) 23 E.H.R.R. 313, and the Concurring Opinion of Judge Walsh: “Persons are always free to incriminate themselves if in doing so they are exercising their own free will.”. See also the Admissibility Decision of the ECtHR in Borghi v. Italy (20 June 2002, Application 54767/00) (“[T]he prospect of obtaining an advantage cannot be taken to affect a defendant’s freedom to waive all grounds of appeal on the facts or on points of law [. . .] [T]he applicant’s decision must be considered to have been free and voluntary.”). From the EU case law, see Joined Cases C-65/02 P etc. ThyssenKrupp Stainless and others v Commission [2005] ECR-16733, paras. 52–53 (“[A]dmission of an infringement is a matter entirely within the will of the undertaking concerned. The latter is not in any way coerced to admit the existence of the agreement. It must therefore be considered that the fact that the Commission took account of the degree of cooperation with it shown by the undertaking concerned, including admission of the infringement, for the purpose of imposing a lower fine does not constitute any breach of its rights of the defence.”). In the US, see United States v. Ruiz, 536 U.S. 622 (2002) (“When a defendant pleads guilty he or she, of course, forgoes not only a fair trial, but also other accompanying constitutional guarantees [. . .] Given the seriousness of the matter, the Constitution insists, among other things, that the defendant enter a guilty plea that is ‘voluntary’ and that the defendant must make related waivers ‘knowing[ly], intelligent[ly], [and] with sufficient awareness of the relevant circumstances and likely consequences.’ Brady v. United States, 397 U.S. 742, 748 (1970).”). Among the extensive literature on the subject, see in particular the enlightening analysis in Conrad Brunk, “The Problem of Voluntariness and Coercion in the Negotiated Plea”, 13 Law and Society Review 527 (1979). 76 The propositions that only the guilty should be punished, and that sanctions should be proportionate to the infringement, not only reflect the most basic requirements of justice; those principles are also essential for the effectiveness of deterrence. Indeed, it is through the differential in expected sanctions between non-infringement and infringement, and between lesser and more serious infringements, that potential infringers are deterred from entering into infringements, that infringers are deterred from prolonging, extending or otherwise aggravating their infringements. 77 Concerns about the defendant’s dignity would appear more relevant in the case of natural persons than in the case of corporate defendants. See generally Marius Emberland, The Human Rights of Companies, OUP, 2006. Procedural fairness constitutes not only a value in itself but also contributes to the objective of ensuring compliance with the substantive law, to the extent that perceptions of fairness lead to greater voluntary compliance. See Tom Tyler, Why People Obey the Law, Yale University Press, 1990.

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defendant’s voluntary acceptance, both accuracy and dignity would appear to be safeguarded.78 One of the obvious necessary conditions for a settlement to be voluntary is that the defendant must not have been the victim of any misrepresentation by the competition authority regarding either the expected or possible outcome of a fully adversarial disposal of the case or the conditions and consequences of a settlement. Clear rules or guidelines on the normally applicable sanctions and on the available settlement rewards are certainly useful in this respect.79 To ensure that settlements are not coerced through bluffing, access to the authority’s file should be possible. With regard to settlement procedures under Article 9 of Regulation 1/2003, the CFI has confirmed that the undertaking concerned has a right of access to the Commission’s file.80 Second, the defendant must be given enough time, and it must have adequate access to counsel, so that it can make an intelligent settlement decision in its own interests or defend itself through fully adversarial proceedings. While concerns as to access to adequate counsel have often been raised in the context of plea bargaining in general criminal law,81 this condition would not appear to pose problems in the context of antitrust, and certainly not in the case of antitrust enforcement by the Commission, whose proceedings are usually directed against large companies that have access to the best legal advice money can buy.82 Third, a settlement obviously could not be said to be voluntary if it were coerced through physical threats, or any other threats or promises of a nature not properly related to the antitrust enforcement proceedings. Fourth, there would also be improper compulsion if a defendant’s refusal to settle would result in an increase in the penalty above the normal penalty, i.e. above the penalty that would have been imposed if the competition authority had not offered the defendant a possibility to settle.83 78 Obviously, the defendant’s agreement can only guarantee that the finding of infringement is not too broad, and that the remedies or penalties are not disproportionately heavy. It does not exclude that the finding may be too narrow, or that the remedies or penalties are disproportionately weak. As to how to avoid the latter type of inaccuracy in the settlement context, see supra, text accompanying notes 65 to 69; and infra, text accompanying notes 83 to 90. 79 See supra text accompanying notes 26, 27 and 22-32 (referring to the Commission’s Fining Guidelines, Leniency Notice and Settlements Notice). 80 See Alrosa, cited supra note 17, para. 197. As to the settlement procedure in cartel cases, see supra, text accompanying note 28. See also “Settlements of EU Antitrust Investigations: Commitment Decisions”, cited supra note 10, at 352–355; Efficiency and Justice in European Antitrust Enforcement, cited supra note 1, paras. 105 and 115; and Eleanor Ostrow, “The Case for Preplea Disclosure”, 90 Yale Law Journal 1581 (1981). 81 See, inter alia, Stephen Schulhofer, “Plea Bargaining as Disaster”, 101 Yale Law Journal 1979 (1992). 82 See also OECD, cited supra note 37, at pp. 11–12 and 33. As to the limited (and never used) possibility for the Commission to bring antitrust enforcement proceedings against natural persons, see Efficiency and Justice in European Antitrust Enforcement, cited supra note 1, paras. 502–504. 83 Similarly, there would be improper compulsion if a defendant’s refusal to settle would result in: a wider or more serious finding of infringement; or remedies more burdensome

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The Use of Settlements in Public Antitrust Enforcement 45 On the other hand, a settlement does not become involuntary merely because a penalty reduction below the normal penalty level is offered. Indeed, if the penalty imposed on a defendant that refuses to settle is the normal penalty, i.e. the penalty which would also have been imposed if the authority had not granted the possibility to settle, the offer of a lower penalty in case of settlement merely widens the range of options available to the defendant, thus increasing rather than reducing the defendant’s freedom of choice.84 However, if large reductions were offered, the voluntariness of settlements could still be questioned, for two reasons. First, if the settlement reward were so large as to yield a “flagrant disproportion” between the two alternatives facing the defendant, it might be argued that the pressure to settle amounted to improper compulsion.85 Second, as argued above,86 large settlement rewards may allow competition authorities to obtain settlements in weak cases (or including weak parts of cases), which in the absence of the settlement option would never have been opened, or would have been discontinued by the competition authority. In such cases the voluntary nature of a settlement could be contested on the ground that the competition authority has left the defendant with an unfavourable choice compared to the situation it would have been in if no possibility of settlement had been offered.87 In the Commission’s cartel settlement procedure, the fine reduction is 10%.88 Such a small reduction, applied to the normal fine that results from the Commission’s Fining Guidelines and Leniency Notice,89 appears entirely unproblematic.90 than those that would have been imposed if the authority had not offered the defendant a possibility to settle. 84 See Borghi v. Italy, cited supra note 75. 85 See the judgment of the ECtHR in Deweer v. Belgium, (1980) 2 E.H.R.R. 439. This case concerned an infringement of Belgian price regulations by Mr Deweer, a butcher. Mr Deweer was offered the choice by the public prosecutor between either directly paying a modest fine (on the order of 250 euros) without any further prosecution, or facing a criminal prosecution, which could have taken several months, during which time his butcher shop would have been provisionally closed, depriving him of his income. However, the situation of Mr Deweer would appear to be substantially different from that of a large company assisted by sophisticated counsel in an antitrust procedure. On the impossibility of simply transposing case law of the ECtHR concerning natural persons in the context of “classical” criminal procedures to the context of companies in antitrust proceedings such as those conducted by the Commission, see the Opinion of Advocate General Geelhoed of 19 January 2006 and the judgment of the ECJ in Commission v SGL Carbon, cited supra note 74, and the Opinion of Advocate General Geelhoed of 12 September 2006 and the judgment of the ECJ in Case C-411/04 P Salzgitter Mannesmann v Commission [2007] ECR I-959. 86 See supra text accompanying notes 65 to 69. 87 See Brunk, cited supra note 75. 88 See supra note 32. 89 See supra, text accompanying notes 26 and 27. 90 See also Andrew Ashworth and Mike Redmayne, The Criminal Process, 3rd edition, OUP, 2005, at 292 (arguing that the sentence discount for guilty pleas should be “no more than a 10 per cent reduction”).

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II Andreas Reindl* The Legal Framework Governing Negotiated Settlements/Plea Agreements in Cartel Cases in the United States

Introduction The U.S. Government’s policies and strategies concerning the use of plea agreements—or negotiated settlements—in criminal cartel cases have been highly successful.1 Almost all corporate and individual defendants in cartel cases prefer to plead guilty and agree to substantial sanctions, including jail time for individuals as well as corporate and individual criminal fines, rather than challenge the Government and litigate their cases.2 Unique features of the U.S. legal system have put the Government in a negotiating position that no other antitrust authority in the world can duplicate;3 and the Government has made good use of these features, with negotiated settlements serving as a highly effective tool to investigate and punish cartels. This chapter will describe the legal framework applicable to negotiated settlements in cartel cases,4 and it will explore how this framework, in conjunction with the Antitrust Division’s policies, contributes to the effective use of plea agreements in anti-cartel enforcement. Section I will describe some rules and principles governing plea agreements in federal criminal law enforcement, including: court decisions which have favored the use of plea agreements in * Fordham University School of Law, New York. 1 There have been many excellent descriptions of the policy of the DOJ regarding plea agreements. See, e.g., OECD Policy Roundtable on Plea Bargaining/Settlement of Cartel Cases (“Plea Bargaining”) (2006), DAF/COMP(2007)38 of 22 January 2008, pp. 141 et seq. (U.S. contribution providing overview of policy and process governing plea agreements, with references to presentations on plea agreement policies). The same document also contains references to other presentations by DOJ officials on the use of plea agreements. See also Ann O’Brien, “Cartel Settlements in the U.S. and EU: Similarities, Differences and Remaining Questions”, this Volume, p. 171. 2 Litigation in criminal cartel cases is rare. More than 90% of all cartel cases end with guilty pleas. 3 Leslie Jacobs, “Criminal Enforcement of Antitrust Laws—Problems with the U.S. Model”, in Barry Hawk, ed., International Antitrust Law and Policy: Fordham Competition Law 2006, Juris Publishing, 2007, chapter 3. 4 The term “settlement” is typically used to describe a negotiated disposition of a civil case or a civil enforcement case by the Government. However, international practice has increasingly used the term “settlement” for cartel cases, including criminal cases against cartels. In this chapter the term “settlement” (and occasionally also the term “plea bargaining”) will be used as shorthand for a negotiated disposition of a cartel case.

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federal criminal cases and have granted prosecutors and defendants significant flexibility in negotiating settlements so long as basic elements of fairness and transparency are met; procedural rules which incorporate many of the same principles; and the statutes on criminal sanctions for corporate and individual defendants in cartel cases, which influence outcomes of plea agreements as they cast the shadow within which negotiated settlements occur. Section II will offer some illustration for how the legal framework and the Government policies affect outcomes of the plea bargaining process. Section III concludes.

I. Legal Framework A. Courts and Plea Bargaining Plea bargaining has a long history in all areas of criminal law enforcement in the United States. Even though the constitutionality of the practice was not explicitly upheld by the Supreme Court until the 1970s, courts never questioned the use of plea agreements to dispose of criminal cases. Over many years, principles and rules were developed and tested in court, and these principles and rules strongly support the use of plea agreements in criminal cases. There are several explanations for the favorable attitude of courts toward the use of plea agreements.5 The first, more cynical view is that courts were confronted with a pervasive practice that developed without official judicial recognition for decades and had no choice but to recognize that the criminal justice system would not function without it. Thus, plea bargaining was something inevitable, but not necessarily something desirable. A comment by the late Justice William Rehnquist captures this ambivalent attitude toward the use of plea bargaining in criminal law enforcement: “It should be recognized at the outset that the process of plea bargaining is not one which any student of the subject regards as an ornament to our system of criminal justice. Up until now its most resolute defenders have only contended that it contains more advantages than disadvantages, while others have been willing to endure or sanction it only because they regard it as necessary evil.”6 5 For a discussion of various rationales used by courts to uphold and encourage the practice of plea bargaining, see Jason Mazzone, “The Waiver Paradox”, 97 Northwestern University Law Review 801, 833–838 (2003) (arguing that courts have been much more favourable toward the waiver of constitutional rights in criminal plea agreements than in any other circumstances where a party might consider waiving constitutional rights). 6 William H. Rehnquist, Speech before the National Conference on Criminal Justice (January 25, 1973), quoted in Joseph Colquitt, “Ad Hoc Plea Bargaining”, 75 Tulane Law Review 695, 704 (2001). For an early, more sceptical judicial view on plea bargaining, see, e.g., U.S. v. Brady, 397 U.S. 742, 752–53 (1970): “Of course, that the prevalence of guilty pleas is explainable does not necessarily validate [. . .] the system which produces them.”

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The Legal Framework Governing Negotiated Settlements 49 This view holds that courts did not really have a choice and had to accept an existing, pervasive practice as a necessary part of the system. In such a situation, it was preferable for courts to bring it out in the open and regulate the process, rather than leave the process in the dark and behind closed doors, as a prohibition on plea bargaining would drive the practice underground and invite “unhealthy subterfuge”.7 Accordingly, courts have emphasized that rules must be in place to ensure the fairness of the process and protect against unfair and coerced plea agreements, especially in light of important procedural and constitutional rights that defendants routinely waive when they plead guilty. In Brady, for example, the Court noted that it had long been recognized that a guilty plea was a “grave and solemn act to be accepted only with care and discernment,” and the Court emphasized that “waivers of constitutional rights not only must be voluntary but must be knowing, intelligent acts done with sufficient awareness of the relevant circumstances and likely consequences.”8 Consistent with this more cautious attitude toward plea agreements, courts have set out basic principles that must be followed to ensure that the process is fair to the defendant and free of coercion. Undue coercion could be found, for example, where a prosecutor threatens to bring additional, excessive charges only to induce the defendant to accept a plea agreement. Moreover, convictions must be based on a sound factual record, and the process leading to a plea agreement must be fair and must enable the defendant to make an informed decision about whether to plead guilty.9 All the necessary facts underlying a plea agreement must be disclosed to the court before it can accept a guilty plea and impose a sentence. Another pillar in ensuring fairness is the independence of the court throughout the plea bargaining process. Thus, judges must not participate in the plea negotiations, as otherwise their role as independent arbiter would be compromised, and a defendant might feel coerced into accepting a plea agreement.10 On the other hand, while the need for safeguards has been recognized, there is also a widely held belief that plea bargains are in the public interest, as they 7 Bodenkircher v. Hayes, 434 U.S. 357, 365 (1978). See also Blackledge v. Allison, 431 U.S. 63, 76 (1977) (commenting that plea bargaining had been a sub rosa process shrouded in secrecy and deliberately concealed by the parties). 8 U.S. v. Brady, cited supra note 6. The Court also noted: “This is not to say that guilty plea convictions hold no hazards for the innocent or that the methods of taking guilty pleas presently employed in this country are necessarily valid in all respects. . . . Accordingly, we take great precautions against unsound results, and we should continue to do so, whether conviction is by plea or by trial. We would have serious doubts about this case if the encouragement of guilty pleas by offers of leniency substantially increased the likelihood that defendants, advised by competent counsel, would falsely condemn themselves.” Ibid., at 757–758. 9 Ibid. (expressing expectation that courts will supervise plea agreements to ensure that they were made voluntarily and intelligently, and that guilty plea accurately reflects facts). 10 See, e.g., U.S. v. Adams, 634 F.2d 830, 835–842 (5th Cir. 1981) (finding that defendant was entitled to re-sentencing before a different judge because the first judge participated in plea negotiations); U.S. v. Miles, 10 F.3rd 1135, 1139–41 (5th Cir. 1993).

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allow for a more efficient resolution of criminal cases, thus saving scarce enforcement resources, including judicial resources.11 According to this view, the ability to settle cases will ultimately lead to greater deterrence because criminal enforcement resources can be used to uncover new cases rather than to prosecute and litigate cases related to cartels already discovered. Building on this belief, many courts considered plea agreements a sensible mechanism of criminal law enforcement administration in the public interest.12 Unfortunately, there is very little empirical support for the notion that a universal practice of settling almost all criminal cases increases deterrence.13 The most common explanation for why courts have supported the practice of plea agreements is that a plea agreement is essentially like a private contract; a negotiated, voluntary exchange of rights and entitlements that should be mutually beneficial for both sides, as well as the public, so long as the process is basically fair.14 Consistent with this view of settlements, the courts have found that legal rules should be designed to encourage parties to enter a plea agreement. If rules concerning waivers of procedural and constitutional rights were too restrictive they could make it harder to reach agreement, and this would ultimately be a disadvantage for the defendant, who could not benefit from the value of the assets (rights) he holds. On this view, giving up constitutional rights should be viewed as part of negotiations, rather than a case of impermissible coercion of the defendant or an impermissible encroachment by the parties on the constitutional underpinnings of the criminal enforcement system. Consistent with this approach, the Supreme Court in a more recent case ruled in favor of allowing a defendant to waive certain rights on the ground that legal rules should not stifle the development of the “market place” for 11 Santobello v. New York, 404 U.S. 257, 263 (1971) (characterizing plea agreements as “highly desirable”, as they lead to a prompt and final disposition of most criminal cases). 12 Mazzone, “The Waiver Paradox”, supra note 5, at 837. 13 The widely held view that settlements are in the public interest is based on the assumption that decreases in deterrence as a result of lower sanctions in settled cases is more than outweighed by increases in deterrence resulting from the fact that an agency can detect and prosecute more cases if it settles cases which are already discovered. The underlying assumptions for this belief cannot be empirically tested. See OECD, “Plea Bargaining”, supra note 1, at 41 (discussing how small changes in assumptions about deterrent effects can change the assessment that settlements increase overall deterrence and therefore are in the public interest, as well as other reasons why bringing more cases with lower fines might not always be in the public interest). 14 The view that plea agreements should be viewed as a contract, similar to civil out-ofcourt settlements, is widely supported in the academic literature. See, e.g., Frank Easterbrook, “Criminal Procedure as a Market System”, 12 Journal of Legal Studies 289 (1983) (arguing that plea bargaining is in many ways like negotiating a contract); Robert E. Scott & William J. Stuntz, “Plea Bargaining as Contract”, 101 Yale Law Journal 1909, 1912–1917 (1992) (supporting view that plea bargaining should be seen as a contract in which both sides can exchange their entitlements, and arguing that restricting the right to exchange entitlements would undermine their value). For a summary of academic commentary on the characterization of plea bargaining as contract, including the limitations of this analogy, see OECD, “Plea Bargaining”, supra note 1, at 30–32.

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The Legal Framework Governing Negotiated Settlements 51 plea bargains.15 While the reference to a “market place” for plea bargains appears curious, it is a good illustration of the perception that legal rules should facilitate negotiated solutions of cases to ensure more efficient case outcomes. The emphasis on the similarities between plea agreements and private contracts16 means that the plea bargaining process must be fair and transparent, and free of undue coercion, to ensure that the outcome is mutually beneficial. This, of course, goes back to the principles of fairness discussed above. At the same time, so long as basic elements of fairness and transparency are met and so long as the defendant’s decision was “voluntary, deliberate, and informed,” courts have seen little reason to interfere with agreements that the parties have reached. Indeed, they have accepted that there are relatively few limits on what the defendant can give up in return for a lighter sentence. An opinion by Judge Posner on the rights a defendant can waive in a plea agreement illustrates this point. Posner concluded that a defendant should be able to agree to waive almost any right short of things that would shock the public conscience: “No doubt there are limits to waiver; if the parties stipulated to trial by 12 orangutans the defendant’s conviction would be invalid notwithstanding his consent, because some minimum of civilized procedure is required by community feeling regardless of what the defendant wants or is willing to accept. But nothing in the procedure used in this case shocks our conscience.”17

Consistent with this approach, courts have accepted that the prosecutor can create significant pressure on defendants to plead guilty. Thus, a prosecutor can create a situation in which all choices of the defendant look rather bleak, and where the agreement to plead guilty in exchange for a reduced sentence looks only a little less unattractive than litigating a case. Creating an “incredible dilemma” for defendants who have to make difficult choices is legitimate, provided basic notions of procedural fairness are met and 15 United States v. Mezzanatto, 513 U.S. 196, 208–209 (1995). For a discussion of what types of rights should be considered waivable and in which circumstances, see, e.g., Mazzone, “The Waiver Paradox”, supra note 5, at 801 (discussing various doctrines determining whether constitutional rights can be waived in criminal procedures, and arguing that the distinction between rights considered waivable under the doctrine of criminal waiver and those that cannot be waived according to the unconstitutional conditions doctrine makes little sense); Eric Rasmussen, “Mezzanatto and the Economics of SelfIncrimination”, 19 Cardozo Law Review 1541, 1545–48 (1998) (summarizing debate on whether greater scope for waivers will facilitate plea agreements). 16 Several courts have explicitly referred to principles of contract law to resolve disputes about plea agreements, or use contract law principles at least as a “point of departure” to resolve disputed issues in a plea agreement. See, e.g., U.S. v. Embree, 2008 WL 268911 (4th Cir. 2008) (finding that interpretation of plea agreements is largely governed by the law of contracts); Rickets v. Adamson, 483 U.S. 1, 16 (1987) (Brennan, J., dissenting) (finding that “the law of commercial contract may in some cases prove useful as an analogy or point of departure in construing a plea agreement, or in framing the terms of the debate.”). 17 U.S. v. Josefik, 753 F.2d 585, 588 (7th Cir. 1985).

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provided the defendant is able to make an informed decision.18 The foregoing discussion suggests that, although there may have been different reasons for why courts have supported the use of plea agreements, and though the attitude of courts toward plea agreements may have developed over time, courts have consistently supported two basic, broad principles that govern the use of plea agreements in criminal cases. First, plea agreements are widely viewed as a legitimate resolution of criminal cases, which can benefit both sides in a criminal case as well as society at large. Accordingly, the law should not prevent defendants from waiving a wide range of constitutional and procedural rights in exchange for a reduced sentence, as doing so would deprive the defendants of valuable entitlements it can “sell” in the negotiating process. Second, the process leading to a plea agreement must comply with certain procedural safeguards to ensure that basic notions of fairness are met and that guilty pleas by defendants are the result of a voluntary and informed decision. Many of the statutory rules governing the process of negotiating a plea agreement, which are discussed in the next section, consist of more detailed applications of these two principles.

B. Federal Rules and Guidelines Governing the Plea Bargaining Process Rules governing the negotiation and acceptance of plea agreements can be found in the Federal Rules of Criminal Procedure (“FRCP”), the Federal Rules of Evidence (“FRE”), the U.S. Attorney Manual (“USAM”), and the U.S. Sentencing Guidelines (“USSG”). Although this is a rather complex set of rules, there is also a fair amount of overlap among them, as they incorporate similar principles to ensure transparency and fairness of the plea bargaining process. Rule 11 of the FRCP governs many important aspects of plea agreements, including types of pleas and procedures that must be followed.19 Broadly speaking, the rules are designed to ensure that the process leading to a guilty plea is fair and free of coercion, that the judge acts as an independent arbiter, and that a court plays a meaningful role in the process and does not merely rubberstamp a plea agreement submitted by the parties.

18 Mezzanatto, supra note 15, at 209–10 (rejecting defendant’s argument that he faced an “incredible dilemma”, and emphasizing that imposition of difficult choices is an inevitable and permissible attribute of any system that encourages the negotiation of pleas). Many other courts have held the same. 19 For a fuller overview of rules applicable to the process governing plea agreements see ABA, Section of Antitrust Law, Criminal Antitrust Litigation Handbook, 2nd edition (2006), pp. 68–74.

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The Legal Framework Governing Negotiated Settlements 53 To enter a valid guilty plea, FRCP 11(b) requires a defendant (including a defendant corporation) to appear in person in open court. The court must inform the defendant about the rights that are implicated by a guilty plea,20 including the right to plead not guilty, the right to a jury trial, the right to present and cross-examine witnesses, and the right against self-incrimination. This provision indirectly confirms that most rights a defendant has in a criminal trial can be waived.21 The court must inform a defendant about the maximum and minimum penalties, and the role of the sentencing guidelines. It also must ensure that the plea agreement is voluntary, and it must determine that there is a factual basis for the plea. FRCP 11(c) emphasizes that the court must not participate in the negotiation of a plea agreement.22 FRCP 11(c) also specifies three different types of plea agreements that can be submitted to the court, including plea agreements with sentence recommendations by the prosecution that do not bind the judge (FRCP 11(c)(1)(B)), and plea agreements with an agreed-upon sentence recommendation which binds the court if it accepts the plea agreement (FRCP 11(c)(1)(C)). In other words, if the parties submit a so-called “C agreement,” the court can reject the entire plea agreement or it can defer a decision until after review of the report, but if it accepts the plea agreement it must follow the recommended sentence. “C agreements” therefore limit to some degree judicial discretion, but they provide the greatest degree of certainty to a defendant and should be most effective in facilitating plea agreements.23 Although there has been some reluctance by courts to accept “C agreements,” they have become by far the most important type of plea agreements in antitrust cases.24 The Federal Rules of Evidence also include provisions related to plea agreements.25 In particular, FRE 410 provides that discussions in the course 20 FRCP 11(a) authorizes different types of pleas, including a plea of “not guilty”, a nolo contendere plea, and a guilty plea. In antitrust cases, the Government as a matter of policy opposes nolo contendere pleas, where defendants do not dispute allegations but do not admit guilt. 21 In fact, the Supreme Court has applied a presumption of waivability to many rights included in the Federal Rules of Criminal Procedure, with the exception of a few rights considered to be unwaivable. Mezzanatto, supra note 15, at 201–202. 22 This codifies a bright-line prohibition established in federal case law to preserve the court’s role as independent arbiter. See U.S. v. Adams, 634 F.2d 830, 835–842 (5th Cir. 1981) (finding that defendant was entitled to re-sentencing before a different judge because of judicial participation in plea negotiations); U.S. v. Miles, supra note 10, at 1139–1141 (5th Cir. 1993). 23 See, e.g., Shayna Sigman, “An Analysis of Rule 11 Plea Bargaining Options”, 66 University of Chicago Law Review 1317 (1999) (arguing that C agreements are preferable for an efficient plea bargaining process, but that type B agreements can be beneficial for defendants as well, although in the latter case a prosecutor has to “pay a higher price” to obtain defendant’s consent). See also OECD, “Plea Bargaining”, supra note 1, at 35 (discussing advantages of rules that provide greater certainty in plea bargaining process). 24 ABA, Criminal Antitrust Litigation Handbook, supra note 19, at 70. 25 Rule 410 FRE is almost literally incorporated into the Federal Rules on Criminal Procedure as Rule 11(f).

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of exploring a plea agreement are inadmissible evidence against the defendant if the parties fail to reach a plea agreement. However, defendants can agree that their statements during the plea bargaining process can be used to impeach them during a trial should the plea negotiations fail, to prosecute a defendant for obstruction of justice, and as evidence against other parties. In other words, when they partially waive rights under Rule 410, defendants are free to talk, but they have to be truthful during the negotiation of a plea agreement.26 The USSG include additional rules concerning plea agreements, including the disclosure of the plea agreement in open court (and only upon showing of good cause in camera); rules concerning charge bargains; and the possibility of including a written stipulation of facts.27 In addition, the USAM contains a chapter on plea agreements, with references to the federal criminal rules and additional rules. For example, Section 9-27.420 defines criteria that the Government should consider when deciding whether to seek a plea agreement. The criteria include: the defendant’s willingness to cooperate in the investigation or prosecution of others; the defendant’s history with respect to criminal activity; the nature and seriousness of the offense or offenses charged; the defendant’s remorse or contrition and his/her willingness to assume responsibility for his/her conduct; the desirability of prompt and certain disposition of the case; the likelihood of obtaining a conviction at trial; the probable effect on witnesses; the probable sentence or other consequences if the defendant is convicted; the public interest in having the case tried rather than disposed of by a guilty plea; the expense of trial and appeal; the need to avoid delay in the disposition of other pending cases; and the effect upon the victim’s right to restitution.28 The length and detail of the list might suggest that the decision whether or not to seek a plea agreement by a cartel defendant requires careful consideration in each case. On the other hand, the use of plea agreements in more than 90% of all cartel cases suggests that either the list is of limited use, or that the factors are invariably met in almost every case.

26 Whether a waiver of Rule 410 rights can broadly allow any use of statements during the negotiation of a plea agreement is disputed. However, in antitrust cases the government requires a waiver that allows the use of statements for impeachment purposes but it does not seek a broader waiver of rights under Rule 410. See, e.g., OECD, “Plea Bargaining”, supra note 1, at 230 (statement by Scott Hammond). 27 ABA, Criminal Antitrust Litigation Handbook, supra note 19, at 71–72. The USSG are available at http://www.ussc.gov/2008guid/GL2008.pdf. 28 USAM, Section 9-27.420, http://www.usdoj.gov/usao/eousa/foia_reading_room/ usam/title9/27mcrm.htm#9-27.420. For a more detailed explanation of the Principles of Federal Prosecution as applied in antitrust cases see ABA, Criminal Antitrust Litigation Handbook, supra note 19, at 72–74.

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C. Statutory Provisions and Rules on Criminal Sanctions The rules on criminal sanctions are the second important feature of the U.S. system of negotiated settlements. In conjunction with procedural rules that favor plea agreements, the rules governing the imposition of sanctions substantially contributes to the government’s ability to obtain substantial sanctions through the use of plea agreements, including substantial criminal fines for corporations and jail time for executives. The statutory scheme is perhaps not the most artful: the USSG is the principal framework to determine a sanction range, for both corporate and individual defendants. However, the sanction calculation under the USSG is subject to a statutory maximum which is determined by either one of two applicable statutes, the Sherman Act or the so-called Alternative Fine Statute, whichever is higher. The two statutes employ different standards of proof, which has at times led to considerable debate about how exactly these three schemes work together to determine sanctions. Nevertheless, the system does provide a relatively predictable framework to anticipate the sentence a defendant would likely receive if found guilty in a cartel case. This, of course, is relevant when parties negotiate a plea agreement, as plea negotiations occur in the shadow of the trial that would otherwise occur. The parties know that at the end of a trial a judge would almost certainly follow the USSG when imposing a sentence on a defendant found guilty. Moreover, a court can reject a plea agreement if the proposed sentence cannot be justified within the system of the USSG.29 The determination of sentences in criminal cases, including cartel cases, starts with the USSG. Although no longer mandatory, the USSG continue to inform judges as to the sentences they can impose, and judges continue to follow the USSG in most cases. The sentence determination under the USSG follows a complicated formula, although for a diligent student of all the relevant Chapters and provisions the necessary steps are relatively easy to follow.30 The USSG use a system with a base amount that is adjusted by a variety of aggravating and mitigating factors to arrive at a sanction range within which a judge should impose a sentence. The base amount is in most cartel cases determined in light of the pecuniary loss inflicted by the unlawful 29 As discussed below, the USSG sentencing methods were considered binding on judges until the Supreme Court, in a series cases between 2000 and 2004, held that the mandatory nature of the USSG was unconstitutional because it allowed a judge to increase a sentence based on facts that had not been proved before a jury. The USSG now have an advisory status, and judges can impose sentences outside the given ranges. Nevertheless, as noted below in the main text, the USSG are still largely followed in criminal cases. 30 See OECD, “Plea Bargaining”, supra note 1, at 228 (statement by Gary Spratling); Tara Reinhart, Nathan Muyskens and Christopher Tierney, “The Business of Sentencing: Facing the Facts After Blakely, Booker, and Fanfan”, The Antitrust Source (January 2005), at 1, 2–3; Antitrust Modernization Commission (“AMC”), Report and Recommendations (2007), pp. 299–300.

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conduct; the USSG use a conclusive presumption that 20% of the commerce affected by the defendant’s anticompetitive conduct reflects the harm caused by the defendant.31 Importantly, the 20% proxy would not have to be proved to a jury beyond reasonable doubt if a case went to trial. The base fine is then adjusted in relation to the defendant’s culpability and a number of other factors, such as the size of the defendant corporation.32 This adjustment leads to a sanction range within which the final sentence should be imposed. Importantly, according to Section 5K1.1 USSG, a sanction below the lower end of the range can be imposed as a result of substantial assistance. While cooperation is an important factor in reducing a recommended sentence, a refusal to enter into a plea agreement cannot be held against the defendant. The USSG make it clear that the refusal to assist the Government in its case, and forcing the government to prove its case at trial, cannot be an aggravating factor in determining a sentence.33 Clearly, an instrument like the USSG facilitates the settlement of criminal cases by providing a relatively transparent and predictable framework within which negotiations occur. They let parties anticipate which sentences a court likely would impose, thus in turn limiting the instances in which courts would reject a proposed plea agreement because they disagree with the recommended sentence. Yet at the same time, the USSG provide for considerable flexibility, in particular by using sentence ranges and by providing for the possibility of a substantial assistance departure, thus increasing the Government’s ability to reward early cooperation (and, conversely, allowing it to withhold rewards where defendants do not cooperate, or do so too slowly). Calculating a sanction according to the USSG can lead to a recommended sentence above the maximum sanctions set forth in the Sherman Act of $100 million corporate defendants and $1 million plus up to ten years in prison for individuals.34 However, the Sherman Act fines are not the absolute limit on 31 USSG, supra note 27, Section 2R1.1(d)1. The 20% harm proxy was based on the assumption that unlawful mark-ups in cartel cases tend to be around 10%, and the figure was doubled to reflect the fact that society’s cost of antitrust violations exceed the overcharge. AMC, Report, supra note 30, at 300–01. When the 2004 amendments were adopted, Congress endorsed the 20% harm proxy. AMC, Public Hearing, November 3, 2005, at 7. The majority of the AMC nevertheless recommended further study of the 20% presumption, and, more controversially, a majority of the AMC recommended that the USSG be amended to allow either side to rebut the 20% harm proxy and plead for an upward or downward adjustment. AMC, Report, supra note 30, at 302. See also American Bar Association, Section of Antitrust Law, “Comments Regarding Criminal Remedies: The Alternative Fine Statute—18 USC § 3571 (d)” (“ABA Antitrust Section Comments”), http://govinfo.library.unt.edu/amc/public_studies_fr28902/criminal_pdf/060630ABA_Criminal_Remedies.pdf (recommending review of the USSG’s 20% harm proxy). 32 Factors include: benefits of cooperation and willingness to enter into plea agreement; role in conspiracy; abuse of trust; obstruction; ability to pay fine; acceptance of responsibility; size of corporate client; and prior criminal history. See USSG, supra note 27, Chapter 3. 33 USSG, supra note 27, Section 5K1.2. 34 Antitrust Criminal Penalty Enhancement and Reform Act of 2004, Pub. L. No. 108–237, § 215, et seq., 118 Stat. 661 (2004).

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The Legal Framework Governing Negotiated Settlements 57 sanctions, as the Government can, in appropriate cases, use Section 3571(d), the so-called Alternative Fine Statute, which authorizes a criminal fine up to twice the harm or twice the unlawful gain resulting from an unlawful cartel.35 Section 3571(d) is not uncontroversial. Some have even argued that its use in criminal antitrust enforcement would be unconstitutional. The interesting element of Section 3571(d) is the requirement that the Government must prove all elements necessary to rely on Section 3571(d) beyond reasonable doubt.36 In other words, for any fine of more than $100 million the Government must in principle prove under a criminal standard of proof the unlawful gain or loss caused by a cartel. Once it has established a maximum sanction according to the method envisaged under Section 3571(d), the Government can seek a fine according to the USSG’s 20% of affected commerce rule within that maximum sentence.37 Most commentators acknowledge that obtaining a fine under Section 3571(d) in a criminal trial would be exceedingly difficult, and in many cases impossible.38 Despite these difficulties, Section 3571(d) has been used in more than 40 plea agreements to justify criminal fines in excess of the Sherman Act limits.39 Indeed, it has served as the basis for the highest criminal fines that the antitrust division has ever obtained in cartel cases, leading one critic to characterize Section 3571(d) in conjunction with the 20% presumption of the 35 18 USC § 3571(d). The statute provides: “If any person derives pecuniary gain from the offense, or if the offense results in pecuniary loss to a person other than the defendant, the defendant may be fined not more than the greater of twice the gross gain or twice the gross loss, unless imposition of a fine under this subsection would unduly complicate or prolong the sentencing process.” Section 3571(d) applies not only to antitrust cases but to a broad range of economic crimes. In antitrust cases, the statute is applied primarily with respect to corporate defendants. Scott Hammond, “Risks Remain High for NonCooperating Defendants”, presentation before the ABA Section of Antitrust Spring Meeting, 30 March 2005, at p. 9, fn. 51. 36 U.S. v. Booker, 543 U.S. 220 (2005). The effects of Booker as well as Apprendi v. New Jersey, 530 U.S. 466 (2000) and Blakely v. Washington, 542 U.S. 296 (2005), with respect to the use of the Alternative Fine Statute in cartel cases, are discussed in ABA, Section of Antitrust Law, “Comments Regarding Criminal Remedies”, supra note 31, at 7 (explaining that this case law established that “any fact that increases the penalty for a crime beyond the prescribed statutory maximum must be submitted to a jury and proved beyond reasonable doubt”, and that the statutory maximum “is the maximum sentence a judge may impose solely on the basis of the facts reflected in the jury verdict or admitted by the defendant”). See also Reinhart et al., supra note 30. 37 The interaction of the two statutes and the USSG is disputed, but the methodology described in the text appears to be the most reasonable method. See AMC, Public Hearing, Thursday, November 3, 2005, at 34–39 (statement by Scott Hammond). 38 AMC, Meeting of July 25 and 26, 2006, Supplemental Discussion Memorandum re Criminal Remedies, at 5–6 (summarizing both opinions that proof beyond reasonable doubt would be difficult in most cartel cases; and opinions to the contrary). 39 Section 3571(d) was perhaps more relevant prior to the 2004 amendments to the Sherman Act, when Sherman Act corporate fines could not exceed US $10 million. Nevertheless, it has been used on several occasions since the $100 million maximum sentence was introduced in 2004, including in the cases against Korean Air Lines (2007—$300 million); British Airways (2007—$300 million); Samsung (2006—$300 Million); and Hynix Semiconductor, Inc. (2005—$185 Million).

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USSG as the Government’s “weapons of mass destruction.”40 Section 3571(d) has been widely used despite its strict standard of proof because the Government has not yet been forced to prove the elements of Section 3571(d) in a criminal trial, since cartel cases are almost never fully litigated. Rather, plea agreements include stipulations of the total affected commerce and of the minimum harm to consumers by the cartel in light of the affected commerce. Defendants essentially waive their constitutional right under Section 3571(d) to have the Government prove all elements of its case beyond reasonable doubt.41 This, of course, raises the interesting question of why corporate defendants agree to the application of Section 3571(d) in a plea agreement to recommend a sanction that the Government would find difficult or impossible to obtain in a litigated case. The reasons for this phenomenon will be discussed in greater detail in the next section, but it is obvious that factors other than the likely outcome of a trial must influence a corporate defendant’s decision to settle a case. In appropriate cases, the framework described above for the determination of criminal sanctions might be extended by other statutes. The Antitrust Division of the DOJ is increasingly pressing other charges in cartel cases, including various obstruction of justice charges, tax charges, and charges of fraud against the Government. These collateral charges expose defendants to substantial additional sanctions, as those offenses typically result in longer jail sentences than those for antitrust offenses. Charging additional offenses affect plea settlements because they strengthen the Government’s negotiating position.42

II. The Legal Framework and the Practice of Plea Agreements The Government’s policies and strategies in the negotiation of plea agreements have been discussed and regularly updated elsewhere, including in other contributions to this Workshop as well as contributions to international institutions.43 Rather than summarizing and paraphrasing these document and speeches, the present Section will provide some observations on how the legal framework affects outcomes of negotiated settlements. It 40

AMC, Public Hearing, November 3, 2005, at 16 (statement by Tefft Smith). Reinhart et al., supra note 30, at 4. 42 See USAM, Section 9.27-320 (discussing justifications for bringing additional charges); ABA, “Criminal Antitrust Litigation Handbook”, supra note 19, at 76. For a critical view of this practice, see Jacobs, “Criminal Enforcement”, supra note 3, at 45–46. 43 See Ann O’Brien, “Cartel Settlements in the U.S. and EU” this Volume, p. 171. See also OECD, “Plea Bargaining”, supra note 1, at 141 (U.S. contribution providing a detailed summary of policy and process in relation to plea agreements). 41

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The Legal Framework Governing Negotiated Settlements 59 will discuss in particular how the legal framework has enabled the Government to develop a highly effective “carrot and stick” approach in which the “sticks” for non-cooperation can be piled up; this in turn allows the Government to exercise considerable pressure on defendants to quickly settle cases and agree to substantial sanctions. The Section will then briefly explore the potential impact of follow-on litigation on the incentives to settle. Though it is outside the legal framework governing criminal enforcement, this factor can nevertheless create a powerful incentive to pay a substantial criminal fine. Last, the Section will describe how the involvement of courts can affect settlement outcomes.

A. Increasing the Defendant’s Incentives to Agree to Substantial Criminal Sanctions 1. Escaping the Dog-Eat-Dog Environment The use of Section 3571(d) to support criminal fines in plea agreements in excess of US $100 million is a good illustration of how the combination of the legal framework and Government policies influences settlements. As described above, it is not uncommon for corporate defendants to accept plea agreements in which the criminal fine exceeds the Sherman Act’s maximum criminal fines and can only be imposed by applying Section 3571(d). They agree to these fines despite the fact that they would have a good chance of prevailing in court if the fine had to be litigated in a criminal trial and the Government had to prove unlawful gain or loss under a criminal standard of proof.44 This suggests that the likely outcome of a trial is not the only factor motivating defendants to agree to criminal fines under § 3571(d), but that the decision is influenced by a range of additional factors, including both the risks of a decision to litigate and the potential benefits of a decision to settle.45 Of course, a defendant is subject to the same incentives and pressures when the Government seeks sanctions “only” within the Sherman Act’s maximum sentence. But the peculiar nature of Section 3571(d) and its evidentiary requirements can in certain circumstances bring these issues out more clearly. A number of such factors have been identified. These include the benefit of certainty of an early resolution, which is enhanced by the use of “C 44 The few cases in which defendants have risked a jury trial and forced the Government to prove unlawful gains/losses under Section 3571(d) should support this expectation. See Reinhart et al., supra note 30, at 6–7 (discussing cases in which Section 3571 was litigated); Jacobs, “Criminal Enforcement”, supra note 3, at 31 (noting that in antitrust cases litigated between 1995 and 2005, almost two thirds of the defendants were not convicted). 45 See also Stephanos Bibas, “Plea Bargaining Outside the Shadow of the Trial”, 117 Harvard Law Review 2463, 2465–66 (2004) (concluding that factors specific to plea bargaining can lead to results that do not reflect the likely outcome of trials).

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agreements.” Moreover, a corporate defendant unwilling to plead guilty will forfeit possible benefits under DOJ’s Amnesty Plus program, as well as potential de-trebling in private civil suits for “amnesty-plus products.”46 However, while it would be difficult to determine the relative weight of each individual factor, one of the most powerful incentives to settle appears to be the Government’s ability to prosecute multiple defendants, including corporate and individual defendants, with complete discretion to decide how many individuals it will prosecute, and the Government’s ability to reward cooperation differently depending on when defendants are willing to settle. The combination of these two factors puts considerable pressure on defendants to settle early, and at the same time increases the leverage of the Government to obtain substantial sanctions in plea agreements regardless of whether the same type of sanctions likely could be obtained in a trial.47 As explained above, the Sherman Act not only authorizes the Government to prosecute individuals in addition to corporations. It also gives the Government discretion to decide whether it will prosecute any individual (for example, under the corporate leniency program, immunity for the first cartel participant to confess includes immunity for all individuals as well) or how many individuals it wants to prosecute. Thus, the Government may settle with a corporation while “carving out” a number of corporate executives for further prosecution. According to established Government policy, how quickly a corporation is willing to plead guilty and pay a criminal fine will determine the number of executives carved out from the settlement. The relationship between individual sanctions and higher corporate fines has been one of the more controversial aspects in the Government’s strategy concerning plea agreements. Defense counsel have repeatedly alleged that the Government is trading money for jail time and accepts higher fines in lieu of individual sanctions including incarceration. The Government, on the other hand, has consistently denied this interpretation and insisted that jail time cannot be avoided by paying a higher corporate fine.48 Of course, not everyone con46 Moreover, a corporate defendant unwilling to plead guilty at an early stage will face sentencing at the end of the investigation, when the Government’s evidence against it is strongest. For a summary, see, e.g., ABA, Section of Antitrust Law, “Comments Regarding Criminal Remedies”, supra note 31, at 18–19 (June 2006); Scott Hammond, “Measuring the Value of Second-In Cooperation in Corporate Plea Negotiations,” Address to the 54th Annual American Bar Association Section of Antitrust Law Spring Meeting, 29 March 2008. 47 Outside observers have highlighted this feature of U.S. style settlements as well. See, e.g., Anthony Hammond and Roy Penrose, “Proposed criminalisation of cartels in the UK”, report prepared for the OFT, November 2001, at p. 29 (referring to the dog-eat-dog environment created by the DOJ’s policies). 48 For a summary of the arguments, see AMC, Supplemental Discussion Memorandum re Criminal Remedies, supra note 38, at 7, text accompanying notes 23–25 (summarizing Government position that it will not trade money for jail time and views of other speakers indicating that the desire to minimize jail time for executives is a substantial incentive for corporations to cooperate). See also Jacobs, “Criminal Enforcement”, supra

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The Legal Framework Governing Negotiated Settlements 61 siders such a tradeoff (if it occurs) to be a bad thing. During the AMC hearing, for example, one Commissioner observed that the willingness of corporations to pay a lot of money to bail out some of their top executives merely reflected the desirable, deterrent effect of individual sanctions.49 There is probably some way to reconcile these positions. While it is credible that the Government does not offer an explicit money-for-jail time bargain, its strategy to carve out more executives from a plea agreement with the corporation (and thus expose more executives to jail time) the later the corporation settles will to some extent have similar effects. For a corporate defendant (and for the executives who make decisions for the corporation), the incentive to keep executives out of jail, or at least to limit the number of executives which are exposed to this risk, is a powerful incentive to settle quickly, which in turn must increase the willingness to accept a high fine, including a fine that the Government perhaps could not obtain in a criminal trial. From this perspective, the Government’s ability to extract fines that can be justified only under Section 3571(d) is an illustration of the Government’s ability to put pressure on defendants to plead guilty by creating a “race to settle” among defendants. It can do so by differentiating the settlement rewards for defendants, and by substantially decreasing the benefits of a plea agreement to defendants who hold out the longest, as they would face a broader range of statutory sanctions and other detriments. Thus, the Government has been able to create a situation which presents a defendant with a range of unattractive options, in which the guilty plea and agreement to pay a high fine is the least unattractive. The Government’s emphasis on transparency and predictability as leading policies governing plea agreements ensure that defendants are always well aware of the stark choices they face. Some tactics through which the Government has maximized the advantages it enjoys under the criminal enforcement system may come across as aggressive and coercive, and they have been criticized by some defense counsel. There have been complaints, for example, about an arbitrary and retaliatory process, disconnected from the principle of transparency; and an omnipotent inquisitor that exercises bluff rather than candor and uses especially obnoxious techniques of investigation.50 But the Government’s strategies appear to be well within the boundaries defined by the courts, which have allowed the Government to put substantial pressure on defendants to plead guilty. note 3, at 43 (alleging a tradeoff between jail time for individuals and criminal fines paid by corporation). 49 AMC, Public Hearing, July 25, 2006, at 33–34 (statement by Commissioner Carlton). 50 Critical comments can be found, for example, in Tefft W. Smith, Comments for the Antitrust Modernization Commission Hearing on Criminal Antitrust Remedies (November 3, 2005); Jacobs, “Criminal Enforcement”, supra note 3, at 25; Jonathan M. Jacobson, Antitrust Modernization Commission, Public Meeting, July 25, 2006. For a positive description of the plea bargaining process by defense counsel, see, e,g., OECD, “Plea Bargaining”, supra note 1, at 228–229 (2006) (statement by Gary Spratling describing benefits of plea agreements from a private sector perspective).

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2. Criminal Settlements and Private Follow-On Litigation As suggested above, other factors may provide additional incentives for defendants to settle and agree to substantial sanctions, including sanctions that could perhaps not be obtained if the case went to trial. One such factor is the impact that a settlement in a criminal cartel case can have on the defendant’s exposure to fines in a follow-on civil lawsuit. Unfortunately, although it can at times be highly influential, this factor has not been well documented or fully explored in the academic literature. In a competition regime with robust private antitrust enforcement and potentially substantial damage awards, a corporate defendant should be expected to consider the consequences of its settlement with the Government for follow-on civil litigation. Its concern will be that whatever wrongdoing it admits in a settlement agreement will be used by plaintiffs in a subsequent civil suit as evidence of an infringement of the antitrust laws, so that the follow-on suit will focus only on the damage amount.51 In this situation, a defendant would agree to pay a relatively higher sanction in the government’s case if in exchange it can obtain a reduction in the alleged time period of the cartel or in the description of the affected commerce. Such a disposition of the public case might have a net beneficial effect for the defendant, as it can reduce the potential damage awards in follow-on civil litigation by a greater amount than what the defendant agrees to pay in “excessive” fines to the Government. The Government might be willing to agree to such a plea agreement, as it will increase the criminal fine it can obtain from the defendant and bolster its enforcement record in the eyes of the public and its peers. Thus, by considering the outcomes in both public and follow-on private cases and determining the optimal tradeoff, the defendant may be able to reduce its overall liability.52 Conversely, by insisting on a higher fine while agreeing to a more limited charge period, the Government may improve its own enforcement record, but overall it may reduce the combined deterrent effect of public and private enforcement.53 These factors may again provide an incentive for a defendant to agree to a criminal fine that is higher than what the Government likely could obtain if it had to litigate its case before a criminal court. 51 The relationship between plea agreements and private follow-on actions is also discussed in John Taladay’s contribution to this Workshop, p. 317. 52 See, e.g., Jacobs, “Criminal Enforcement”, supra note 3, at 44; OECD, “Plea Bargaining”, supra note 1, at 35–36. 53 The discussion in the text suggests that the Government should be concerned about maximizing the total deterrent effects of both public and private enforcement when negotiating a settlement, and not only maximizing the criminal sanction it can obtain. In his contribution to this Workshop, John Taladay argues that competition authorities should be concerned only about maximizing the amount of sanctions they can obtain in a settlement. Such an approach, however, would not be consistent with the role of competition agencies in protecting the public interest by maximizing overall deterrence.

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B. The Role of Courts in Plea Agreements As described in Section II, courts play an important role in the settlement process. Even if the parties agree on a sanction in a plea agreement, they must present their settlement to a court, which must review and approve the proposed agreement and impose a sanction. Although judicial interference with plea agreements in antitrust cases has been extremely rare, the fact that the agreement must be justified before a judge limits the parties’ incentive to deviate from the procedural safeguards and/or the sanctions range of the USSG. The disciplining effect of judicial review increases transparency and predictability and, in turn, the likelihood that the parties will be able to reach an agreement. Protecting the integrity of the negotiating process by ensuring that the Government has not abused the settlement process and unduly coerced the defendant to plead guilty is one obvious role for courts in the settlement process. This role explains many of the provisions in FRCP 11(b), which require that the court examine whether the defendant’s plea was based on an informed decision, but also that the parties submit a sufficient factual record to the court in support of the proposed sanction. As has been argued elsewhere, however, this function of courts appears to be less important in criminal antitrust cases compared to other criminal cases.54 Judicial involvement plays a second important role, however, which is to protect the public interest in the settlement process against unwarranted lenient sanctions. In particular, review by a court can ensure that a sanction envisaged by the parties is within the sanctions range envisaged by the USSG and that the parties do not agree on a sanction below the USSG range without specific justification. Without judicial control, occasions could arise where both sides find it in their best interest to agree on an unreasonably low sanction. If such incentives exist, the parties would likely reach a settlement which would be in their mutual best interest, but their agreement would have significant negative externalities by undermining the public interest in deterring future violations of the law.55 The one reported case in which a judge initially rejected a plea agreement in a cartel case illustrates this role of the court. In Showa Denko

54 See, e.g., OECD, “Plea Bargaining”, supra note 1, at 43 (observing that defendants in cartel cases are sophisticated and represented by experienced counsel and therefore in a position to make an informed decision). 55 Of course, there are limits to this function of courts. Even the USSG and judicial review of proposed plea agreements do not completely eliminate the possibility that parties can bargain around the outcomes envisaged in the USSG without the ability of a court to intervene. As one commentator has pointed out, sentencing guidelines are legal rules that work like price controls, and price controls encourage black markets. Frank Easterbrook, “Plea Bargaining as Compromise”, 101 Yale Law Journal 1969, 1975 (1992).

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Carbon,56 the judge initially rejected the recommended $29 million criminal fine for the defendant on the ground that the downward departure from the USSG was excessive. The parties renegotiated the agreement and returned to the judge with a proposed fine range between US $29 million a US $32.5 million. The judge imposed a sentence at the high end of this proposed range.57 In many ways, the result of the judicial intervention was the best outcome the Government could wish for. On the one hand, the court sent a message that any downward departures from the USSG would be subject to strict judicial control. This outcome must have strengthened the hand of the Government in future cases, as it could argue with greater credibility that any downward departures would be acceptable only to the extent they were justified in light of the defendant’s cooperation and other factors envisaged in the USSG. At the same time, even though the court rejected the initially recommended fine, the sanction ultimately imposed by the court was not so dramatically different from the initially envisaged sanction that it undermined the Government’s credibility in future negotiations.

III. Conclusions Today there is a broad international consensus among antitrust regimes concerning policies applicable to first-in leniency applicants. But when it comes to dealing with the second-in and following defendants, jurisdictions have developed substantially different solutions. Even among jurisdictions that already have (or are considering the introduction of) systems of negotiated settlements for cartel cases, approaches differ significantly. The unique legal framework in the United States has enabled the Government to develop highly effective and successful policies concerning the use of settlements in cartel cases. This contribution has provided a few examples of how the legal framework in the United States has a substantial influence on how parties settle criminal cartel cases. The current international debate about negotiated settlements in cartel cases frequently uses the U.S. system as a benchmark against which other solutions are compared. Given the many systemic differences between the legal regimes in different jurisdictions, however, there is a question as to whether the same approach to negotiated settlements in cartel cases can be transferred to other jurisdictions. In particular, further research will be required to better understand whether, or in which circumstances, the use of settlements in 56

U.S. v. Showa Denko Carbon, Criminal No. 98-CR-85-1 (E.D. Pa. 1998). In this case, the Assistant Attorney General in charge of the Antitrust Division personally appeared before the sentencing judge to defend the revised proposal for a $32.5 million fine. 57

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The Legal Framework Governing Negotiated Settlements 65 cartel cases by antitrust authorities that do not operate in a legal framework and enforcement environment similar to that of the United States could work against the public interest by undermining the development of a credible enforcement record and the deterrent effects of antitrust enforcement.

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III Jochen Burrichter* Settlements in Cartel Cases: Practical Experience in Germany

I. Direct settlements in cartel cases In Germany, the termination of cartel proceedings by settlement arrangements has a long tradition and was established already shortly after the entry into force of the German Gesetz gegen Wettbewerbsbeschränkungen (GWB = Law against restraints of competition) in 1958. “Consensual” or “amicable” fine decisions of the Federal Cartel Office (“FCO”) and the cartel authorities of the German Länder are facilitated by certain features of the applicable Ordnungswidrigkeitengesetz (OWiG = Law of administrative offences) (see 1.). These features and the practical experience in administrative fine procedures (see 2.) are described below.

1. Applicable law a) The OWiG With the exception of bid rigging, violations of the GWB are not criminal offences but fined as administrative offences. The fines can also—and according to the system of the GWB and OWiG primarily—be imposed on the acting managers. The fine against a manager usually amounts to the equivalent of one year’s annual income. The fines against a company amount to one million euro and up to 10% of the company’s turnover in the preceding business year. Since 1 July 2005, when an amendment to the GWB entered into force, the guidelines on the setting of fines by the FCO basically follow the same principles set forth in the equivalent Notice of the European Commission. Moreover, the FCO applies leniency rules similar to the EC Leniency Notice.

b) Procedure The FCO (and the cartel authorities of the Länder) are competent for the prosecution of violations of the GWB. Upon conclusion of their investigation, the * Hengeler Mueller, Brussels and Düsseldorf.

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cartel authorities may adopt a decision imposing fines, which can be appealed to the Higher Regional Court within two weeks by means of an “Einspruch”. Immediately after the decision, the parties concerned can waive the right to appeal, but this is not permitted before the decision is served. Fine decisions of the FCO are taken by a three-body decision department which is competent for the whole procedure, including the “discussions” with the parties in cases which qualify for an “amicable” settlement. Consequently, the parties discuss with the same persons who finally decide. If a decision imposing fines is appealed, the decision is deemed to be a bill of indictment. Consequently, the Higher Regional Court is in no way bound by the factual statements or the legal assessment in the decision. Against the judgment of the Higher Regional Court an appeal may be brought, on issues of law only, before the Federal Court of Justice.

c) Special features of the OWiG relevant for direct settlements (1) “Opportunitätsprinzip” (principle of expedience) The cartel authorities are not forced to prosecute every infringement. Instead they can balance the advantages and disadvantages of opening proceedings, taking into account the necessary efforts and the prospective fines. They may also decide to concentrate the investigation on the major infringements and to refrain from prosecuting minor violations. Moreover, they may decide to prosecute only violations for which clear evidence is available, and to desist from further investigations. Furthermore, they may choose not to prosecute violations where, in light of relevant precedents, the legal situation is unclear. These principles allow for considerable flexibility. (2) Interim procedure after appeal In cases of appeal against a decision by which the cartel authority imposes fines, the case does not immediately go to the competent Higher Regional Court. Instead, the cartel authority has the possibility, in an interim procedure (§ 69 OWiG), to decide to withdraw the decision completely or to investigate the case further and to issue a new decision. This makes it possible to withdraw a “consensual” decision if the parties settle but then unexpectedly appeal. If the cartel authority decides not to withdraw the decision, it has to submit the case to the public prosecutor, who then becomes competent for the further proceedings and normally submits the authority’s files to the Higher Regional Court.

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Settlements in Cartel Cases: Practical Experience in Germany 473 (3) Right to be heard Before issuing a decision imposing fines, the cartel authorities have to inform the parties concerned about the subject of the accusation. There are no formal requirements for this information. In particular, there is no requirement to issue a formal Statement of Objections. However, in ordinary cases, the cartel authorities do send formal SOs (“Beschuldigungsschreiben”).

2. Practical experience In Germany, the procedure in “consensual” settlement cases is not the subject of any guidelines or published rules. There are even differences in the proceedings practiced by the (actual) eleven decision departments of the FCO. The experience described below, therefore, may slightly vary between the decision departments competent for different branches.

a) Violations qualifying for “consensual” settlements The FCO has not limited the scope of violations of the GWB qualifying for “consensual” settlements. Therefore, settlements are possible in horizontal cases as well as in vertical cases and in cases of abuse of dominance. Further settlement discussions are open in leniency cases and non-leniency cases at all stages of the procedure.

b) Point of time for starting discussions The FCO has accepted discussions about “consensual” settlements in very early stages of a case, e.g. immediately after a dawn raid, if the evidence available is clear and if the violation is not disputed. It was therefore possible, in a particular hard core cartel scenario, to reach a settlement and close the case with a decision imposing fines within roughly three months after the dawn raid. In addition, there is no formal final deadline for settlement discussions. However, it is evident that the later the discussion starts, the less likely the prospects of success.

c) Access to basic evidence In appropriate cases, the parties during the settlement discussions have been given access, where necessary, to key evidence documents. Complete access to the files is normally waived, especially in cases where no formal SO is issued.

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d) No Statement of Objections In many settlement cases, no SO was issued. Instead, the right to be heard before the decision is taken was granted by submitting a draft decision in the final stage of the discussions.

e) Limitation of accusations (1) Settlement discussions normally also concern the legal assessment of offences. In one case, it was possible to limit the scope of the infringement by characterizing the conduct as a vertical restraint rather than as an abuse of a dominant position, despite the fact that the FCO in a previous merger case had concluded that the leading operators in the market held a collective dominant position. (2) Settlement discussions in many cases also concentrate on the duration of the violation. This is so especially in cases where the duration is not completely clear from the evidence. Since the amendment of the GWB in 2005, which changed the fining system so that it is no longer calculated on the basis of the excess proceeds but rather is equivalent to the EU rules, the FCO has been willing to limit the calculation of the fine to the period of time after the entry into force of the new law in order to avoid complicated calculations of the excess proceeds. (3) In appropriate cases, it has also been possible to discuss whether an infringement was committed negligently or intentionally. This has a substantial influence on the amount of the fine, which in case of negligent infringements is half of the fine of intentional infringements.

f) Content of the fining decision In a couple of cases it has been possible to discuss the contents of the fining decision and to limit the reasoning of fining decisions to the legal minimum contents required in § 66 OWiG. According to this provision, it may be sufficient to describe the nature of the infringement without going into the underlying facts. It cannot be doubted that this impedes private enforcement to a certain extent, as the decision does not deliver facts which may be useful for the plaintiff’s calculation of damages. Already since 1 July 2005, the GWB provides that the statements about infringements of the law in final and binding decisions of the German cartel authorities, the EU Commission and even of the cartel authorities of the other Member States, are binding for the civil courts in proceedings for the restitution of damages. However, the binding effect is limited to the infringement as such and—according to the prevailing interpretation of the law—does not extend to factual statements in the relevant decisions of the competition authorities.

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g) No fine against managers In appropriate cases, the settlement discussions successfully aim at refraining from fining the managers of the companies responsible for the infringements. However, this depends on the individual circumstances, e.g. the role of the manager concerned in the cartel and other circumstances. As a general tendency, it has to be noted, however, that in recent cases the FCO has insisted on imposing a personal fine on at least one responsible manager. There remains the possibility to discuss the amount of the fine.

h) Cooperation rebate There is no fixed percentage for a “cooperation rebate” on the fine in settlement cases. The “rebate” depends on the status of the case and the efforts which already had to be invested in the investigation and on the point of time when settlement discussions were started. In many cases, no “formal” rebate is granted on a fine calculated in accordance with the guidelines on the setting of fines. Instead, the “cooperation” has had an influence on the calculation of the basic amount, which may be up to 30% of the turnover achieved during the infringement. In some cases, a “rebate” of 15% has been granted on the fine which had been calculated in accordance with the guidelines, this “rebate” being granted in addition to the reduction of the fine under the leniency notice. After the Commission adopted the final version of its Notice on the conduct of settlement procedures (2008 OJ C167/1), the rebate was reduced to 10%.

i) Return of pieces of evidence after a binding decision imposing fines In some cases the settlement discussions concerned, inter alia, the return of basic pieces of evidence collected in a dawn raid to the parties immediately after the fining decision has become binding.

j) Access to the file by third parties In its leniency notice, the FCO has indicated that it will use its discretionary powers, within statutory limits, to refuse applications by private third parties for file inspections or the supply of information, insofar as the leniency application and the evidence provided by the applicant are concerned. In some settlement cases, it has been accepted that this practice should also be extended to these cases. It is not yet clear whether the courts will accept this practice.

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k) No secrecy obligation for the parties concerned The FCO normally does not require the parties involved in settlement discussions to keep these discussions confidential vis-à-vis third parties or other cartel members. It depends on the discretion of the lawyers involved as to whether such contacts are useful and appropriate. In some cases, these contacts have facilitated the discussions with other cartel members and thereby contributed to achieve a settlement solution for a bigger group of cartel members. It has to be noted, however, that under the leniency notice, the parties are obliged to keep the application confidential unless the FCO waives this confidentiality requirement.

l) Admission of infringement The decisive condition for settlement decisions is the admission of the infringement by the companies and persons concerned. For the parties it is therefore necessary to submit corporate and personal statements similar to those required in leniency cases. In addition to such statements, the FCO in appropriate cases carries out formal interrogations of the managers concerned. The minutes of such interrogations have to be signed. Where strong evidence is required against parties which have not settled, the FCO has considered requiring the managers to submit the admission to a judge. The admission of the infringement can also be used in civil actions for damages, although it does not have effects going beyond the binding effect of the fining decision itself.

m) Publicity In most settlement cases, publicity is also the subject of discussions. It is normally possible to discuss the main features of the final press release of the cartel authorities, but there is no approval procedure before publication of the press release. This is also due to the fact that the publicity activities of the FCO are reserved to its President. The decision departments which are the discussion partners have only limited influence on the contents of a press release issued by the President. However, it is normally possible to agree the point of time when the press release will be issued, thereby allowing the parties concerned to timely comment on the press release.

n) Equal treatment It has also been possible to discuss settlements in cases where not all cartel members were willing to settle. In these cases, the problem of equal treatment

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Settlements in Cartel Cases: Practical Experience in Germany 477 becomes even more important than in cases where all cartel members are ready to settle. In order to grant equal treatment, the decision departments normally develop a “matrix” which allows them to apply the same criteria to all companies concerned. This “matrix” is normally at least orally communicated to the parties concerned. In cases where more than one cartel member is involved in the settlement discussions, the aspect of equal treatment also plays an important role. Although the fine which the FCO intends to impose on other cartel members is not disclosed to the other parties involved, it is normally possible to obtain an indication of whether other cartel members will be subject to a higher or lower fine compared to that of the company in question.

o) Instalments Also discussed very often when settlements are explored is the possibility to pay the fine in instalments without paying interest and without submitting a security for the outstanding amounts.

p) Credibility of counsel Experience shows that settlement discussions are only accepted in cases where the parties and the counsel involved are regarded as having sufficient credibility for successful discussions. In particular, settlements can only be discussed successfully if the parties concerned and their counsel show complete openness, fairness and behaviour avoiding any “tricks”.

3. Settlements in court If a decision of the cartel authorities imposing fines has been appealed, settlements are still possible in the proceedings before the Higher Regional Court, which in appropriate cases is also open for settlement discussions. However, at this stage of the proceedings the FCO is no longer able to withdraw a decision without the consent of the public prosecutor and the court itself. The parties concerned have the possibility to withdraw an appeal without the consent of the public prosecutor and the court before the oral hearing has started. The settlement procedure was recently the subject of an amendment to the German Code of Criminal procedure (the “Gesetz zur Regelung der Verständigung im Strafverfahren” of 19 June 2009).

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II. Commitment Decisions 1. Relevant German Legislation The GWB, as amended on 1 July 2005, stipulates in § 32b: “§ 32b Commitments (1) Where, in the course of proceedings under § 32, undertakings offer to enter into commitments which are capable of dispelling the concerns communicated to them by the cartel authority upon preliminary assessment, the cartel authority may by way of a decision declare those commitments to be binding on the undertakings. The decision shall state that subject to the provisions of paragraph 2 the cartel authority will not make use of its powers under §§ 32 and 32a.1 It may be limited in time. (2) The cartel authority may rescind the decision pursuant to paragraph 1 and reopen the proceedings where: 1. the factual circumstances have subsequently changed in an aspect that is material for the decision; 2. the undertakings concerned do not meet their commitments; or 3. the decision was based on incomplete, incorrect or misleading information provided by the parties.”

2. Procedural aspects The wording of § 32b GWB is almost identical to that of Article 9 of Regulation 1/2003. Accordingly, the applicable procedure is similar to the procedure under Article 9: —The FCO informs the undertakings of the major concerns and the alleged infringement, but it does not have to issue a formal Statement of Objections. —The decision only concerns the termination of the proceeding, and leaves open the question of whether the companies infringed the competition laws. —Due to the lack of a finding on the substance, the decision has no binding effect for civil courts, and follow-on damage claims cannot be based on the reasons of the decision. 1 Section 32 GWB empowers the FCO to oblige the undertakings concerned to bring to an end an infringement of a provision of the GWB or of Articles 81 or 82 EC. Section 32a GWB empowers the FCO to order interim measures.

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Settlements in Cartel Cases: Practical Experience in Germany 479 —Fines can be imposed on the parties if they contravene the (binding) commitments. The legal base for the fines is the breach of the agreed commitments, but not an infringement of Article 81 or 82 EC. —The decision of the FCO declaring the commitments binding is theoretically appealable if the claimant can allege the decision would negatively affect their legitimate interest. However, given the consensual character of the settlement, the parties concerned will rarely be in a position to claim a negative impact. As the decision is in the discretion of the FCO and contains no finding as to substance, third parties cannot claim to be negatively affected by it.

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IV Daniel L. Rubinfeld* Settlements in Antitrust Enforcement: A U.S. Economic Perspective

I. Introduction This paper provides an economic perspective on the use of settlements in the European Union. The paper emphasizes settlements in cartel cases, but also offers comments that are relevant for the analysis of settlements in restraint of trade cases brought under Article 81 and abuse of dominance cases under Article 82 of the EC Treaty.1 The comments contained in the paper are informed by my personal experiences as an antitrust enforcer (as Deputy Assistant Attorney General for Economics in the Antitrust Division of the Department of Justice in 2007 and 2008), as a consultant in private antitrust matters, and as an active member (and former president) of the American Law and Economics Association. The latter experience is particularly relevant because the policy issues surrounding settlements are informed by the law and economics literature relating to legal process and to deterrence. The paper is organized as follows. Section I focuses on criminal cartel enforcement. I explain that the U.S. corporate leniency program creates a set of incentives that generally encourage settlements involving single and multiple cartels. I then explain that the law and economics literature relating to legal process and to deterrence can offer useful lessons to the E.U. as it continues to develop its leniency program. As is well known, the E.U. is in the process of putting into place a system of private antitrust enforcement. The interaction between the cartel settlement procedures and the new system of private enforcement are both important and complex. Therefore, while discussing cartel enforcement, I will offer comments on the relationship between the design of a leniency program and the incentives to bring private enforcement actions. Section II comments on * Robert L. Bridges Professor of Law and Professor of Economics, University of California, Berkeley and Visiting Professor of Law, NYU. 1 Procedures for cartel cases are covered under the proposed new Article 10a of Commission Regulation 773/2004 of 7 April 2004 on the conduct of proceedings by the Commission pursuant to Articles 81 and 82 of the EC Treaty, 2004 OJ L123/18, last amended by Commission Regulation (EC) No 622/2008 of 30 June 2008, 2008 L171/3. Article 81 and 82 settlements are covered by Article 9 of Regulation (EC) No 1/2003 of the Council of 16 December 2002 relating to the implementation of the rules on competition laid down in Articles 81 and 82 of the EC Treaty, 2003 OJ L1/1.

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civil public enforcement issues that arise out of Sections 1 and 2 of the Sherman Act and which have relevance for Articles 81 and 82 within the European Union. I describe the range of instruments that can be useful in achieving an appropriate deterrence goal, and I comment briefly on the pros and cons of the available remedies.

II. Criminal Cartel Enforcement The primary objective of a criminal antitrust enforcement program is and ought to be deterrence of conspiracies to fix prices or to divide markets. Other objectives such as punishment or the disgorgement of wrongful gains are secondary. The U.S. enforcement program is particularly complex; it uses a combination of “carrots” and “sticks” to achieve its deterrence goals. Sticks involve penalties that are harmful to recipients. Carrots are inducements that benefit recipients (although those benefits might include a reduction in harmful penalties). The U.S. amnesty programs offer a series of benefits to firms that have engaged and/or are engaging in price fixing (or market division) activities. The Amnesty Program offers leniency to the first party that comes in the door (and qualifies); if they do qualify, both the corporation and its employees are free from criminal prosecution (fines and imprisonment). The qualifying company is also assured that it will be subject to single rather than treble damages in any private follow-on cases that are brought. The Amnesty Plus Program allows parties that do not qualify for amnesty with respect to the initial matter to receive amnesty for the second offense and a reduced corporate fine for the first.2 The two amnesty programs create a number of important economic incentives that offer lessons for the EU’s leniency program. By far the most important is the incentive to be first in the door. There is no doubt that the Amnesty program has been highly successful in encouraging parties to come forward to the Department of Justice. The program has helped to unearth price-fixing conspiracies that either would not have come to light at all, or would only have been become known at a significantly later date.3 There are, however, a number of other incentives that are less obvious, but potentially important. Any firm that does come forward faces the risk that through settlement or trial it will pay substantial civil damages (single damages if first; treble otherwise).4 In recent years, the tendency has been for 2

Roux and Ungern-Sternberg (2007) offers details and analysis. See Leslie (2006) for a more extensive discussion of strategic incentives that flow from the Amnesty Program. 4 This is in accordance with the 2004 amendment to Section 4 of the Clayton Act, 15 U.S.C. § 15. 3

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private class action suits to be filed immediately following the public availability of information relating to criminal investigations, whether or not those investigations lead to prosecutions. Knowledge that pleas in criminal cases can create direct evidence of antitrust violations in civil cases can increase the likelihood that those private suits will be successful.5 Parties coming forward to seek amnesty must therefore consider the possibility of settling or litigating private suits. As a matter of economic theory, this will reduce the incentive of parties to come forward in the first place, especially given that firms cannot be assured that they will qualify for leniency.6 Given the substantial increase in major price fixing cases brought by the U.S. following the introduction of the amnesty program, it appears unlikely that this effect has been large. However, a firm conclusion with respect to this issue awaits empirical study. From the perspective of the EU, it seems reasonable to expect that the development of a system of private litigation that is substantially more limited than the U.S. system (no contingent fees, single damages, opt-in requirements for class actions) will have only a modest discouraging influence on the decision of parties to participate in the leniency program. The Amnesty Plus Program also creates a potentially significant economic effect. While the program on its face offers a benefit to reporting involvement in a second cartel, it is likely to create mixed incentives with respect to reporting the first cartel. On one hand, there will be an increased incentive to report based on the additional benefit created by the “Plus.” On the other hand, there may be a reluctance to come forward, if participation by firms in the Amnesty Program is more likely to lead to the uncovering of a second profitable cartel arrangement. The U.S. criminal enforcement program of fines and prison sentences for individuals was clearly designed to create a race between companies involved in price fixing and its employees to come forward to disclose improper behavior.7 While a great deal has been written about the success of this program from an operational point of view, relatively less attention has been given to the generally supportive lessons that flow from the literature on the economic analysis of law. Deterrence theory views the decision to engage in improper behavior as a function of the probability of being detected and successfully prosecuted and the magnitude of the penalty that is imposed. In his classic analysis of criminal enforcement, Gary Becker emphasized the savings in enforcement costs 5

See 15 U.S.C. §16(a). The incentives with respect to private litigation will be somewhat different in Europe to the extent that the losing party is responsible for covering some or all of the litigation costs of the winning party. For a review of the empirical issues relating to fee-shifting and other related issues, see Kessler and Rubinfeld (2007). For more general commentary on the introduction of private enforcement in Europe, see Rubinfeld (2006). 7 See, e.g., Hammond (2004). 6

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that arise if one increases the penalty and reduces the probability of detection so as to keep the expected penalty (the probability multiplied by the penalty) constant.8 It is now well understood that for risk-averse parties (which likely characterizes the behavior of many company individuals) high penalties and a low probability of detection can achieve appropriate deterrence with even lower enforcement costs.9 The reason is that the uncertainty of detection creates risk, and the risk-premium that individuals would be willing to pay to avoid that risk creates additional deterrence without any enforcement expenditure. It also now well known that individual prison sentences can offer more effective deterrence than fines.10 The essential point is that for high-wealth individuals (and arguably for highly profitable corporations) the opportunity cost (i.e., the loss of wealth) associated with a fine may not be sufficient to generate adequate deterrence. However, a prison sentence, which deprives individuals of an opportunity to earn substantial income and offers the disutility of prison conditions, can generate very substantial deterrence.11 Now consider the additional complexities that are created with the implementation of the Penalty Plus program. This program offers a strong stick whose purpose is to further deter wrongful behavior. Under Penalty Plus, the failure to report a related second offense can lead to increased penalties beyond those that would naturally be imposed with respect to the first offense. Once again, lessons from the law and economics literature offer some insights into the likely effects of the program. The Penalty Plus program can be seen as a program that offers increased penalties to repeat offenders. As a general rule, economic analysis tells us that under reasonably general conditions the increased penalty design will create additional deterrence beyond what could be achieved if the penalty for the second related offense were not increased. The basic intuition is that by avoiding the first offense, parties eliminate the possibility of the heavy penalty that would flow from engaging in a second offense (which is successfully detected and enforced).12

III. Cartel Settlements The introduction of a program that encourages cartel settlements by the European Union has generated some controversy. A review of the economics 8

Becker (1968). See Polinsky and Shavell (1979). 10 See, e.g., Polinsky and Shavell (2000). 11 This deterrence benefit will be reduced to the extent that the corporations continue to pay salaries to employees that serve prison sentences. 12 See Polinsky and Rubinfeld (1991). The authors do point, however, to circumstances in which a reduced penalty for the second offense can be beneficial. 9

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underlying such a program in the U.S. and the EU should help to clarify some of the issues. Cartel settlement programs generate some clear and significant benefits. First, they reduce enforcement costs.13 This allows the enforcement authority that is constrained by a limited budget to undertake more investigations and to prosecute more cases. This not only increases enforcement and deterrence, other things the same, it also gives a clearer signal to prospective violators. The clarity of the enforcement signal from the competition authority is important from an economic perspective because a clear signal increases certainty and thereby reduces the company expenditures needed to defend against investigations that may not undercover improper behavior. I see two potentially significant costs associated with a settlement program. First, the program is likely to introduce certain inequities, since the punishments among cartel members are often highly variable. These inequities may not be as significant an issue in the EU as in the U.S., since the EU (unlike the U.S.) will not grant amnesty to the cartel ringleader. Second, settlements reduce the expected penalty paid by wrongdoers. (The violator will not settle unless the settlement payment is less than the expected cost of pursuing the investigation through trial and appeal unless a final resolution is reached.) This leads, other things the same, to reduced deterrence.14 This is a valid concern. However, it should be counterbalanced against the fact the settlement only occurs because it benefits the enforcement authority as well and, as just discussed, those benefits can translate in the end into greater enforcement activity. While an exact balancing of the costs and benefits of a cartel settlement program is undoubtedly difficult, I have no doubt from my U.S. experience that such a program does generate improved deterrence within the constrained, limited enforcement budget.

IV. Civil Public Enforcement Civil public enforcement in the U.S. also seeks to achieve deterrence objectives (primarily under Sections 1 and 2 of the Sherman Act and the FTC Act). Despite the fact that two separate agencies are involved in enforcement in the United States, the limited budgets of the enforcement authorities make the management of enforcement costs an important secondary objective. The deterrence objective is achieved in the vast majority of cases through injunctive 13

See, e.g., Zingales (2008). Polinsky and Rubinfeld (1989) offer one illustration of this point, using a model in which the injuring party settles only if the settlement leads to a reduction in the expected penalty plus the expected cost of litigation. 14

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remedies, although disgorgement of profits from inappropriate behavior has been an occasional goal. Settlements play an important role in both U.S. agencies for reasons that are analogous to many of the points made with respect to criminal enforcement. The paragraphs that follow offer some further thoughts with respect to the economic issues underlying settlements at the Department of Justice, whose process is somewhat different from that of the Federal Trade Commission. The Department of Justice (“DOJ”) frequently settles cases through the use of consent decrees. Historically, DOJ tended to enter into decrees that had a long life. Over the years, however, the view that shorter decrees are more appropriate has become dominant. From an economic point of view, this is a sensible rule (although there are always exceptions to the rule). While the threat of longer decrees tends to create greater deterrence, the longer the decree, the greater the risk that competitive behavior will be restricted.15 Consent decrees can reasonably be placed into two categories, those that involve behavioral remedies and those that are structural. Structural remedies offer high rewards with higher risks. A remedy that alters the structure of the industry (perhaps by a divestiture of assets or a license of intellectual property to competitors) will change the nature of competition. If the remedy is appropriately chosen, it can beneficially influence the competitive landscape for the foreseeable future. Structural remedies have an important second benefit— once the remedy has been imposed, relatively little if any monitoring is involved. Most commentators would likely agree that the consent decree breaking up AT&T is an example of the successful use of a structural remedy. Behavioral remedies are lower in risk, but typically lower in reward as well. They are likely to have a less significant impact on the competitive process, but they do avoid the potentially large cost associated with the inappropriate imposition of a structural remedy. Unfortunately, behavioral remedies typically involve substantial continuing monitoring and enforcement costs. Whether in agreement with the settlement in U.S. v. Microsoft or not, most commentators would likely agree that the decree has required (indeed imposed) continued and costly monitoring by the Department of Justice and by the Federal District Court in the District of Columbia.

V. Conclusion The leniency programs in the United States and in other countries have been remarkably successful in unearthing cartels. As the EU and other countries 15

Epstein (2007) offers a particularly critical historical view of consent decrees.

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further develop their own individualized programs, they can learn from the U.S. experience. Firms and their managers do respond to economic incentives. That is undoubtedly the reason that the Amnesty Program has induced so many participants in cartels that adversely affected U.S. commerce to come forward. When the Amnesty Program is combined with other leniency programs, Amnesty Plus and Penalty Plus, the economic incentives that are created by the mixed use of “carrots” and “sticks” become substantially more complex. Among other things, the U.S. experience tells us that the presence of an extensive system of private civil enforcement mutes the incentives for firms to participate in the Amnesty Program. There is also much to learn from the literature on the law and economics of legal process about the likely incentives created by a new leniency program. Among other things, both the use of prison sentences for individuals and the addition of the Penalty Plus Program are likely to have a positive influence on the incentives of parties to seek Amnesty. As the European Union continues to put its cartel settlement program into effect, it is tempting to note and to emphasize the differences between the U.S and the E.U. While convergence is in itself a desirable goal, it is not essential for the two systems to be equivalent for the combination of the two to serve as an effective deterrent against price fixing and other cartel-like behavior.

References Becker, Gary, “An Economic Theory of Crime and Punishment”, 76 Journal of Political Economy 169–217 (1968) Epstein, Richard, Antitrust Consent Decrees in Theory and Practice, American Enterprise Institute, 2007 Hammond, Scott, “Cornerstones of an Effective Leniency Program,” ICN Workshop in Leniency Programs, Sydney, Australia, 22–23 November 2004 Kessler, Daniel P. and Daniel L. Rubinfeld, “Empirical Study of the Civil Justice System,” in A. Mitchell Polinsky and Steven Shavell, eds., Handbook of Law and Economics, Volume I, Elsevier, 2007, pp. 343–342 Leslie, Christopher, “Antitrust Amnesty, Game Theory, and Cartel Stability,” 31 Journal of Corporation Law 453–488 (2006) Polinsky, A. Mitchell and Daniel L. Rubinfeld, “A Model of Optimal Fines for Repeat Offenders,” 46 Journal of Public Economics 291–306 (1991) Polinsky, A. Mitchell and Daniel L. Rubinfeld, “A Note on Optimal Public Enforcement with Settlements and Litigation Costs,” 12 Research in Law and Economics 1–8 (1989) Polinsky, A. Mitchell and Steven Shavell, “The Optimal Tradeoff Between the Probability and Magnitude of Fines,” 69 American Economic Review 880–891 (1979)

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Polinsky, A. Mitchell and Steven Shavell, “The Economic Theory of Public Enforcement of Law,” 38 Journal of Economic Literature 45–77 (2000) Roux, Catherine and Thomas von Ungern-Sternberg, “Leniency Programs in a Multimarket Setting: Amnesty Plus and Penalty Plus”, CESifo Working Paper No 1995 (2007) Rubinfeld, Daniel, “An Empirical Perspective on Legal Process: Should Europe Introduce Private Antitrust Enforcement?” in Peter Nobel and Marina Gets, eds., New Frontiers of Law and Economics, Schulthess, 2006, pp. 141–148 Zingales, Nicolo, “European and American Leniency Programmes: Two Models Towards Convergence,” European Policy Centre, Brussels, 2008

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V Stephen Wilks 1 A Political Science Approach: Restorative Justice and the “Fairness Critique”

Introduction Europe had traditionally been relatively tolerant of cartel activity although that toleration gave way to outright censure by the late 1990s (Harding and Joshua, 2003: 272). There is still, however, a hesitation amongst business and political elites to treat activities found to be illegal under competition law as morally unacceptable or “criminal”. This hesitation can be expressed as a “fairness critique” which is concerned with the political legitimacy of competition law and its enforcement. It argues that the assertive enforcement of competition provisions is unfair in a variety of respects. The unfairness may relate to the scope of the law, the procedures whereby it is enforced, the stigmatization of the business community, the effect on successful national companies, and even the international competitiveness of the economy. The critique may be advanced by executives, companies, trade associations and their professional advisers and it may find a sympathetic hearing from the public, politicians, the workforce of the companies concerned and even the courts. This is, of course, a highly tendentious critique but it provides a useful analytical perspective which stresses that the enforcement of European competition law has become far more aggressive and severe since the first imposition of significant fines on cartels in the mid 1980s. The fairness critique suggests that cartel enforcement must be regarded as legitimate if it is to be successful and therefore that innovations must be assessed in the context of legal, business and indeed societal acceptance. This provides a broad context within which to discuss the Commission’s proposals for the settlement of cartel cases and it moves the discussion away from the Commission’s own preoccupations with administrative efficiency, impact on leniency, and the effect on private actions.

1 Stephen Wilks is Professor of Politics at the University of Exeter and a Member of the UK Competition Commission. None of the points made in this paper should be attributed to the Competition Commission. He thanks Christine Parker, Melbourne, and Andreas Stephan, UEA, for comments.

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The chapter draws on a political science literature and on a more specialized literature dealing with responsive regulation and restorative justice. It draws examples from the rather obvious experience of the United States and from the less obvious but highly suggestive experience of Australia. It argues that the settlement proposals had the potential to widen the enforcement portfolio in a most creative way and that a restorative dimension would have helped to head off the fairness critique. But it also argues that the concrete proposals published in June 2008 (European Commission, 2008) confirmed a policy design too constrained by the EU’s legal structure and overly driven by an economic concept of deterrence. This has had the paradoxical outcome that the Commissions model has, in effect, conceded the strength of the fairness critique and has played into the hands of large cartel abusers by restricting enforcement to a legal arena in which the legal resources of large corporations can continue to be deployed to impede enforcement. The arguments outlined below in favour of responsive regulation and restorative justice will be criticized as administratively unrealistic and as idealistically naïve. In particular it will be said that restorative approaches are not suitable for dealing with hard core cartels where a confrontational, aggressive and penal approach is essential. But even if the time is not yet ripe for a more imaginative approach to enforcement, the present chapter can at least contribute to the debate and finds reassurance from the view of several specialists that the continued aggressive escalation of fines and economic deterrence is unlikely to resolve the cartel problem (Harding and Joshua, 2003: 254–258; Motta, 2008). Effective resolution requires moral condemnation in addition to financial deterrents. The next section presents a brief justification for adopting a political science approach and then sketches out some of the potential benefits offered by the settlement expedient. The chapter then outlines four areas of debate and possible policy experimentation before drawing conclusions that express a degree of disappointment with the missed opportunities that the final version of the settlements procedure represents.

Why political science? The proposals from the Commission to settle with cartel offenders through an administrative process involve negotiations with large business corporations, and therefore lead into the quintessential territory of political science, which is the analysis of power relations. Large companies are conventionally regarded as the most powerful entities within contemporary capitalist society and there is an extensive literature debating whether the power of business is structural and systemic, or specific and contingent. That literature is too

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A Political Science Approach 95 broad to review here (but see Lindblom, 1977; Bernhagen, 2008, chapter 2), where we are essentially concerned with the development of a policy instrument, but we can accept and use a subset of that literature which suggests that business power is political as well as economic, and that it is expressed through substantial and effective efforts to lobby governments, agencies and individuals in order to bias regulation in favour of business interests (Coen, 2007). The structural power of business is seen in the deference that governments pay to business priorities in areas such as business taxation or labour relations. Indeed, it can be suggested that the entire legal system, in design and operation, is biased in favour of corporate interests (Braithwaite, 2002: 239). The specific power of business is seen in sophisticated lobbying campaigns conducted by government affairs departments and in targeted lobbying over particular issues. The resources that companies can put into lobbying and into legal representation are very substantial although often almost invisible to the public at large. But although corporate influence may be exercised behind closed doors there is a popular perception that companies are unduly powerful. That perception is fanned by populist writers such as Monbiot (2000), Klein (2000) and Bakan (2005) and, in relation to settlements, they increase the need for settlement procedures to be transparent, accountable and able to avoid accusations of capture. Competition policy presents something of a paradox in this setting. On the one hand there is a corporate resistance to competition policy based on “the desire of competitors not to compete” (Harding and Joshua, 2003: 16); on the other hand there is pressure to open markets and a demand for competition policy to remove exclusionary practices. Competition policy can therefore engender approval from industry at large in a way that company taxation or workers rights cannot. Since there is unlikely to be structural resistance to competition policy, the question of improper exertion of corporate power is more likely to concern specific enforcement at the level of the sector, the company or the individual infringement. It is against this background of the political power of business that we can assess the settlement proposals.

The benefits of direct settlement The October 2007 consultation and the June 2008 proposals from the Commission for direct settlement of EU cartel cases (European Commission, 2008) are presented primarily as a way of saving time and releasing resources to increase case handling and thereby to reinforce deterrence. In a useful analysis Andreas Stephan points out that the Commission’s proposals would save perhaps one third of the average 42 months taken for decisions but he

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also emphasizes that the other great problem is appeals against cartel decisions and their attendant fines. Appeals can double the time taken to bring cases to a conclusion, and they vastly increase the demand on scarce Commission resources because something like 75% of cases are appealed before the Community Courts (in 2006–07; see Stephan, 2007a: 7). For this reason, Stephan is sceptical of the Commission’s proposals—which do not involve the waiver of rights of appeal. This chapter is more welcoming of the settlement proposals but less for the pragmatic reasons of time saving, and more for the developmental opportunities to explore a larger range of enforcement possibilities. This welcome is therefore based on a more normative argument that rests on regulatory theory and a political need to mobilize a wider constituency of support for forceful action against cartels. More specifically there are three potential advantages opened up by the settlement proposals. First, settlements retain the regulatory initiative within the competition agencies, and particularly within the Commission. One dimension of criticism of a settlement process is that it may reduce the opportunities for follow-on private actions. But there is a line of thought that suggests that private actions are not necessarily the right way forward, partly because they are an uncertain, complex and potentially highly skewed form of enforcement (Nölke and Wigger, 2007), and partly because they remove the initiative from the public authorities who can operate enforcement with a view to societal priorities and to the public interest (see Walsh, 2007; Yeung, 1999: 46). If settlement operates to inhibit private actions, this may actually be an advantage. Second, the move towards settlement extends the range of policy instruments available to the competition authorities and opens up a debate about further modes of enforcement. Settlement explicitly recognizes the potential for the greater exercise of discretion and at the same time recognizes the need to develop parallel avenues of accountability. This advantage rests on a body of regulatory theory that has become very influential in the design of business regulation for which the inspirational text is Ayres and Braithwaite’s (1992) Responsive Regulation. They argue that regulators should have at their disposal a “pyramid” of regulatory instruments ranging from soft mechanisms such as persuasion at the bottom of the pyramid to severe penalties such as criminal proceedings at the top. Regulators are well advised routinely to employ the softer instruments but with the constant threat of moving up the regulatory pyramid to employ tougher instruments where companies are obstinate or recalcitrant (Braithwaite, 2008). Settlement provides a welcome additional stage in the cartel enforcement pyramid between a decision not to proceed and a full adversarial engagement. It also provides an arena for negotiation which might allow further options including restitution for past illegality and mechanisms to prevent future infringements. This leads into the third advantage of the settlement debate which is the possibility for implementing ideas of “restorative justice”. This is a concept

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A Political Science Approach 97 familiar to criminologists and can be presented as a contrast between restoration of harm done by breaches of the law, contrasted with retribution for such breaches; or as a contrast between problem solving and punishment. A more formal working definition is that “restorative justice is a process whereby all the parties with a stake in a particular offence come together to resolve collectively how to deal with the aftermath of the offence and its implications for the future” (Marshall, cited in Braithwaite, 2002: 11). Restorative justice might be seen as a softer, unduly idealistic approach, ill suited to dealings with tough, cynical perpetrators of hard core cartels, but that would be to underrate its potential. The approach has been used successfully in Australian competition policy (Braithwaite, 2002, 250; Parker, 2004) where it is claimed that it can create superior remedies. More widely, it is the characteristic approach of business regulation in market economies. Most business regulation is cooperative, relying on a degree of self-regulation, on trust and on perceptions of procedural and substantive justice. In this respect restorative justice would seek to reform as well as to deter cartel offenders although in a sophisticated argument Braithwaite (2002: 102) also claims that the deterrence qualities of restorative justice are superior. From a political viewpoint restorative approaches seek to involve a wider set of parties in the process, and to make the process as transparent and public as possible, thus building wider public support for enforcement measures. As we see below, to sustain political support is a far from trivial consideration. This chapter thus sees the potential for substantial advantages emerging from the debate about settlements. But the advantages are far wider than those arising from the specific proposals in the June 2008 package and should be more imaginative than those discussed through the lens of the “fine fixation”. To restrict this debate only to the setting, negotiation and deterrence effect of fines for cartel activity would be to impoverish the debate. The following sections therefore rehearse four areas for further discussion.

Policy convergence and policy design The proposals for settlement are of course linked to the success of the leniency measures adopted in Europe and they appear to constitute a further convergence with US antitrust enforcement. This apparent reproduction of US practices raises a series of questions prominent among which are: —is there a direct borrowing of US settlement instruments? —how should the US model be adapted for European regulation? —what are the risks of going down the US route? —will analysis of the strengths and weaknesses of the US model help to anticipate European effectiveness?

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The literature on policy convergence suggests a spectrum of causation ranging from coercive imposition of policies by international agencies to voluntaristic initiatives inspired by learning from foreign examples (Holzinger and Knill, 2005; Rose, 2004). The EU settlement proposals come at the voluntaristic end of the spectrum but it is clear that the relative success of settlement procedures in other jurisdictions (OECD, 2006) has encouraged policy borrowing inspired by apparent best practice and by the added legitimacy of being able to point to US successes. The attractions of the US model have also been emphasized by forums such as the OECD and the ECN, by the familiarity of transatlantic law firms and multinationals, and crudely, by offering a timely, “off the shelf ” solution to a rapidly escalating problem of enforcement overload. The US model has been cited regularly and with approval by the Commissioner and Director-General of DG Comp but it has also aroused extensive criticism on a variety of grounds (Wigger and Nölke, 2007). The contributions to this volume underline the US reference points and illustrate the sometimes huge practical and systemic differences between the US and European regimes. Reindl’s contribution to this book offers an interpretation which stresses the extraordinarily strong bargaining position of the DOJ and thereby emphasizes aspects that would provoke the fairness critique if reproduced in Europe (Reindl, this Volume). US settlements can be secured through consent decrees or plea bargains. Consent decrees are administrative acts in which a defendant ceases to pursue a course of action but there is no admission of guilt and no punitive sanctions. About 70% of US DOJ antitrust cases are settled with consent decrees (Stephan, 2007: 18) and this route has recently become important in Europe. The EU has the power to negotiate “consent commitments” enforceable in the courts under Article 9 of Regulation 1/2003. This power has been used extensively but is thought unsuitable where fines are envisaged (see Schweitzer, this Volume). Plea bargains (e.g., in the US) involve an acceptance of guilt in a criminal case with a negotiated agreement on likely punitive sanctions which include fines and personal liability for imprisonment. The guilty plea opens up the possibility for follow-on private actions although relatively little information is deposited in the public domain. The key factor is that the defendants waive their rights to appeal. The Commission proposals are an adaptation of plea bargains with the major differences that no negotiation is envisaged (European Commission, 2008, para 2; this seems an unrealistic aspiration) and that the parties retain their rights to appeal. Appeal waivers would be inconsistent with Article 230 EC but for Stephan (2007a: 56) this variation robs the Commission proposals of much of their attractiveness, without a waiver “the settlement procedure is only likely to yield procedural savings; not the more substantial savings that can be made by curbing costly and time consuming appeals”. In exchange for a relatively modest saving of time the Commission might therefore be foreclosing more innovative settlement possibilities. It may further be

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A Political Science Approach 99 taking cartel enforcement down a route which is too private, too legalistic, too compartmentalized and too fixated on the levels of fines. This US route might be ill adapted to European cartel enforcement and may prevent the European model being adopted more widely overseas as part of the necessary global reform of competition policy. The policy convergence literature is replete with examples of policies and policy instruments being misunderstood or being inadequately adapted to different national conditions. There is always a risk of unanticipated consequences and of perverse outcomes created by the imposition of foreign solutions rather than the adaptation of national institutions (Hall and Soskice, 2002). Of course none of these risks might materialize in the case of the settlement proposals but the following sections rehearse three areas where risks exist and, if recognized, might contribute to an altered design of policy.

The benefits of a “restorative” approach In the US, plea bargaining is located in a criminal context which requires a highly legalistic approach to stress the rights of defence, and careful tactical consideration of the deployment of evidence and the negotiation of penalties. The restorative approach draws inspiration from Australia rather than the United States and offers ways to modify or supplement a strictly punitive approach by devising further alternatives to be employed in the responsive regulation enforcement pyramid. Restorative justice seeks to secure a more comprehensive admission of guilt which involves remorse as well as tactical calculation. For the damaged parties or victims of illegality it seeks to involve them in the enforcement process and to provide a sense of justice as well as appropriate restitution. It seeks to create a process that will be seen as fair and legitimate by all the affected parties and one which will not necessarily involve punitive sanctions. The aim is healing (or problem solving) rather than revenge (or punishment) and the hope is of creating improved compliance and reduced recidivism. This sounds, of course, soft and idealistic but it does promise a tough and productive approach when combined with more punitive sanctions in a pyramid of responsive regulation. One of the principles of responsive regulation is that credible threats of very painful sanctions should be kept in reserve to be used as a last resort. The technique is to “speak softly and carry a big stick” (Braithwaite, 1997; Roosevelt, 1901). Restorative approaches might therefore have a place in enforcement even against hard core cartels, especially where the fault lies with maverick staff, previous management or intimidation by other cartel members.

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Enforcement consistent with principles of restorative justice has been successfully used by the Australian Competition and Consumer Commission (ACCC) (Braithwaite, 2002: 250) especially in the form of enforceable undertakings (Parker, 2004). The motives for introduction were also a desire to reduce time delays and Parker (2004: 212) identifies six features which were not always employed but would be regarded as elements of best practice: —the process should involve face-to-face meetings, possibly public meetings or conferences, and with limited involvement of legal representatives. —the victims or aggrieved parties should be involved, either directly or through representatives (such as consumer organizations). Other relevant parties may include those who have not benefited from the cartel, such as auditors. —the process and the negotiated outcomes should be as transparent as possible with publications and a register of undertakings. —there may or may not be a formal acceptance of legal guilt but the accused parties should display regret and apologize. —the remedies should not be punitive but may be expensive. Remedies may be more extensive than those available to the courts and may be more costly, thus “those remedies will often be more expensive and more onerous for corporate offenders than fines typically ordered by courts” (Parker, 2004: 212). —the outcomes should be subject to legal enforcement through the courts. The emphasis in “conversational regulation” of this sort is to ensure that all parties find the process fair and accept the outcomes which may not involve formal proportionality or equal punishment. The key factor is that all parties are satisfied with a mix of penalties, apologies and credible commitments to future good behaviour. The process contributes to the public good by rebuilding relationships of trust, by establishing agreed social norms and encouraging future compliance. There are substantial political attractions to an enforcement process which embodies elements of restorative justice. First, the restitution element directly addresses consumer detriment and, by directly benefiting consumers, should attract favourable publicity and build public support. Second, the involvement of a range of affected parties, together with an improved element of transparency, should increase agency accountability and defuse accusations of rigged deals behind closed doors. Third, there is an important educative (or advocacy) function in that the public debate over the damage resulting from cartel activity should help to persuade the public and the work force that cartels are undesirable. It would have to be accepted that cartels are not universally condemned. Even in the UK a recent survey found that only 25% of people felt strongly that price fixing was dishonest (Stephan, 2007b). As Harding and Joshua (2003) emphasize, it remains necessary to win the moral argument against cartels in Europe and to create a degree of social

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A Political Science Approach 101 disapproval. Restorative approaches help to bring the shadowy world of cartel abuses into the sunshine. In all these respects a restorative element introduced into the settlements process would generate a “public interest” dimension that would reinforce the competition policy mission and bolster political support for the Commission. These elements may be regarded as too demanding to be injected into the Commission’s settlement proposals. They would require a substantial degree of negotiation; settlements would need to be made more inclusive and would require more meetings with the parties; they would require a far more imaginative range of remedies including elements such as volunteering compliance programmes. But, in compensation for this additional workload and complexity, settlements could become a more multi-functional policy tool and in particular they could reduce the incentives to appeal. A more genuinely agreed settlement outcome would make parties less inclined to appeal and, in any case, if financial penalties took the form of restitution rather than punitive fines then there would be no incentive to appeal to have fines reduced. Moreover, for the parties the risk of follow-on actions would be much reduced since the parties injured by the cartel would already have entered a non-judicial restitution process. There are already a number of examples of restorative principles being employed to deal with cartels in some of the member states. In the UK a nice example is provided by the 2006 case of the independent fee-paying schools cartel. The 50 schools concerned suffered small fines of £500,000 in total but also set up a charitable trust to distribute £3m to benefit pupils disadvantaged by the cartel (OFT, 2007: 43). Nikpay and Waters (this Volume) also outline the recent UK construction bid-rigging case which could have given rise to restorative conversations with the mainly public sector bodies harmed by the systematic bid rigging. The hesitation on the part of the OFT to establish such conversations is undoubtedly and unfortunately due to inadequate administrative resources. In the Netherlands the risk of being overwhelmed by the torrent of cases reported in 2004, also arising from construction sector cartels, resulted in the introduction of a successful “fast track” procedure (Kalbfleisch, this Volume). In this case, unlike the UK, many of the companies agreed to make restitution as part of a restorative process. They explicitly entered into arrangements to pay compensation to the Dutch government and received a reduction in their fines plus some reputational benefits that might assist in future public procurement tenders (Brouwer, this Volume). As Pieter Kalbfleisch remarked in discussion at the Workshop, this was a clear and successful example of a restorative approach.

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Can settlements increase deterrence? The politics of deterrence rests on the government’s willingness to entrust enforcement to independent and well-resourced agencies (Wilks, 2002; Gilardi, 2008). This establishes “credible commitment” whereby regulated companies are persuaded that the law will be applied with determination and without political intervention so that there is no escaping enforcement. We come back to the importance of agency autonomy in section d) below and assume for the time being that DG Comp can retain the necessary autonomy to punish cartels and to put settlement arrangements in place. One of the great concerns about settlements is that they will reduce deterrence by reducing fines below the threshold of effective deterrence. There is already some concern that fines are too low to be effective and they are, of course, capped at 10% of the relevant market turnover (Wils, cited in Stephan, 2007a: 43; Connor and Lande, 2006: 1020). Discussion of fining levels draws on the rational economic calculations of optimal deterrence theory which assumes that parties will calculate a trade off between the level of excess profits to be gained from a cartel and the likely fine that could ensue, qualified by the likelihood of detection and the costs of legal defence and reputational damage (Connor and Lande, 2006: 984–989). A preoccupation with the amount of the fine overlooks the evidence that deterrence is driven by the likelihood of discovery rather than the size of the fine—it is “certainty” not “severity” that worries cartelists. But in any case it can be argued that this is too narrow a basis upon which to assess deterrence, that there is no certainty that the settlement process will reduce deterrence, and it might have the potential to increase it. A strict economic calculus is also qualified by Motta (2008: 218) who notes that fines “have probably reached such a level that it may make more sense to increase deterrence through other means”. What determinants of behaviour should those other means address? A settlement procedure raises the possibility of reaching into companies to emphasize compliance rather than deterrence. It would seek to identify those individuals and divisions who are uneasy about cartel practices and to strengthen their hands. The internal opponents of cartel practices might include the purchasing or finance divisions, non-executive directors, recently joined employees, or implicated third parties who do not benefit from the cartel, such as auditors or legal advisers. They might represent interests within the company that are concerned about reputational damage, who might be influenced by a moral argument that illegal behaviour is wrong, and who will aim to avoid cartel behaviour in the future. These potential allies within the company are more likely to be mobilized by a settlement approach that involves them in the process and that does not compartmentalize contact with the competition agency and channel defensive behaviour through legal

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A Political Science Approach 103 representatives. They may be brought onside by a process which appears fair and just by engaging in restitution. One way to mobilize those allies would be to build commitments about future compliance into the settlement process. The creation of a formal internal compliance programme can be accompanied by board level compliance responsibility, by the creation of annual compliance self-reporting which could also be audited externally. A sort of Sarbanes-Oxley applied to competition culprits. It would need to be recognized that some companies are recalcitrant, deliberate and cunning cartel abusers. For repeat offenders and for those companies where lack of cooperation or any redeeming elements are revealed during the settlement discussions it will be necessary to move up the enforcement pyramid. The Commission might simply exit from the settlement process and impose a substantial punitive fine and its ability to do that and to make it stick is an important latent threat. A further escalation is to seek to “incapacitate” the company by attacking its ability to cartelize (Braithwaite, 2002: 122). In some settings this could involve removing the license to operate and this remains a possibility in some industrial sectors such as utilities. More generally it could include disqualifying directors who, on the evidence, had knowledge of cartel activities (Motta, 2008: 216) or insisting on the creation of a resident inspector who would be required to produce an annual compliance report. This last possibility is in the tradition of measures of “enforced self-regulation” which sounds something of an oxymoron but is in fact a standard approach of industrial regulation. In areas such as airline safety regulation companies follow rigorous internal safety procedures which are a strict legal requirement of their ability to stay in business. Again, these proposals might seem unduly soft in relation to hardcore cartels and certainly difficult to implement by a hard pressed Commission more accustomed to strict legal process and uncomfortable with negotiation. They might perhaps be better visualized as a way of winning a war rather than individual battles. The war is about shifting business culture to accept that cartel behaviour is morally as well as economically damaging to society at large. The aim is for cartel abusers to be judged by a wider informed public rather than simply by the competition authorities. A wider restorative approach to compliance should help to achieve that aim, whilst a narrow concentration on deterrence through fines risks relegating cartel abuse to a specialized technical aspect of business risk. Unless companies and key executives do not themselves believe that cartel behaviour is morally wrong, there is a serious risk that they will react against perceived injustice and engage in what Braithwaite (2002: 108) calls “counter-deterrence”. Large corporations can organize their affairs to make cartel discovery and prosecution very difficult. They can exploit complexity to hide responsibility, they can locate activities in the most permissive national legal regime, they can play the rules and engage in “creative compliance” (a parallel drawn with creative accounting (McBarnet and Whelan, 1999)), and they can employ the best legal representation to exploit

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to the full the opportunities for defence and appeal that a complex legal system allows. Indeed, they can seek to persuade judges that their behaviour is justified, sometimes with a degree of success. This destructive potential for the deployment of corporate power is, of course, the whole rationale for the settlement proposals and it would therefore make far more sense for the settlement mechanisms to seek to break out of an adversarial dynamic.

Steering between the critiques of “fairness” and “capture” It can be predicted that the political debate around the settlement proposals will advance the propositions that the Commission is either too strong or too weak. The too strong proposition is, of course, the “fairness critique” (Parker, 2006: 226) and too weak the “capture critique”. The fairness critique will be advanced by accused parties, by their legal representatives, by prominent business people and neoliberal opinion. It will assert that the Commission cajoles or threatens possible cartel offenders, that it operates a flawed process and treats them unfairly. The capture critique will be advanced by cartel victims, by consumer groups and by left-of-centre critics of big business. It will assert that the Commission is treating cartel offenders too leniently because it is overwhelmed, intimidated or bought off. Both of these critiques can be made persuasive and both of them indicate potential problems which the settlements process should seek to pre-empt. Both of them also have the potential to do wider damage to the autonomy of the agencies and, on the whole, it is the fairness critique that is the most dangerous. The fairness critique will operate at several levels including the procedural, cross-national, lobbying and high politics levels. At the procedural level, the argument will be that the procedure is biased in favour of the Commission with limited disclosure of information and the option to withdraw after receiving a statement of guilt (the written settlement submission). It will be argued that the Commission is prosecutor, judge and jury and that there are no safeguards comparable to the US settlement process. The US process requires approval of settlements by the courts and, in the case of consent decrees, requires publication of the agreement rationale under the 1974 Tunney Act. At the cross-national level, important national companies will seek the support of national governments with a view to bringing pressure to bear through the Advisory Committee stage and through the final deliberations in the College of Commissioners. At the lobbying level, the 247 large firms with lobbying offices in Brussels (Eising, 2004: 223) will be using their ingenuity to argue that attacks on their cooperative business arrangements will threaten technological progress, European international competitiveness, employment and new investment. Their arguments that it is necessary to

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A Political Science Approach 105 support national champions and to attract mobile capital will reach sympathetic ears (especially in a recession, Vogel, 1989). While at the level of high politics, business leaders operate as business diplomats interacting routinely with government ministers on a basis of trust, mutual respect and common interests. Governments listen to the chief executives of Unilever, Deutsche Bank or Tesco and, if they argue that competition enforcement is becoming intolerable, and that reputational damage and excessive fines are harming vital national interests, ministers can be expected to listen. The fairness critique might be dismissed as the usual whinging of companies and transparent special pleading but in fact it presents four serious challenges to the competition authorities. The first challenge is to make the moral case that cartel breaches are dishonest and reprehensible. Harding and Joshua (2003: 52, 276) point to the European “culture of toleration” of cartels which has changed only recently, and then not completely. Stephan (2008) similarly analyzes the obstacles to a moral rejection of cartel behaviour which operate inside, and even more markedly outside, Europe. Despite the blood-curdling rhetoric of cancers and criminality the ambiguous morality of cartelization undermines compliance and cuts away political support. This is highlighted in the second challenge which can be described as the “deterrence trap”. In simple terms this arises from the fact that fines regarded as high enough to achieve real deterrence “will be so large that they exceed the capacity of the firms to pay, thereby damaging innocent employees and creditors” (Parker, 2006: 592). Whether or not firms really would be bankrupted, the deterrence trap provides an emotive argument against large fines which could be expected also to resonate with trade unions and local communities. The third challenge arises from the fact that judges, as well as the public, may be swayed by the lack of an unambiguous moral argument and by the deterrence trap. They may be sympathetic to the powerfully argued legal cases put forward (see Yeung, 2004) and they may be reluctant to permit truly substantial fines (or criminal convictions). Indeed, the record of appeals to the CFI and the ECJ shows that post-1996 the average reduction in fines was 20% and in no case has the fine set by the courts been higher than that imposed by the Commission (Stephan, 2007a: 6–7). Indeed, the 2007 Alrosa judgment from the CFI could be regarded as precisely responding to the fairness critique. In this first appeal against a Commission “commitment decision” the CFI has reined back the Commission so that it “will not be able to use the commitment decision the way it had intended” (Schweitzer, this Volume). The decision (if confirmed on appeal to the ECJ) is a textbook application of a legal fairness critique and effectively neutralizes the Commission’s ability to develop a speedy and efficient version of the US consent decree. The fourth challenge posed by the fairness critique is simply that politicians might come to take it seriously. In a sombre analysis of the Australian experience, Christine Parker (2006) reviews the sustained fairness critique advanced by large companies and their leaders against highly activist ACCC

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anti-cartel actions which included direct prosecutions and enforceable undertakings. The critique was successful and resulted in a review of the Act in 2003 and senior appointments by the Conservative Government that signalled a less aggressive approach. Parker (2006: 617, 615) emphasizes “a socio-polity that does not take business crime seriously enough to treat it as a crime” and concludes that “enforcement agencies may do all they can to display their firepower, but if they do not receive external political support, they will be left without a ‘license’ to regulate effectively”. Stephan (2008: 26) emphasizes the scepticism of collectivist business cultures, arguing that “the challenge for competition authorities is to create a culture of competition among businesses. That is no easy task where collectivist business practices have been the norm for hundreds of years”. This is an observation that clearly applies in countries such as Japan and Korea, but it also has application in parts of Europe. As noted above, transfer of US-style antitrust measures must be adapted sympathetically to European-style business cultures. The “capture critique” is the obverse of the fairness critique. Actually, “capture” is a highly misleading concept which can be used to diagnose either weaker enforcement or, in the Stiglerian sense, stronger (but market-distorting) enforcement. It is used here in its populist sense of weaker enforcement arising from undue hesitancy and concessions to business pressure. Capture can result from identification with the industry, with sympathy for their problems of meeting standards, and from a lack of a tough “enforcement culture” (Makkai and Braithwaite, 1995). In turn these can arise from the “revolving door” of staff transfers between the industry and the regulator and from a comfortable cycle of regular contact and a mutual interest in keeping other parties out of the regulatory process. Stephan (2007a: 28) sees one version of capture in “the agency problem” arising from “the strong temptation for competition authorities to process as many cases as possible by offering greater concessions at settlement”, and he notes that “collusion between the authority and the infringing firm is considered to be a serious danger in the US”. Capture is inherently less plausible in European cartel enforcement. The agency is supranational, contacts with cartel abusers are adversarial and episodic, and there is much less of the revolving door seen in the US and many other competition regimes. But it is important to dispel the perception of capture, and the “agency problem” does present a real risk. Both of these elements would militate towards a more open and transparent settlement process. Perhaps the real danger is not of capture through the power of the corporations, or through the incentives embodied in the process, but rather capture by “ideas”. In particular, an over-emphatic commitment to legal principles, legal process and the strict application of precedent might work to the advantage of cartel defendants. Here the informality of settlements and the exploration of alternative modes of redress through a restorative process might be regarded as beneficial.

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Conclusion This chapter has welcomed the proposed settlement procedure from the Commission, but the welcome is not based primarily on the pragmatic rationale of time saving. It is argued that the settlement debate opens up a more productive discussion about three aspects of cartel regulation. First is the expanded opportunity to employ administrative discretion to adapt enforcement tools to the circumstances of the particular case. In other words, to employ the “responsive regulation” paradigm to accept tailored remedies from the company concerned and to escalate towards more severe penalties in recalcitrant cases. This opportunity depends on a degree of negotiation with the parties involved. Despite the Commission’s protestation that no negotiation is envisaged, it seems rather that negotiation is both inevitable and desirable. Second, there is an opportunity here to explore the challenging and controversial approach of “restorative justice” through widening the class of parties to the settlement process and looking to pursue restitution as well as punishment. At the moment this is outside the parameters of the Commission’s proposals, which focus essentially on the level of fines and therefore on an impoverished concept of deterrence. It is argued that a more imaginative, less adversarial and, frankly, less “legal” process could yield dividends. Third, the chapter stresses the dangers of the “fairness critique” which is founded on a perception that cartel practices are not essentially immoral and that the Commission may be guilty of imposing excessively severe penalties. This is the political argument that the structural and contingent power of business is such that it might succeed to persuade politicians with the fairness critique and, that if it does, the resources and the autonomy of the competition authorities may come under threat. It is argued that the responsive regulation and restorative justice arguments outlined above have the potential not only to make enforcement more effective, but also to build the political and popular support that will avert the fairness critique. We are engaged, in other words, not simply in an exercise of technical legal design, but in a parallel process of creating legitimacy for cartel enforcement.

References Ayres, Ian and John Braithwaite, Responsive Regulation, OUP, 1992 Bakan, Joel, The Corporation, Constable, 2005 Braithwaite, John (1997) “On Speaking Softly and Carrying Big Sticks: Neglected Dimensions of a Republican Separation of Powers”, 47 University of Toronto Law Journal 305–361 (1997)

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Braithwaite, John, Restorative Justice and Responsive Regulation, OUP, 2002 Brouwer, Onno, “Antitrust settlements in the Netherlands: a useful source for inspiration?”, this Volume, p. 489 Coen, David, “Empirical and theoretical studies in EU lobbying”, 14(3) Journal of European Public Policy 333–345 (2007) Connor, John and Robert Lande, “The Size of Cartel Overcharges: Implications for U.S. and EU Fining Policies”, 51 Antitrust Bulletin 983–1022 (2006) Eising, Rainer, “Multilevel Governance and Business Interests in the European Union”, 17(2) Governance 211–245 (2004) European Commission, Draft 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, and Proposal for a Commission Regulation, Commission of the European Communities, June 2008 Gilardi, Fabrizio, Delegation in the Regulatory State: Independent Regulatory Agencies in Western Europe, Edward Elgar, 2008 Hall, Peter and David Soskice, “An Introduction to Varieties of Capitalism”, in Peter Hall and David Soskice, eds., Varieties of Capitalism, OUP, 2001, pp. 1 et seq. Harding, Christopher and Julian Joshua, Regulating Cartels in Europe: A Study of Legal Control of Corporate Delinquency, OUP, 2003 Holzinger, Katharina and Christoph Knill, “Causes and conditions of cross-national policy convergence”, 12(5) Journal of European Public Policy 775–796 (2005) Kalbfleisch, Pieter, “The Dutch Experience with plea bargaining/direct settlements”, this Volume, p. 481 Klein, Naomi, No Logo, Harper Collins, 2000 Makkai, Toni and John Braithwaite, “In and Out of the Revolving Door: Making Sense of Regulatory Capture”, 1 Journal of Public Policy 77–101 (1995) McBarnet, Doreen and Christopher Whelan, “Challenging the Regulators: Strategies for Resisting Control”, in Christopher McCrudden, ed., Regulation and Deregulation, Clarendon, 1999 Monbiot, George, The Captive State: the corporate takeover of Britain, Macmillan, 2000 Motta, Massimo, “On Cartel Deterrence and Fines in the European Union”, 29(4) European Competition Law Review 209–220 (2008) Nikpay, Ali and Deirdre Waters, “The Emerging Settlements Regime in the UK”, this Volume, p. 499 OECD, Summary of Roundtable Discussion on Plea Bargaining/Settlement of Cartel Cases, DAF/COMP/WP3/M(2006)3/ANN/Final, Paris, 2006 OFT, Annual Report and Resource Accounts 2006–07, London, TSO, HC532, 2007 Parker, Christine, “Restorative Justice in Business Regulation? The Australian Competition and Consumer Commission’s Use of Enforceable Undertakings”, 67 Modern Law Review 209–246 (2004) Parker, Christine, “The ‘Compliance’ Trap: The Moral Message in Responsive Regulatory Enforcement’, 40 Law and Society Review 591–622 (2006) Reindl Andreas, “The Legal Framework Governing Negotiated Settlements/Plea Agreements in Cartel Cases in the United States”, this Volume, p. 47 Roosevelt, Theodore, speech at the Minnesota State Fair, 2 September 1901 Rose, Richard, Learning from Comparative Public Policy: a practical guide, Routledge, 2004

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A Political Science Approach 109 Schweitzer, Heike, “Commitment decisions under Article 9 of Regulation 1/2003: The developing EC practice and case law”, this Volume, p. 547 Stephan, Andreas, “The Direct Settlement of EC Cartel Cases”, CCP Working Paper, Norwich, UEA (2000a) Stephan, Andreas, “Survey of Attitudes to Price Fixing and Cartel Enforcement in Britain”, CCP Working Paper 07-12, Norwich, UEA (2007b) Stephan, Andreas, “Beyond the cartel law handbook: how corruption, social norms and collectivist business cultures can undermine conventional enforcement tools”, CCP Working Paper 08-19 Norwich, UEA (2008) Vogel, David, Fluctuating Fortunes: the Political Power of Business in America, Basic Books, 1989 Walsh, Declan “We say competition, you say antitrust: can diverging policy objectives be met by uniform enforcement policies?”, paper presented at the EUSA Conference, Montreal, 17–19 May 2007 Wigger, Angela and Andreas Nölke, “Enhanced Roles of Private Actors in EU Business Regulation and the Erosion of Rhenish Capitalism: The Case of Antitrust Enforcement”, 45(2) Journal of Common Market Studies 45 (2007) Wilks, Stephen with Ian Bartle, “The unanticipated consequences of creating independent competition agencies”, 25(1) West European Politics 148–172 (2002) Yeung, Karen, “Private Enforcement of Competition Law”, in Christopher McCrudden, ed., Regulation and Deregulation, Clarendon, 1999 Yeung, Karen, Securing Compliance: A Principled Approach, Hart Publishing, 2004

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LESSONS TO BE DRAWN PANEL VI PART ONE: Policy consequences for public enforcement PART TWO: Part two: Policy consequences for private enforcement PART THREE: Overall conclusions

1 PANEL DISCUSSION

C HAIR : Massimo Motta P ARTICIPANTS : Rafael Allendesalazar Albrecht Bach Simon Bishop Onno Brouwer John Cooke Lorenzo Coppi Kris Dekeyser Claus-Dieter Ehlermann John Fingleton Ian Forrester

Bill Kovacic Lynda Martin Alegi Kirti Mehta Ann O’Brien Jorge Padilla Emil Paulis Dan Rubinfeld Jim Venit Stephen Wilks

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Panel VI, part one: Policy consequences for public enforcement MASSIMO MOTTA: Let’s get back to work, now. The focus of the following speakers will be the lessons to be drawn, from our reflections and discussions, as regards public enforcement. Kirta Mehta and Simon Bishop will be talking about settlements in cartel cases, and then Ian Forrester and Jorge Padilla will address Article 9 commitment cases.

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KIRTI MEHTA: Thank you. The discussion yesterday showed that we all have different motivations for adopting a settlement procedure at the level of the EU. We need to bear in mind that this procedure is part of a broader program of a fight against cartels. We are developing a good record on that score, but it is not a very old record. So we still have to be concerned about establishing and maintaining the credibility of the program, and we have to reinforce its deterrent effects. In our paper,1 you will see that we have confined this procedure to cartel cases, and within that context we suggest that the impact we can have in some cases will be stronger than in others. A company has neither the obligation nor the right to settle, although in the draft Notice2 there is a discussion of some of the factors that will affect whether it is advisable or not to settle in a given case. We have proposed doing this in the time interval between a full investigation and the preparation of an SO. Normally, in a cartel case that is triggered by a leniency application, after a maximum of a year we have a very good idea about the nature of the cartel: the identity and role of the parties, the products, the geographic scope, the conduct, and so on. From that point on, the procedure is quite heavy. Much of what we do, during and after the investigation is screening for confidentiality and business secrets. We have documents, prices, microeconomics, information exchange, discussions, all of that goes in the file. But then much of this is claimed to be confidential between the parties. And the screening has to be done not just once, it may have to be done a few times because once the parties receive our requests for information, they see where the investigation is going and they review a document that they submitted previously and they’ll claim that other documents should also be confidential, and they’ll take something out and so on. All of that is part of the normal preparation of the file. If we then had to fully prepare an SO before going forward with a settlement, we would not save very much time or

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1 Kirtikumar Mehta and María Luisa Tierno Centella, “EU Settlement Procedure: Public Enforcement Policy Perspective”, this Volume, p. 391. 2 Draft Commission Notice on the conduct of settlement proceedings, 2007 OJ C255/51. The final version of the Notice was adopted as 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, 2008 OJ C167/1.

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resources in the procedure, even if we would likely have a more solid case in the event of an appeal. A second point relates to “hybrid” cases. The draft Notice doesn’t really exclude the possibility of settling with some parties but not others. But as I said yesterday, in that case the settlement would not result in the savings we are looking for. Already today we often have cases where some of the parties waive some of their rights, such as the right to an oral hearing. The only way for us to have a sufficient mass of savings is if there is a settlement across the board. We would also like to obtain these procedural economies, and a reduction in the length of procedure, while maintaining the full effectiveness of our leniency program. Leniency now is in its third version. It is now in a state in which it works extremely well. We don’t want to do anything that would reduce the incentives for parties to come forward and seek leniency. Often parties come to us the day after the inspection and they want to settle. “Just tell me what the fine is, I want to settle.” That is certainly a premature moment for us to think about settling. Before we do that we need to have done a sufficiently thorough investigation. And the parties need time too. They need to do due diligence, and then both sides, after developing an adequate understanding of the case, can have a fruitful discussion. On the use of the word “discussion”, I don’t think this is just semantics. We’re really not having negotiations. In a first phase, the Commission will have to assess whether all the parties might settle. If you see already at that stage that there are different opinions, and different level of contestation, then we should simply follow the normal procedure. It might take a year longer, but at least it’s on its way. In other more appropriate cases, we will request permission from our Commissioner to go ahead and explore the possibility of settlement. In that case we can talk about things such as our understanding of the infringement, the product and geographic scope, the nature of the cartel and so on. We would also discuss leniency with a party and we would discuss where they are in the band and what we think their contribution of the evidence has been. The other item to discuss would be the fine range. Some people have said that the Fining Guidelines3 are not so transparent, and that it’s not easy to carry out the calculation and get a number. What has changed is that now you have to look at the affected direct or indirect sales of each party. And already today in this context there is always a discussion. The party says, “These sales are not covered by this infringement,” or “The parties did not discuss this in the meeting that you have evidence of,” and so on. But none of this is a negotiation. We share with the parties what we think is at stake, and they try to persuade us that we are right or wrong about certain points. 3 Commission, Guidelines on the method of setting fines imposed pursuant to Article 23(2)(a) of Regulation 1/2003, 2006 OJ C210/2.

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Panel VI—part one: policy consequences for public enforcement 607 In the second part of the Fining Guidelines, once you have the affected sale, then you also have the issue of the percentage that will be applied. As people have found out, the Commission has not simply applied 30% in all instances. Instead, we have looked at each case and applied a percentage that we find proportionate under the circumstances. So we have things that we can discuss, and then the parties will be in a position to take an informed decision about whether they want to make a settlement submission, or whether they want to walk away. Of course, if they walk away at a late stage, that’s quite a problem for us. We would like to be sure that we don’t end up with a double procedure. Then there is the question of how much of a discount the Commission should offer, and Massimo has suggested 15%. This is something that has to be decided. We also have to consider the impact on leniency, because number two is already in the band of 30 to 50 percent. The settlement discount will be added on top of that. We also have to bear in mind that we are proposing a uniform reduction. It will not vary according to when you come in. In some systems it varies: it’s higher in the beginning and lower later on. In our system the leniency program will reward basically up to three applicants, but not much more. All of that suggests that the discount for a settlement will be quite small. Our assessment is that parties will settle cases if they know that the options are: either you settle, or there will be a decision anyway. Finally, as to the impact on private litigation. There I think there may potentially be some acceleration or private suits, but those are precisely the cases where the parties have already decided to take care of their private litigation. And from this you can see that there is a linkage between the fines and the leniency policy. Leniency doesn’t work if the fines are very low, and we’ve known that for a long time. You also have a linkage between leniency and private litigation. Parties will not come in as a leniency applicant if doing so will expose them to costly private litigation. 䉴 SIMON BISHOP: I’m supposed to talk about things I ought to know, but after this morning’s discussion I realize that I’m going to be talking about things I clearly don’t know. And I’ll make four points from a position of ignorance. The first is that the settlement process is part of a wider effort to maximize deterrence. So that should be our principal question: what is the impact of a settlement procedure on the deterrence of cartels? Now I’ll make two vague, bold statements, and then I’ll raise a question. The first vague, bold statement is: the leniency program will be much more effective in deterring cartels than the settlement procedure. Why? Because the leniency program goes directly to destabilizing cartels. So we should make sure that anything that we do with settlements doesn’t undermine the deterrence effect of leniency. The second vague, bold statement is that settlements don’t necessarily free up resources. When I read this proposal, and when I read about bilateral negotiations, I don’t imagine that these bilateral

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negotiations will be a half-hour and that’s it. For a number of participants they’re going to be drawn out over time. The question is: what has been the impact on deterrence? We’ve got the leniency program, and we’ve had increased fines. What has been the impact? Are we actually just seeing more discovery of old cartels, or are we—more importantly—deterring the emergence of new cartels? More research on that would be an important area of work. The second point is another question. When should authorities use a settlement procedure? Should they use it when they have a weak case or a strong case? If they’ve got a weak case, then a settlement is just a cop-out. But in that case, why would a firm ever accept that? On the other hand, if the authority has a very strong case, why would you ever let these firms off easy? Why not follow through to the end of the case and maximize the penalty in order to improve deterrence? Let me make an alternative suggestion which is based on two heretical points in the cartel area. Just as we know that traffic offences have different outcomes, we also know that different cartels have different impact on consumer welfare. Yes, all cartels are per se illegal, but not all cartels have a significant adverse impact on welfare. Some only have a minor impact, and some have none at all. We know that from the economic theory on the stability of cartels. And although the courts have said that the very act of concluding a collusive agreement must have an adverse effect on competition, that’s not correct from an economic perspective. If we accept that there are bad cartels and then really bad cartels, where only the really bad cartels have an adverse effect on competition, why don’t we think about using that as a filter for evaluating when to consider settling a case? As with any proposal, there are benefits and costs. The benefits of an effects-based system would be that you only settle with those cartels that have not had significant negative effects on consumer welfare. Yesterday Dan Rubinfeld pointed out that people might not settle if they fear private actions. If the authority only settled with cartels that haven’t had a significant impact on competition, you won’t eliminate private litigation, but you will put a ring fence around it and provide firms with stronger incentives to settle. What are the costs? Typically, the Commission and other authorities have quite rightly steered well away from trying to prove effects in cartel cases. It’s difficult, it’s time-consuming, the Commission doesn’t have the time or the data, and it would run contrary to the whole idea of freeing up some resources. But what if the onus were placed on the firms? What if they could come forward with evidence of the effects of the cartel? Then it would be up to the Commission to make a judgment as to whether that evidence is sufficiently robust to make the case appropriate for settlement rather than litigation. My third point is yet another question. What’s the rush? Does it really matter if decisions take an average of three years instead of an average of two years? Once a cartel has been uncovered, then typically the behaviour in

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Panel VI—part one: policy consequences for public enforcement 609 question ceases. So what is the rush to invite these people to settle? Do we need more and more resources because we believe that cartels are being formed on a daily basis, in which case we’d better hurry up and catch all of them? Or is leniency actually having a genuine effect on deterring the formation of new cartels? The final point is: we need to be careful about what we do with the resources that we save by way of settlements, assuming that they are freed up in the first place. It is important not to engage in fishing expeditions. And if there are expeditions, it’s important to ensure that those are quickly closed down. The example that I’ll give here is the mobile roaming case.4 There the companies were raided on suspicion of cartel behaviour, but so far as I’m aware no documentary evidence was found. It was translated into a collective dominance case, and then a single dominance case, at which point it was finally closed. 䉴 MASSIMO MOTTA: Thank you very much. Now we will hear about Article 9 commitment cases from Ian and Jorge.

IAN FORRESTER: I’m going to make a few remarks from the point of view of a practitioner and an occasional teacher. As always, it’s useful to begin with history. I’d suggest that European competition law has always been characterized by an element of private negotiation between the public authority and the private party, a certain confessional closeness between the official and the company. These negotiations in some cases may be exasperating, hostile, maybe bad-tempered, quite lengthy, with a lot of horse trading and concessions made back and forth, and finally, if all goes well, a successful conclusion. That was how it was with notifications. Exemptions were rare, occasional grants of legal stability in exchange for heavy commercial concessions. And the exemption decisions made new law. So in theory, the new law advanced by the decisions of the Commission was produced by a bargaining process initiated by a request by the company for a stamp of approval. Exemptions were the vehicle for advancing new legal principles. The next point is that there is very much to be said for made-to-measure negotiations between the party and the public authority, rather than the notion of block exemptions. However, I suspect that the new decisions will become as block exemptions: new standards for behaviour in the marketplace. So a decision with respect to how much information is supplied by car companies to independent repair shops is going to set a standard followed, in effect, by all car companies if they’re wise. A consequence of that is that the new Article 9 principles are likely to become a kind of mandatory practice, in reality if not in theory. This is perhaps a far-fetched analogy, but I’m

䉴

4 See Press Releases IP/04/994 of 26 July 2004; IP/05/161 of 10 February 2005; IP/07/1113 of 18 July 2007.

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reminded of the precautionary principle used in scientific regulation: if there’s doubt, if there’s controversy, then it’s appropriate for the public authority to prohibit the behaviour or the product temporarily so that it has time to think about it. The precautionary principle has a vice, and that is that it assumes that society is better off if the behaviour or product is prohibited. But that’s not necessarily the case; we simply don’t know whether it’s good or bad. I fear that there may be a certain ratchet effect of Article 9 commitment decisions which gradually impose a set of burdens on enterprise, though just yet we can’t be sure. The danger, of course, is to end up with a marketplace which is regulated by competition law enforcers acting in the best possible good faith. Let’s look at the question from the point of view of the company, particularly in Article 82 cases, which is the current intellectual wild west. There are many, many reasons why a company would prefer to settle rather than digging in and fighting out a battle. Indeed, in the context of discounts, it’s likely that a company like British Airways will be able to do a better deal with the Commission in private negotiation compared to what the outcome would be if the case were litigated in Luxembourg.5 When we have light judicial review in Luxembourg, particularly in fact-rich cases, this means that a company which is condemned has a much worse chance of prevailing on appeal as to the legality of its business model than a company that settles a case by offering commitments. So everyone agrees—I even quoted Abraham Lincoln in my paper—everyone agrees that settlements are better than litigation. You have bargained-for remedies, you have speed, and you avoid litigation with its uncertainties and its delays. For the institution there is the possibility to advance the law, and for the company there is stability as to its business model. My prediction is that respect will be given somehow to the Commission’s Article 9 decisions, although it’s clear from this morning’s discussion that we’re not sure exactly how that’s going to work constitutionally. A word on the selection of cases. Here again it’s no surprise that the cases which have thus far been taken under Article 9—which are listed in my paper, and in Heike’s paper too—are cases about foreclosure, where the competition authority changed how the marketplace worked. In the context of energy, the companies had to give very substantial commitments as to their future behaviour, commitments which aren’t obvious just from looking at Articles 81 and 82.6 And the car companies had to give, on very precise terms—how many euros per hour, how many hours per week—detailed information, secret 5 To imagine what such an outcome might look like, see Case T-219/99, British Airways v Commission [2003] ECR II-5917, upheld: Case C-95/04 P, [2007] ECR I-2331. 6 Commission Decision of 26 November 2008, Cases COMP/39.388—Germany Electricity Wholesale Market and COMP/39.389—Germany Electricity Balancing Market, http://ec.europa.eu/competition/antitrust/cases/decisions/39389/en.pdf; RWE, Commission Decision of 18 March 2009, Case COMP/39.402—RWE Gas Foreclosure, http://ec.europa. eu/competition/antitrust/cases/decisions/39402/en.pdf.

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Panel VI—part one: policy consequences for public enforcement 611 information, to independent car repairers.7 Those concessions clearly went beyond what was called for by the Block Exemption Regulation.8 That’s not necessarily a bad thing, but it’s clear in that case that, judging from what the companies committed themselves to, there was an extension of what’s required by the jurisprudence and what’s required by the Regulation. So we can imagine the creation of new law, in a very interesting and stimulating way, via commitment decisions. Now I would invite us all to go back a few years and imagine what would have happened if we had the commitment procedure say, in 1990. Imagine if Oscar Bronner 9 had been the subject of a commitment decision. Suppose Mr Bronner had come to the Commission saying: “There are generally two methods of distributing of newspapers; first, there’s the conventional method (newspaper stands and kiosks, vending machines and so on) and then there’s home delivery throughout the country. I want to use the much more efficient nation-wide home-delivery model.” Suppose the Commission had taken that up. Well, we would have missed the splendid Opinion of Advocate General Jacobs and the interesting judgment of the Court of Justice about private property. Imagine that Volvo/Veng 10 had been settled, or Tiercé Ladbroke,11 the case about horse race footage in betting shops. Or the essential facilities cases.12 On that last point, perhaps the law today would be where the law is. But if any of the other cases had been settled, I think we would be looking at law today that would be significantly different. Might be good, might be bad, but it would certainly be different. I make those points to suggest that settling cases via Article 9 has a huge attraction, but that—if we project forward five years—their impact on the law is likely to be enormous. Their constitutional status is unsure, but that will be tidied up in due course. I offer a couple of conclusions. It’s part of the genius—if that’s the word, it probably is—of this continent to prefer that which is settled to that which is litigated in court. It’s part of our history, and it’s part of how competition law is advanced in Europe. And that isn’t to be criticized. The risk that we should be concerned about is that Article 9 will be used to advance the law too far, and imprudently, in new areas that escape judicial review. 7 Commission Decisions of 13 September2007, Case COMP/39.140—DaimlerChrysler, 2007 OJ L317/76; Case COMP/39.141—Fiat, 2007 OJ L332/77; Case COMP/39.142— Toyota, 2007 OJ L329/52; Case COMP/39.143—Opel, 2007 OJ L330/44. 8 Commission Regulation (EC) No 1400/2002 of 31 July 2002 on the application of Article 81(3) of the Treaty to categories of vertical agreements and concerted practices in the motor vehicle sector, 2002 OJ L203/30. In particular, see Article 4(2) of the Regulation. 9 Case C-7/97, Oscar Bronner [1998] ECR I-7791. 10 Case 238/87, Volvo/Veng [1988] ECR 6211. 11 Case T-504/93, Tiercé Ladbroke SA v Commission [1997] ECR II-923. 12 Joined Cases C-241/91 P and C-242/91 P, Radio Telefis Eireann (RTE) and Independent Television Publications Ltd (ITP) v Commission [1995] ECR I-743; Case C-418/01, IMS Health [2004] ECR I-5039.

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My final word is about the procedure of the Commission today in taking decisions. At the moment, those procedures simply are not adequate. Politicians who don’t know the case should not decide the case. Hearings should be proper hearings. And there is an intoxication with fines which is embarrassing. Those weaknesses, and others, make settlements via commitment decisions all the more attractive for the private company. Faced with a choice between a possible condemnation and the chances of ultimately winning in several years’ time, on the one hand, and an unattractive but potable settlement commitment on the other, almost any company would say, “I’ll take the settlement, thank you.” Therein lies the danger. And the opportunity. So those features which make commitments attractive to the company do not exempt the Commission from considering further reforms to its own procedures. And I hope it does. 䉴 JORGE PADILLA: First of all, thanks to Claus, Mel and the three chairpersons for a super event. Before being invited to participate, all that I knew about Article 9 were five things. First, a client of mine had tried to settle an Article 82 case, but the Commission wanted to use the case to clarify the law and establish a precedent. Second, two other Article 82 clients considered whether to offer commitments, but they declined because they argued that the Commission, thinking that it had a strong case, would refuse to enter into negotiations. To be frank, it was not clear to me that the clients really wanted to try to negotiate. Third, IBM settled with the Commission in 1984.13 There was no formal decision, but there was a settlement. I thought that was interesting, in particular because of the parallels between that case and the Microsoft case, including the fact that they both involved interoperability and bundling.14 Fourth, Coca-Cola also settled.15 I was not involved in that case, but I read the commitments and they seemed to be quite harsh for the company. I couldn’t tell whether that implied bad negotiations, or whether the negotiations were simply taking place in the shadow of bad case law.16 Fifth, a group of Article 81 clients were convinced that, unless they followed the “suggestions” of the Commission’s case team, they would not be able to settle the case. This was not because of the net effects of the conduct on competition and consumer welfare, but because of wider—much wider—

13 See Bulletin of the European Communities, 10-1984 (point 3.4.1); Commission, XIVth Report on Competition Policy, 1984, points 94–95. See also Commission Press Release IP/88/814 of 15 December 1988 14 For discussion of these parallels, see John Vickers, “A Tale of Two EC Cases: IBM and Microsoft”, 4(1) Competition Policy International 2 (2008). 15 Commission Decision of 22 June 2005, Case COMP/39.116—Coca-Cola, available (in French) at http://ec.europa.eu/competition/antitrust/cases/decisions/39116/commitments_ en.pdf. 16 For a walk through that shadowy place, see Robert O’Donoghue and Jorge Padilla, The Law and Economics of Article 82 EC, Hart Publishing, 2006, pp. 381 et seq.

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Panel VI—part one: policy consequences for public enforcement 613 regulatory and industrial policy concerns. Whether they were right or not, I don’t know. These five observations raise a number of questions. The first is: what are the public interests and the private interests in reaching a settlement? Are the incentives of the enforcer and the firms likely to diverge, and if so, why? Second, from a social perspective, and taking into account ex ante deterrent effects but also future implications, will there be too many settlements? Too few? Second, what can be done to mitigate any adverse effects that settlements might have on social welfare? How can potential negative effects, in terms of deterrence, be mitigated? Are there complementary measures that can be adopted together with a settlement policy to ameliorate potential problems that might result from settlements? These are the questions that I tried to answer in the paper I wrote for this Workshop with Kirsten Edwards.17 The paper benefits from the work of Wouter Wils,18 and some would say that the paper explains, in Greek letters, what Wouter has already explained in plain English. The paper is still a work in progress, but let me tell you about our preliminary conclusions. Some are not surprising. Others are a little bit surprising, and I hope you will see there the added value of the Greek letters. The first point is that the private incentives to settle are greater when—this is no surprise—they are greater when litigations costs are large, when the expected fine is large, when there is a significant probability of an adverse decision that will be upheld by the courts, and when (in particular in Article 82 cases where there might be Article 9 negotiations) the additional profits that the defendant can achieve by continuing with its anticompetitive strategy during and after the litigation period are small. That’s when a defendant will be willing to settle. And note the last point about extra profits. Those extra profits, i.e., the profits the defendant make by delaying and continue litigating and appealing may be particularly large in industries where, due to consumer switching costs, consumer inertia or network effects, tomorrow’s profitability is positively affected by today’s actions. The second result is that the incentive of a competition authority to settle is greater when, first of all (and this is the mirror image of the last effect I just mentioned), the sacrifice in consumer welfare resulting from continued or unsuccessful litigation is large. Second, and this is more standard, the authority’s incentive to settle are greater when litigation costs saved by the settlement exceed the costs of the settlement, both in terms of lost fines and, more importantly, in terms of diminished deterrence. Third, when the preferences of the competition authority in terms of consumer welfare and deterrence faithfully reflect those of society, then we 17 Edwards and Padilla, Antitrust Settlements in the EU: Private Incentives and Enforcement Policy, this Volume, p. 661. 18 See Wils, “Settlements of EU Antitrust Investigations: Commitment Decisions under Article 9 of Regulation No. 1/2003”, 29 World Competition 345 (2006).

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prove that there may be too few settlements, but never too many. In those cases, it may be optimal to adopt measures such as, for example, cost-shifting provisions that increase the incentive of the defendants to settle so as to minimize the negative impact of delay on consumer welfare and efficiency. Fourth, when the preferences of the authority are biased towards deterrence—and there are reasons to believe that they may be, due to things such as career concerns—if there is such a bias, then we may see an insufficient number of settlements. Conversely, if the preferences of the authority are biased towards short-term consumer welfare due to, for example, populistic preferences, and if the authority undervalues the long-term effects of its decisions on deterrence, then you may have too many settlements, and diminished deterrence. The next result is that defendants are less likely to offer commitments precisely in those cases where commitments are more valuable from a social perspective. That is more likely to happen, ceteris paribus, in industries where today’s actions have an impact on tomorrow’s profitability, which is to say industries characterized by consumer inertia, switching costs and network effects. Competition authorities, as I said, may settle too often or too seldom, when there are biases in their preferences with respect to the preferences of society. Those agency problems have to be taken into account dealt with. To do that, there are several possibilities, both organizational and institutional. For example, one factor is that level at which the decision whether or not to settle, since a more senior decision-maker may be less influenced by career concerns. As for institutional factors, judicial review, for example, might alleviate those agency problems. There may also be agency problems on the side of the defendant. The preferences of those who represent the defendant may not be perfectly with the preferences of the defendant’s shareholders. That may happen because managers have diverging interests, or it may happen because some people earn fees out of long processes. The next result is that, as Massimo and Wouter both noted yesterday, the option to settle may also have perverse effects on deterrence. To counter those effects, there is a need for complementary measures. When a settlement procedure is introduced, more money and human resources need to be devoted to the task of detecting infringements. Otherwise, if settlements ramp up without an increase in the likelihood of detection, deterrence may be undermined. Finally, the impact of private enforcement on defendants’ incentive to settle is likely to be positive. Here there is a positive complementarity between private enforcement and settlement policy. Remember, one of the key reasons why a defendant may not want to settle is because it thinks that by drawing out the litigation, in the end perhaps there may be no finding of infringement. This can affect future profits, since today’s actions can affect the structure of the market in the future. To the extent that, through private litigation, those extra profits can be taken away, the incentive to settle will be aligned with

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Panel VI—part one: policy consequences for public enforcement 615 those of the competition authority and society, and the bias towards too few settlements may be corrected. We need to do several other things to complete the paper. Among other things, we’d like to examine the implications of a repeated game in which my decision to settle today may signal what kind of individual I am and what kind of exposure I have to the competition authority. And in the end we’d like to be able to rationalize why, in the two cases I mentioned earlier about interoperability and bundling, one was settled and the other was not. What were the reasons for that, and what were the implications for social welfare of these two different outcomes. That’s a very difficult task, and I’m not sure that our Greek letters, as they are, help us much. 䉴 MASSIMO MOTTA: Thank you, Jorge. Now we can proceed with discussions of how the settlement procedures we’ve been talking about might affect private litigation in Europe.

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Panel VI, part two:

Policy consequences for private enforcement

KRIS DEKEYSER: I’ll be talking about the interaction between public and private enforcement, and about the effects which cartel settlements and Article 9 commitments may have on private enforcement, but I think our discussions from yesterday and today show that we are still facing a learning curve. It is not so obvious to predict how all of these relatively new initiatives would or should interact. As John Fingleton said yesterday, the European system is far from being mature, and both public and private enforcement are still evolving. So I will follow the advice of an English law professor, who told his students a couple of years ago to treat the questions in the bar exam the way they treat the Ten Commandments: under no circumstances should you attempt more than five. So I will limit my intervention to five points. First, I will review some of the principles underlying the White Paper,19 because I think there are still some important misunderstandings. Second, I will touch upon the effects of public enforcement on private enforcement on a general level. Then I will look at the impact of cartel settlements and Article 9 commitments on private damages actions from three perspectives: that of an enforcer, that of victims and that of infringers. Beginning with the White Paper, if we recall certain underlying principles, this may explain why some policy options were preferred over others. The first principle is compensation. This distinguishes the White Paper from the US model of private enforcement. There, for historic reasons, private enforcement was seen as a means of achieving deterrence. In Europe, our aim is to ensure that victims are compensated. This is the reason why in Europe, for example, we do not envisage multiple damages. The principle is single damages for losses sustained—not only actual losses but also lost profits, plus interest. So this is a European approach, and you will see a European approach if you look at the proposals on access to evidence,20 for example, or collective redress.21 You will see that we have built-in filters to avoid excessive litigation. But another important principle underlying the White Paper is that we want to preserve strong public enforcement of Articles 81 and 82 by the Commission and by the European Competition Network as a whole. So we want to optimize the relationship between public and private enforcement so that they can mutually strengthen each other. This means that measures that 䉴

19 White Paper on Damages actions for breach of the EC antitrust rules, COM(2008) 165 final of 2 April 2008. 20 Ibid., point 2.2, pp. 7–8; Staff Working Paper, SEC(2008) 404 of 2 April 2008, chapter 3. 21 White Paper, point 2.1, p. 4; Staff Working Paper, chapter 2. See also European Parliament resolution of 26 March 2009 on the White Paper on damages actions for breach of the EC antitrust rules, 2008/2154(INI). The corresponding Report of Rapporteur KlausHeiner Lehne of 9 March 2009 is available at http://www.europarl.europa.eu/sides/getDoc. do?pubRef=-//EP//NONSGML+REPORT+A6-2009-0123+0+DOC+PDF+V0//EN.

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Panel VI—part two: policy consequences for private enforcement 617 are put forward to facilitate private enforcement should not jeopardize our public enforcement. There are a number of consequences flowing from those principles for the general regime of damages actions. A clear example is the so-called “investigative privilege”, which is also put forward in the White Paper.22 We must avoid any undue requests for disclosures in ongoing antitrust investigations when they are still in a phase in which they are rather critical. That’s why we have proposed a rule according to which courts hearing actions for damages should temporarily refrain from adopting a disclosure order if it would jeopardize an ongoing antitrust investigation. The same need to preserve the effectiveness of public enforcement implies absolute protection of corporate statements. As we all know, leniency is critical for detecting cartels, and it is therefore also essential for follow-on actions. For that reason we insist on absolute protection for corporate statements submitted to any enforcer within the ECN, regardless of whether the application for leniency has been accepted or rejected, and regardless of whether it was submitted before or after the decision. Even voluntary disclosure by leniency applicants should be prohibited, at least until after the SO is issued; otherwise, such disclosure might jeopardize our investigation. The same logic applies for settlement submissions. Another mechanism often discussed in order to protect leniency programs is the preclusion of joint liability of the successful immunity and/or leniency applicants. On this point our ideas are less crystallized. What we have put forward in the White Paper is more typical of a Green Paper; it’s certainly not a fully-fledged recommendation, so there we’d like to have extensive feedback. The possibility that we raise there is to limit the liability of successful immunity applicants to claims made by their own direct and indirect contractual partners. So successful immunity applicants would remain liable on the civil side, but the scope of damages to be paid would be more limited and more predictable. Before reaching clear conclusions on this we need to consider how that fits in with the principle of compensation, and how it would impact other leniency applicants, in particular the highest-ranked leniency applicants. Coming to the specific effects of commitment decisions on private enforcement, in conferences you often hear the question: “If the Commission wants to promote more damages actions, does that it mean it will be more reluctant to take commitment decisions?” The answer, of course, is clearly no. The Commission acts in the public interest, and not necessarily in the interest of private plaintiffs. We have already heard this morning that, unlike Article 7 decisions, an Article 9 decision does not contain any finding of an infringement. Therefore a private plaintiff in a case concerning the same facts would have to establish the illegality of the agreement or practice, as a first step toward obtaining damages. One could argue that an Article 9 decision would nevertheless 22

See Staff Working Paper, cited supra note 20, point 119.

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be helpful because, in the White Paper, we suggest that national courts should be able to order the disclosure of certain categories of evidence provided that the claim is plausible and provided that the disclosure request is proportionate.23 An Article 9 decision could help plaintiffs meet the plausibility test, depending on the weight the national court gives to the decision. What about cartel settlements? These are Article 7 decisions, which means they are binding on national courts as regards the existence of an infringement. It is true that a decision adopted following a cartel settlement procedure will be less rich in facts than a normal Article 7 decision, but victims can rely on such a decision before a national judge in order to meet the threshold for inter partes evidence disclosure. In any event, it is clear that victims will need much more than just the establishment of an infringement. Obtaining an evidence disclosure will be crucial to establishing a causal link between the infringement and the plaintiff’s damages, and to quantify those damages. Finally, settlements in cartel cases would facilitate a better management of enforcement resources. This will lead to more decisions, and to that extent it will generally contribute to more private enforcement. From the perspective of infringing parties, a cartel settlement is only an option where there is a common understanding on the part of both the enforcer and the company on the main parameters of the case, i.e., the object of the cartel, the duration and the main facts. So the real issue will be the amount of the fines, and the level of detail in the decision. As Kirti said, some people argue that defendants will be less likely to settle if they think there will be immediate follow-on actions. I would respond that this is by no means certain, for a couple of reasons. First, if one day an effective system of private enforcement emerges, we would expect that those private actions will be brought anyway. So the incentive to settle would be entirely preserved. Second, opting for a delay rather than settling may not be the most intelligent strategy. If follow-on actions are brought three or four years later, the infringer will have to pay interest at the legal rate, which can amount to a significant sum of money. Finally, today companies are increasingly developing a multi-jurisdictional leniency and settlement strategy. They put all the parameters on the white board: exposure to civil, criminal and administrative penalties, both for companies and employees, and jurisdiction by jurisdiction but also on a cumulative basis. This may result in an overall strategy by the firm to cover itself as much as possible on the public side, and to turn the page as quickly as possible to get back to normal business. If this is the business strategy which has been adopted worldwide, the European settlement scenario may very well fit in that strategy. I don’t think I need to cover the effects of Article 9 decision on private enforcement, as we discussed that extensively this morning. Let me just 23 White Paper, cited supra note 19, p. 5; Staff Working Paper, cited supra note 20, paras. 98–109.

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Panel VI—part two: policy consequences for private enforcement 619 conclude by saying that I would call public enforcement through settlements and commitments and private enforcement faux ennemis. It is true that some safeguards must be put in place, such as investigation privilege and so on. It is also true that the choice as to the type of procedures can have implications for victims claiming damages. But if you have effective and efficient public enforcement, that should only present advantages for plaintiffs who have suffered harm. LORENZO COPPI: Like Kris I’ll be addressing the interaction between settlements and private litigation. I’ll begin with a series of remarks and I’ll finish with some policy considerations. The first observation is that there are two effects which are consistently referred to in the context of settlements and their impact on private litigation. Settlements bring forward the time at which private damages must be paid; and they may affect the amount of information available to plaintiffs. On this last point, there does not seem to be a consensus on how it affects the information available. There may be more or less information, or it may have no effect, and all of that is relevant for the award of damages, but we don’t know yet how it will play out in practice. What can we say about that from the perspective of economics? When a firm deliberates on whether to settle, it will weigh the pros and cons of settling rather than appealing. On the one hand, appealing may allow a firm to delay payment. Kris has just made the point that this factor may not be particularly important, and for some firms that is true. Firms in a good financial position which would expect to pay high interest charges in the future won’t have a strong incentive to delay payment. By contrast, other firms may have an interesting in delaying payment if their CEO has a low horizon, or if they have a cash flow problem (e.g., a company like General Motors, borrowing at 12 percent interest). On the other hand, there is also an incentive to close the book. This is related to financial factors, but it can also be related to the personal preferences of the CEO, the CFO or other key managers. Corporate governance can be another factor. What would incline a firm to appeal? The objective, of course, is to obtain a reduction in fines. Massimo has told us that a purely risk-neutral firm should expect about a 25 percent reduction just from looking at past court decisions. Now, a firm will discount that figure if it is risk-averse, and so it may prefer a certain 15 or 20 percent reduction of the fine to an uncertain 25 percent reduction. On the other hand, by settling a firm avoids legal costs, including the internal resources used by the company in litigating. Those costs may be significant, and their relative importance will depend on course on how high the fines are. Now these are the pros and cons of appealing, and in principle the competition authority does not have any effect on these, they are independent of the authority’s policies. However, a settlement policy, and the way it is designed, can have some effect. In particular, this relates to the possibility that more or

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less information in a decision will lead to higher or lower expected damages. The final instrument that the authorities have in influencing a firm’s decision of whether or not to settle is obviously the settlement discount. How do we weigh all of these factors and evaluate a firm’s incentives? Quantitative values can be assigned to the expected costs and the expected benefits of settling a case, and for those of you who like formulas, equations and Greek letters, we have included a few of those in our paper.24 A firm that is in a good financial position and derives no benefit from delaying and litigating will require a relatively low discount to be persuaded to settle. The main tradeoff is the loss of the right to appeal, which has some value due to an expected fine reduction, and we discount that value on the assumption that the firm will to some extent be risk-averse. In the other scenarios I mentioned, where a firm has a cash flow problem, or it’s borrowing at 12 percent, or the CEO is at the end of his tenure and prefers to let the next CEO deal with the case, in these types of situations the required discount may increase dramatically. We have to consider another factor as well, because the Commission can decide how much information is included in the settlement decision. This may have an effect on the expected amount of private damages. If a settlement decision contains all of the information found in a normal decision, which is the OFT approach, then this effect will be neutral. On the other hand, if the Commission issues a settlement decision that is streamlined in such a way as to result in lower damages, then we would expect that the discount offered to a settling firm could be lower. My final two policy considerations are the following. First, we have carried out our analysis under what is called an “indifference” condition. That is to say the firm, when carrying out this cost-benefit analysis is indifferent between settling and appealing. The Commission should not necessarily be concerned about offering a high discount from the fine because a high discount does not necessarily result in underdeterrence. If the Commission also considers the effects of private litigation, it can offer a higher discount while still maintaining a level of deterrence. Second, as I said, the Commission can decide on the fine discount and it can control the amount of information in the settlement decision. In the rarefied world of economic theory and policy, one could argue that the Commission should offer a relatively high discount and put a lot of information in its decision. This would maintain a strong deterrent effect; it would promote compensation to plaintiffs, which is a stated objective of the Commission; and it would induce firms to settle, resulting in the procedural efficiencies that the Commission is hoping for. However, in real life, as my five-year old likes to say, I can see why the Commission might not want to do that. This is because 24 Lorenzo Coppi and Robert Levinson, “The Interaction between Settlements and Private Litigation—An Economist’s Perspective”, p. 687.

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Panel VI—part two: policy consequences for private enforcement 621 overall deterrence would remain constant, but the onus of deterrence would be shifted from public enforcement to private enforcement. The Commission would effectively be subcontracting deterrence to private claimants. So I can see why that would not be the Commission’s preferred approach. MASSIMO MOTTA: Thank you, Lorenzo. Now we open the debate, and I have a long list of people waiting to intervene. First is John Fingleton. 䉴

䉴 JOHN FINGLETON: I have four quick points. I like Simon Bishop’s attentiveness to the degree of consumer harm. But in cartel cases I don’t think we should be moving toward a system where agencies have to prove significant consumer harm. That would have the kind of impact on deterrence that we definitely don’t want. And I certainly don’t think it’s incentive-compatible to have companies measuring the harm for us—that creates all kinds of incentive problems. So I don’t think that’s going to be the answer, and it’s a difficult question. Coming to the question of “what’s the rush”, apart from the fact that there is huge pressure on agencies to deliver results, it’s important to underline that the cartel immunity tool provides no deterrence in and of itself; it is an investigative tool. It’s the sanctions that provide deterrence, and there are lots of examples of countries that have well-defined immunity tools and procedures, but they don’t have any immunity applicants, and that’s because they have no sanctions. But countries with strong sanctions have lots of applicants. And if the sanction comes earlier, then the deterrent effect will be felt earlier too. Waiting three or four years for a decision would make a difference. Third, heads of agencies have the difficult job of incentivizing staff to deliver results on time, and that will create pressure for settlements, and at the same time there is also the task of ensuring consistency and quality, and making sure consumer welfare is taken into account. One of the things that might be nice to bring out in Jorge’s paper 25 is the internal structure of the agency. At the OFT, Ali Nikpay and our Chief Economist, Amelia Fletcher, both have to be happy with the overall framework of a decision. Tensions might arise in some instances between the case team’s rush to get things done or to settle a case and the other objectives, in performance management terms, that we have on the policy side. And you might see similar tensions within the Commission, whether it’s internally within DG Comp, or between DG Comp and the Legal Service. So I think that the internal structure of the agencies can be a terribly important safeguard and it helps to sustain the balance between the need to deliver and the need to do what is in the public interest in the long term.

25 Kirsten Edwards and Jorge Padilla, “Antitrust Settlements in the EU: Private Incentives and Enforcement Policy”, this Volume, p. 661.

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I can introduce the fourth point with the famous story about an economics professor looking for his car keys under the light of a car park at the university, and a student comes and says “Can I help?” He explains that he’s looking for his car keys. She says, “Where did you drop them?” and he points to the dark part of the car park and says, “I dropped them over there.” And when she asks, “Well, then why are you looking here?”, he says, “I’m looking here because there’s some light here.” So what does that story mean, in our context? Well, there’s a great tendency to focus on firms’ incentives to settle by looking at things like the fine and the legal fees and so on. But in my experience, the incentive to settle has much more to do with the psychology of the individuals, reputational effects and a whole range of other factors. These may be much more subtle to model, but they’re not impossible to model, and they’re certainly not impossible to think about in a conceptual framework. So just because we can’t measure them quantitatively, we shouldn’t leave them out of the models. 䉴 DAN RUBINFELD: I have two points. First, I’m in agreement with most of what Simon Bishop said, but I wanted to raise one concern. Simon had suggested that it might make sense to settle weaker cases and proceed with stronger cases. But once an authority develops a reputation for settling weaker cases, you might have a potential unravelling. The parties will be aware of this strategy, and they may hold back on settling in the hope that the case will fade away and disappear. So it’s not clear that this kind of approach would be successful. More importantly, as some here have suggested, it’s appropriate for the public authorities to think about the precedential effects of their actions. And it’s entirely appropriate and desirable for the authorities to decide which cases really ought to proceed in order to establish good precedents. In the US, we have relatively few legal precedents each year, but if the agencies are careful in influencing the right cases and helping to make sure those cases are resolved with clarity, that can have great social value. The second point is that settlements happen, of course, because parties come to the conclusion that they’re better off settling than contesting the case further. That’s very clear. But it does not follow that settlements lead to less deterrence. It may be true, but there’s nothing automatic about that. Parties settle because by doing so they avoid risks, and one risk that is avoided is that of the substantial cost of embarking on a long adversarial endeavour. And deterrence is not measured just in terms of what the fine is; it also has to take account of the avoided costs of litigation. You can actually get very substantial deterrence in settlement cases, and indeed you can have more deterrence in a settlement case than you would if you held out and went to trial.26 26 See, e.g., A. Mitchell Polinsky and Daniel L. Rubinfeld, “A Note on Optimal Public Enforcement with Settlements and Litigation Costs”, 12 Research in Law and Economics 1 (1991).

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Panel VI—part two: policy consequences for private enforcement 623 RAFAEL ALLENDESALAZAR: On Article 9 cases, I think commitments should be reserved for those cases where a cease-and-desist order would be inefficient. And it is very difficult to design and apply sound remedies in an adversarial setting under Article 7. The authorities should avoid bright ideas, and the version of Windows which the Commission compelled Microsoft to offer is a good example of just how badly remedies can be designed.27 Now compare that with what happened in the Coca-Cola case.28 There the Commission had originally thought about imposing the same idea for drink dispensers as for freezers. So there would have been no exclusivity for dispensers. But then Coca-Cola explained that if someone got sick after drinking from a dispenser, and if it was not clear whether the faulty product was Coca-Cola’s own product or the product of a competitor, this could cause enormous difficulties. In the end, the Commission did not insist on that condition, and this shows how flexibility on remedies under Article 9 can produce workable measures that meet the goal of eliminating restrictive practices with a minimum and proportionate disruption of the defendant’s business.

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ALBRECHT BACH: I’m tempted, like Ian Forrester, to start with history, though I won’t go back to Adam and Eve. But when the proposals for modernizing the European competition enforcement system were discussed, clearly private litigation was seen by the Commission as a sort of substitute for a lessening of enforcement which was foreseen as a corollary of the abolition of the notification and exemption procedure. Are we able, at this stage, to “subcontract” some part of deterrence function to private plaintiffs? Clearly not. The discussion of private enforcement reminds me rather of Loch Ness. We talk a lot about it, and sometimes the head is seen, but it has yet to really make its presence felt, at least in most European countries. I understand that it is in the Commission’s interest to avoid stimulating private actions if there is any risk that this will have a negative effect on its enforcement activities. The question is whether, at this stage, the Commission should block access to any documents created under leniency or even under settlements. Unless the Commission firmly believes that it is capable of convincing the Member States that an inter partes discovery process should be established throughout Europe, the Commission can’t walk away and leave these crucial evidence problems to the unsatisfactory procedural mechanisms that are currently in place. What puzzles me is that, in Europe, the sorts of efforts made in the US to reconcile private action and leniency29 are not even explored. Why isn’t the

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27 See, e.g., Hewitt Pate, “The Thirteenth Chime of the Clock”, 4(1) Competition Policy International 50 (2008). 28 Cited supra note 15. 29 See the DOJ’s contribution to the OECD’s Roundtable Discussion on Private Remedies, DAF/COMP/WP3/WD(2006)34 of 31 May 2006, http://www.ftc.gov/bc/ international/docs/RdtbleOnPrivateRemediesUnitedStates.pdf, points 31 et seq.

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Commission able to ask someone who comes in for immunity to cooperate in the effort to ensure redress for those who have been harmed by the cartel. Whether that takes the form of a full disclosure or whether it is some other means of compensation, as has been proposed in the Netherlands, I simply don’t understand why solutions of that nature couldn’t be explored at the European level. It would come at a very low price, or no price at all, to the Commission. For that matter, why hasn’t the Commission explored the approach of the OFT, as described by Ali Nikpay, where the OFT says they will not settle unless they are sure that no harm is done to the prospects of redress for victims? 䉴 JIM VENIT: If we had been here ten years ago, we would have seen resistance from the Commission to leniency and certainly to private damage actions. I think we need to understand the roles of the different institutions involved in market regulation. The role of the enforcer is to detect, and to some extent, to deter. Detection means a leniency program—that’s been proven to be the most powerful means of detecting cartels. As for deterrence, it’s clear that criminal systems deter much more effectively than non-criminal systems. They also produce settlements faster, because individuals don’t want to go to jail. In terms of compensation for harm, and the redistribution of wealth, I think that is an area that’s best left to private actors litigating before courts. It’s true that there should also be a balance between that legitimate role of private enforcement and the needs of public enforcement. In the US, the DOJ was able to provide an additional strong incentive to leniency applicants by de-trebling private damages.30 But in the EU we don’t have treble damages, so we can’t hold out that carrot. But in addressing these questions, we should always be aware of what is the role of the institution concerned, and of what its proper function is. In the case of the enforcer, it should be detection and deterrence, but not redistribution and not regulation.

ANN O’BRIEN: I would agree with Dan Rubinfeld’s point that settlements can actually increase deterrence, and this is for a very practical reason. We should recall that there is specific deterrence and general deterrence.31 If you look at the speeches of the DOJ, you’ll see that our focus is predominantly on general deterrence. And as a result of the combination of our leniency and settlement programs, we are bringing more cases, and this is how we can 䉴

30 See Antitrust Criminal Penalty Enhancement and Reform Act of 2004, Pub. L. No. 108-237, § 215, 118 Stat. 665, 668 (2004). 31 Specific deterrence refers to particular sanctions and their effects on the incentives and/or capacity of individuals to violate norms; general deterrence refers to the much broader mechanism of social control arising from a system of sanctions. See, e.g., Dan Kahan, “The Secret Ambition of Deterrence”, 113 Harvard Law Review 413 (1999); Gary Kleck, Brion Sever, Spencer Li, Marc Gertz, “The Missing Link in General Deterrence Research”, 43 Criminology 623 (2005).

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Panel VI—part two: policy consequences for private enforcement 625 maximize the deterrent effect of our enforcement policy. Bringing more cases enables us to increase the overall number of convictions, and this enhances general deterrence. To put a finer point on that, our plea agreements are designed to induce cooperation and acceptance of responsibility, and these agreements result in convictions that we might not obtain otherwise. Furthermore, we might uncover one cartel thanks to our leniency program, but then with our Amnesty Plus program and the settlement process it’s not uncommon for a settling party to disclose to us the existence of multiple other cartels that we would otherwise never have detected. And from this progression of disclosures there emerges a “cartel tree” that we use to chart our enforcement actions. As for the question about whether competition authorities merely uncover old cartels as opposed to deterring new cartels, in the US we have the added deterrence of criminal sanctions. So a corporate executive sitting in a meeting between competitors, I think we can pinpoint this as a very effective element of deterrence. I do not say that in order to advocate criminal sanctions in other jurisdictions, but it is something we know very well from our experience. Certainly an executive will not tell you that he or she engages in a cost-benefit analysis before going into a cartel meeting, but corporate legal advisors in the US have told me that executives tell them they will not participate in a cartel in the US, because they don’t want to go to jail. So the criminal regime has very real deterrent effects, and I’d encourage you to talk to members of the bar and to the business community to understand how that calculation is made. BILL KOVACIC: This last round of presentations usefully illustrates three things that can go wrong in settlement or bargaining scenarios. First is the risk that the competition authority will take cheap deals, for one of two reasons. Either it is risk-averse and maybe has doubts about its capacity to execute, or else it just wants to run up the numbers. To the extent that the larger community of competition officials counts numbers as being the measure of performance, you run up the stats by settling lots of cases. The second thing that can go wrong is that you can simply make good faith errors. You either ask for too much, that is to say, more than you might need, especially where the authority insists on conduct or structural undertakings on the civil side; or you ask for too little, for example you establish a short conspiracy period when it should have been longer. The third risk, and Dan Rubinfeld mentioned this a moment ago, the authority can pay too little attention to the creation of binding doctrine. I think settlements over time can become a narcotic, where the agency begins to think, since it’s reaching a lot of settlements, that it’s re-setting the boundaries of law. But of course the only way you can do that is by going before tribunals and securing judgments. If you rely too much on settlements then you’re not promoting the periodic re-conditioning and re-validation of doctrine which is a primary role of the courts.

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From our discussion I also see two kinds of antidotes. One kind consists of things the agency can do itself. It can make a conscious effort to ask questions such as: what savings are we achieving and how will we use these resources? How do settlements relate to a larger framework in which other key variables include liability standards and the quality of punishment, all of which are interrelated. Second, the discussion underscores once again the importance of having an effective evaluation program. The point is to measure actual effects of policy, and to ask basic questions about how things are turning out. Third, we can see the importance of transparency and the importance of explaining to outsiders what’s taking place, at least for the purpose of stimulating a debate. As a second kind of antidote, there are two devices outside the agency. First is a mechanism of robust review by a third party. In the case of plea agreements, as Diane Wood and Ann O’Brien described yesterday, judicial oversight can be important. Then we come to private enforcement, and its links with public enforcement. Here it’s necessary to ask whether it’s useful to have multiple rounds of enforcement, so that, for example, if one actor gets it wrong, then others can fill the gap. That requires careful efforts to decide where and to what extent the intervention of private plaintiffs is welcome. ONNO BROUWER: I have a question about Lorenzo Coppi’s paper, which I found very interesting. Yesterday we said there may not be much information in the file of a competition authority which could be used as a basis to claim damages, and that’s why inter partes discovery can be important. So the authority’s options as to how much useful information it can include in its decision might be limited to some extent. But the question I have is: to what extent does your paper imply that the competition authority has a lot of leeway in terms of what information it disseminates and what information it does not disseminate. I can see that you will not disseminate information which would undermine your investigation (up to the SO), or which would undermine your leniency program, but beyond that I’m not sure that there’s much leeway for a competition authority to withhold objective information that it has, if that would have an impact on private enforcement. 䉴

KIRTI MEHTA: I agree with Dan’s point that settlements do not reduce deterrence. And where there are big cases where the evidence is very good, consumer harm is going to be very, very likely, so you don’t have to scratch your head about that. Many of the cartels we see, when we have a lot of information about them, is that they have very strong mechanisms for organizing the cartel. One has to be careful about calling a case weak or strong on the basis of whether the cartel has a strong impact on consumers. On the subject of private litigation, we should remember that the payoffs for the parties are very different. If you are a leniency applicant and you get a reduction of

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Panel VI—part two: policy consequences for private enforcement 627 50 percent, and then if you get another reduction for coming in and settling, that is a substantial fine reduction. Then the third one is better off not coming in at all because he is better off settling and not disclosing any evidence. But my main point is that the objective of anti-cartel policy is not to adopt more decisions with fines, but we want to see an end to cartel activity. Are we deterring new cartels? Well, anytime we carry out an inspection, that’s an ongoing cartel. But over time the policy is aimed at reducing participation in those cartels. Looking back over the results under the three Leniency Notices that we have adopted, there is a trend going in that direction and this will become very apparent in the future. I also agree that in some cases it’s necessary to go to court. In cartel cases there are lots of issues that have become clearer following litigation. I think that can only help. Furthermore, an important cartel decision that is upheld is a very important source of deterrence. So we should not underestimate that. 䉴 LYNDA MARTIN ALEGI: Like Bill, perhaps, I’ve been reflecting on the importance for an agency of maintaining the credibility of its system by having an adequate record of well-reasoned and robust decisions, some of which have been challenged in court as a background to settlements, which are then effective not only in individual cases but also more broadly from the standpoint of the public interest. It strikes me that when the Commission’s proposed settlements system is implemented, or maybe already, there may be a soft harmonization effect, as so many Commission policies have. But my question is whether the Commission has given further thought to that process of soft harmonization in this instance. It may be that not all national competition authorities have the same record of strong, well-reasoned, robust decisions, against which a settlement regime can be most effective. It seems to me that the Commission might help them to avoid premature addiction to the narcotic of settlements.

STEPHEN WILKS: I’m tempted to reflect on a lot of the discussion we’ve heard. I will resist that temptation, not least because Emil Paulis will be doing that in a little while. But the discussion over the last day and a half has been fascinating. It has answered a lot of questions that I came here with, but then it also generated a lot of questions that hadn’t even occurred to me before I got on the plane for Florence. I have two questions that I would have liked to have heard more discussion on, although Simon Bishop helped to clarify these. One is whether deterrence means detecting old cartels that are just coming out of the woodwork, or whether deterrence is about preventing new cartels from forming. And Kirti, you began to address that as well. It’s almost an impossible question, of course. The second question concerned Simon’s point about bad cartels and very bad cartels. That’s a lovely idea, and you cited consumer welfare as a criterion for distinguishing between the two. But in terms

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of a competition authority’s ability to prioritize and choose the right instrument, I would think these kinds of distinctions could be helpful in that regard. JOHN FINGLETON: On Stephen’s question about late-life cartels, one of the key features of the OFT’s evaluation work on cartels is that we do not measure and take credit for the cartel that existed. We do take credit for ending the cartel, and we try to do an estimate of when we think the cartel would have ended in the absence of enforcement. That’s part of our published methodology. And we provide that information not just to be honest about what we’re doing, but to incentivize staff within the agency to come up with ever-cleverer ways of raising that figure, because it’s a key performance indicator. We have also just introduced an informant reward program,32 because we think that, in addition to an immunity program, rewards are also a very useful tool for destabilizing cartels earlier in their lives. Part of the reason why our staff in the agency were so keen to have that informant reward program in place was because of the way in which we measure the deterrent effect. So the whole thing comes together as a virtuous circle, with different tools complementing each other and helping to enhance the performance of the agency. 䉴

SIMON BISHOP: Dan’s comment demonstrated that I’m not only ignorant but also inarticulate. What I meant by a weak case was a case where the Commission doesn’t have the documentary evidence to support, for example, the whole cartel period in which the cartel was actually operating, while a strong case would mean that the Commission does have strong documentary evidence. I wasn’t suggesting that they should go for weak cases, I was trying to flag which of those kinds of cases the authority should crack down on. My point was really that, if the Commission is settling cases, it should be doing so in cases of bad cartels and not very bad cartels. John made the point that leaving it up to the parties to say whether the cartel was bad or very bad raises incentive compatibility issues. But that’s true of any economic submission, or any evidence in any kind of antitrust case. The parties always want to submit their best arguments. It’s up to the authorities to assess whether that evidence is acceptable or not; no one is compelling them to do that. A final point relates to Ann’s suggestion about the effectiveness of individual sanctions and the positive impact they can have on deterrence. My question is: where is the proof? Is there actually proof that fewer cartels get started in countries where they have established criminal prosecution relative to their experience before criminal sanctions were adopted?

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32 See http://www.oft.gov.uk/advice_and_resources/resource_base/cartels/rewards. For discussion of such programs, see, e.g., William Kovacic, “Private Monitoring and Antitrust Enforcement: Paying Informants to Reveal Cartels”, 69 George Washington Law Review 766 (2001).

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Panel VI—part two: policy consequences for private enforcement 629 䉴 IAN FORRESTER: A few quick comments. Whether we’re talking about Article 7 and cartel settlements or Article 9 commitments cases, I think everyone around the table is happy that these instruments exist, but I think everyone on both sides has the feeling that they require some calibration and fine-tuning. I echo what Kirti Mehta said, and I would suggest to put it in the following way: the proper role of a competition authority shouldn’t be that of chief of police, but maybe that of public health supervisor. It’s not your goal to send people to the electric chair, it’s your goal quietly to eliminate the underlying problem. I don’t agree that companies make a financial analysis about whether to go ahead with cartel-like behaviour on the basis of the bottom line. The person who is the boss is not the person who participates in the cartel. In my experience, the person who is the boss is almost always appalled by the immense reputational damage, the damage to the business model, the unquantifiably huge fines, and the disruption for his enterprise. So I don’t mind doing a financial analysis, but I don’t think it’s realistic to quantify carefully the benefits and drawbacks of a company that discovers that it has been involved in a cartel. With respect to Article 9, I think that workable remedies are plainly achievable far more easily in a bargained-for environment, and not where there is a condemnation. That means the authority has to make sure that the cases are well-chosen. I would suggest, provocatively, that maybe it would be a good idea to look for a couple of illustrious cases under Article 81 or 82 which could help to clarify the law. Under Article 82, why not settle a case involving a discount regime, and then the Article 9 decision could modernize the Commission’s rules on the subject of discounts, and that way the Commission could distance itself from British Airways.33 Under Article 81, why not look for a case where a company has engaged in an imprudent exchange of information in careless good faith, and suppose it’s not really a serious case. Settle that case with commitments under Article 9, and that way you might advance the law. Last observation. We do need more judicial oversight. That would be very wholesome, especially at the interlocutory stage. But as of now, none of those reforms is on the table. I hope that by the end of this decade they will be.

KRIS DEKEYSER: I’ll just respond briefly on the issue of whether the immunity applicant should help private plaintiffs, for example by giving evidence or, as was mentioned yesterday, the notion of making the grant of some compensation a condition for immunity, or reducing fines where there is a commitment to grant compensation. On all of these we have to be extremely careful. We cannot do anything that would create a chilling effect on our leniency program. With respect to the idea of reducing the fine where the defendant agrees 33

Cited supra note 5.

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to provide compensation, the problem is that this would oblige the public authority to identify the harm caused, and to quantify it and so on. In a cartel case, that is not our role. A cartel case is a restriction by object case, so we are not required to examine a cartel’s effects on the market. So that would be an enormous additional task for a public authority, and I think we can leave that to the private sector. 䉴 LORENZO COPPI: John Fingleton made the point that psychological factors are very important when a firm decides whether or not to settle. I wholeheartedly agree, but I would submit that you may not need to model those factors and understand them in detail if you can simply measure them. So empirical research telling us how firms behave may be more important than theoretical analysis that tells us why firms behave in a certain way. Onno Brouwer raised a very good point: do I think that the Commission has any discretion in the amount of information that it can make available to the public? My understanding is that the Commission has been increasingly redacting information in public decisions, and that may be a way of doing it. Perhaps the Commission’s discretion is very limited in single cases, but it does have some discretion ex ante as to how to design its settlement procedure. On the general interaction between settlements and leniency, we might ask whether a company that will have reductions for both leniency and for settling would be deterred from entering into a cartel. I think that even with relatively high reductions there would still be deterrence because of the likelihood of private actions. In the US, an amnesty participant doesn’t pay very much in the way of criminal sanctions or fines, but there is still deterrence due to the prospect of civil liability. Finally, authorities should not be wary of granting a high discount for settlements. A relatively high discount rate will increase a company’s incentive to settle, and it may not affect deterrence. An authority might be concerned about opening the floodgates, and they may want to manage the process so that only a few cases at a time are settled. But that’s a policy decision for the Commission, it shouldn’t be based on the dubious premise that high discounts are bad for deterrence.

䉴 MASSIMO MOTTA: Thank you, Lorenzo. Now Emil has the intimidating task of providing us with his overall conclusions.

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䉴 EMIL PAULIS: I moved on from DG Comp a week ago,34 and already after one week I have forgotten everything. (general laughter) And as I was coming to Florence to participate in the Workshop I realized how difficult it was to focus my mind again on such a complex range of issues. Let me begin with a couple of points. First of all, everyone will have appreciated that this is not just law, this is also policy. And a lot of policy choices will have to be made in relation to the settlement procedure and then, in the longer run, in relation to private enforcement. Everyone also realizes, hopefully, that we are only at the very beginning. We can expect both the law and policy in these areas to evolve. There are certain features about this process that I would like to underline. Above all, the purpose of a settlement procedure in cartel cases is to strengthen public enforcement. The point is to increase deterrence by increasing the number of cases we can bring. The procedure is certainly not intended to weaken deterrence through a reduction in fines, and it does not subcontract public enforcement to private claimants. With respect to this procedure, some have suggested that it is heavily weighted in favour of the Commission. But the comments I hear coming from the plaintiffs’ side and the defendants’ side are mutually quite opposed to each other. These opposite reactions seem to indicate that the Commission is rather in the middle, where it should be. More importantly, even if the procedure conferred substantial advantages on the Commission, do not forget that by launching the private enforcement project we have engaged in a massive enterprise in which we have looked carefully at the rights of victims. That project is aimed precisely at benefiting the consumers victimized by anticompetitive conduct. There is therefore no question of the Commission ignoring or forgetting about plaintiffs in that context. It is my personal conviction that, as the Commission goes forward with settlements it is highly important for the entire process to become more and more transparent. There needs to be greater transparency, and there needs to be more consistency with regard to the fining policy of the Commission. That is absolutely fundamental. It is equally fundamental that whatever the Commission does remains fully under the control of the European judges. If we do not have the control and support of the judges, the settlement system won’t be credible, and it’s not going to fly. So for the purpose of ensuring the legitimacy and fairness of the procedure and its application, we need to have judicial control. Another point that has been made concerns the variety of national systems, and the fact that they are not aligned. If we look at this from a long-term 34 At the time of the Workshop, Mr Paulis had just taken up his new post in DG MARKT as Director of Directorate G, “Financial services policy and financial markets”.

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perspective, just as we have seen with leniency programs, we have had major differences across jurisdictions with respect to leniency programs. In the beginning there were some Member States that had programs, others that didn’t, and those that did had different criteria and characteristics. But in this regard we have benefited from a dynamic which is built in to the European Competition Network. Today, I’m very happy to say, nearly all Member States have a leniency program,35 and we have a Model Leniency Program.36 And I think we can expect exactly the same thing with settlement programs. We will see a dynamic of convergence, and so I’m not worried at this early stage about the differences. There has also been discussion of the reward, that is, of the fine discount that will be granted to settling defendants. Different people will consider different percentages to be the appropriate one. That is something that I think you will just have to leave to the trial and error of the Commission. But it needs to be stressed that this reward is part of a larger system. As Kirti has explained, we don’t have only one rebate. We also have immunity, and we have leniency reductions, and these can combine with the reduction granted for settling. The interplay of those elements remains to be seen, but there are plenty of good incentives in the system to bring people forward, and to encourage them ultimately to settle. Some of you have questioned why, in a settlement submission, it should be necessary for a defendant to recognize liability for an infringement. That is an important issue. It’s not enough to refrain from contesting facts. Think of a crisis cartel.37 What is a crisis cartel? Should that be characterized in the same way that we would qualify a straightforward hard core cartel? This is just to exemplify the fact that many, many issues of qualification can arise in a case, and it’s very important for a settling defendant not only to concede the facts but also to accept legal responsibility where it has infringed the competition rules. In any event, where the Commission settles a case this will take the form of an Article 7 decision, which means that within a few of months of settling there will invariably be a formal finding of infringement. And under Article 35 As of 28 February 2008, 25 of the 27 Member States had adopted a leniency program, all of them except for Malta and Slovenia. See http://ec.europa.eu/competition/ecn/leniency_ programme_nca.pdf. 36 See http://ec.europa.eu/competition/ecn/model_leniency_en.pdf. 37 Historically, see, e.g., Commission, Twelfth Annual Report on Competition Policy (1982), points 38–41 (emphasizing structural overcapacity with no hope of recovery in the medium term); Synthetic Fibres, 1984 OJ L207/17 (Article 81(3) exemption); Stichting Baksteen, 1994 OJ L131/15 (Dutch brick market—Article 81(3) exemption). See also the judgment of the CFI in Case T-148/89, Tréfilunion v Commission [1995] ECR I-1063, para. 117 (describing other Commission decisions where crises in the zinc and flat glass sectors had led to a mitigation of fines). For discussion of the EC practice, see, e.g., Andre Fiebig, “Crisis Cartels and the Triumph of Industrial Policy Over Competition Law in Europe”, 25 Brooklyn Journal of International Law 607, 619 et seq. (1999). Of course, many national jurisdictions (such as Germany and the Netherlands, to cite only two examples) have had experience with crisis cartels.

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16 of the Regulation, national courts and national competition authorities will not be able to call that finding into question. So what’s the difference, then, for the defendants? What about the position of third parties? I agree with Kris Dekeyser that the Commission should be very prudent and should firmly give priority to our public enforcement system. Don’t kill the hen that lays the eggs. We have got to get the ranking of priorities right. For the Commission, there’s no doubt that public enforcement will always have priority, from our perspective, over private enforcement. Public enforcement yields many benefits, including not only deterrence but also benefits for private plaintiffs. Why should we carry the burden of individual plaintiffs? If the needs of individual private plaintiffs would lead to delays or otherwise impair public enforcement, then in fact that would be detrimental to plaintiffs overall, and that is not what we want. It should also not be forgotten that the Commission is under no obligation to reach a finding of infringement.38 We have no obligation to facilitate private enforcement. We only have to act, within the framework of the control of the Community Courts, under very limited, specific circumstances.39 So let’s keep the church in the middle of the village. The Commission will always give priority to its public enforcement priorities, and rightly so. Furthermore, if the Commission settles a case, and if this means that the decision takes advantage of shortcuts, and it doesn’t contain all the information that it would have contained if the investigation had gone on for several years, that does not preclude plaintiffs from going to court on the basis of additional facts establishing that the scope of the cartel was wider. It is true, however, that we have made a policy choice. We will focus on inter partes disclosure of evidence at the cost of the litigating parties, and not at the cost of public enforcement. We also think that, pending the period of inter partes disclosure, if we opened our files this would have a very negative impact on the efficiency of public enforcement. The next point, and I was very glad that John Fingleton insisted on this, is that as enforcers we should not be expected to prove that cartels cause consumer harm, and actual effects on prices. Sorry—that’s not our business! 38 See Case T-24/90, Automec v Commission (“Automec II”) [1992] ECR II-2223, paras. 63–69 and 72–86, especially paras 77 and 83. The ECJ has confirmed that the Commission may set its own priorities, although the Commission has a duty to state reasons sufficiently precise to enable the CFI to review the Commission’s discretion to establish those priorities. See Case C-119/97 P, Ufex v Commission [1999] ECR I-1341, paras. 88–93; Case T-193/02, Piau v Commission [2005] ECR II-209, para. 80, appeal dismissed by Order of the ECJ, Case C-171/05 P. 39 The Commission is only obliged to act in what are now the rare cases where it has exclusive competence. See Automec II, cited previous footnote, para. 75. On the basis of the cited paragraph, this would include the (very uncommon) decision to withdraw the benefit of a block exemption (Article 29(1) of Regulation 1/2003, assuming Article 29(2) does not apply). On the other hand, the same principle is unlikely to apply to Article 10 of the Regulation (famous for never having been used), despite its attribution to the Commission of exclusive powers, as that provision can only be used by the Commission on its own initiative.

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That’s not the business of a public authority. So again, let’s leave those issues to be debated in national courts. One question which has come up several times is about whether companies will have incentives to settle, or whether instead they will contest the case and appeal the Commission’s decision. And it has been suggested that perhaps if the company puts up a fight then it can delay payment, which it might want to do if it has a cash flow problem. Don’t forget that Commission decisions are immediately effective.40 So even if you appeal—and good luck to those who go to court and ask for a suspension of a cartel decision41—during the appeal, the Commission’s decision all the while has binding effects, and it can be used immediately by private plaintiffs in national courts. And a national court would only stay its proceedings if there was a real, fundamental question about the illegality of the Commission’s decision.42 In that regard, it’s worth stressing that in cartel cases where Commission decisions are annulled, they are annulled for purely procedural reasons, or because of the level of the fine. Only rarely are they annulled on grounds relating to the core finding of an infringement. And that is something which I think stands out very conspicuously in the landscape. On Article 9, Ian Forrester suggested that with these decisions the Commission might regulate markets and produce bad law beyond the reach of the Community Courts. I think we should compare Article 9 with what we had prior to Regulation 1/2003. Would you prefer informal settlements? Realistically, there will always be settlements between public enforcers and companies suspected of an infringement. Is it better to have informal settlements than to have a formal procedure, where under Article 27(4) the proposed commitments must be published and there’s at least a public debate with the possibility for third parties to challenge the commitments? I don’t think so. Furthermore, don’t forget that in Europe we are committed to an effectsbased approach. That applies as much to the remedies as it does to the 40 See, e.g., Case T-275/94, CB v Commission [1995] ECR II-2169, paras. 50 and 51; Case T-28/03, Holcim (Deutschland) v Commission [2005] ECR II-1357, para. 121. In practice, when a fine imposed by the Commission is appealed, the Commission itself refrains from collecting the amount in controversy on condition of a bank guarantee sufficient to cover the fine plus interest. See, e.g., Joined Cases T-236/01 et seq., Tokai Carbon and Others v Commission [2004] ECR II-1181, para. 475; Case 86/82 R, Hasselblad v Commission [1982] ECR 1555, paras. 2–3. Securing the guarantee, of course, is not costless for the undertaking concerned. An applicant for annulment may seek an interim order suspending such financial obligations, but such requests are generally denied. See, e.g., Case 392/85 R, Finsider v Commission [1986] ECR 959, paras. 18–19 (suggesting the undertaking concerned was large enough to have no difficulties obtaining a guarantee). 41 To secure a suspension of the obligation to provide a guarantee (see previous footnote) the legality of the Commission’s decision would have to be in “particularly serious” doubt. See Case T-301/94 R, Laakman v Commission [1994] ECR II-1279, para. 30. 42 See Cooperation Notice on the co-operation between and the courts of the EU Member States in the application of Articles 81 and 82 of the EC Treaty, 2004 OJ C101/52, para. 13 (citing Case 314/85, Foto-Frost [1987] ECR 4199, paras. 12–20).

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concept of what constitutes an infringement. And increasingly the Commission is called on to demonstrate not only the likely effects of an infringement, but also to demonstrate the proportionality of particular remedies. What is happening in the field of mergers today will happen tomorrow in the field of antitrust.43 These remedies will be controlled more and more by the Community Courts, and therefore I am less pessimistic than you, Ian, about what will happen under Article 9. On the fines, I completely disagree. If you want to move towards a world where there would no longer be fines imposed in Article 82 cases, which is not exactly what Ian said, then you would transform the ex ante dissuasive effect of Article 82 into an ex post control of behaviour. That would be totally inefficient. But you can indeed question the level of fines under the existing law. The law says that a fine can be imposed only where there is negligence or intention. So there is a spectrum of culpability which can be used by defendants and by the judges in order to assess whether, in a specific case, a fine is justified. But we should not touch the system as such. Now for the very last point and then I’m finished. The Commission will go ahead and fine-tune its proposed settlement procedure, but the Commission will also likely consider whether to develop legislative proposals in the area of private enforcement. As Commissioner Kroes has indicated, if the comments we receive44 are not destabilizing, then it is likely that a proposal will be made. So there’s plenty of interesting work ahead of you. Thank you very much. 䉴 MASSIMO MOTTA: Thank you very much, Emil. That brings this interesting session to a close. Before I pass the floor to Claus, Judge Cooke will make a short announcement.

JOHN COOKE: Thank you, Massimo. As I will be retiring from the CFI in September, I’d like to offer a few words of thanks to the Institute for the way the Workshop has been organized, and particularly to Claus-Dieter for the honour of being here in Fiesole for several editions of the Workshop over the years. For me, this is a unique forum. It’s extraordinary to have 40 people around a relatively small table who represent such a wide range of actors in the competition field. It has always been, for me, one of the most rewarding and informative forums that I’ve ever taken part in during my twelve years in Luxembourg, and I’m very grateful for that. (general applause)

䉴

䉴 CLAUS-DIETER EHLERMANN: Thank you, John. And thanks to everybody for the extremely stimulating discussions we’ve had yesterday and today. This

43

See Case C-13/03 P, Tetra Laval v Commission [2005] ECR I-1113. See http://ec.europa.eu/competition/antitrust/actionsdamages/white_paper_comments. html. 44

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is surprising to Mel and myself because we weren’t sure whether the subject would lend itself to a day and half of discussion. We thought it might be repetitive, or too narrow compared to matters we’ve discussed in earlier years. However, it has been extraordinary and rewarding. But that’s the genius of the group. You’ve said it, John, this is a unique mixture of people, and those sitting around the table certainly know of what they speak. I would like to thank the chairs for efficiently running an event which should be as rich in discussions as in presentations. This is not an academic exercise where people present papers. I would like to thank those who helped to shape the program, and it wasn’t easy. Finally, a word of thanks to our sponsors, without whom we would not have the pleasure of meeting together and learning from each other. And thanks to you all—if the Workshop is a success, it is thanks to you. And have a good trip back!

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I Bruno Lasserre and Fabien Zivy* A Principled Approach to Settlements: A Few Open Issues

1. Introduction The possibility of settling a case with the French Competition Council has already been available to companies for some time, since it dates back to the Law on New Economic Regulations of 15 May 2001. It has thus been applied for seven years, with increasing success. For instance, the Competition Council adopted seven settlement decisions in 2007; this figure amounts to one fourth of all fine decisions taken in that year, and it brings the total number of settlement decisions taken since 2001 to sixteen. The experience accumulated by the Competition Council is certainly not enough to reach a final judgment on the merits of this relatively new enforcement tool. However, it is surely sufficient to draw interim conclusions on the main aspects of its design and operation. The following sections will focus on three core issues that have given rise to different views in the various jurisdictions currently empowered to settle antitrust cases, namely the objectives (2), the scope (3) and the timing (4) of such procedures. Having a principled approach on all three items is a condition precedent to ensuring a successful practice of settlement in antitrust cases and, more broadly, a successful contribution of settlements to competition enforcement.

2. Why settle a case? Objectives of the procedure a. Settling the investigation, the charges and/or the fine The report presented by the Cartel Working Group of the International Competition Network to the Annual Conference organized in Kyoto, Japan, * At the time of writing, Bruno Lasserre was President and Fabien Zivy was Chief of Staff of the French Competition Council. The Council has been transformed and is now the French Competition Authority. Its enforcement powers have been expanded. Lasserre and Zivy continue to serve as President and Chief of Staff.

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in April 2008, indicates that different jurisdictions attach different meanings to the term “settlement”. There are nuances on a number of points, but there are clear differences as to two key issues. One of them is the objective assigned to the settlement procedure. The other, which arises by way of consequence, is the place assigned to settlements within the toolkit of competition enforcers—that is, the portfolio of instruments that ranges from accepting commitments to granting interim relief, adopting commitments, finding an infringement, imposing a remedy and/or imposing a fine. To put things simply, some jurisdictions, starting with the United States, allow firms and competition agencies to bargain on a wide number of items which may include the investigation itself, the ambit and content of the incrimination (nature of the behaviour, affected markets, duration, etc.), the use of procedural rights, possibly including the right of appeal, and, finally, the sum to be paid in exchange for closure of the case. By way of contrast, other jurisdictions, such as France, allow firms to waive their right to debate the Statement of Objections notified by the competition agency, and sometimes to offer additional commitments, in exchange for a reduced fine. The legal concepts are obviously different. An agreement is ultimately reached in both cases between the firm or firms involved and the competition authority. But in one case, this agreement is reached thanks to a fully-fledged negotiation on all or most of the important aspects of the enforcement process, while in the other case, the negotiation is limited to the extent of the fine, and it is only conceivable in exchange for a waiver, on the part of the firm or firms involved, of their right to dispute the existence of the infringement as defined by the authority. Of course, the implementation of the settlement provision in a given jurisdiction may show that the practice is more subtle than this somewhat broad-brush overview, and that the differences between jurisdictions boil down to differences of degree. But the extent to which the legal formats differ is such that any jurisdiction that contemplates enacting a settlement procedure should first have a clear view as to what type of settlement it wants to implement, and why.

b. Settling in order to achieve procedural economy France is among the Member Stats that pioneered the latter type of settlement in Europe. Being a pioneer has its good sides, which include breaking new ground, developing new solutions, etc. But there are also disadvantages: it is often necessary to experiment before stabilizing the decisional practice and, if need be, fine-tuning the law or providing stakeholders with reasoned guidance. Two elements must be underlined at this point. First, the French settlement provision (Article L. 464-2, section II, of the French Code of Commerce)

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was enacted, in contrast to many other jurisdictions, by the French Parliament and not by the competition authority. This legislative status entails a high degree of legitimacy but also greater rigidity than would have been the case if the possibility of settling a case had been provided for by agency guidelines, or developed through its decisional practice. Second, it was enacted at a time—2001—when other alternatives to the standard procedure leading to the finding of an infringement and possibly to a remedy and/or a fine were not formally available. In particular, the commitments avenue, opened initially by Articles 5 and 9 of Regulation 1/20031 and later by Article L. 464-2, section I of the French Code of Commerce, had not yet been paved. This situation resulted in a somewhat hybrid instrument, insofar as the French settlement provision allows the Competition Council to grant a fine reduction when two cumulative conditions are met by the firm wishing to settle. On the one hand, the firm involved must waive, formally and unequivocally, its right to contest the objections (i.e., the charges) notified by the Competition Council. In particular, it must state that it does not challenge the facts, their legal qualification, or its liability for the infringement. On the other hand, it must come forward with commitments aimed at modifying its future behaviour on the market. However, the objectives assigned to settlements and to commitments are different, and they may not always be easily reconciled. They are both intended, first, as an alternative to the standard infringement route, and second, as an alternative that will hopefully enable the agency to achieve efficiency gains. In both cases, these gains should include savings in terms of time and resources. But although procedural economy is a common rationale to commitments and to settlements, it is achieved, in each of these procedures, in very different ways. In the case of commitments, procedural economy is achieved by closing the case prior to any finding of infringement. As for settlement, the case runs to its standard term, but the ambit of the procedure is streamlined and its duration is abridged. It is worth noting that this gain is both direct and indirect. Although the Competition Council is an independent administrative authority, it follows procedures that are akin, in some respects, to those of a court. They notably include two rounds of written exchanges between the Investigation Services and the firms involved—the Statement of Objections gives rise to observations of the parties and is followed by a report of the Case Officer. This in turn occasions further observations of the parties. In addition, the applicable procedures systematically call for an oral hearing. During the hearing, all the parties, including the complainants, can discuss their arguments and those of the Investigation Services in front of the College, which then takes a decision in full independence. In cases where the settlement procedure is implemented, the 1 Regulation (EC) N. 1/2003 of the Council of 16 December 2002 relating to the implementation of the rules on competition laid down in Articles 81 and 82 of the EC Treaty.

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second round of written exchange is eliminated, but the rights of the defence and the benefit of the adversarial procedure are guaranteed in all other respects. The direct gain triggered by the settlement procedure is thus relatively limited. But it is supplemented by an indirect gain: the firms involved have tended not to appeal settlement decisions. This advantage is far from negligible, bearing in mind the fact that the Paris Court of Appeals is entitled to carry out a full review of the decisions taken by the Competition Council—that is, a review extending not only to issues of legality and procedure, but also to the merits of the case, including factual and economic analysis. The significant time and resources normally allocated to these appeals is thus freed for other purposes. These include, for example, addressing other complaints brought to the Competition Council or opening ex officio proceedings. But it also provides more opportunities to for the authority to direct its attention to studies undertaken by its Chief Economist and/or Legal Service, or to prepare opinions given to the Government, to legislative committees, to sector-specific regulatory agencies or to representative associations on existing or proposed legislation, or on general issues of competition, etc. In other words, settlements allow the Competition Council to devote more time and energy not only to cases of greater importance for consumers and for the market, but also to other projects of high added-value for competition enforcement.

c. Settling while achieving sufficient deterrence Since the quest for procedural economy is a common objective of both the commitment procedure and the settlement procedure, what are the objectives that justify having two systems instead of one? Put simply, commitments are aimed, first and foremost, at bringing about a swift market solution in cases where the simple termination of behaviour giving rise to antitrust concerns would not suffice. In other words, they enable the competition agency to dispose of cases on the ground that a fine is not necessarily warranted and that the firm of firms involved have come up with a voluntary, tailor-made, workable and verifiable solution ensuring that competition will be guaranteed or restored in the marketplace. By contrast, settlements are aimed, first and foremost, at bringing about a swift procedural solution in cases where a fine is warranted, where the termination of the conduct at stake is more decisive in itself, and where the crafting of a procompetitive remedy is consequently less of an issue. In a nutshell, commitments are suitable in cases where the main issue—and thus the main driver of the Competition Council’s intervention—is how, and how best, to make competition work in the marketplace, while settlements are welcome in cases where this aspect is more straightforward—and consequently where another objective, that of achieving deterrence, is dominant.

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The single most important factor in setting up an attractive, consistent and workable settlement programme is therefore the fine reduction—or range of fine reductions—available to those who opt to come to terms with the competition authority instead of litigating. The reduction must be high enough to provide firms with an incentive to come forward, but it cannot be so high that it would undermine deterrence or leniency. This need to achieve a subtle balance between deterrence, leniency and the benefits of settlements translates into figures, in the case of the Competition Council, in the following way: (i)

fines: firms that choose to litigate a case run the risk of having to pay a significant fine (the total amount of fines amounted to 754 million euros in 2005, 121 million euros in 2006 and 228 million euros in 2007); (ii) leniency (first-in): firms that expose cartels or adduce sufficient evidence to incriminate them can shield themselves against this risk; (iii) leniency (followers): firms that actively cooperate in the investigation by enhancing the value of the case-file cannot shield themselves from the risk of a fine, but they can alleviate the penalty to a significant extent (obtaining a reduction of up to 50 % of the fine that would have been imposed but for their cooperation); (iv) settlement: firms which cannot cooperate, or do not want to, but which nonetheless decide not to challenge the charges, can mitigate the risk of a fine to a lesser, but not insignificant extent (reduction of between 10% 2 and 25–30%3 of the fine that would have been imposed).

d. Settling while having regard for market conditions Obviously, the last set of figures indicated at point (iv) above is relatively high. The reason is that, as explained previously, firms that decide to waive the charges brought against them by the Competition Council must additionally commit to modify their behaviour on the market. This element has two consequences for the operation of the French settlement programme. First, on the side of a firm wishing to settle, it must put something more in the balance in order to have a chance of success. Second, the Competition Council, for its part, is led to reward this additional input. The final amount of the fine reduction will thus be fixed according to the added value of the commitments. The French Government has recently given the go-ahead to an ambitious draft Law on Economic Modernisation, which contains a wide-ranging package of measures aimed at making the French economy more productive in terms of growth, welfare and employment. One of these measures, provided for 2 See, e.g., High-voltage electric cables, Decision No 07-D-26 of the Competition Council of 26 July 2007. 3 See, e.g., Laundry-cleaning and renting, Decision No 07-D-21 of the Competition Council of 26 June 2007.

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by Article 23 of the draft bill, is the transformation of the Competition Council into a Competition Authority vested with fully-fledged powers, including the power to adjudicate on merger cases in addition to antitrust cases. The new Competition Authority will also benefit from a modernized set of procedures.4 Since the draft law only deals with the outline of the reform and leaves the details to an order of the Government, due to be adopted, at the latest, six months after the enactment of the law itself, it remains to be seen whether or not an amended settlement provision will be included in the package. But as recently explained in a paper taking stock of the current settlement provision and addressing its perspectives,5 the Competition Council is of the view that there is room for further refinement of this provision. The logical evolution would be to sever the current link between settlements proper (that is, the possibility for companies to waive their right to challenge the charges in exchange for a reduced fine) and commitments. The obligation to submit commitments on top of declining to contest the objections would not be abandoned outright, because it has proven very useful in practice, insofar as a number of firms have seen it as an opportunity to amend their past conduct—for instance by setting up a compliance programme—or even of reorienting their future behaviour on the market. However, this obligation would be rendered optional. If a firm decides to make use of it, and if it offers commitments that can be deemed relevant, credible and verifiable from the point of view of the Competition Council, it would be entitled to a fine reduction going further than the one that would have been fixed if it had limited itself to not challenging the charges. Such an evolution would make it clear that the core objective sought by the settlement procedure is to achieve procedural economy and resource savings by disposing swiftly of cases, while achieving sufficient deterrence. It would also indicate that a change of behaviour aimed at restoring or enhancing competition on the market can play a role as an additional objective if, but only if, the case lends itself to it.

4 The draft bill is available on the website of the French National Assembly: http://www.assemblee-nationale.fr/13/dossiers/modernisation_economie.asp. 5 See Bruno Lasserre, “La non contestation des griefs en droit français de la concurrence: bilan et perspective d’un outil pionnier”, General Assembly of the Association française d’étude de la concurrence (AFEC), Paris, 10 April 2008, annexed to the present chapter.

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3. In which cases? Scope of the procedure a. Settling in cartel cases Looking again at the ICN report, the international consensus—but few jurisdictions have a settlement procedure at present, and many others contemplate setting one up—seems to be that settlement is particularly fit for cartel cases. This point is clear-cut and calls only for a few remarks. The case law on cartels is well-settled and the main challenges, for competition enforcers, are, first, to detect them, and, second, to gather sufficient evidence to support a finding of infringement. When these barriers are met, there is little room for further analysis and justification. In addition, fines incurred are among the highest imposed by competition agencies. In such conditions, firms that have participated in such practices may as well go for the best deal they can hope for by asking to settle, thereby reducing their risk. For instance, in the Laundry case,6 a number of companies whose business was the rental and cleaning of industrial linen (uniforms, etc.) waived their right to contest charges according to which they had shared important clients between themselves, thus reducing competition on the market. The companies concerned put forward a number of behavioural commitments aimed at mitigating the risk of further collusion (compliance and whistleblowing) and at enhancing competition (prohibition of commercial meetings between managers in charge of important customers, etc.). A fine was warranted, in light of the harm caused to customers and in order to ensure deterrence; but a settlement was deemed suitable in view of the parties’ cooperation and commitments. As suggested by the Rapporteur Général, the fine reduction granted by the College in exchange for this cooperation amounted to 25% or 30 %, depending on the company involved, and the final amount of the fine was fixed at a total of 19 million euros. These percentages are, to date, the maximum reductions ever granted in a settlement with the Competition Council. The levels are explained by the fact that, in addition to the firms’ cooperation with the authority, the commitments offered were both novel (whistleblowing) and very fruitful for future competition on the market. In more straightforward cases, reductions, although not insignificant given the high fines imposed (in the absence of cooperation), will be of lesser importance in relative terms. In High-voltage electric cables,7 a number of companies active on the market for electric cables had set up fake bids while in reality agreeing to the results of the bidding process. They decided not to challenge the objections and came up with more limited commitments than 6 7

Cited supra note 3. Cited supra note 2.

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those described above—mainly consisting of compliance programmes. Following the Rapporteur Général, the Competition Council granted a 10% fine reduction, the final amount being set at approximately 19 million euros.

b. Settling in cases other than cartel cases The implementation of the settlement provision crafted by the French Parliament in 2001 shows that choices other than that of limiting settlement to cartel cases can be made. No case is a priori excluded from the scope of the procedure, although not all cases will be deemed appropriate for settlement. This approach is both flexible and pragmatic. Firms are always welcome to apply for a settlement, but they are never entitled to one; the decision as to whether to settle is at the sole option of the Competition Council. In other words, the Competition Council pays close attention to the merits of each situation, rather than following a “per se” approach. However, the wide margin of appreciation open to the Competition Council does not amount to a discretionary power—far from it. Another peculiarity of French law is that, although the European Court of Human Rights does not hold that administrative authorities should separate investigation services from decision-making bodies, as would be the case for a court, the French competition authority currently does make such a distinction. Firstly, it allocates to the Investigation Services, headed by the Rapporteur Général, the power to carry out dawn raids, investigate cases and notify companies of the charges against them. It then reserves to the College the power to grant interim relief, to adjudicate on the existence of the infringement and, where appropriate, to make commitments compulsory, to impose an injunction and/or to impose a fine. The Investigation Services and the College are each fully independent of the other in carrying out these tasks. As a consequence, a firm that has opted to settle a case must contact the Rapporteur Général, with whom discussion on the contemplated waiver, the proposed commitments and the possible fine reduction will take place. If the firm reaches agreement with the Rapporteur Général and signs minutes reflecting the terms, the Rapporteur Général requests that the College settle the case along these lines. If no agreement is reached, the firm may appear before the College to challenge the decision of the Rapporteur Général not to ask for a settlement. The College then reviews this decision, insofar as it has a bearing on the amount of the fine imposed on the firm concerned. Likewise, given the very wording of the Code of Commerce and the clear case law of the review courts (i.e., the Court of Appeal of Paris and the Supreme Court), the College is not bound to accept any fine reduction negotiated between the Rapporteur Général and the firms involved. As a matter of practice, however, if the College contemplates a significantly different reduc-

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tion, it tends to remand the case to the Investigation Services. This has only occurred in exceptional cases. In practice, settlements have concerned a variety of cases, including not only cartels and bid-rigging (ten settlements), but also vertical restraints (three cases) and abuses of dominance (three cases). In all these cases, a fine was warranted because the practices at stake had caused serious consumer harm. The policy of not excluding unilateral conduct cases may be questioned in other jurisdictions, but it is rather unproblematic in France. The case law on abuse of dominance has long been, as discussed in other fora,8 “modern” insofar as it rests on an economic, effects-based assessment and allows parties to put forward justifications such as efficiency defences. Therefore, whenever the Competition Council finds an infringement and imposes a fine, it is because this economic approach leads to the conclusion that the practice at stake has actually or potentially had the effect of hurting consumers. As a consequence, there are clear-cut situations where a settlement is not out of reach, notwithstanding the factual complexity of the facts, if it would bring about significant benefits. The France Télécom case 9 provides an example. Here the historic telecoms incumbent agreed not to contest charges according to which it had abused its dominant position on the local loop market by discriminating against its competitors and denigrating services offered by alternative providers in order to favour those of its own subsidiary on the high-speed internet market. It also offered to substantially modify its future conduct on the market by setting up a broad package of compliance and monitoring measures. In view of this situation—which amounted to a “cultural revolution”, given past practices—and in view of the fact that the abuse had taken place on a rather small market compared to all the markets on which the firm was active, the Rapporteur Général asked the College to set the fine at a level not exceeding 60 million euros. The risk faced by the operator was thus significantly reduced. The College actually went further, reducing the fine to 45 million euros, although it later had to increase that amount in light of prior condemnations. In the future, cases involving a similar pattern of facts could be dealt through commitments if the intervention took place early enough and if the firms involved committed themselves to behaving differently.

8 See Bruno Lasserre, “Remedies and sanctions for unlawful unilateral conduct: the French experience”, in Barry Hawk, ed., International Antitrust Law and Policy: Fordham Competition Law 2007, Juris Publishing, 2008, chapter 19, http://www.conseil-concurrence. fr/doc/fordham_2007.pdf; Bruno Lasserre, “Efficiency and consumer welfare: new guiding principles for competition policy?”, 13th International Competition Conference and 14th European Competition Day, Munich, 25–27 March 2007, http://www.conseil-concurrence. fr/doc/intervention_lasserre_2007_03_24_munich.pdf. 9 High-speed internet access (France Télécom), Decision No 07-D-33 of the Competition Council of 15 October 2007.

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4. When? Timing of the procedure An international comparison shows that a precise framing of the time window within which firms can offer to settle is not necessarily a precondition for a successful settlement system. The European Commission, in its settlement proposal, is currently considering limiting that time frame, and has stated that the settlement route can be explored at the latest around the time it sends a Statement of Objections to the firms involved in a given case. This position makes sense in the system contemplated, insofar as the settlement will be reflected in the Statement of Objections. The French legal system is slightly different. As the settlement is understood as a decision not to contest the charges, it is necessary as an initial step to define these charges and send them to the parties. This does not mean that there are no discussions whatsoever with the parties prior to the issuing of the Statement of Objections. Indeed, preliminary discussions with the parties as to what charges would be included in the Statement of Objections can help to build a momentum that will ultimately lead them to decide not to dispute their liability, the facts at stake, or their legal appraisal. Insofar as the settlement procedure may be applied to all types of practices, the sequence just described also contributes to ensuring consistency between the different enforcement tools available to the Competition Council. Leniency is available upfront, before a cartel case has been opened or before the case-file as been built up to a point that would enable the competition authority to launch an investigation or to conclude that an infringement has been committed. Commitments and settlements are available at a latter stage. As stated in the recent guidance made public by the Competition Council on competition commitments,10 commitments will be favoured when the practice at stake gives rise to competition concerns but has not, or not yet, significantly hurt consumer welfare and damaged the economy, and where there is at least one potential way to meet these concerns by agreeing on a solution that will ensure quick restoration of market conditions. As for settlements, they will be favoured where the practice warrants a fine but where the firms involved agree not to dispute the charges in exchange for a reduction of that penalty.

5. Conclusion Settlement procedures provide clear benefits for competition agencies when they are not ill-devised, when their implementation is informed by a clear pol10 Competition Council, Procedural Notice of 3rd April 2008 relating to commitments in competition cases, http://www.conseil-concurrence.fr/doc/cpro_enga_avril08.pdf.

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icy, especially as regards the objectives to be pursed, and when their handling on a case-by-case basis is managed with sufficient care.

Annex: Bruno Lasserre, président du Conseil de la concurrence La non contestation des griefs en droit français de la concurrence: bilan et perspectives d’un outil pionnier Paris, Assemblée générale de l’Association française d’étude de la concurrence, 10 avril 2008

I. Introduction La non contestation des griefs a été introduite en droit français de la concurrence par la loi n° 2001-420 du 15 mai 2001 sur les nouvelles régulations économiques11. Cet outil, d’un genre nouveau à l’époque de sa conception (1), a aujourd’hui trouvé toute sa place dans notre droit (2), qu’il a contribué à rendre plus négocié (3).

A. Un outil novateur La non contestation des griefs a fait irruption dans notre droit de manière relativement originale, et cela pour au moins trois raisons. Tout d’abord, il n’était pas possible à l’époque de tirer les enseignements d’une expérience étrangère vraiment transposable. Premièrement, le droit communautaire de la concurrence n’avait pas encore achevé sa modernisation et Bruxelles pouvait difficilement constituer un point de repère en la matière, dans la mesure où le système communautaire, encore orienté par l’obligation de notification préalable des accords, était plus éloigné du système français qu’il ne l’est aujourd’hui. Deuxièmement, l’homogénéité des politiques et des outils de la régulation de la concurrence en Europe était encore bien moindre que ce qu’elle est devenue aujourd’hui grâce au réseau européen de concurrence (ci-après le « REC »). Troisièmement, l’expérience américaine était et reste caractérisée par une conception très différence du « plea bargaining » et du « plea guilty ». Schématiquement, deux conceptions très différentes de la « transaction » existent de part et d’autre de l’Atlantique : d’un côté, le « settlement » fait office 11

JO 16 mai 2001, p. 7776

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d’outil de détection des pratiques anticoncurrentielles venant en second rang derrière la clémence, et permet de négocier à peu près tout, des poursuites aux infractions, en passant par certains droits de procédure et le droit de recours ; de l’autre, la « non contestation des griefs » sert à accélérer la procédure administrative, et conduit à négocier les sanctions. Ensuite, les consultations publiques, qui permettent d’associer les « utilisateurs » à la mise en place de la norme, en recueillant leur opinion dans le cadre de sa préparation, étaient encore extrêmement rares, à Paris du moins. La conception de la non contestation des griefs n’a donc pas pu bénéficier du dialogue avec les différentes personnes appelées à participer à la mise en œuvre de cette procédure—entreprises ou associations, bien sûr, mais aussi autorités de la concurrence. Or, l’exemple des consultations publiques effectuées depuis lors par le Conseil de la concurrence12 (ci-après le « Conseil ») montre que ce type de démarche permet, d’une part, de mieux comprendre les « incitations »13 des différents acteurs, ce qui est absolument nécessaire si l’on veut que la procédure fonctionne de manière optimale, et, d’autre part, de recueillir des avis très utiles pour préciser les modalités techniques des outils procéduraux prévus par le code de commerce. Enfin, et surtout, l’instauration du mécanisme de non contestation des griefs n’a pas été précédée d’une phase d’expérimentation, qui aurait permis au Conseil de « tester » diverses options et de « théoriser » la bonne approche, comme d’autres autorités nationales de concurrence le font fréquemment et comme nous l’avons fait depuis lors en matière d’engagements : l’adoption de l’ordonnance permettant au Conseil d’accepter des engagements est intervenue en novembre 2004, mais le décret ayant fixé la procédure applicable aux engagements n’a été pris qu’en décembre 2005, le délai écoulé entre ces deux textes ayant été mis à profit pour bien « caler » les modalités de ce nouvel outil avant de les graver dans le marbre. Finalement, l’approche retenue est donc restée assez « française », en ce sens qu’elle a conduit à penser une norme nouvelle et à légiférer avant d’expérimenter, de voir ce qui fonctionne ou ne fonctionne pas, et d’adapter le texte en conséquence.

12 Dont les résultats sont accessibles sur des pages dédiées du site Internet du Conseil : http://www.conseil-concurrence.fr/user/standard.php?id_rub=223 et http://www.conseilconcurrence.fr/user/standard.php?id_rub=259 13 Voir sur ce point Thierry Dahan, rapporteur général du Conseil de la concurrence, « Les procédures négociées : le point de vue de l’autorité », colloque Lamy, « Vingtième anniversaire du Conseil de la concurrence : quel statut et quels moyens pour les autorités de contrôle de la concurrence ? », 15 mars 2007

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B. Un outil attractif Le temps écoulé depuis lors a été marqué par trois périodes. La non contestation des griefs a, dans un premier temps, connu une croissance rapide, d’un point de vue tant quantitatif (2 décisions en 2003 ; deux fois plus en 2004) que qualitatif. Cette période a été marquée, notamment, par des précisions tenant à la définition de la notion de non contestation (englobant à la fois les faits, leur qualification juridique et la responsabilité des auteurs de l’infraction), à l’économie de la procédure et au mode de calcul de la réduction d’amende. Indépendamment de cette décantation des données intrinsèques de la procédure, le Conseil s’est préoccupé d’asseoir sa place dans sa boîte à outils, autrement dit de préciser les mérites et les avantages de la non contestation par rapport à d’autres procédures, telles que la procédure simplifiée et la clémence. A l’occasion, il a également pu faire jouer à la non contestation des griefs un rôle qui n’était pas tout à fait le sien, dans l’attente de la mise en place du programme de clémence14 et de la procédure d’engagements15. A cette enfance heureuse a succédé, comme bien souvent, un « âge ingrat » pendant lequel la non contestation est passée au second plan, dans l’ombre tant de sa sœur jumelle, la clémence (qui a eu le vent en poupe avec la mise à jour des lignes directrices de la Commission européenne, avec la constitution d’un groupe de travail au sein du REC, dans lequel le Conseil s’est beaucoup investi, et avec l’adoption d’un programme modèle), que de sa sœur cadette, la procédure d’engagements (qui a tout de suite trouvé ses marques). C’est pourquoi, il y a un an et demi, beaucoup ne donnaient pas cher de l’avenir de la non contestation, qui n’avait, en tout cas, donné lieu qu’à une seule décision en 2006, alors même qu’elle suscitait un intérêt intellectuel très clair chez les autorités de concurrence étrangères dépourvues d’un tel outil, telles que la NMa néerlandaise ou la Commission de la concurrence suisse, auxquelles le Conseil a rendu visite cette année-là. Mais cette autre histoire des Trois sœurs se termine bien pour la non contestation des griefs, puisque l’année 2007, dont les évolutions notables ont déjà été retracées ailleurs16, témoigne d’un renversement de tendance très clair, et donc d’une troisième étape. La non contestation fait en effet l’objet d’un retour en grâce, auquel l’assemblée générale de l’AFEC d’aujourd’hui contribuera pleinement. Il n’est pas seulement question de faire un bilan de cette procédure, mais aussi d’évoquer ses perspectives, qui s’annoncent sous de bons auspices. 14 Conseil de la concurrence, décision n° 07-D-02 du 23 janvier 2007 relative à des pratiques ayant affecté l’attribution de marchés publics et privés dans le secteur de l’élimination des déchets en Seine-Maritime 15 Conseil de la concurrence, décision n° 04-D-65 du 30 novembre 2004 relative à des pratiques mises en œuvre par La Poste dans le cadre de son contrat commercial 16 Voir sur ce point Fabien Zivy, chef du service du président du Conseil de la concurrence, « La procédure de non contestation des griefs en droit français de la concurrence : chronique d’un retour en force », Revue juridique de l’économie publique, mars 2008

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Ce constat n’est pas seulement quantitatif (7 décisions faisant application de la procédure de non contestation en 2007, et représentant 25 % des décisions de sanction rendues la même année), mais aussi, et peut-être surtout, qualitatif. Le Conseil est entré dans une période de réflexion plus sophistiquée, où la question n’est plus « que fait-on ? » ou « comment fonctionne ce nouvel outil ? », mais « que veut-on en faire ? » ou « comment maximiser sa value ajoutée ? ». Ce questionnement implique de réfléchir à trois éléments : 1) les objectifs assignés à la procédure ; 2) les signaux donnés aux acteurs à cet égard, et 3) les incitations mise en place pour orienter les comportements en ce sens. Les raisons pour lesquelles la non contestation redevient un sujet d’actualité, un « sujet chaud » dont on parle dans les conférences et les colloques qui sont au droit de la concurrence du XXIème siècle ce que les salons étaient à la philosophie du XVIIIème siècle, sont de plusieurs ordres. Deux d’entre elles méritent une mention particulière. En premier lieu, le Conseil a « calé » la procédure et commence désormais à être confronté à des questions de « réglage fin ». On peut penser, par exemple, au point de savoir quels sont les cas dans lesquels il est plus opportun de s’orienter vers la non contestation des griefs : s’agit-il des affaires dans lesquelles le dossier est solide et où le Conseil négocie en position de force, c’est-à-dire celles où il est a priori contre-intuitif d’accorder des réductions d’amende, où de celles dans lesquelles le dossier est plus risqué et où la transaction permet de sécuriser un résultat « de second rang », c’est-à-dire celles dans lesquelles il est a priori contre-intuitif que l’entreprise accepte de s’asseoir à la table des négociations ? Mais d’autres questions de posent, en particulier celle des moyens d’inciter toutes les entreprises à renoncer à contester les griefs, afin de maximiser les gains procéduraux de l’autorité. Et cette source de questions nouvelles ne semble pas devoir se tarir. On voit, derrière ces interrogations, commencer à poindre des problématiques « de troisième génération », c’est-à-dire celles sur lesquelles le code de commerce semblait apporter une réponse ne souffrant pas de discussion, mais qui, à l’usage, méritent qu’on y réfléchisse à deux fois. C’est par exemple le cas de la question, déjà évoquée avec l’AFEC en octobre 2007, du moment se prêtant le mieux à la non contestation des griefs, sur laquelle je reviendrai tout à l’heure. En second lieu, la non contestation bénéficie d’échanges croissants entre autorités de la concurrence. Une table ronde de l’OCDE y a été consacrée à l’automne 200617. Un rapport, qui sera présenté à la conférence annuelle de l’ICN organisée à Kyoto (Japon) la semaine prochaine18, et auquel le Conseil a beaucoup contribué, montre bien l’essaimage des réflexions et des expériences en la matière, mais aussi les perspectives de comparaison, d’enrichissement 17 OCDE, comité de la concurrence, table ronde sur « la transaction en matière de cartels », octobre 2006 18 Réseau international de concurrence (ICN), groupe de travail « Cartels », rapport « Settlement in Cartel Cases », avril 2007

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mutuel et de « benchmarking » qu’ouvre cette diffusion. L’entrée en scène de la Commission européenne19 s’inscrit parfaitement dans cette évolution.

C. Un outil négocié Si la non contestation des griefs fait florès, c’est parce qu’elle constitue une révolution, en ce sens qu’elle fait intervenir une logique de négociation dans un droit jusqu’alors essentiellement prescriptif et unilatéral. Le fait de renoncer à contester les griefs notifiés permet aux entreprises d’obtenir une réduction du montant de l’amende à laquelle elles s’exposeraient en l’absence de non contestation. Il introduit donc une dose de négociation dans un droit qui n’en connaissait pas auparavant. Cette dose de négociation est plus limitée que celle qui caractérise d’autres corpus juridiques : elle concerne uniquement l’étendue de la sanction, là où d’autres droits permettent de discuter de l’existence même de la sanction, de l’infraction ou encore des garanties fondamentales de procédure que sont les droits de la défense ou le droit de recours. Mais elle est étend progressivement son emprise sur notre droit de la concurrence, comme en témoigne l’apparition de nouvelles procédures, par exemple celle permettant aux entreprises de proposer des engagements susceptibles de conduire le Conseil à clore la procédure avant toute notification des griefs, s’ils répondent à ses préoccupations de concurrence. Cette évolution me semble toutefois avoir une limite naturelle. Le droit de la concurrence ne peut pas—et surtout ne doit pas—devenir un droit entièrement négocié ; cela ne serait du reste pas dans l’intérêt des entreprises elles-mêmes. C’est la dialectique de la contradiction qui fonde la richesse et la solidité de nos raisonnements et de nos analyses. En outre, une partie de l’attractivité des procédures alternatives et accessoires s’explique par les mérites propres de ces procédures, mais l’autre tient au caractère répulsif des sanctions infligées par le Conseil, et donc à sa politique de dissuasion. Enfin, certains aspects fondamentaux de notre droit, tels que les droits de la défense, sont intangibles et ne doivent donc pas, de mon point de vue, être « à la carte » dans le cadre de la procédure accusatoire, selon que l’on choisit de contester ou non les griefs notifiés par le Conseil. L’économie de la procédure et sa mise en place ayant fait l’objet d’une étude très complète dans le rapport annuel 2005 du Conseil20, je voudrais seulement revenir aujourd’hui sur deux points : les avancées récentes, d’une part, que l’on peut aborder à partir des enseignements tirés de la mise en pratique des autres outils négociés dont le Conseil dispose aujourd’hui (I), et les 19 L’état actuel des projets de textes et les résultats de la consultation publique lancée par la Commission européenne au sujet de la « transaction directe » sont accessibles sur son site Internet : http://ec.europa.eu/comm/competition/cartels/legislation/settlements.html 20 Rapport annuel 2005 du Conseil de la concurrence (pp. 135 à 143 et 173 à 174)

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gains d’efficacité supplémentaires qui pourraient encore être effectués, que ce soit en modifiant le texte du code de commerce ou à droit constant (II).

I. Les avancées récentes Les avancées récentes concernent à la fois les spécificités propres de la procédure (A) et ses « points de contact » avec les autres outils faisant intervenir une dose de négociation (B).

A. Les spécificités de la non contestation par rapport à la clémence et aux engagements Deux éléments doivent retenir l’attention : le domaine de la non contestation d’abord (1), et son moment ensuite (2).

1. Le domaine de la non contestation des griefs La non contestation des griefs, c’est sa principale spécificité, a un champ d’application très englobant : elle s’applique a priori à tout type de pratique, comme en atteste le bilan quantitatif qu’on peut en dresser depuis sa mise en pratique par le Conseil, en 2003. Elle a en effet concerné neuf ententes horizontales, trois ententes verticales et trois abus de position dominante. a. L’exigence de coopération pousse naturellement à accepter les demandes de non contestation des griefs dans les affaires d’ententes La Commission européenne s’est déclarée prête, dans son projet de « transaction directe », à faire ce choix « au sens strict », en concentrant la mise en œuvre de ce futur outil sur les cartels. Le Conseil, suivant en cela la voie ouverte par le législateur, l’a fait « au sens large », en n’excluant a priori aucun type d’entente du champ de la procédure : « en matière d’entente horizontale, instantanée ou durable, la réduction de sanction est toujours possible », a-t-il rappelé en juin 2007 dans sa décision Linge 21. Mais elle n’est évidemment pas exclue non plus dans les cas de restrictions verticales. Après un temps d’incertitude, la procédure a ainsi été appliquée à des ententes injustifiables, comme dans la décision Câbles 22 de juillet 2007, qui 21 Conseil de la concurrence, décision n° 07-D-21 du 26 juin 2007 relative à des pratiques mises en œuvre dans le secteur de la location-entretien de linge 22 Conseil de la concurrence, décision n° 07-D-26 du 26 juillet 2007 relative à des pratiques mises en œuvre dans le cadre de marchés de fourniture de câbles à haute tension

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concernait un appel d’offres dans le secteur des câbles de haute tension, et dans la décision Linge, où un grief d’entente horizontale visant à répartir les clients et à harmoniser les prix a par exemple été retenu à l’encontre des entreprises mises en cause. Elle a également été appliquée à un cas d’entente ayant par ailleurs donné lieu à des demandes de clémence. La décision Déménageurs23 de décembre 2007 constitue à ce jour le seul cas d’application combinée des deux procédures, le dénonciateur ayant été exonéré tandis que plusieurs autres entreprises mises en cause bénéficiaient d’une réduction d’amende de 10 %. Mais d’autres cas de ce type ne sont pas à exclure à l’avenir. b. L’exigence de négociation pousse de son côté à recourir à la non contestation des griefs dans des affaires d’abus de position dominante lorsque c’est bénéfique au rétablissement de la concurrence Contrairement au point précédent, il s’agit à ce stade d’une spécificité française. Quelles en sont les raisons ? Il faut, je crois, revenir aux incitations à transiger, qui sont cohérentes et qui poussent à cette solution du côté de l’autorité de la concurrence comme du côté des entreprises. La France dispose d’une solide pratique décisionnelle en matière d’abus de position dominante. Il existe donc des précédents solides, qui clarifient le droit applicable dans de nombreux cas de figure, qu’il s’agisse des questions de fond ou de la sanction encourue, et contribuent par conséquent à inciter les entreprises à renoncer à contester les griefs. De son côté, le Conseil est naturellement conduit à faire usage de la non contestation en matière d’abus de position dominante à la fois parce qu’il est a priori facile de se mettre d’accord avec une seule entreprise et parce que la combinaison de l’obligation faite à l’entreprise de renoncer à contester les griefs et de l’obligation de présenter par ailleurs des engagements permet de trouver des solutions concrètes aux problèmes posés par son comportement sur le marché. La décision France Telecom24 fournit une illustration topique de l’intérêt de cette procédure en matière de comportements unilatéraux : l’affaire a débouché sur un ensemble d’engagements destinés à assurer une véritable « révolution culturelle » au sein de l’entreprise en cause, dont l’intérêt est triple : elle garantit tout d’abord un changement de comportement concurrentiel profond et immédiat ; elle contribue ensuite à diffuser en profondeur la « culture de la concurrence » parmi les cadres et les salariés de l’entreprise ; elle a enfin valeur d’exemple pour les tiers. 23 Conseil de la concurrence, décision n° 07-D-48 du 18 décembre 2007 relative à des pratiques mises en œuvre dans le secteur du déménagement national et international 24 Conseil de la concurrence, décision n° 07-D-33 du 15 octobre 2007 relative à des pratiques mises en œuvre par la société France Telecom dans le secteur de l’accès à Internet haut débit

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2. Le moment de la non contestation des griefs Deux éléments, auxquels correspondent deux problématiques différentes, peuvent être distingués : celui du moment chronologique (a) et celui du moment « psychologique » de la procédure (b). a. Le moment chronologique : la non contestation des griefs constitue la dernière stratégie alternative au contentieux Un constat analogue à celui qui vient d’être fait au sujet du domaine de la procédure peut être fait en ce qui concerne son moment : la comparaison avec la clémence et avec les engagements fait ressortir la spécificité de la non contestation des griefs, qui intervient en quelque sorte en « bout de course », pour des raisons qui ne tiennent pas à sa moindre attractivité, mais au contraire à sa valeur ajoutée. La clémence vise à accroître l’efficacité de la répression des pratiques anticoncurrentielles les plus graves, qui sont par essence secrètes, en permettant leur détection—on parle alors de clémence de « premier rang »—ou en consolidant le dossier constitué par le Conseil—il s’agit ici de la clémence de « second rang ». Elle est accessible d’emblée, donc avant toute perquisition. Elle se referme, en premier rang, lorsque le dossier est suffisamment robuste pour permettre à l’autorité de la concurrence de constater l’existence d’une infraction, et, en second rang, lorsqu’il est complet au point qu’il n’est plus possible de lui apporter une valeur ajoutée supplémentaire. Les engagements visent pour leur part à permettre une clôture pré-contentieuse des affaires dans lesquelles un rétablissement volontaire et rapide de la concurrence a du sens. La « fenêtre de tir » est décalée dans le temps par rapport à celle ouverte aux demandeurs de clémence. Elle se situe entre l’ouverture de l’affaire et l’envoi d’une notification des griefs. A la différence de ces procédures, la non contestation des griefs vise à accélérer les affaires dans lesquelles des griefs sont déjà notifiés, mais dont le rapport n’est pas encore établi. Ce n’est pas parce qu’elle intervient postérieurement aux deux autres procédures qu’elle est moins intéressante. Il ne faut en effet pas appréhender les procédures alternatives ou accessoires isolément, mais comme un tout cohérent ou un « continuum » : elles constituent une panoplie non seulement du point de vue du Conseil, mais aussi pour les entreprises, qui ont le choix de leur stratégie et peuvent, par exemple, venir en clémence ou attendre et voir ce que font les autres membres du cartel, avant de transiger s’il le faut ou d’aller au contentieux.

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b. Le moment « psychologique » : la non contestation des griefs est un point de rencontre entre partenaires en situation d’asymétrie d’information Si l’on quitte la stricte logique procédurale pour appréhender le moment de la non contestation des griefs d’un point de vue plus large, on s’aperçoit qu’il peut être perçu différemment par les deux parties en présence. Du point de vue des services d’instruction du Conseil, ce moment est celui où le dossier est parvenu à un degré de solidité factuelle et juridique suffisant pour notifier des griefs. Mais cette spécificité française qu’est la séparation des fonctions d’instruction et de décision joue ici un rôle essentiel. Les entreprises ont souvent insisté sur l’aspect déstabilisateur de ce principe, qui leur convient davantage en procédure purement contentieuse qu’en procédure de non contestation des griefs ou d’engagements. Cette aspect des choses n’est cependant qu’un des deux côtés de la médaille. Les notifications de griefs françaises sont, du fait de cette séparation, moins « bouclées » que les communications de griefs de la Commission européenne en ce sens, non pas qu’elles sont moins solides, mais qu’elles sont moins définitives. Elles ne peuvent constituer le « brouillon » de la décision à venir puisque cette dernière émane d’un auteur différent, le collège, qui se prononce en parfaite indépendance. Il reste donc une part d’aléa non nulle, pour les entreprises comme pour les services d’instruction. Cette situation est intéressante pour les entreprises mises en cause : les services d’instruction connaissent le dossier de l’affaire, mais l’entreprise connaît l’affaire elle-même, et le cas échéant les aspects de l’affaire qui restent encore dans l’ombre. La « fenêtre de tir » de la non contestation des griefs est donc, en quelque sorte, un moment « entre chien et loup », où il ne fait déjà plus tout à fait jour, mais où il ne fait pas encore tout à fait nuit. Dans ces conditions, on peut parfaitement concevoir que les services d’instruction du Conseil et les entreprises mises en cause aient une perception différente du dossier et trouvent tous deux leur compte à la non contestation des griefs, les premiers en « sécurisant » leurs griefs et les secondes en « sécurisant » le champ de leur incrimination.

B. Les points de contact entre la non contestation des griefs, la clémence et les engagements Ils sont très différents en ce qui concerne la clémence (1) et les engagements (2).

1. L’importance de la réduction d’amende Comme la clémence, la non contestation implique une coopération de l’entreprise ou des entreprises mises en cause, qu’il est légitime de récompenser.

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De nombreuses questions peuvent être évoquées à ce sujet, mais la plus intéressante est peut-être celle des « signaux » que le Conseil commence à donner sur ce que les entreprises peuvent retirer de cette coopération. Le point de départ du calcul (l’amende qui serait infligée en l’absence de non contestation) reste incertain, ce qui est nécessaire dans la mesure où une part d’incertitude doit demeurer, de manière à déjouer les calculs économiques que les entreprises pourraient être tentées de faire en comparant les gains et les pertes engendrés par une pratique anticoncurrentielle, et donc en mesurant la rationalité économique de l’infraction. Mais le Conseil commence à dessiner, peut-être pas un « barème », mais une grille de lecture des contributions apportées par les entreprises à l’instruction et des conséquences pouvant y être attachées en termes de réduction d’amende envisageable. Pour s’en tenir à une présentation simplifiée de cette grille d’interprétation, on peut considérer qu’un taux de réduction d’amende de 10 % est envisageable dans les cas de non contestation « pure » ou quasi-pure, dans lesquels les entreprises renoncent à contester la matérialité des faits, la qualification juridique et l’imputation des griefs, d’une part, et ne peuvent pas ou ne veulent pas prendre des engagements allant au delà de l’adoption d’un programme de conformité minimum (engagements de formation et/ou d’information interne), d’autre part. En pareil cas, c’est « essentiellement la contrepartie procédurale », c’est-à-dire le gain de temps et l’allègement de la charge de travail que la procédure procure au Conseil, qui se trouve récompensé, comme cela a été rappelé dans la décision Câbles. Il est cependant concevable de s’élever au-dessus de cet ordre de grandeur, en montant jusqu’à des taux de réduction de l’ordre de 25 à 30 % dans les cas de non contestation « plus », dans lesquels les entreprises s’ingénient à concevoir des engagements allant au-delà des programmes de formation et d’information évoqués à l’instant. Le principe cardinal posé par le Conseil est toutefois que la clémence de second rang, qui peut être récompensée à hauteur de 50 % en fonction de la valeur ajoutée apportée par le demandeur, doit demeurer plus attractive que la non contestation des griefs dans la mesure où elle implique davantage de la part de l’entreprise et apporte davantage à l’autorité de la concurrence, comme l’a rappelé la décision Linge. Cela étant, ce principe pourrait souffrir des exceptions : il existe en effet des cas dans lesquels les demandeurs de clémence ont tant apporté au Conseil qu’il n’est plus sérieusement concevable d’apporter une valeur ajoutée supplémentaire à l’affaire, sauf à fournir des informations permettant de retenir un grief sur un autre marché ou pour d’autres années—mais en pareille hypothèse, l’entreprise obtient en pratique une exonération totale de sanction sur ces aspects de l’infraction. Dans ce cas de figure, il ne serait pas opportun de s’interdire mécaniquement d’inciter les autres entreprises mises en cause à transiger si cela peut être intéressant, notamment en permettant l’accélération de l’affaire. La hiérarchisation retenue entre la clémence et la non contestation des griefs ne doit donc pas s’interpréter comme une règle totalement rigide.

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Peut-on aller encore au-delà, comme le propose l’AFEC, en prévoyant une zone de recouvrement permettant d’accorder une réduction d’amende plus importante dans le cas d’une « bonne non-contestation » que dans celui d’une « moins bonne clémence » ? Sur le principe, cela n’est pas exclu, la question étant plutôt de savoir « quand » et « comment » le Conseil le fera que « s’il » le fera. Mais il est nécessaire, au préalable, de bien différencier les procédures et de bien clarifier les signaux donnés par la grille de lecture évoquée tout à l’heure, afin de ne pas brouiller les messages que l’on souhaite faire passer.

2. La nature des engagements Comme les engagements, la non contestation des griefs implique une négociation avec l’entreprise ou les entreprises mises en cause sur la façon dont elles peuvent, au moins amender leur attitude, et au mieux modifier leur comportement sur le marché. a. L’amendement du comportement : les engagements de « compliance » Il faut prendre garde à ne pas assimiler la mise en place d’un programme de « compliance » ou de conformité au droit de la concurrence à un taux de réduction d’amende automatiquement limité à 10 %. Le Conseil veille évidemment à la cohérence des signaux qu’il envoie, et l’on sait qu’il s’intéresse de très près à la « compliance ». Une étude confiée à un cabinet indépendant, épaulé par un comité de pilotage présidé par un membre du collège du Conseil, Mme Xueref, est en cours de réalisation sur ce thème ; elle devrait conduire à la présentation d’un rapport fin juin / début juillet. Ce document devrait permettre au Conseil de continuer à investir ce domaine, comme il l’a fait tout au long de l’année 2007, mais de façon plus « théorisée », en tout cas plus éclairée. S’il faut établir un rapport entre un taux de réduction de l’ordre de 10 % et un certain type d’engagements de « compliance », c’est donc plutôt aux engagements de formation des cadres et des salariés de l’entreprise, d’une part, et d’information, d’autre part, qu’il faut penser. Le Conseil ne dédaigne pas ces engagements, bien au contraire, pour au moins trois raisons. D’abord, ils ont une valeur pédagogique importante, en particulier dans les affaires où il n’est pas facile de s’engager à faire davantage (cartels) et dans les cas où il faut mettre en place un véritable changement d’habitudes au sein de l’entreprise. Ensuite, ils peuvent servir de vecteur à une véritable diffusion de la culture de la concurrence au sein de l’entreprise et « faire la différence » au quotidien, sur le terrain, s’ils sont adaptés aux données propres à l’entreprise et effectivement mis en œuvre. Enfin, ils peuvent servir à « amorcer » la négociation sur les engagements entre les entreprises et les services d’instruction, et constituer

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le socle sur lequel vont, finalement, se construire des engagements plus substantiels. C’est pourquoi, pour répondre à une question posée par l’AFEC, je ne pense pas que le Conseil considère les engagements de « compliance » comme des engagements « de forme », en tout cas s’il faut entendre par là « de pure forme » ; je suis au contraire tout à fait d’accord avec l’AFEC pour récompenser à leur juste valeur des engagements substantiels de « compliance », dont on peut attendre beaucoup pour le comportement futur de l’entreprise. b. La modification du comportement sur le marché : les engagements comportementaux Or, on peut envisager de nombreux cas où il est possible et attractif de s’engager davantage. La décision Linge en fournit une parfaite illustration. Elle concernait un contexte de marché relativement spécifique, mais bien d’autres secteurs présentent d’autres types de particularités se prêtant à un peu de créativité de la part des entreprises qui y opèrent. Dans cette affaire, les entreprises mises en cause ont présenté des engagements de sensibilisation et de conformité (audit, information, formation, etc.), auxquels se sont ajoutés des engagements innovants visant à mettre en place une procédure d’alerte, et des engagements comportementaux portant notamment sur la gestion des clients partagés entre les entreprises de location de linge. La valeur ajoutée de ce cumul de propositions a conduit à accorder un taux de réduction d’amende de 25 % à 30 %. On voit donc que la pratique décisionnelle du Conseil est tout à fait en phase avec la demande de l’AFEC d’accorder une belle « prime » aux entreprises qui se montrent créatives en matière de programmes de conformité ! Peut-on, la aussi, aller au-delà, en concevant des engagements structurels, comme l’envisage l’AFEC ? Compte tenu du libellé du code de commerce, qui permet au Conseil d’imposer des conditions particulières25 aux entreprises, et du fait qu’il n’y a pas de raison, a priori, de limiter le champ des engagements volontairement proposés par les entreprises, sous réserve du principe de proportionnalité, cette évolution me paraît juridiquement possible. Mais, comme c’est le cas s’agissant des remèdes structurels à Bruxelles ou devant nombre d’autres autorités nationales de concurrence d’Europe, ce type d’engagements devrait rester rare, la préférence devant être donnée aux engagements comportementaux dans tous les cas où ils permettent de mettre fin aux infractions constatées par le Conseil et d’obtenir les évolutions souhaitées. 25 Voir sur ce point Bruno Lasserre, président du Conseil de la concurrence, « Remedies and Sanctions for Unlawful Unilateral Conduct: the French experience », Fordham Competition Law Institute, 34ème conférence sur le droit et la politique internationale de concurrence, 27 et 28 septembre 2007

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Tous ces résultats, toutes ces avancées, toutes ces réflexions, n’impliquent pas qu’il n’existe plus aucune marge de progression.

II. Les avancées envisageables La non contestation des griefs a maintenant trouvé sa place dans la famille des outils de régulation de la concurrence, et progressivement fait l’objet d’un « affinage » destiné à la rendre plus efficace et plus attractive. Il est possible de poursuivre dans cette voie en réfléchissant à une modification des dispositions du code de commerce (1), mais, en définitive, beaucoup de choses peuvent être faites à droit constant (2). Du point de vue du Conseil, qui est évidemment très favorable à un communiqué de procédure sur la non contestation des griefs, il faut commencer par le commencement, en stabilisant d’abord le droit avant de fournir un guide l’analyse ou de lecture—de la « guidance »—aux entreprises.

A. Les avancées législatives envisageables La concertation intervenue avec les avocats du barreau spécialisé en matière de concurrence en 2006 / 2007 a conduit le Conseil à adopter un ensemble d’orientations et de bonnes pratiques procédurales. Ces bonnes pratiques ont été présentées aux avocats lors d’une réunion informelle organisée par le Conseil en septembre 2007. Cela fait à présent six mois qu’elles sont en place, et le premier bilan qui peut être dressé de cette mise en œuvre26 montre qu’un certain nombre d’avancées ont déjà été réalisées. Ce constat vaut en particulier pour la non contestation des griefs, qui a fait l’objet de deux séries de réflexion, concernant l’une les pistes d’évolution législatives et l’autre les avancées possibles sans modification des textes.

1. la principale avancée législative est celle qui consisterait à découpler la non contestation des griefs proprement dite et les engagements Pourquoi cette évolution devient-elle de plus en plus urgente ? Deux raisons, dont la première a déjà été discutée avec l’AFEC et dont la seconde est liée à l’intérêt de la Commission européenne pour la « transaction directe », apparaissent déterminantes. 26 Voir sur ce point Fabien Zivy, « Bonnes pratiques procédurales du Conseil de la concurrence : premier aperçu de six mois de mise en ?uvre », Concurrences, n° 2-2008

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En premier lieu, il existe des cas dans lesquels des engagements, même limités, ne sont pas envisageables, moins parce qu’ils seraient techniquement impossibles—il est a priori toujours possible de s’engager à former ses salariés—que parce qu’ils ne répondraient pas aux exigence posées par le Conseil à propos de leur caractère substantiel, crédible et vérifiable. On peut, par exemple, penser au cas d’une entreprise qui serait mise en cause dans un cartel, après avoir pris des engagements dans une affaire antérieure et n’avoir pas respecté ces engagements. Le Conseil n’a stratégiquement pas de raison de s’interdire a priori de transiger en pareil cas, pour des motifs tels que l’efficacité procédurale, mais ne peut le faire compte tenu du libellé actuel du code de commerce. Cette situation place les entreprises en cause dans une situation inutilement rigide. En second lieu, une « mise en réseau » de la non contestation des griefs se profile avec l’avènement annoncé de la « transaction directe » à Bruxelles et l’émulation que cette innovation ne manquera pas de susciter ailleurs en Europe. Ce n’est donc pas seulement en termes absolus qu’il est dommage d’interdire aux entreprises de renoncer à contester les griefs dans les cas où aucun engagement substantiel, crédible et vérifiable ne peut être envisagé. Ce serait aussi regrettable d’un point de vue relatif ou comparatif, car cela aboutirait à empêcher les entreprises de transiger à Paris dans des cas où elles pourront le faire demain à Bruxelles. Cela nuirait à l’attractivité de notre procédure. Qu’est-ce que cela implique ? A mon sens, il ne faut pas supprimer le recours aux engagements, qui ouvre des perspectives intéressantes. Il est plus opportun de découpler les deux composantes de la procédure actuelle, en continuant d’imposer aux entreprises de renoncer à contester les griefs, mais en rendant la présentation d’engagements facultative et non plus impérative. Evidemment, il faut en conséquence permettre au Conseil de tenir compte du « plus » que constituent les engagements, en accordant une réduction d’amende supplémentaire lorsque les entreprises ne se limitent pas à renoncer à contester les griefs, mais s’engagent également à modifier leur comportement futur sur le marché. En pratique, il faut cependant faire attention à ne pas entrer dans une logique de complexification excessive où les procédures s’entrechoqueraient au lieu de s’articuler harmonieusement. Cela me semble tout à fait réalisable.

2. D’autres modifications législatives pourraient être explorées, mais pas nécessairement d’emblée D’autres évolutions sont envisageables. De mon point de vue, il est cependant préférable de commencer par tirer profit des possibilités d’innovation qui existent en l’état actuel du droit et d’expérimenter au cas par cas, avant de se lier les mains. Il existe en effet de vrais gisements d’efficacité, à condition

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d’être hardi et novateur, et de ne pas hésiter à revoir nos réflexes et nos comportements.

B. Les avancées envisageables à droit constant La première d’entre elles a déjà été amorcée par le Conseil : elle tient à la possibilité donnée aux services d’instruction et aux entreprises de négocier une réduction d’amende en valeur absolue et non plus en taux (1). Mais d’autres pistes, concernant le moment du recours à la procédure et la prévisibilité de son résultat pour les entreprises, s’offrent aussi à nous (2).

1. La possibilité de négocier une fourchette ou un plafond en valeur absolue La possibilité de négocier un plafond de réduction d’amende en valeur absolue, évoquée dans le cadre de la concertation entre le Conseil et les avocats, a été illustrée depuis lors par la décision France Telecom, dans laquelle le rapporteur général et l’entreprise en cause se sont mis d’accord sur un plafond à la fois prévisible et très attractif (60 millions d’euros), compte tenu du chiffre d’affaires mondial de l’entreprise et du plafond légal d’amende (5 milliards d’euros réduits de moitié, soit 2,5 milliards d’euros). Grâce à des engagements constructifs, l’entreprise a finalement obtenu une réduction supplémentaire par rapport à ce plafond (45 millions d’euros), même si l’existence de pratiques anticoncurrentielles antérieures à conduit le Conseil a constater l’existence d’une réitération, dont l’effet a été d’atténuer le gain finalement obtenu. Il n’est pas certain que cette possibilité s’offre au Conseil dans tous les cas. Les circonstances de l’affaire France Telecom étaient assez particulières, compte tenu du cumul de deux éléments : d’une part, l’entreprise mise en cause avait un chiffre d’affaires mondial extrêmement important, de sorte qu’elle était exposée à une amende potentiellement très élevée et que le jeu du plafond légal applicable en matière de transaction ne réduisait que très marginalement l’incertitude ; d’autre part, la pratique unilatérale qui lui était reprochée avait eu lieu sur un marché très étroit par rapport à l’ensemble de son portefeuille d’activités. Pour autant, il ne faut pas voir cette décision du Conseil comme un cas exceptionnel et non reproductible. La pratique décisionnelle future du Conseil nous en dira certainement davantage à ce sujet.

2. Les autres avancées envisageables Le diagnostic du Conseil sur les possibilités d’évolution autres que celle qui vient d’être évoquée est commun avec celui de l’AFEC, mais son pronostic s’en distingue en partie.

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a. Le recours à la procédure pourrait être accéléré en adaptant les notifications de griefs aux données propres à la non contestation Il ne paraît pas inenvisageable, à droit constant et comme le fait la Commission européenne, de se poser la question du sens à donner à la notion de « notification des griefs » dans une procédure de non contestation. Il est techniquement possible de prendre du champ par rapport à nos habitudes, et de rédiger des notifications plus succinctes que celles rédigées dans une perspective contentieuse, puisque le seul fait de ne pas contester les griefs suffit à fonder la décision finale du collège ; cela permettrait d’enclencher la procédure plus rapidement. Deux contraintes interdisent toutefois d’aller trop loin dans cette direction : il faudra en effet que le dossier soit suffisamment solide pour orienter les entreprises vers la non contestation des griefs, et suffisamment précis pour les convaincre qu’elles savent à quoi elles s’engagent en le faisant. Un point d’équilibre envisageable pourrait consister, dans un cadre tel qu’une audition informelle, à aborder la possibilité de ne pas contester les griefs avec l’entreprise avant de finaliser la notification de griefs. La Commission européenne prévoit de « sauter le pas » ; on peut envisager de s’inspirer de cette démarche, tout en continuant à distinguer clairement la non contestation des griefs française et la « transaction directe » communautaire, en particulier en ce qui concerne le respect du contradictoire et des droits de la défense, qui est assuré en non contestation comme il le serait dans un cas contentieux classique. Il faudra voir ce qu’en pense le rapporteur général du Conseil. b. Le résultat de la non contestation des griefs pourrait être rendu plus prévisible par un découplage des deux temps de la procédure Il ne paraît guère conforme à la séparation des fonctions d’instruction et de décision, qui constitue un principe cardinal de l’organisation et du fonctionnement du Conseil lorsque celui-ci agit dans un cadre contentieux, de demander au président de « s’associer » au rapporteur général ou de « faire le lien » entre les services d’instruction et le collège pour sécuriser la non contestation, comme l’explore l’AFEC. La procédure d’engagements échappe à ce principe dans la mesure où elle a lieu avant toute mise en accusation ; la non contestation des griefs ne doit en revanche pas y échapper puisqu’elle prend place après les griefs. Pour autant, le diagnostic à l’origine des réflexions de l’AFEC à ce sujet est un bon diagnostic : la prévisibilité de la procédure de non contestation peut encore être accrue. Alors, quelle solution imaginer ? Il me semble, à titre personnel, qu’on pourrait se poser la question de savoir s’il ne serait pas intéressant de scinder la procédure : l’accord passé par les entreprises avec le rapporteur général serait immédiatement soumis au collège, siégeant par

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exemple en commission permanente, qui le validerait en constatant que les entreprises ont renoncé à contester les griefs et encadrerait le montant de l’amende en conséquence, avant de renvoyer immédiatement l’affaire à l’instruction pour le reste de la discussion. C’est ce qu’envisage de faire la Commission européenne, dont le collège devrait être appelé à valider le principe et le cadre de la « transaction directe », avant de renvoyer l’affaire à la direction générale de la concurrence afin que celle-ci la « mette en musique », l’adoption de la décision finale demeurant bien sûr du ressort exclusif du collège.

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II Ann O’Brien* Cartel Settlements in the U.S. and EU: Similarities, Differences and Remaining Questions

Introduction Cartel enforcement activity has reached unprecedented levels around the world. Busy cartel enforcers with an abundance of cartels to investigate and prosecute are looking for ways to enhance their efficiency and effectiveness. At the same time, cooperating cartel participants are often eager to quickly resolve their liability in multiple jurisdictions. As a result, cartel settlements have become a hot topic for discussion in international competition forums.1 The European Commission should be commended for its initiative in recently introducing a settlement procedure. The Antitrust Division of the U.S. Department of Justice has a long history of settling cartel cases with plea agreements. Over 90 percent of the hundreds of defendants charged with criminal cartel offenses during the last 20 years have admitted to the conduct and entered into plea agreements with the Division. Cartel participants utilize the plea system that is available to all defendants charged with federal crimes. However, some of the provisions used in Division plea agreements are unique to cartel prosecutions. These provisions and the policies behind them are discussed in a Division paper titled, “The U.S. Model of Negotiated Plea Agreements: A Good Deal With Benefits For All.”2 Rather than retracing these issues, this paper will instead explore the similarities and differences in the ways that cooperation is currently rewarded, how cartel cases are settled in the U.S., and how they are to be settled in the EU as explained in the recent Commission Notice.3 As this * Ann O’Brien is Senior Counsel to the Deputy Assistant Attorney General for Criminal Enforcement at the Antitrust Division of the U.S. Department of Justice. 1 See International Competition Network Cartel Working Group, Cartel Settlements, Report to the ICN Annual Conference, Kyoto, Japan (April 2008) (hereinafter “ICN Cartel Settlements Paper”), http://www.icn-kyoto.org/documents/materials/Cartel_WG_1.pdf; see also OECD Policy Roundtable on Plea Bargaining (2006), materials available at http://www.oecd.org/dataoecd/12/36/40080239.pdf. 2 See Scott D. Hammond, The U.S. Model of Negotiated Plea Agreements: A Good Deal With Benefits For All, address before the OECD Competition Committee, Working Party No. 3 (October 17, 2006) (“The U.S. Model of Negotiated Plea Agreements”), http://www.usdoj.gov/atr/public/speeches/219332.pdf. 3 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

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paper identifies some similarities and differences between the two systems, some myths will be dispelled and some remaining questions will be discussed. The Division’s experience shows that the U.S. system of settling cartel cases through negotiated plea agreements is a “win-win” situation for both the Division and settling cartel members. A third “win” is for the courts that are spared the time and resources of criminal cartel litigation. For cooperating corporate defendants,4 there is the obvious benefit of reduced fines, but the U.S. system of negotiated plea agreements can also provide numerous non-monetary benefits to settling corporations, such as transparency and certainty as to how a company will be treated if it cooperates, and the opportunity for an expedited disposition that brings finality and allows a company to put the matter behind it. For the Division, settlement benefits include inducing increased early cooperation, which leads to early insider evidence as well as momentum in Division investigations after settlements become public.5 This paper will address these benefits in relation to the Commission’s settlement procedure. An effective cartel settlement system requires sufficient benefits and incentives for both the government and the cartel participant, or else neither will commit to settlement. However, the mere possibility of reduced sanctions usually will not be enough to induce a company to settle; the rewards must be transparent, predictable and certain. To assess settlement gains, a cartel participant must be able to predict, with a high degree of certainty, how it will be treated if it cooperates, and what the consequences will be if it does not. To maximize the goals of transparency, enforcers must provide not only explicitly stated standards and policies, but also clear explanations of prosecutorial discretion in applying those standards and policies. Some current commentators say that a U.S.-style cartel settlement system is unique to a jurisdiction with criminal enforcement and cannot work in an administrative system. Similar comments were expressed in 1993 when the revised U.S. leniency policy was first discussed abroad. At that time, commentators around the world speculated that leniency programs could not exist in their jurisdictions because of institutional, legal, and cultural differences between the U.S. system and their own. Now, more than 15 years later, over 50 jurisdictions have leniency policies in place and many of these jurisdictions with a wide variety of legal cultures have drafted their leniency programs cartel cases (“Commission Settlements Notice”), 2008 OJ C167/1. See also Commission settlement documents, http://ec.europa.eu/comm/competition/cartels/legislation/settlements. html. 4 Individuals may also plead guilty in the U.S. and receive substantial benefits for doing so, but this paper will focus solely on the benefits to corporations since the Commission does not prosecute individuals. 5 For a full discussion of the benefits of U.S. plea agreements, see The U.S. Model of Negotiated Plea Agreements, supra note 2, at § VI; for a discussion of the benefits generally of cartel settlements, see ICN Cartel Settlements paper, supra note 1.

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based on the U.S. model. Administrative jurisdictions have surmounted some of the same challenges in the leniency context that are now being raised in the settlement context and made U.S.-style leniency programs work to produce astounding results. The goal of this paper is to draw on our mutual experience with leniency, look past criminal versus administrative distinctions, and focus on what can be accomplished through effective cartel settlements.

Similarity: Charges and Justice Are Not Bargained Away The term “plea bargaining” sometimes carries a negative connotation. Concerns may be based on a commonly held myth that in the U.S. prosecutors bargain away justice by securing agreements that allow defendants to plead guilty to lesser offenses. This myth stems from a misunderstanding of what is actually “bargained” during the U.S. plea process. The Commission Settlements Notice states clearly that the Commission “does not negotiate the question of the existence of an infringement of Community law and the appropriate sanction.”6 Contrary to common perceptions, the Division does not negotiate these bases either. In fact, the U.S. Department of Justice has specific policies to ensure that plea agreements entered into by federal prosecutors do not bargain away justice and that they result in transparent, proportional, and just dispositions. Department of Justice policies require that when federal prosecutors resolve cases through plea agreements, they should seek a plea to the most serious, readily provable offense.7 Department policies explicitly prohibit filing charges to exert leverage to induce a plea or dismissing charges in exchange for a plea to lesser charges, a practice commonly referred to as “charge bargaining.”8 What that means is that Division prosecutors will not drop readily provable charges in exchange for a plea of guilty. There is also a U.S. Department of Justice policy aimed at ensuring “honesty in sentencing” when plea agreements are reached. This policy requires that before accepting a plea agreement in lieu of taking a case to trial, Department prosecutors must evaluate the probable sentence a defendant would face if convicted of all counts for which the defendant could be

6

Commission Settlements Notice, supra note 3, at 1.2. See Principles of Federal Prosecution, U.S. Attorney’s Manual §§ 9-27.400 and 9-27.430(A)(1), http://www.usdoj.gov/usao/eousa/foia_reading_room/usam/title9/27mcrm. htm. 8 See Memo from Attorney General John Ashcroft to All Federal Prosecutors, Memo Regarding Policy On Charging Of Criminal Defendants (September 22, 2003) (hereinafter “September 22, 2003 Ashcroft Memo”), at § I(A) and § II(C), http://www.usdoj.gov/ opa/pr/2003/September/03_ag_516.htm. 7

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charged, versus the sentence to be imposed pursuant to a plea agreement.9 Any sentence recommended by the government must honestly reflect the totality and seriousness of the defendant’s conduct and be fully consistent with the U.S. Sentencing Guidelines and with the readily provable facts about the defendant’s history and conduct.10 This policy also requires that a federal prosecutor must not stand silent while a defendant argues for a sentencing reduction that is not warranted or that the prosecutor does not believe is supported by law or facts.11 The Division will not forego prosecuting or imposing penalties against cartel participants for conduct the Division could already prove. It is important to note, however, that since a plea agreement can be reached in the U.S. prior to the conclusion of an investigation, a settling cartel participant may be in a position to inform the Division of additional evidence of wrongdoing of which the Division was previously unaware. In order to induce and ensure candid and complete cooperation, if a company’s cooperation pursuant to a plea agreement reveals that the suspected conspiracy was broader than had been previously identified—either in terms of the length of the scheme or the products, contracts or commerce affected—then the Division’s practice is not to use that self-incriminating information in calculating the defendant’s sentence.12 It is not uncommon for a second-in corporate defendant to face a significantly reduced fine due to this practice. The early cooperation may help the Division to prosecute a cartel that is larger in terms of participants, geographic scope, duration or products covered than what would have been prosecuted without the insider evidence and, in the case of an Amnesty-Plus situation, to prosecute additional cartels disclosed by the pleading cartel participant. The Division is essentially rewarding an early pleading cooperator more generously than a later pleading cooperator in the same way that the Commission’s leniency program rewards earlier cooperation with a larger reduction in fine.

9 See Memo from Attorney General John Ashcroft to All Federal Prosecutors, Department Policies and Procedures Concerning Sentencing Recommendations and Sentencing Appeals (July 28, 2003) (hereinafter “July 28, 2003 Ashcroft Memo”), at § II(B), http://www.nacdl.org/public.nsf/legislation/ci_03_32/$FILE/AG_Guidance_Stcg_Recs.pd f. See also September 22, 2003 Ashcroft Memo, supra note 8. 10 July 28, 2003 Ashcroft Memo, supra note 9, at § II(B). 11 Ibid., at § II(A)(2). 12 For a detailed discussion of the benefits available to early cooperators, see Scott D. Hammond, “Measuring the Value of Second-In Cooperation in Corporate Plea Negotiations”, address before the 54th Annual Spring Meeting of the ABA Section of Antitrust Law (March 29, 2006), http://www.usdoj.gov/atr/public/speeches/215514.pdf.

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Similarity: Cooperators Rewarded with Reduced Penalties Before focusing specifically on the Commission’s cartel settlement procedure, it is important to note that currently in both the U.S. and EU, cooperating cartel participants that have lost the race for full immunity from prosecution may still receive a reduced penalty. That means that in both the U.S. and EU, two equally culpable members of the same cartel can receive vastly different penalties based on their early acceptance of responsibility and the timeliness and value of their cooperation. In the U.S., the Division’s Corporate Leniency Program13 offers the promise of full immunity—no criminal conviction, no criminal fine, and no jail time for cooperating executives—only to the first company to report a criminal antitrust violation and to meet the other conditions of the Program. A company and its culpable executives that lose the race for full immunity under the Division’s Leniency Program may face substantial penalties, including corporations paying stiff fines and culpable executives going to jail for up to ten years as well as paying a fine. However, in the U.S., corporate and individual cartel participants that lose the race for leniency can still obtain lesser sentences in exchange for their cooperation by pleading guilty to criminal charges and entering into plea agreements with the Division. Pursuant to the Commission’s Leniency Notice,14 the corporate cartel participant that is the first to self-report and qualify can receive full immunity from fines, and corporate cartel participants that lose the race for full immunity may still qualify for a reduction in fine of up to 50% in exchange for their cooperation. So, even before the formal cartel settlement system currently in place in the EU, early insider cooperation was received and rewarded in both the U.S. and the EU through the use of different vehicles—a plea agreement in the U.S. and a reduction in fine pursuant to leniency in the EU.

Difference: Timing While cartel enforcers in both the U.S. and EU can obtain and reward early and valuable cooperation, a cartel participant seeking to cooperate and quickly resolve its liability will find itself on dramatically different timelines in the U.S. and the EU. 13 Corporate Leniency Policy (1993), http://www.usdoj.gov/atr/public/guidelines/0091. htm. See also Leniency Policy Speeches, http://www.usdoj.gov/atr/public/criminal.htm. 14 Commission Notice on Immunity from fines and reduction of fines in cartel cases (“Commission Leniency Notice”), 2006 OJ C298/17.

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A company that has lost the race for full immunity in the EU may still be eligible for a reduced fine if it cooperates pursuant to the Commission’s Leniency Notice, but it must wait until the conclusion of the Commission’s investigation to learn if the Commission will engage in settlement discussions. In the U.S., that same cartel participant that has lost the race for full immunity may immediately initiate plea negotiations with the Division to simultaneously resolve its culpability and be rewarded for the cooperation it can provide. A cooperating cartel participant can reach a settlement with the Division at any time—from very early in the Division’s investigation until after formal charges are brought.15 Seriatim plea agreements are the norm in Division cartel investigations and the Division regularly negotiates, signs, and publicly files plea agreements throughout the course of its investigations. In addition, a plea agreement can be entered as soon as an agreement is reached and sentencing can take place immediately. In the EU, a cartel participant seeking to cooperate and quickly resolve its liability may apply for a reduction in fine pursuant to the Commission’s Leniency Notice, but the applicant must wait until the end of the administrative procedure to learn how its cooperation will be rewarded and the actual fine imposed. There are numerous examples of companies that have simultaneously offered to cooperate in both the U.S. and the EU but had to wait years after settling in the U.S. to learn what their fine would be in Europe. This problem is exacerbated by the numerous lengthy appeals of Commission decisions where, at times, the lag has been close to a decade. The Commission’s settlement procedure likely will not dramatically change the timing of this process. Under the Commission’s bifurcated system, a cartel participant seeking a reduction in fine pursuant to the Commission’s Leniency Notice will have to provide substantive cooperation and then wait until the end of the Commission’s investigation to see whether the Commission invites cartel participants to engage in settlement discussions pursuant to its Settlements Notice. A cartel participant seeking to settle will then have to wait until the end of the Commission’s administrative procedure to know its actual fine and if it received the settlement discount to be applied cumulatively to any leniency reduction.

Difference: Goals of Cartel Settlement In the U.S., from the Division’s perspective, the goals of cartel settlements are to: 1) receive cooperation; 2) create and sustain momentum in investigations; 15 While the Division will entertain plea proposals both before and after indictment, most are entered pre-indictment where early cooperation holds an array of benefits for defendants.

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and 3) resolve cartel cases quickly without the need for litigation. Once a cartel participant and the Division decide to enter into a plea agreement, both the government and the defendant proceed along an entirely different path than they would have if the case went to trial. Promises are made on each side. The Division promises not to bring further charges against the defendant for the reported conduct and to recommend a certain settlement discount at sentencing. The defendant promises to waive its procedural rights—such as the right to formal charge by indictment, the right to a trial, and the right to appeal—and to provide substantial and ongoing cooperation. The type of cooperation the Division typically receives from a pleading corporation is extensive and the U.S. Sentencing Guidelines appropriately term such cooperation “substantial assistance.”16 The specific types of cooperation a pleading corporation is required to provide to the Division are specified in the plea agreement and usually include providing documents and witnesses (including those located abroad) to assist the Division in its investigation.17 The Commission’s settlement system, in contrast, maintains virtually the identical investigative structure as its ordinary procedure but provides for the possibility of an additional monetary reduction in fine for “settlement” in exchange for “cooperation” after the conclusion of the Commission’s investigation. The Commission makes clear that the cooperation sought under its settlement procedure is different from the voluntary production of evidence to trigger or advance an investigation covered under the Commission’s Leniency Notice.18 Under the Commission’s settlement procedure, the required “cooperation” is essentially a waiver of certain procedural rights and not the type of substantial assistance that is provided to the Division by settling cartel participants in the U.S.

Difference: Finality and Expeditiousness Since the Commission’s settlement system does not provide for early settlements, and because a cartel participant that wishes to settle must still wait until the end of the administrative process to know the amount of its fine, a corporate cartel participant cannot achieve the early finality in the EU that it can in the U.S. when it enters into a plea agreement with the Division and is able to put the matter behind it immediately.

16 See United States Sentencing Commission Guidelines Manual § 8C4.1 (November 1, 2007), http://www.ussc.gov/2007guid/GL2007.pdf. 17 See ¶ 14 of the Division’s Model Annotated Corporate Plea Agreement (Last Updated December 19, 2006), http://www.usdoj.gov/atr/public/guidelines/220671.htm. 18 Commission Settlements Notice, supra note 3, at 1.1.

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The time and resource savings the Commission expects to receive from settlements appear to be limited to the time saved by not having to provide access to the file, oral hearings and translations, and any time saved by writing a more streamlined statement of objections. But even these procedural efficiencies may not be obtained under the Commission’s settlement procedure unless all cartel participants seek to settle, since the Commission would otherwise have to continue with the full-blown, ordinary procedure for the non-settling cartel members.

Difference: Momentum In the U.S., early cooperators not only provide valuable evidence that the Division can use against other co-conspirators, but also once their plea agreements are filed on the public record they often provide strong momentum that expedites the Division’s investigation and prosecution of other conspirators and even, in an Amnesty-Plus situation, other cartels. Plea negotiations are confidential, but once agreements are reached, the plea agreement is filed with the court and made public.19 Other cartel participants can then see that coconspirators have accepted responsibility and promised to cooperate, and they often quickly line up to plead guilty. The momentum created by seriatim settlements before the conclusion of an investigation is a powerful benefit to the Division that has no counterpart under the Commission’s settlement procedure.

Remaining Question: Transparency, Predictability and Certainty as to Fines? Commentators and members of the antitrust bar have said that the 10% settlement reduction offered by the Commission is not sufficient to induce companies to settle.20 The success of the Commission’s settlement procedure, however, will not hinge solely on the amount of the settlement discount offered, but will also depend on the transparency, predictability and certainty of the fine a cooperator can expect to pay. In the Division’s experience, prospective cooperating parties come forward in direct proportion to the predictability and certainty of their treatment following cooperation. A party 19

See Federal Rule of Criminal Procedure 11. “EU Settlements Procedure Met with Skepticism”, Global Competition Review (June 30, 2008), http://www.globalcompetitionreview.com/news/news_item.cfm?item_id=6935 20

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is more likely to settle if it is able to predict, with a high degree of certainty, how it will be treated if it cooperates, and what the consequences will be if it does not. A critical issue to the success of the Commission’s settlement procedure will be the Commission’s transparency in discussing the fine that a cartel participant can expect to pay. A percentage discount means little to a cartel participant that cannot predict the starting point for its fine reduction. While the Commission has Fining Guidelines in place, they are relatively new and they have not yet been applied in many matters. Therefore, the more transparency that the Commission can provide as to how it will apply its Fining Guidelines, the more likely parties are to settle. If cartel participants cannot assess their possible fines with reasonable certainty, they may choose to seek leniency but not settle, resulting in a scenario where a cartel participant provides cooperation to receive leniency but then litigates its fine.

Similarity: Rights are Respected Another reason sometimes offered for the proposition that U.S.-style plea bargaining cannot work in administrative systems is that rights of defense must be respected. Again, implicit in this response is a misimpression that the rights of settling defendants are not respected in the U.S. plea process. The Commission’s settlement procedure makes it clear that a settling party’s rights of defense will be respected and provides for a Hearing Officer to arbitrate due process issues during the settlement process. In the U.S., defendants also have constitutional and due process rights, including the right: 1) to be formally charged by indictment; 2) to plead not guilty; 3) to a trial by jury (where the defendant can cross-examine witnesses and present evidence); 4) against self-incrimination; and 5) to appeal a conviction and sentence. In order to convict a defendant of a criminal offense, the Division must prove its case beyond a reasonable doubt, a standard that is higher than the standard of proof required in administrative or civil jurisdictions. A defendant who chooses to plead guilty and enter into a plea agreement with the Division will waive the rights enumerated above. This waiver must take place before a court, prior to acceptance of a plea. The court must find that the waivers were executed knowingly and voluntarily, that the defendant received competent legal representation, and that the defendant fully understood the nature of the offense and applicable maximum penalties. The Commission’s settlement procedure is different because it does not require a waiver of some of these rights, such as a waiver of appeal, but it is similar in that it provides for a waiver of certain procedural rights such as access to the file, a formal hearing and translation.

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In the U.S., these rights are held by the defendant who can choose to waive any right if done knowingly and voluntarily. Such waivers provide valuable benefits for enforcers and defendants by saving time, money, and resources. By ending all further litigation, these waivers provide ultimate finality and certainty for all parties. Without such waivers, resources are not saved, true finality and certainty are not achieved, and the full benefits of settlement are not realized. The best testament to the Division’s success in respecting the rights of settling cartel participants is the dozens of companies and individuals that have ample financial resources and are represented by skilled counsel who decide to plead guilty and enter into plea agreements with the Division each year.

Similarity: Neither DG Competition nor the Division Impose Cartel Sanctions Another often repeated myth is that U.S.-style plea agreements will not work in the EU because it is the College of Commissioners that imposes fines, and not DG Competition. However, the U.S. and the EU are much closer in that regard than many people appreciate. In the U.S., even when a sentencing agreement is reached with the Division, it is the court that must accept the plea and impose the cartel participant’s actual sentence. Similarly, in the EU, the College of Commissioners must adopt the final decision containing the fine amount. What this means is that in both jurisdictions cartel participants are asked to engage in settlement discussions and arrive at an agreed sanction with a government entity that does not actually impose the sanction. Cartel participants must rely on the good-faith commitments of the competition authority that it will stand behind a fine recommendation that is the result of a settlement. Typically, Division plea agreements contain a joint sentencing recommendation specifying that a specific sentence or sentencing range is appropriate.21 After accepting the plea agreement, the court will impose the defendant’s sentence. U.S. courts accept the joint sentencing recommendations contained in Division plea agreements with high frequency. The Division has built a strong track record of persuading courts to accept plea agreements in its cartel cases and impose sentences consistent with those agreements. Courts are willing to accept these plea agreements and impose 21 The Division and the defendant may enter into a type of plea agreement that requires the court to either accept the recommended sentence in the plea agreement or to reject the entire plea agreement. For a comprehensive discussion of sentencing recommendations contained in U.S. plea agreements, see The U.S. Model of Negotiated Plea Agreements, supra note 2, at § IV(F).

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the recommended sentences contained in them because the Division brings to the court only sentences that it believes are just and proportional. Courts can also be confident that both parties are well represented by counsel. Cartel participants engaging in settlement negotiations are aware of the Division’s track record with courts and are confident that the Division will stand behind its sentencing recommendation should the courts question it at sentencing.

Difference: Differentiated Settlement Discounts Another difference between the U.S. plea system and the Commission’s settlement system is that the settlement discount in the U.S. can be, and usually is, different for various cartel participants, whereas in the EU the settlement discount is a fixed figure for all settling parties. In the U.S., the settlement discount cartel participants can receive is dependent upon the timeliness of their acceptance of responsibility and the quality of their cooperation, with earlier settling defendants receiving larger settlement discounts than those received by later pleading defendants. This is consistent with the race-to-the-prosecutor’s-door mentality that has successfully fueled leniency programs around the world. A cartel participant that is the “second-in” to self-report and loses the race for leniency in the U.S. can still win a substantial settlement discount by pleading guilty. This system induces quicker, higher-quality cooperation. While, as previously discussed, second and subsequent cooperators can receive substantial rewards under the Commission’s leniency program, the fixed settlement discount for all settling parties provides little additional incentive for cartel participants to line up to be the first to settle, since the lastin receives the same discount.

Remaining Question: Are All Cartel Participants Required to Settle? Questions remain as to whether the Commission will accept settlements in a “hybrid” situation where some cartel participants are prepared to settle, but others are not. Since the Commission’s settlement procedure is set up with the goal of obtaining procedural efficiencies, rather than inducing cooperation or creating momentum in its investigations, an “everyone or no one” approach is appealing from the Commission’s viewpoint because a hybrid settlement will not achieve the procedural efficiencies the Commission hopes to gain

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through settlement. From the perspective of cartel participants contemplating settlement, and the counsel who advise them, this may be unsettling. If a company expends the time and resources to seek settlement, only to be told at the end that its settlement offer will not be accepted because a co-conspirator does not wish to settle, it will not be pleased and its counsel may advise against engaging in the settlement process when representing future clients. In addition, the “everyone or no one” approach is inconsistent with the race mentality that has been so successful in the leniency context. Instead of destabilizing the cartel as co-conspirators rush to cooperate with the government, in an ironic twist, an “everyone or no one” settlement system might actually promote further coordination, as those inclined to settle or not to settle attempt to influence the entire group.

Difference or Similarity: Negotiation or Discussion of the Merits? As previously mentioned, the Commission Settlements Notice makes clear that the Commission will not negotiate the existence of a cartel infringement or the appropriate fine.22 The concept that the settlement system must be “non-negotiated” is likely driven by a desire to distinguish the system from a U.S.-style plea system because of the negative connotations associated with plea bargaining discussed above. Hopefully this paper has dispelled some of the myths that lie beneath those negative connotations, including dispelling the notion that U.S. prosecutors negotiate charges or bargain away justice. A question that remains, one that will be critical to the success of the Commission’s settlement procedure, is: what does the Commission mean when it says it will not negotiate? The Settlements Notice says that the discussions “will allow the parties to be informed of 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.”23 When and how this information is discussed with parties contemplating settlement will be critically important to the willingness of cartel participants to engage in settlement discussions with the Commission. In the U.S., once plea negotiations commence, a candid two-way dialogue takes place between the Division and the cartel participant’s counsel regarding certain key terms of a possible plea agreement, including: the entity to be charged; the scope of the alleged conspiratorial conduct to be charged; the 22 23

Commission Settlements Notice, supra note 3, at 1.2. Commission Settlements Notice, supra note 3, at 2.2.16.

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products or services covered by the conspiratorial agreement; the duration and geographic scope of the conspiracy; the scope of the non-prosecution protections and cooperation requirements; the sentencing recommendation; and the cooperation that the defendant is prepared to offer. In the experience of the Division, this dialogue is necessary to reach a settlement. If the Division and the defendant were to just put their final offers on the table without this dialogue, they likely would be like ships passing in the night with their offers relying on vastly different assumptions and fine figures that could be orders of magnitude apart. While, as previously discussed, the Division will not negotiate charges it can readily prove, the Division will listen to arguments from cartel participants negotiating settlements as to why the evidence does not support the charges and sentence calculations proposed by the Division and, therefore, the scope of the charge should be limited and the sentence reduced. Understanding the scope of a multinational cartel or calculating the volume of commerce affected by the defendant’s participation in a cartel are not easy tasks, and the Division is willing to listen to cartel participants on these issues. Of course the Division looks to other sources to verify the information provided by those seeking settlement, but it is not uncommon that cartel participants are able to persuade the Division to alter its original charge or sentencing recommendation due to facts, evidence, and industry nuances of which the Division was not previously aware. As previously discussed, transparency as to the potential fine range the Commission is contemplating will be very important. In addition, engaging in discussions during the settlement process regarding the scope and duration of the cartel violation contemplated—optimally before a cartel participant must submit a settlement submission—will also be critical to reaching a settlement that will be acceptable to both the Commission and the settling cartel participant. The Commission’s settlement procedure does allow for discussions and seems to envision that at least some of these items will be discussed. The semantics of whether a dialogue between the Commission and cartel participants seeking settlement is called “negotiation” or “discussions” is less important than whether and to what extent it actually takes place. The more cartel participants are able to engage in a dialogue with the Commission in the context of settlement discussion, the more likely it is that a mutuallyagreeable resolution will be reached.

Conclusion The leniency programs that have proliferated and flourished around the world during the last decade have resulted in cracking a previously unimaginable

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number of cartels. As a result, cartel enforcers in a growing number of jurisdictions are trying to find ways to more quickly resolve cartel cases. Cartel settlements are therefore at the forefront of discussions in competition forums. The Commission should be commended for adopting a settlement procedure to complement its highly successful leniency program. The Commission has built a leniency track record, and it will now begin to build a settlement track record. The bar and the business community, who are stakeholders in the process, still have some remaining questions about how the Commission will implement the settlement procedure, and they will be watching closely. The good news is that the Commission, cooperating cartel participants, and their counsel all have a vested interest in making cartel settlements work because they hold potential benefits for them all. This paper has attempted to dispel some myths about the U.S. plea system and point out some similarities between the U.S. and EU systems that might not be readily apparent. Some substantial differences do remain between the U.S. system and the Commission’s settlement procedure, as they once did in the leniency context. Our collective experience in the leniency context teaches us that what might not seem possible often is possible. That lesson can be applied in the settlement context as we focus not on distinguishing criminal from administrative systems but look instead at how cartel settlements can have benefits for all parties involved and ultimately benefit consumers through increased cartel enforcement.

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III Mario Siragusa and Erika Guerri* Antitrust Settlements under EC Competition Law: The Point of View of the Defendants

1. Introduction This paper analyzes negotiated settlements in EC public antitrust enforcement from the point of view of defendants. In particular, it discusses some critical issues emerging from two procedures for the enforcement by the European Commission of Articles 81 and 82 EC, namely the commitment procedure under Article 9 of Regulation 1/2003 and the proposed new settlement procedure in cartel cases. The first of these provisions, Article 9 of the Regulation, introduced a new kind of decision (“commitment decision”) into Community competition law. More recently, at the end of October 2007, the Commission published a draft Notice on settlement proceedings and a proposed Regulation, which together would form the basis for cartel settlements under European law.1 These proceedings are alternatives to prohibition decisions following a fully-fledged procedure of a completely adversarial nature, adopted pursuant to Article 7 of Regulation 1/2003. Article 7 prohibition decisions generally include a finding of an infringement, an injunction to bring the infringement effectively to an end, and other separate, punitive aspects. The objectives of negotiated proceedings are: (i) enhancing efficiency and effectiveness in dealing with competition concerns; and (ii) substituting a non-cooperative equilibrium with a dynamic, cooperative one.2 In both cases, the “standard procedure” would apply by default and would remain the fallback option, i.e. if the Commission does not accept the commitments offered by the defendants or if no settlement is explored or reached. Furthermore, it is up to the Commission to decide whether to revert to the standard procedure. * Partner and Associate, respectively, of Cleary, Gottlieb, Steen & Hamilton LLP, Rome. 1 See Proposal for a Commission Regulation amending Regulation 773/2004, as regards the conduct of settlement procedures in cartel cases, 2007 OJ C255/48; Draft Commission Notice on the conduct of settlement proceedings, 2007 OJ C255/51. 2 Kris Dekeyser, “Commission enforcement in the post-modernisation era—Alternative procedures for antitrust enforcement”, presentation, Les mardis du droit Européen de la concurrence series, Université Libre de Bruxelles, 2008.

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2. Commitment Decisions Recital 13 of Regulation 1/2003 provides: “Where, in the course of proceedings which might lead to an agreement or practice being prohibited, undertakings offer the Commission commitments such as to meet its concerns, the Commission should be able to adopt decisions which make those commitments binding on the undertakings concerned. Commitment decisions should find that there are no longer grounds for action by the Commission without concluding whether there has been or still is an infringement. Commitment decisions are without prejudice to the powers of competition authorities and courts of the Member States to make such a finding and decide upon the case. Commitment decisions are not appropriate where the Commission intends to impose a fine.”

Article 9 of Regulation 1/2003 then provides: “Where the Commission intends to adopt a decision requiring that an infringement be brought to an end and the undertakings concerned offer commitments to meet the concerns expressed to them by the Commission in its preliminary assessment, the Commission may by decision make those commitments binding on the undertakings. Such a decision may be adopted for a specified period and shall conclude that there are no longer grounds for action by the Commission.”

It is clear from the last sentence of Recital 13 that the commitment procedure is not a mechanism suitable for plea bargaining in cartel cases. Imposing a fine necessarily implies a finding in which there has been an infringement, and in commitment decisions the Commission does not make any finding as to whether there was (or still is) an infringement. The Commission has not yet developed a policy on commitments under Article 9. It initially believed that commitment decisions would be unusual and infrequent, and it has been surprised that, for various reasons, there have been so many cases in which commitments have been proposed. So far, the Commission has accepted commitments in 11 proceedings (Bundesliga, CocaCola, De Beers, FA Premier League, Repsol, Cannes Extension Agreement, Opel, Toyota, Fiat, DaimlerChrysler and Distrigaz) 3 and commitments are being tested in other cases (in five proceedings, a market test Notice has been published).4 3 The Court of First Instance famously scrutinized an Article 9 decision in Case T-170/06, Alrosa Company Ltd v Commission [2007] ECR II-2601, on appeal: Case C-441/07 P, Commission v Alrosa, not yet decided. See also the pending Case T-45/08 Transportes Evaristo Molina v Commission, 2008 OJ C92/73, involving a third-party application for annulment of the Commission’s Repsol decision. Another third-party application against the Commissions decision was dismissed by the CFI on procedural grounds. See Case T-274/06, Estaser El Mareny v Commission [2007] ECR II-143. 4 Cases COMP/37.749, Austrian Airlines/SAS; COMP/37.984, Skyteam; COMP/38.698, CISAC; COMP/39.151, SABAM; COMP/39.152, BUMA. More recently, two energy companies in separate proceedings have offered commitments. See MEMO/08/132 of 28 February 2008 (E.ON) and MEMO/08/355 of 31 May 2008 (RWE).

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The Commission is never obliged to terminate its proceedings by adopting an Article 9 commitment decision,5 but it can consider such a decision if and when: (i) the undertakings under investigation are willing to offer commitments which remove the Commission’s initial competition concerns as expressed in a preliminary assessment; (ii) the case is not one where a fine would be appropriate (this therefore excludes commitment decisions in hardcore cartel cases); and (iii) it is justified, on account of efficiency reasons, for the Commission to limit itself to making the commitments binding, without issuing a formal prohibition decision. Commitments can be either behavioural or structural, and they may be limited in time. In the Alrosa case, the Court of First Instance stated that, “under Article 9(1) of that regulation, the Commission is not required formally to establish the existence of an infringement, as, moreover, recital 13 in the preamble to Regulation No 1/2003 indicates, but it must none the less establish the reality of the competition concerns which justified its envisaging the adoption of a decision under Articles 81 EC and 82 EC and which allow it to require the undertaking concerned to comply with certain commitments”.6 The Commission is thus required to conduct a market analysis which, although less definitive than in Article 7 proceedings, is sufficient to allow a review of the appropriateness of the commitments. A decision pursuant to Article 9 finds that there are no longer grounds for action by the Commission and makes the commitments binding on the parties. Commitment decisions do not conclude on whether there has been an infringement, and they are without prejudice to the power of national competition authorities (NCAs) and national courts to find an infringement and to decide upon the case. Moreover, in light of Alrosa it can be argued that defendants should be granted the same rights of defence that they have in the standard procedure, i.e. the right to have access the file and the right to be heard. Furthermore, Alrosa deals with several issues in connection with proportionality: the Commission’s obligation (as the CFI saw it) to carry out an economic analysis sufficient to make judicial review possible, the extent of judicial review, the application of the proportionality principle to decisions under Article 9, the adequacy of any less onerous solutions, and the parallel between the powers of the Commission under Article 9 and its powers when 5 See Alrosa v Commission, cited supra note 3, para. 96 (Commission “possesses a margin of discretion in the choice offered to it by Regulation No 1/2003: it may make the commitments proposed by the undertakings concerned binding through the adoption of a decision under Article 9 of that regulation, or it may follow the procedure laid down under Article 7(1), which requires that an infringement be established”.). At paragraph 130 the CFI adds that “[i]t is true that the Commission is never obliged under Article 9(1) of Regulation No 1/2003 to decide to make commitments binding instead of proceeding under Article 7 of that regulation. It is therefore not required to give the reasons for which commitments are not in its view suitable to be made binding, so as to bring the proceedings to an end.” 6 Ibid., para. 100 (emphasis added).

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adopting prohibition decisions under Article 7. In relation to the duty of the Commission to comply with the principle of proportionality, the CFI stated that: “the voluntary nature of the commitments also does not relieve the Commission of the need to comply with the principle of proportionality, because it is the Commission’s decision which makes those commitments binding. The fact that an undertaking considers, for reasons of its own, that it is appropriate at a particular time to offer certain commitments does not of itself mean that those commitments are necessary.”7 Moreover, the CFI acknowledged “the fact that the commitments are proposed by an undertaking does not therefore limit the review which the Court is to conduct of the well-foundedness of the Commission’s decision to make those commitments binding.”8 The court clearly considered that the Commission had tried to adopt a quasi-regulatory solution, which went beyond what the Commission could justify under competition law. Under the principle of proportionality, where there is a choice between several appropriate measures the least onerous must be chosen, and the disadvantages created must not be disproportionate to the aims pursued. The CFI said that the Commission could have chosen to accept the commitment only in part, in certain respects, or only for a limited period of time. This implies that the Commission must apply and respect the principle of proportionality even if it is only dealing with the company that offered the commitment. It is also important for the Commission to have the duty to assess for itself whether commitments that have been offered go further than what is necessary to deal with the Commission’s concerns. (It is not clear, since the issue did not arise, whether and to what extent De Beers itself would have been able to challenge the decision as being contrary to the principle of proportionality) It is clear from the CFI’s judgment in Alrosa that the Commission cannot achieve results via Article 9 that it could not achieve via Article 7. Recently, in Distrigaz,9 the Commission was clearly anxious to show that the Alrosa judgment had been taken seriously.10 Therefore, the Commission 7

See ibid., para. 105. See ibid., para. 107. 9 Commission Decision of 11 October 2007 (Case COMP/37.966—Distrigaz), 2008 OJ C9/8. 10 Ibid. The Commission adopted a preliminary assessment concerning Distrigaz’s gas supply contracts with a variety of customers, including industrial users, electricity producers, and resellers. Long-term contracts would prevent customers from switching suppliers, and thus foreclose alternative suppliers from the market. This would hinder the development of competition following liberalization. The Commission was concerned by both the duration of the contracts and the volumes of gas tied to Distrigaz. Only very large buyers could in practice have more than one supplier. Commitments were accepted under which in each year at least 65% of the gas supplied to industrial users and electricity producers would be opened up to the competing bids of other suppliers. No new contract with industrial users or electricity producers would last for more than five years. Contracts existing for more than five years may be terminated. Contracts with resellers must not exceed two years. There will be no tacit renewal clauses. The commitments are to apply for four years (regarded as the period of liberalization of the Belgian gas market) but only as long as 8

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included in the decision a detailed explanation of why the commitments were proportional. Moreover, the Commission specified that it could reopen the proceedings at a later time in case of a material change in the facts on which the decision was based, in line with Article 9(2)(a) of Regulation 1/2003, in order to ensure that the commitments remain proportionate to the underlying competition concerns.11

2.1. Effects of a Commitment Decision The undertaking to which commitment decision is addressed must, of course, implement the commitments. Otherwise, the Commission may impose a fine amounting to a maximum of 10% of the company’s turnover, as well as periodic penalty payments until it complies. Moreover, national courts must enforce the commitments through any means provided for by national law, including the adoption of interim measures. The CFI’s reasoning in Alrosa with respect to the erga omnes effects of commitment decisions seems to confirm that third parties who are beneficiaries of a commitments decision have the right to rely on the decision before national courts and national competition authorities. As noted above, Article 9 decisions are silent on whether there was or still is a breach of EU competition rules. Thus, a customer or a competitor possibly seeking private enforcement in national courts still needs to prove the illegality of past behavior to obtain compensation for damages. Notwithstanding the existence of a commitments decision, it appears that the undertakings concerned may still face enforcement action before Member State authorities and courts, provided that the uniform application of the competition rules throughout the EU is not jeopardized. A commitment decision is a substitute for a prohibition decision. The commitment decision is solicited by an undertaking under investigation and agreed to by the Commission where its enforcement priorities justify this choice. The undertaking under investigation uses the commitment procedure in an effort to minimize the negative effects of the investigation.

Distrigaz has a market share of more than 40% and at least twice the market share of its nearest competitor. Contracts may not include restrictions on resale or use. 11 Ibid., paras. 36–37. Article 9(2) of the Regulation includes the possibility of reopening proceedings, at the Commission’s initiative or upon request, in cases of (i) a material change in any of the facts on which the decision was based; (ii) a violation of the commitments; or (iii) a decision based on incomplete, incorrect or misleading information provided by the parties.

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2.2. The Scope of Remedies If commitment decisions cannot go further than prohibition decisions to provide remedies for infringement, it becomes necessary to clarify how far prohibition decisions can go. Thus, if measures are to be taken to restore or recreate competitive conditions that have been weakened or eliminated by unlawful conduct, those measures should be general measures taken in the public interest by a competition authority, and not in private litigation for the benefit of an individual competitor. Commitment decisions will be particularly useful in cases in which the remedy needed is complicated. Hence, it is clear that commitment decisions are a useful tool which enables the Commission to address cases that are difficult to deal with or which would otherwise necessitate an amount of time and effort that the Commission could not provide.

2.3. Commitments: Recent Developments and Some Thoughts from the Defendants’ Point of View Commitment decisions can be proposed and adopted typically in borderline cases, where the conduct under scrutiny is not clear-cut, for example where Article 81(3) EC should apply, and where the undertakings are willing to change their conduct to remove any of the Commission’s competition concerns. Clear-cut cartel cases, however, should not be the outer perimeter of the proposed settlement procedure. From the defendants’ point of view, settlements should also take place in cases that are not hardcore cartels, for instance abuses of dominant position or other agreements, such as serious vertical restraints. When the Commission deems it appropriate, it can accept commitments only in regard to some of the defendants. For instance, in Alrosa the CFI stated that an undertaking could offer commitments unilaterally. Article 9 would lose much of its usefulness in many cases if all companies affected by commitments had to be associated with the offer of those commitments.12 And if there are many parties involved, each with potentially conflicting interests, a commitment decision might be difficult to reach. 12 See Alrosa, cited supra note 3, at para. 90 (“If the correct interpretation were to be that all undertakings liable to be affected by behavioural commitments intended to put an end to an established or contemplated abuse must be associated with the offer of commitments in their capacity as undertakings concerned, that would result in the use of Article 9 of Regulation No 1/2003 being impossible in practice in most of the situations to which Article 82 EC applies.”).

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Most commitment decisions adopted by the Commission are so complicated and detailed that they are clearly the result of negotiations with the undertakings. (See, e.g., Bundesliga13 and Coca-Cola.14) In general, it is undesirable for the Commission to seek or accept commitments which may restrict the freedom of the companies to compete legitimately.15 Such commitments have in essence a regulatory flavour, and they may not be easily justified on competition law grounds. They are likely to be disproportionate. Indeed, the Commission could be tempted to use commitment proceedings to deal with unclear cases or regulate markets according to its own vision.16 The Alrosa judgment has re-established fundamental safeguards to limit the Commission’s discretion in the application of Article 9. In other cases, such as those concerning media rights to football matches, since the companies already have set rules regulating their affairs, the Commission only ensures that the companies’ relations are regulated in a non-restrictive manner. In these cases, the flexible procedural framework of Article 9 enables the parties and the Commission to negotiate conditions and remedies in order to achieve pro-competitive effects. In the context of air transport, as in the Austrian/SAS and Skyteam cases,17 the Commission has relied on its past practice to evaluate the solutions proposed by the parties, in conformity with its enforcement powers.18 13 Commission Decision 2005/396/EC of 19 January 2005 (Case COMP/37.214— Bundesliga), 2005 OJ L134/46. The Bundesliga case concerned joint selling of television and radio broadcasting rights for football matches in Germany. According to the Commission’s preliminary assessment, the clubs were prevented from dealing independently with television and radio companies, and competition in the sale of the rights was excluded. The Commission ultimately allowed joint selling by the clubs, on the basis that the football clubs committed themselves to offer rights for live broadcasts in several packages, by an open nondiscriminatory procedure, for a maximum of three seasons at a time. Each club would be free to sell rights to deferred broadcasts to free television and radio, and on mobile phone networks and the internet, but these should not interfere with the various packages. 14 Commission Decision 2005/670/EC of 22 June 2005 (Case COMP/39.116—CocaCola), 2005 OJ L253/21. The Coca-Cola case involved commitments throughout the EU. The company agreed to refrain from tying customers through exclusive supply arrangements, and to refrain from offering growth or target rebates. Furthermore, customers wishing to buy the best-selling brands will not be obliged to buy others as well. Rebates will not be made conditional on buying the other brands as well as the best-selling ones, or conditional on reserving shelf space for the entire range. Where Coca-Cola provides a free cooler, and there is no other chilled drink capacity in the outlet to which consumers have access, the operator may use 20% of the cooler for other companies’ products. 15 See John Temple Lang, “Commitment Decisions under Regulation 1/2003”, presentation, University of Liège, 5 June 2008. 16 See Temple Lang, cited previous footnote. See also Temple Lang, “Commitment Decisions and Settlements with Antitrust Authorities and Private Parties under European Antitrust Law”, in Barry Hawk, ed., International Antitrust Law and Policy: Fordham Corporate Law 2005, Juris Publishing, 2006, chapter 13; Christopher Cook, “Commitment Decisions: The Law and Practice under Article 9”, 29(2) World Competition 209 (2006). 17 Notice published pursuant to Article 27(4) of Regulation (EC) No 1/2003 in Case COMP/37.749, Austrian Airlines/SAS cooperation agreement, 2005 OJ C233/18; Notice published pursuant to Article 27(4) of Council Regulation (EC) No 1/2003 in Case COMP/37.984, SkyTeam, 2007 OJ C245/46. 18 These proceedings concern cooperation agreements between airlines. The commitments

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In addition, as the Commission makes no finding about whether an infringement has been committed in the past, decisions under Article 9 are not likely to lead to claims for compensation. As noted above under 2.1, plaintiffs bringing such actions would have to establish the existence of a past infringement in order to have any chance of collecting damages. This is plainly one of the advantages of the Article 9 procedure relative to the Article 7 procedure. An Article 9 decision can always be appealed by the addressee, even if the decision is based upon agreements freely entered into. Nevertheless, thiscircumstance will undoubtedly make it difficult to appeal such decisions successfully. In Alrosa, the applicant for annulment (Alrosa) succeeded in its appeal on two grounds. First, the Commission violated Article 9, combined with infringement of the right of freedom of contract and the principle of proportionality. Article 9 did not allow the Commission to impose binding commitments on an undertaking which had not voluntarily subscribed to them or to order the complete termination of the trading relationship, a remedy the CFI considered to be wholly disproportionate. Second, the company had been deprived of its right to be heard before the Article 9 decision was adopted in its final form. The Repsol commitment decision is now being challenged before the CFI by a service station that had a supply contract with Repsol, on the basis that the decision does not deal with competition concerns and violates the proportionality principle.19 In this case, the Commission’s concerns related to non-compete clauses in distribution agreements for motor fuel with service stations. Repsol gave commitments accepting the termination of the existing agreements, and agreeing to new contracts with a maximum duration of five years. Further, the company agreed not to buy any service stations that it did not supply on an exclusive basis.

3. Settlements in Cartel Cases Defendants can cooperate with the Commission under two Commission Notices, the Notice on Immunity from Fines and Reduction of Fines in Cartel Cases (the “Leniency Notice”) and the draft Settlements Notice.20 offered include the promise to make take-off and landing slots available to a new entrant (in Austrian Airlines/SAS) or to competitors (in SkyTeam), to enter into an interlining agreement with a new entrant, and to participate in a new entrant’s frequent flyer program on request. 19 Transportes Evaristo Molina, cited supra note 3. 20 The amendments to Regulation 773/2004, as suggested in the draft Regulation (cited supra note 1), would accommodate the settlement option within the existing framework. The Commission proposes: (i) variants in the provisions on issues such as initiation of proceedings, access to file and oral hearings; and (ii) choice for a different sequence of procedural steps, advancing some of them to a stage prior to the adoption of the SO.

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From the perspective of the proposals published by the Commission, a settlement is a formal infringement decision reflecting the findings of the investigation and imposing a fine, adopted at the end of a simplified procedure in which the addressees have expressly accepted liability for an infringement of Article 81. These decisions are designed to allow for settlements of cartel cases where the defendants not only acknowledge their involvement in the cartel and their liability for it but also agree to a faster and simplified procedure. From the Commission’s point of view, “settlements would aim to simplify the administrative proceedings and could reduce litigation in cartel cases, thereby freeing resources to pursue more cases. The draft proposal would allow the Commission to impose a lower fine on parties who agreed to the settlement procedure. This initiative complements the recent review of the Leniency Notice and the revised fines Guidelines.”21 A Commission decision finding an infringement and imposing fines pursuant to Articles 7 and 23 of Regulation 1/2003 will be adopted after a thorough investigation, irrespective of whether it is the standard procedure or the settlement procedure that applies. Thus, unlike in the US (where plea bargaining is often part of the investigative proceedings and used to collect evidence),22 the Commission will not use settlements as a tool of investigation. This implies that the Commission will already have carried out a preliminary investigation, assessed the facts and identified the most important evidence, before any settlement takes place. Under the proposed settlement procedure the Commission would neither negotiate nor bargain over the use of evidence or the appropriate fine, but could reward the parties’ cooperation to achieve procedural economies. Such cooperation would be different from the voluntary production of evidence to trigger or advance the Commission’s investigation, which is already covered by the Leniency Notice. However, the Commission regards the leniency policy and the settlement procedure as complementary.23 Nonetheless, in a multiple defendant scenario, settlements could become a tool to gather information against other defendants in the same proceedings. From the defendants’ point of view, the settlement procedure would allow undertakings to admit involvement in a cartel, settle liability, and receive potentially reduced fines in bilateral discussions with the Commission, rather than having to submit to a time-consuming and onerous full cartel investigation. Defendants would have neither the right nor the duty to settle, but in cases where undertakings were convinced that the Commission could prove 21

See Commission Press Release IP/07/1608 of 26 October 2007. See John Ratliff, “Plea Bargaining in EC Anti-Cartel Enforcement—A System Change?”, in Claus-Dieter Ehlermann and Isabela Atanasiu, eds., European Competition Law Annual 2006: Enforcement of Prohibition of Cartels, Hart Publishing, 2007, pp. 597 et seq. 23 See Commission Press release IP/07/1608 of October 26, 2007. 22

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their involvement in a cartel, a settlement could be reached with the defendants on the scope and duration of the cartel, and their individual liability for it. To this end, when the Commission decides to explore the settlement procedure, defendants would be made aware of the envisaged objections and the evidence supporting them, and would be allowed to state their views on the matter in anticipation of the formal objections.24 If defendants choose to introduce a settlement submission, the Commission will issue a brief Statement of Objections endorsing the contents of the parties’ written settlement submission. This SO would be much shorter than a normal SO in a fully adversarial procedure. Since defendants would have been heard effectively in anticipation of the “agreed” SO, other procedural steps would be simplified so that, following confirmation by the concerned undertakings, the Commission could proceed to adopt a final decision. Accordingly, defendants should be able to envisage the kind and extent of cooperation expected from them in order to settle and estimate the individual benefits of settling. The Commission has to grant equal treatment of all parties in the same case. Moreover, if only some parties have requested settlement discussions and the Commission still considers the case suitable, it could engage in bilateral and confidential settlement discussions, with the disclosure of essential elements, e.g., facts, classification, evidence, gravity, duration, attribution of liability and range of likely fines. (See draft Notice, para. 5.) At all times prior to adoption of its decision under Article 7, the Commission would retain the discretionary option not to accept the parties’ settlement submission. In that case the ordinary procedure would apply. If no settlement was explored or reached, the standard procedure would apply by default and remain the fallback option. Finally, according to paragraph 31 of the draft Notice, if the Commission (i.e, the College of Commissioners) endorses the settlement results, “the fact that an undertaking cooperated with the Commission under this Notice during the administrative procedure will be indicated in any decision, so as to explain the reason for the level of the fine.”

3.1. Settlements in Cartel Cases: Some Thoughts from the Defendants’ Point of View As it stands, the proposed settlement procedure is heavily weighted in favour of the Commission. This can be seen from the following factors: 24 It must be underlined that by far the greatest concern expressed in the literature on plea bargaining is related to the inadequate representation of defendants. See OECD Policy Roundtable on Plea Bargaining/Settlement of Cartel Cases (2006), DAF/COMP(2007)38 of 22 January 2008, at p. 33.

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• Pursuant to paragraph 3 of the draft Notice, Regulation 773/2004 bestows on the Commission the discretion as to whether to explore the settlement procedure or not in cartel cases. Undertakings would only be able to enter into settlement discussions at the invitation of the Commission. • The Commission would have broad discretion as to which cases are fit for the settlement procedure. Moreover, the Commission would be able to terminate settlement discussions at any stage of the proceedings. In this regard, paragraph 5 of the draft Notice reads: “the Commission retains a broad margin of discretion to determine which cases may be suitable to explore the parties’ interest to engage in settlement discussions, as well as to decide to engage in them or discontinue them or to definitely settle”. • The Commission would not be bound by the terms of settlement proposals until it adopts its final decision. It can be expected that with a procedure that favours the Commission so heavily, defendants’ settlement submissions may well reflect this difference in the relative positions of the two sides. It seems, in other words, that settlement candidates will have to be willing to make concessions in their settlement submissions.25 On the other hand, defendants participating in the settlement proceedings would have the opportunity: • to be informed of the charges and supporting evidence the Commission has against them at an early stage of the proceedings; and • to assess the range of likely fines and decide whether to pursue the settlement option by issuing a settlement submission, which, if accepted, could result in a relatively quick close to an otherwise lengthy cartel investigation. The burden of providing a realistic settlement submission is on the defendant. When a “common understanding” is reached, the Commission sets a time limit for the undertaking to complete a written submission. This submission is fundamental, as it sets out the extent of liability and fines that the defendant is willing to accept. The draft Regulation requires the submission to contain the following: an unequivocal acceptance of liability, the main facts of the company’s cartel involvement, the maximum fine the undertaking considers acceptable, and confirmation that the undertaking gives up certain rights of defence, as set out below. The settlement submission is binding, and if the Commission accepts the defendant’s perimeter on liability and fines, the defendant may not revoke its submission. If the Commission subsequently departs from the agreed caps on liability or fines, or if its interpretation of the facts of the cartel involvement is different from that of the defendant, the settlement submission is deemed 25 See Denis Waelbroeck, “Le développement en droit européen de la concurrence des solutions negociées (engagements, non-contestations des faits et transactions): que va-t-il rester aux juges?”, GCLC Working Paper 1/08.

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to be withdrawn and cannot be used against any of the parties to the proceedings. Accordingly, the defendants are allowed to present their defence anew in accordance with the general rules of procedure. (See draft Notice, paras. 27 and 29.)

3.2. The Cost and Risk of Settling in Cartel Cases To participate in the settlement procedure, the undertakings concerned will have to accept that their standard rights of defence will be significantly reduced. For example, settling defendants will have limited access to the file, and they will only see those documents that the Commission deems relevant in proving their participation in the cartel. A defendant may request access to documents, but it will have no right of access. The Commission will thus be able to withhold documents if it does not consider them to be of use to the undertaking, or if granting access to the documents might jeopardize the time savings sought by means of settlement. Moreover, it is unclear whether the Commission will disclose “favourable” documents to the defendants. The draft Notice simply provides that, “when the progress made during the settlement discussions leads to a common understanding regarding the scope of the potential objections and the estimation of the range of likely fines to be imposed by the Commission, [. . .] upon written request by a party, the Commission services will also grant access to non-confidential versions of any accessible document listed in the case file at that point in time, in so far as they consider it justified for the purpose of enabling the party to ascertain its position regarding any other aspect of the cartel [. . .]”26 Therefore, a possible concern for defendants is lack of information or unequal information, because settlement proceedings can lead to inequitable and inefficient results, and the risk that settlements which occur too early in an investigation could have an increased likelihood of inefficient results.27 Undertakings wishing to settle will also have to forego the right to challenge the Commission’s allegations contained in its SO in written or oral submissions. Relinquishing these fundamental rights could be viewed as a major disadvantage to undertakings wishing to settle cartel cases. Documents produced by other defendants could contain exculpatory evidence and, given the lack of any opportunity to confront witnesses, the ability to review such evidence could be a valuable right.

26

Draft Notice, cited supra note 1, para. 17. See Stephen Schulhofer, “Plea Bargaining as Disaster”, 101 Yale Law Journal 1979, 1988 (1992); Stephanos Bibas, “Plea Bargaining Outside the Shadow of the Trial”, 117 Harvard Law Review 2463, 2531 (2004). 27

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However, if the Commission attempts to impose liability or fines above the levels accepted by the defendant in the settlement submission, the standard rights would be immediately re-established. Nonetheless, two important safeguards would also be available to protect the interests of the undertakings settling cartel cases: (i) they would have the right to ask the Commission’s Hearing Officer to review any issues of alleged procedural irregularity; and (ii) they would retain the right to appeal the Commission’s final decision in accordance with Article 230 EC. Furthermore, the Court of Justice has unlimited jurisdiction to review sanctions imposed pursuant to Article 23 of Regulation 1/2003.

3.3. Rewards for Settlements in Cartel Cases The settlement procedure is intended to reward defendants for expediting the cartel investigation process.

3.3.1. Fines and Negotiations Where an undertaking has settled with the Commission, the fine paid by the undertakings would be lower than the fine that would have been imposed if the investigation had run its full course. All the members of the same cartel that settle with the Commission would receive the same reduction in fines because they would be considered to have contributed equally to expediting the proceedings. The Commission’s proposals do not indicate the likely size of reductions (see draft Notice, para. 32). However, the Commission has stated that these discounts would not be as large as the reductions to fines which are currently applied under the leniency program. A recent study suggested that, between 1999 and 2006, the average reduction in fines in cartels obtained in appeals before the CFI was approximately 18%.28 It is therefore realistic to expect that the fine reduction should at least match this level.29 It has yet to be ascertained whether the final discount on 28 See Cento Veljanovski, “Penalties for Price-Fixers: An Analysis of Fines Imposed on 39 Cartels by the EU Commission”, in 27 European Competition Law Review 510 (2006). 29 In this regard, see OECD, “Plea Bargaining”, cited supra note 24, at p. 21. The OECD report also underlined how differences in enforcement procedures can have a substantial impact on the duration of investigations of the same cartel, even if two authorities are equally committed to fighting hard core cartels. The report further noted that appeals against a competition authority’s decision in a cartel case can frequently prolong the case for many years and ultimately result only in a relatively modest reduction of fines, if any, without no effect on the finding of liability. As a telling example, the report cited the international lysine and citric acid cartels. In 1996, Archer Daniels Midland pled guilty in the US and agreed to pay a fine of 100 million dollars, while almost ten years later, in May

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the sanction could also correspond to a fixed sum instead of a percentage reduction. It is understood that defendants who settle with the Commission and who also qualify and actively cooperate under the leniency program would have both reductions applied cumulatively to their fines (see draft Notice, para. 33), although undertakings would be unable to qualify for the leniency program once the settlement process began. The iterative process of settling a cartel case will effectively mean some form of negotiation, including negotiation as to the level of fine that would be appropriate under the circumstances. The settlement reduction will be deducted from the fine that an undertaking would normally have to pay according to the provisions of the Commission’s Fining Guidelines. The draft Notice and draft Regulation state, respectively, that the Commission should provide the defendants with “an estimation of the range of the likely fines” and inform them of the “eventual fine”. In general, the Guidelines set out a two-step methodology for the setting of fines. First, the Commission will determine a basic amount for each undertaking. Second, it may adjust that basic amount upwards or downwards. The basic amount will be set as a percentage of the value of the undertaking’s sales of goods or services to which the infringement directly or indirectly relates in the relevant geographic area within the EEA. In particular, the calculation of the fine involves several considerations: • A starting point based on turnover and the seriousness of the infringement (e.g., the percentage of the affected turnover that would be taken into consideration by the Commission to calculate the basic amount of the fine and the likely amount of the additional “entry fee”); • A multiplier according to the duration of the infringement; • The need for a deterrent effect (see Section 2(C) of the Fining Guidelines and para. 32 of the draft Notice), with a maximum deterrence multiplier of 2; • Aggravating and/or mitigating factors; and • An overall cap of 10% of worldwide annual turnover (which is a meaningful cap in particular for small undertakings). Defendants should be also aware of the exact definition of the relevant product and geographic market, as well as the precise duration of the infringement.

2006, the European Court of Justice finally issued its judgment in proceedings following the Commission’s investigation of the same lysine cartel. The ECJ rejected an appeal of the CFI’s judgment, which had reduced ADM’s fine from approximately 47.3 million euros to 43.9 million euros but had otherwise confirmed the Commission’s decision. See Case C-397/03 P, Archer Daniels Midland v Commission [2006] ECR I-4429 (upholding Case T-224/00, Archer Daniels Midland v Commission [2003] ECR II-2597).

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Will the defendants be able to negotiate with the Commission on the substance of the case (seriousness, market definition, duration)? Defendants will naturally hope for flexibility, perhaps not to argue the case in full, but to point to particular weaknesses in the Commission’s allegations. Issues such as duration or gravity may well be topics for discussion, or the suitability of a “single, continuous infringement” charge. In any case, the Commission should be transparent in practice on the likely level of the fine reduction, especially if it is considering leniency applications at the same time that it holds settlement discussions. This may be an argument in favour of waiting until the SO phase, when leniency rewards are clear, subject only to ongoing cooperation.30 Moreover, the Commission cannot increase gross fines, either in settlement cases or generally, in order to provide the headroom for significant settlement discounts. If the Commission were to take this approach, this would reduce the settlement offer and the value of the settlement initiative in real terms. Defendants would prefer a standard infringement decision in order to preserve the possibility of full scrutiny by the CFI.

3.3.2. Fast-Track Cartel Proceedings Defendants who settle with the Commission would receive an additional benefit. Settlement should offer a fast-track procedure for dealing with cartel cases. Currently, companies have no option but to become involved in the standard, drawn-out cartel investigation. A fast-track procedure should allow settling defendants to save both time and costs. These savings, however, will not be guaranteed. An undertaking would not know that its settlement package had been accepted until it received the Commission’s final decision, endorsing its settlement submission. Up until this point, the Commission could abandon the process by issuing a fresh set of charges in a new SO, requiring the undertaking to defend the case. This wide discretion of the Commission to abandon the settlement process, even after all discussions have been completed and the case appears to have been settled, means that in some cases undertakings would have to bear not only the costs of a full cartel proceeding but also the extra costs of the unsuccessful attempt to settle the case.

30 Paragraph 33 of the draft Notice states: “In cases settled with leniency applicants, the reduction of the fine granted to them will be the sum of the leniency reward and the settlement reward.”

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3.3.3. Relationship between Settlements before the Commission and Private Enforcement Private litigation is a factor that could influence the outcome of cartel settlements in several ways, as defendants will be aware that the scope and content of their settlements with the Commission could affect their exposure to damage awards in private follow-on actions. For instance, in some cases a defendant might prefer a settlement which covers a shorter period of time, and to secure this from the Commission it might be willing to pay a relatively higher fine. This could be the defendant’s preferred outcome if admitting guilt for a shorter period would reduce exposure to private liability, and if the reduced liability would outweigh the higher fine under the settlement. The prospect of private follow-on actions could therefore create incentives for a defendant to accept a relatively high fine when settling with the Commission. The Commission’s preferred solution should ideally be determined by the goal of maximizing overall deterrence. Probably, in the Commission’s view, imposing a lower fine, as a price for obtaining a guilty plea, could be justified if the guilty plea makes private litigation more likely and if litigation would lead to damage awards that exceed the amount of the fine reduction granted in the settlement. The role of a public authority is to detect and deter infringements, while the burden of proving causation and damages falls to the private litigant. Shorter and more streamlined Commission decisions would contain fewer factual details and thus less evidence that could be used in private litigation. This would create a greater need for a system of evidence disclosure during civil proceedings.31 However, if the Commission adopts a fully reasoned decision and publishes it earlier for settling undertakings, they will be exposed to damages much earlier compared to non-settling undertakings. This will be the case especially where, upon conclusion of the ordinary procedure, the Commission’s decision is appealed to the CFI and the national court hearing the private suit suspends its proceedings. Accordingly, the publication of settlement decisions should take place only when the case as a whole is concluded. Finally, the ability of the Commission to ensure confidentiality, particularly of failed settlement discussions, would influence the success of negotiated proceedings. Increasingly, class action plaintiffs in the US are attempting to obtain discovery of cartel activities in Europe. Defendants would be reticent to participate in European settlement discussions if the proceedings, whether successful or not, would subsequently become public. Therefore, in settlement proceedings before the Commission, there is a need to find the

31 On discovery issues, Commission, White Paper on Damages actions for breach of the EC antitrust rules, COM(2008) 165 of 2 April 2008.

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right balance between the admission of liability and acceptance of the fine, and a restricted disclosure of evidence to third parties.

3.3.4. Other Critical Issues Several other important issues and remarks may be highlighted here in brief: • The proposed system of settlements is limited to cartel cases;32 it does not apply to other antitrust cases. This policy might be questioned, however, since, for example, serious vertical restrictions (which could not be resolved by an Article 9 decision if serious enough to warrant fines) might also be appropriate for settlement. It appears that, in private litigation, settlements have been reached mostly in cases of abuse of dominance. Presumably, the Commission limited the proposed settlement procedure to cartels because they hinge primarily on evidence, whereas it is rare for serious disputes to arise regarding a cartel’s anticompetitive effects. • If some but not all defendants in a case want to settle, there is a question as to whether this should be possible. “Partial” settlements, i.e. settlements concluded with some defendants but not others, should be encouraged.33 However, according to one Commission official, if the normal procedure is required for at least one undertaking, there will be no partial settlement, even if all the other undertakings want to settle and even if the unwilling party is a leniency applicant.34 This position does not seem justified. Furthermore, the Commission should consider granting more generous fine reductions to settling defendants, as they would be exposed to private claims based on the final decision adopted for non-settling parties. • Settlement case selection is prosecutor-driven, whereas a settlement procedure should be open to recognizing defendants’ needs and incentives. • A short-form decision would make settlement more attractive to defendants and thus easier to achieve. The Commission proposes that decisions in settlement proceedings will be streamlined but will nevertheless contain a significant amount of detail. The more detailed the SO, the more likely it is that there will be some facts, or a characterization of facts, to which the company cannot agree. • The draft Notice acknowledges that the right of appeal is retained, although it is hard to imagine a settling party appealing if the settlement process has been fully transparent. 32 Moreover, not all cartel cases will be suitable for settlement. As noted earlier, the Commission has wide discretion to determine which cartel cases are eligible. 33 It is equally possible to imagine a settlement which is partial in the sense that it covers some but not all of the alleged infringements. Where appropriate, these too should be available as an option for the Commission and the parties. 34 Kirtikumar Mehta, “Recent Developments in Anti-cartel Enforcement”, presentation, Université Libre de Bruxelles, 6 May 2008.

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• Could greater fine reductions be awarded by the Commission when there is no leniency applicant, or when the admission of liability comes relatively early in the investigation? • There is some debate at EC level about whether defendants and/or their counselors should be able to speak to one another about the fact that they are engaged in settlement discussions, or indeed their content. In our view, defendants should be able to speak to each other. This is not only because this might increase the likelihood that cases will be settled, and so increase the value of settlement to the Commission. The possibility to communicate with other parties with respect to relevant aspects of the investigations is an element of a defendant’s fundamental right to manage its defence.

4. Final Remarks Following the modernization of Community antitrust law, the Commission’s role has to some degree evolved. In the application of Articles 81 and 82 it mainly plays the role of public prosecutor and judge. The principle of proportionality developed in Alrosa has ensured that the Commission could not use commitment decisions to go beyond what is necessary in the application of the competition rules. This limitation seems likely to ensure that the Commission will respect the rule of law, and that it will not use commitment decisions to adopt quasi-regulatory solutions. Similarly, in order to serve the public interest, the Commission must ensure the fairness of its enforcement proceedings, and this applies especially to the initial phase of settlement proceedings, when defendants submit their written submissions setting out the extent of liability and the fines they are willing to accept. Therefore, transparency and impartiality of the negotiated phase of settlement proceedings, and a correct and equal application of the Fining Guidelines, must be ensured. The Commission’s discretion must “follow a coherent and non-discriminatory policy which is consistent with the objectives pursued in penalizing infringements of the competition rules”.35 Indeed, the use of transparent and predictable procedures would facilitate settlements. It would ensure that defendants are aware of the rewards for cooperation and of the risks in case of non-cooperation. Information asymmetries and uncertainty can interfere with settlements. Conversely, transparency and predictability should increase the willingness to settle, and should enhance the probability of reaching agreement on the terms of the 35 Guidelines on the method of setting fines imposed pursuant to Article 15(2) of Regulation No. 17 and Article 65(5) of the ECSC Treaty, 1998 OJ C9/3, preamble.

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settlement, including any “likely” fine. In this regard, it would seem desirable to adopt clearer Fining Guidelines in order to impose limits on the exercise of the Commission’s discretion in the settlement procedure. This could also be useful for ensuring respect of the principle of equal treatment. Only clear-cut cases should be eligible for settlement proceedings. When a clarification of the law is needed, for example because of the complex nature of the facts and evidence relied on, the Commission should opt for fully adversarial proceedings and thereby pave the way for effective judicial review.36 The introduction of a cartel settlement procedure also raises the point that cartels, if settled on excessively generous terms, can potentially weaken deterrence. Moreover, “there might be a temptation to use settlements to quickly clear an agency’s docket and get rid of ‘difficult’ cases, rather than to pursue the public interest in maximizing deterrence”.37 As for commitment decisions under Article 9, the Commission, as noted earlier, has apparently been surprised by their popularity. This is probably an indicator that defendants appreciate negotiated solutions, and that they would also accept the Commission’s invitation to settle cartel cases. However, the lack of (strong) judicial control of negotiated solutions, where the Commission has wide discretion, could undermine Community competition policy in the medium and long term, ultimately weakening the validity of the Community legal order. For reasons we have explained, it will be very important for commitment decisions and settlement decisions to be submitted, as much as possible, to full review by the Community Courts.

36 For instance, the Commission should also avoid settling a case at too early stage of the investigation, when it has not yet established all the relevant facts, as it would be impossible to reopen the case at a later point in time (ne bis in idem principle). 37 OECD, “Plea Bargaining”, cited supra note 24, at p. 43.

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IV Shepard Goldfein and Thomas Pak* Negotiated Antitrust Settlements: Some Perspectives from U.S. Defendants

I. Introduction Negotiated settlements are a hallmark of antitrust litigation in the United States. The incentives for corporate defendants to settle cases brought under the Sherman and Clayton Acts1 are manifold: the unpredictability of judicial rulings and (even more so) jury verdicts, the risk of treble damages,2 one-way shifting of legal costs in favor of plaintiffs,3 extremely broad discovery under the Federal Rules of Civil Procedure resulting in lengthy and expensive litigation, negative publicity, negative effects on employee morale, and disruption to ongoing business operations, among others. Not surprisingly, the vast majority of antitrust civil cases that survive dispositive motions are resolved in a negotiated manner—settlement agreements for cases brought by private plaintiffs and consent judgments or decrees for cases brought by government agencies (U.S. Department of Justice or Federal Trade Commission4) rather than a full trial on the merits. In fact, both the federal courts and federal antitrust enforcers have expressly supported policies encouraging settlements.5 Moreover, all civil antitrust settlements with the DOJ and the FTC * Mr Goldfein is a partner and Mr Pak is counsel in the Antitrust practice group of Skadden, Arps, Slate, Meagher & Flom LLP in New York City. 1 In addition, most individual states have antitrust laws that are substantially similar to the federal antitrust laws. 2 Upon a finding of liability under any federal antitrust law, Section 4 of the Clayton Act provides for the automatic trebling of whatever damages have been found. 15 U.S.C. § 15. 3 Section 4 of the Clayton Act also provides that prevailing plaintiffs in federal antitrust cases are entitled to reimbursement of costs and reasonable legal fees from the defendant (in addition to treble damages). No such provision allows prevailing defendants to collect costs or fees from losing plaintiffs. 4 To avoid confusion, this article henceforth refers to the U.S. Department of Justice as the “DOJ,” the U.S. Federal Trade Commission as the “FTC,” and the Commission of the European Communities as the “Commission.” 5 See United States v. Microsoft Corp., 56 F.3d 1448, 1456 (DC Cir. 1995) (reversing district court’s refusal to approve consent decree and remanding with instructions to approve such consent); Re Corrugated Container Antitrust Litigation, 643 F.2d 195, 212 (5th Cir. 1981) (noting the “policy of the law generally to encourage settlements”); Federal Trade Commission Operating Manual § 6.2 (“the Commission’s policy is to secure an effective order—by consent if feasible”), http://www.ftc.gov/foia/ch06consents.pdf; Reply of the United States to Actel’s Opposition to the United States’ Motion for Entry of the Final Judgments 7, United States v. Verizon Communications Inc. and MCI, Inc., Civil Action

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must be publicized with an opportunity for public comment;6 similarly, all federal class action settlements must be publicized and approved by a U.S. district court judge (typically with a written opinion) pursuant to Federal Rule of Civil Procedure 23(e). Thus, defendants (or at least their counsel) in U.S. cases can draw upon extensive and well-developed precedents, procedures, and practices to guide them in the settlement process. In contrast, defendants to antitrust proceedings in Europe have substantially less guiding precedent, largely because historically there has been substantially less antitrust litigation in the EU and its member states that could be the basis for developing such precedent. Negotiated settlements with the Commission in the form of voluntary commitments under Article 9 of EC Regulation 1/2003 have only been available since 2004. While EC law guarantees the right to compensation for parties injured by antitrust violations under Articles 81 and 82 of the EC Treaty,7 for various cultural, historic, and political reasons that are beyond the scope of this chapter, none of the EU member states has developed a robust practice for private antitrust claims; accordingly, they all lack well-developed precedents for settling such private claims. Indeed, the Commission recently released its much-anticipated White Paper on Damage Actions for Breach of the EC Antitrust Rules,8 which sets forth a number of the Commission’s proposals intended to promote more effective private damages causes of actions under Articles 81 and 82, while avoiding some of the excesses and abuses that are perceived to be inherent in the U.S. civil litigation system. Nonetheless, the White Paper leaves open a number of issues relating to the interaction between negotiated settlements through voluntary commitments of Commission actions and settlements of private antitrust claims in the national courts of EU member states. The White Paper also does not address the interaction between settlements of private European antitrust claims and settlements of private U.S. antitrust claims. This latter issue is important, particularly for the large, multinational corporations that tend to be the defendants in major antitrust/competition cases, as the current global business economy becomes ever more interconnected. No. 1:05CV02103 (EGS) (D.D.C. May 31, 2006) (noting “the critical role that consent decrees play in public antitrust enforcement”), http://www.usdoj.gov/atr/cases/f216400/ 216425.pdf. 6 See Section II.A, infra. 7 See Joined Cases C-295 to 298/04, Manfredi [2006] ECR I-6619; Case C-453/99, Courage and Crehan [2001] ECR I-6297. 8 COM(2008) 165 of Apr. 2, 2008, available at http://ec.europa.eu/ comm/competition/ antitrust/actionsdamages/files_white_paper/whitepaper_en.pdf. At the same time, the Commission also released the accompanying Commission Staff Working Paper, SEC(2008) 404, 2.4.2008, available at http://ec.europa.eu/comm/competition/antitrust/ actionsdamages/files_white_paper/working_paper.pdf. The Staff Working Paper provides more detailed explanation and analysis behind the White Paper recommendations.

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This article provides some observations and analyses on these two interrelated issues. First, we describe the extensive processes and procedures for negotiated settlements of U.S. antitrust actions, both criminal and civil, both with government agencies and with private plaintiffs. We then compare U.S. settlement practices and procedures with negotiated settlements in the EU, particularly with regard to several issues that are still unresolved in the EU but have become well-developed in U.S. practice, and see how that comparison helps us analyze and illuminate those issues. Finally, this article analyzes a number of issues that might arise from interactions, inconsistencies, and even conflicts between civil settlements in the EU (including its member states) and civil settlements in the U.S.

II. Settlements in U.S. antitrust cases The settlement process for federal antitrust cases, although evolved over time, is fairly well-settled. This section first describes negotiated settlements of criminal actions for hard-core cartel activities through the DOJ’s corporate leniency program. Then we describe civil consent judgments (with the DOJ) and consent orders (with the FTC). Finally, we provide a description of settlement of private antitrust causes of actions, including Rule 23 class actions.

A. Criminal Prosecution and the DOJ’s Corporate Leniency Program Violations of Sections 1 and 2 of the Sherman Act9 are expressly felonies, which the DOJ has the authority to prosecute criminally.10 However, this authority has been tempered by the Supreme Court’s holding that a constitutional requirement of any criminal prosecution under the Sherman Act is a finding of mens rea on the part of the defendants, i.e., that the defendant had criminal intent to violate the antitrust laws.11 Thus, as a practical matter, the DOJ only prosecutes hard-core, unambiguously anticompetitive cartel activities that are per se violations of the Sherman Act, such as horizontal pricefixing, bid-rigging, and customer or market allocations.12 Besides individuals, 9

15 U.S.C. §§ 1 and 2. Only the DOJ (including individual U.S. Attorney’s Offices) has authority to prosecute federal crimes. The FTC is not part of the DOJ, but rather an independent federal agency, and thus cannot prosecute crimes, although it can (and does) investigate and bring civil enforcement actions, as discussed, infra. 11 See United States v. United States Gypsum Co., 438 U.S. 422 (1978). 12 See U.S. Department of Justice, Antitrust Division, An Antitrust Primer for Federal Law Enforcement Personnel 4 (Aug. 2003, rev. Apr. 2005) (“Price fixing, bid rigging, and 10

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corporations can be criminally prosecuted under the Sherman Act, and while corporations obviously cannot be incarcerated, they are subject to fines up to $100 million under the Sherman Act itself, or potentially even larger fines under the alternative fine provisions of 18 U.S.C. § 3571(d).13 In the EU, the Commission does not possess criminal enforcement authority. However, for corporate defendants, Article 23 of EC Regulation 1/2003 is a rough analogue to the criminal fines provision of the Sherman Act in that Article 23(2) provides for the imposition of fines on any corporation that infringes Articles 81 or 82 of up to 10% of the corporations most recent annual revenues. A corporation that has engaged in criminal violations of the Sherman Act may be able to avoid prosecution under the DOJ’s Corporate Leniency Policy.14 The Policy sets forth two separate scenarios where leniency may be granted to a corporation. If the DOJ has not yet begun an investigation into the relevant conduct, leniency is available if each of the following six conditions is met: 1. At the time the corporation comes forward to report the illegal activity, the [Antitrust] Division [of the DOJ] has not received information about the illegal activity being reported from any other source; 2. The corporation, upon its discovery of the illegal activity being reported, took prompt and effective action to terminate its part in the activity; 3. The corporation reports the wrongdoing with candor and completeness and provides full, continuing and complete cooperation to the Division throughout the investigation; 4. The confession of wrongdoing is truly a corporate act, as opposed to isolated confessions of individual executives or officials; 5. Where possible, the corporation makes restitution to injured parties; and 6. The corporation did not coerce another party to participate in the illegal activity and clearly was not the leader in, or originator of, the activity.15 market allocation are generally prosecuted criminally because they have been found to be unambiguously harmful, that is, per se illegal.”), available at http://www.usdoj.gov/atr/ public/guidelines/209114.pdf. Similarly, although violations of Section 2 of the Sherman Act are technically criminal violations, the DOJ currently has a policy of not bringing criminal prosecutions under Section 2 unless the defendant has used or threatened violence to eliminate competition. Ibid. 13 The computation of criminal fines for corporations for antitrust offenses under the United States Federal Sentencing Guidelines is somewhat complex, but a reasonably good and succinct explanation is provided in Scott D. Hammond, “Measuring the Value of SecondIn Cooperation in Corporate Plea Negotiations,” Address to the 54th Annual American Bar Association Section of Antitrust Law Spring Meeting 4 fn. 4 (Mar. 29, 2008), http://www.usdoj.gov/atr/public/speeches/215514.pdf. To date, the largest U.S. antitrust criminal fine imposed was $500 million against Hoffmann-La Roche in 1999. See U.S. Department of Justice, Antitrust Division, Sherman Act Violations Yielding a Corporate Fine of $10 Million or More (Aug. 1, 2007), http://www.usdoj.gov/atr/public/criminal/ 225540.htm. 14 U.S. Department of Justice, Antitrust Division, Corporate Leniency Policy (Aug. 10, 1993), http://www.usdoj.gov/atr/public/guidelines/0091.htm. 15 Ibid. at Section A (emphasis added in points 4 and 5).

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If the DOJ has already begun an investigation, or if the corporation cannot fulfill all six of the requirements set forth above, leniency may still be available if each of the following seven conditions is met: 1. The corporation is the first one to come forward and qualify for leniency with respect to the illegal activity being reported; 2. The Division, at the time the corporation comes in, does not yet have evidence against the company that is likely to result in a sustainable conviction; 3. The corporation, upon its discovery of the illegal activity being reported, took prompt and effective action to terminate its part in the activity; 4. The corporation reports the wrongdoing with candor and completeness and provides full, continuing and complete cooperation that advances the Division in its investigation; 5. The confession of wrongdoing is truly a corporate act, as opposed to isolated confessions of individual executives or officials; 6. Where possible, the corporation makes restitution to injured parties; and 7. The Division determines that granting leniency would not be unfair to others, considering the nature of the illegal activity, the confessing corporation’s role in it, and when the corporation comes forward.16 Significantly, the conditions italicized above would have direct and important effects on civil private antitrust claims that concurrently or subsequently may be brought against a corporation that has successfully been granted leniency by the DOJ. First, the “confession of wrongdoing” requirement essentially obviates the need for private plaintiffs to prove that the defendant corporation has violated the Sherman Act. Indeed, any attempt by the defendant corporation in related civil litigation to deny facts consistent with its violation, or to aver facts inconsistent with its violation, (for example in its answer or dispositive motion) would be grounds for revocation of the leniency.17 In this sense, acceptance into the leniency program has the same prima facie evidentiary effect on the issue of Sherman Act violation in related 16 Ibid. at Section B (emphasis added in points 4–6). If a corporation successfully obtains leniency under either Section A or B, then typically all of the corporation’s directors, officers, and employees who admit to the violation and cooperate with the DOJ are also granted leniency from criminal prosecution. Ibid. at Section C. The DOJ also has an Individual Leniency Policy. Corporations that are not eligible for the Corporate Leniency Program may still obtain a reduction of sentence if they plead guilty, rather than are convicted after trial, and particularly if they provide useful cooperation to the DOJ in prosecuting other coconspirators. See United States Sentencing Commission, Guidelines Manual § 8C4.1 (Nov. 2007); Hammond, “Value of Second-In Cooperation”, supra note 13, at 4–8. 17 Until recently, it was an open questions as to whether a corporation’s acceptance into the leniency program was discretionary on the part of the DOJ (and at what level of discretion) or whether the leniency program created an enforceable obligation on part of the DOJ, i.e., so long as the corporation fulfilled each of the enumerated requirements, the DOJ would be obligated to grant leniency. However, last year, a U.S. District Court held that the DOJ could not unilaterally revoke leniency previously granted to a corporation, which

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civil litigation as a criminal conviction either from a guilty plea or guilty verdict after trial;18 plaintiffs need only prove that the defendant’s violation caused them antitrust injury and the amount of damages. Indeed, concerns arose that corporations contemplating an application for leniency faced a Hobson’s choice—on the one hand, a corporation that opts not to cooperate with the DOJ and foregoes leniency must then hope that the DOJ does not indict (or if it does indict, it lacks sufficient legal or evidentiary basis to convict), but may face substantial criminal penalties if convicted, along with likely treble damage liability in follow-on civil litigation. On the other hand, if the corporation does successfully seek leniency, it avoids criminal penalties, but at substantial prejudice to its ability to defend itself from subsequent (and likely) private civil treble damage actions. The DOJ, among others, became concerned that the prospect of subsequent large treble damages would create a disincentive for corporations to use its leniency program, so, in 2004, with the DOJ’s support, Congress amended the treble damages provision of Section 4 of the Clayton Act19 to provide for single damages to corporations that successfully participate in the leniency program and cooperate with plaintiffs in related civil actions.20 The second interaction between the leniency program and related civil litigation actually benefits both corporate defendants and private plaintiffs. The requirement that “the corporation makes restitution to injured parties” can be satisfied through monies paid in settlement of related private civil litigation, since the plaintiffs in those cases are typically the very same “injured parties” contemplated by the Leniency Policy. This is in marked contrast with monies paid by a corporation to satisfy criminal fines, which are paid to the U.S. government, not to any private “injured parties”; thus payments to private antitrust plaintiffs to satisfy a settlement agreement or treble damages judgment must be made in addition to, not in lieu of, any criminal fines. These features of the DOJ’s leniency program combine to create strong, almost irresistible, incentives for a corporate defendant in the leniency program to settle related civil actions: (i) the corporation is severely prejudiced in had fulfilled all the required conditions of leniency, and then subsequently prosecute that corporation. See United State v. Stolt-Nielsen S.A., 524 F. Supp.2d 586, 606, 609 (E.D. Pa. 2007) (dismissing indictment against corporation). The DOJ announced that it would not seek an appeal of that decision. See DOJ Press Release (Dec. 21, 2007), http://www.usdoj. gov/atr/public/press_releases/2007/228788.pdf. Skadden, Arps acted as counsel to StoltNielsen when it initially obtained leniency. 18 15 U.S.C. § 16(a), see discussion, infra, in Part II.B. 19 15 U.S.C. § 15. 20 Antitrust Criminal Penalty Enhancement and Reform Act (“ACPERA”), Pub. L. No. 108-237, § 213, 118 Stat. 661, 666–67. For a description of the legislative history of ACPERA, see Makan Delrahim, then-Deputy Assistant Attorney General, “Current Developments at the Antitrust Division: Remarks to the Leadership Council, Section of Antitrust Law, American Bar Association,” Aug. 8, 2004, at 16–17, http://www.usdoj.gov/atr/public/ speeches/205630.pdf. The single damages provision of ACPERA was extended to June of 2010 by Pub. L. No. 111–30.

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its ability to defend itself in related civil litigation; (ii) by cooperating with plaintiffs, the corporation can de-treble its damages, thus reducing its potential monetary exposure by two-thirds; and (iii) the corporation’s settlement payments to private litigants can be directly applied to its obligation under the leniency program to provide restitution to “injured parties.”

B. Civil Consent Judgments/Orders While the DOJ, as a matter of constitutional law and internal policy, limits its criminal enforcement activities to hard-core cartel conspiracies, it, along with the FTC, have much broader discretion to investigate and litigate civil enforcement actions. Thus, both the DOJ and FTC regularly engage in civil investigations relating to conduct that typically would not be subject to criminal prosecution, such as Section 1 violations under a “rule of reason” theory, monopolization under Section 2, and pending or past mergers under Section 7 of the Clayton Act.21 Another major difference between criminal and civil antirust enforcement is the remedy typically used. While criminal penalties include incarceration (for individuals) and payment of monetary fines (for individuals and corporations), civil enforcement does not involve incarceration (by definition) and usually does not involve payment of fines.22 Instead, the government agencies typically seek injunctive relief, either behavioral or structural, to address the alleged anticompetitive effects of the defendants’ 21 15 U.S.C. § 18. In fact, in the recent N-Data consent order, a divided FTC went so far as to rule that it had the authority to bring competition cases under Section 5 of the FTC Act, 15 U.S.C. § 45, against conduct that did not violate the Sherman Act. See FTC Press Release, January 23, 2008, http://www.ftc.gov/opa/2008/01/ethernet.shtm. The FTC has sole authority to enforce Section 5, which makes unlawful “[u]nfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce.” Although the FTC has regularly brought Section 5 cases on consumer protection/consumer fraud grounds unrelated to competition issues, the FTC’s policy prior to N-Data had been to bring Section 5 competition cases only against conduct that would be deemed to violate the Sherman Act or Clayton Act as well. 22 There are two exceptions where defendants may pay monies in civil enforcement actions by federal agencies. First, under Section 4A of the Clayton Act, the DOJ may sue and recover treble damages on behalf of the federal government itself (including any of its agencies) whenever the government is the victim of an antitrust violation. 15 U.S.C. § 15a. The other exception involves violations of the pre-merger notification requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, 15 U.S.C. § 18a, and the FTC regulations promulgated thereunder, 15 C.F.R. §§ 801.1 et seq., which are subject to fines of up to $11,000 per day during the duration of the violation. Defendants also may be subject to fines or other monetary sanctions to the extent they violate existing court or FTC orders, as discussed, infra. In addition, under Section 4C of the Clayton Act, an individual state attorney general may bring damages actions in federal district court as parens patriae on behalf of any persons living in that state, although any damages award must deduct any damages already awarded to those injured parties in related actions, such as related private treble damages actions. 15 U.S.C. § 15c.

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conduct on a going-forward basis, rather than seek monetary restitution for victims of past anti-competitive harm. In that sense, just as Commission enforcement under Article 23 is the analogue DOJ criminal enforcement under the Sherman Act, Commission enforcement actions for “behavioural or structural remedies” under Article 7 of EC Regulation 1/2003 are the analogue to DOJ and FTC civil enforcement actions seeking injunctive relief. In the majority of DOJ and FTC civil actions, relief is obtained via negotiated settlements, rather than full adjudication on the merits.23 Indeed, most of these settlements are agreed to during the investigatory process24 and prior to any formal initiation of litigation. This section first describes settlements with the DOJ via consent judgment and then FTC consent orders, which follow analogous procedures. Finally, this section discusses the significant advantages of negotiated settlements, for both the enforcement agencies and defendants, which have resulted in the overwhelming prevalence of such disposition of enforcement actions compared to full adjudication on the merits.

1. DOJ Consent Judgments Pursuant to the Antitrust Procedures and Penalties Act,25 a proposed consent judgment used to settle a DOJ action must be filed with a U.S. district court and published in the Federal Register for at least 60 days, with an opportunity for any interested party to submit comments. Along with the proposed consent, the DOJ must also file and publish a separate competitive impact statement (CIS), which sets “forth the information necessary to enable the court and the public to evaluate the proposed judgment in light of the government’s case. Its object is to explain why the proposed judgment is appropriate under the circumstances and why it is in the public interest.”26 In many instances, the DOJ and the defendant agree on the proposed consent during the DOJ’s investigation and prior to the formal filing of any complaint; in 23

See infra. The DOJ has authority to seek compulsory process for civil investigations pursuant to the Antitrust Civil Process Act, 15 U.S.C. § 1312, and the FTC has authority to do so under the FTC Act, 15 U.S.C. § 49. Also, both the DOJ and FTC can seek additional information through a so-called “second request” from parties engaging in mergers or acquisitions subject to Hart-Scott-Rodino filing requirements. 15 U.S.C. § 18a(e). 25 Also known as the Tunney Act, 15 U.S.C. § 16. 26 U.S. Department of Justice, Antitrust Division Manual, § IV.E.1.a, http://www.usdoj. gov/atr/foia/divisionmanual/ch4.htm#e. Pursuant to the requirements of the Tunney Act, the CIS should contain the following six sections: 24

(1) the nature and purpose of the proceeding; (2) a description of the practices giving rise to the alleged violation; (3) an explanation of the proposed final judgment; (4) the remedies available to potential private litigants; (5) a description of the procedures available for modification of the judgment; and (6) the alternatives to the proposed final judgment considered by the Division. Ibid.; see also 15 U.S.C. § 16(b).

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such cases, the DOJ files the complaint, the proposed settlement, and the CIS simultaneously with the district court. Prior to becoming a final consent judgment, the reviewing district court judge must determine that the proposed consent “is in the public interest.”27 Reviewing district courts have almost always approved proposed consents, although in some instances the approval has come after modification or clarification in response to public comments or the court’s own concerns on specific issues.28 In the rare instances where the district court has outright rejected the proposed consent, the DOJ and the defendant jointly had standing to appeal that rejection order.29 Otherwise, defendants typically waive their right to appeal once the consent is approved by the district court, although a defendant subsequently may seek modification or even termination of the consent judgment upon a sufficient showing that relevant business and/or market conditions have changed such that the original consent no longer serves its original purpose, or a change of applicable law.30 A defendant must seek such modification or termination from the district court, usually with the agreement of the DOJ, but may obtain a modification or termination from the district court, even over the objection of the DOJ, upon a proper showing.31

2. FTC Consent Orders Negotiated settlements with the FTC follow an analogous, but somewhat different, procedure stemming from the different status of the FTC, which, unlike the DOJ, is an independent federal agency that has its 27

The court must take into consideration the following factors:

(1) the competitive impact of such judgment, including termination of alleged violations, provisions for enforcement and modification, duration or relief sought, anticipated effects of alternative remedies actually considered, and any other considerations bearing upon the adequacy of such judgment; (2) the impact of entry of such judgment upon the public generally and individuals alleging specific injury from the violations set forth in the complaint including consideration of the public benefit, if any, to be derived from a determination of the issues at trial. 15 U.S.C. § 16(e). 28 See, e.g., United States v. Thomson Corp., 949 F. Supp. 907 (D.D.C. 1996). 29 See United States v. Microsoft Corp., 56 F.3d 1448, 1446–57 (DC Cir. 1995) (noting that both DOJ and defendant must jointly appeal rejection of proposed consent—if one party does not appeal, then issue is moot because there is no longer any agreement between parties and thus no “consent”). 30 See United States v. Eastman Kodak Co., 63 F.3d 95, 109 (2d Cir. 1995); United States v. Motor Vehicle Manufrs. Assoc., 643 F.2d 644 (9th Cir. 1981). The standard DOJ consent decree terminates by its own terms after ten years, although the DOJ may negotiate differing termination provisions depending on the specific circumstances. See Antitrust Div. Manual, § IV.E.1.d.2. 31 See, e.g., United States v. Culbro Corp, 504 F. Supp. 661 (S.D.N.Y 1981).

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own rule-making and adjudicatory authority. FTC enforcement actions against corporate respondents are initiated with the filing of an administrative complaint with the FTC itself pursuant to Section 5(b) of the FTC Act 32 and are adjudicated by an FTC administrative law judge pursuant to the Administrative Procedure Act.33 Thus, proposed FTC consent orders are not filed with or approved by a district court. Instead, the proposed consent is reviewed and vetted by supervisors within the FTC’s Bureau of Competition and Bureau of Economics and then provisionally accepted by a majority of the five FTC commissioners.34 Such proposed consents are not subject to the Tunney Act, but must satisfy the requirements of FTC Rule 2.32.35 Similar to DOJ consents, most FTC consents are agreed to during the FTC’s investigation phase and prior to the commencement of any administrative adjudication.

32 15 U.S.C. § 45(b). The FTC need only appear before a U.S. District Court if it seeks preliminary relief (e.g., a temporary restraining order or preliminary injunction to stop a pending merger) under Section 13(b) of the FTC Act, 15 U.S.C. § 53(b), pending final resolution of the administrative action. In addition, a respondent may seek review of an adverse final FTC order with the U.S. Court of Appeals. 15 U.S.C. § 45(c). 33 5 U.S.C. § 554. 34 See Rule 2.34 of the FTC Rules of Practice, 16 C.F.R. § 2.34. In some instances, the FTC and the respondent may agree to a consent after the administrative complaint has been issued, in which case the FTC withdraws the action from the administrative law judge, pursuant to FTC Rule 3.25. Then the proposed consent must go through the same approval, publication, and comment process set forth in Rule 2.34. 16 C.F.R. § 3.25. 35 16 C.F.R. § 2.32, the full text of which is as follows:

Every agreement in settlement of a Commission complaint shall contain, in addition to an appropriate proposed order, either an admission of the proposed findings of fact and conclusions of law submitted simultaneously by the Commission’s staff or an admission of all jurisdictional facts and an express waiver of the requirement that the Commission’s decision contain a statement of findings of fact and conclusions of law. Every agreement also shall waive further procedural steps and all rights to seek judicial review or otherwise to challenge or contest the validity of the order. In addition, where appropriate, every agreement in settlement of a Commission complaint challenging the lawfulness of a proposed merger or acquisition shall also contain a hold-separate or asset-maintenance order. The agreement may state that the signing thereof is for settlement purposes only and does not constitute an admission by any party that the law has been violated as alleged in the complaint. Every agreement shall provide that: (a) The complaint may be used in construing the terms of the order; (b) No agreement, understanding, representation, or interpretation not contained in the order or the aforementioned agreement may be used to vary or to contradict the terms of the order; (c) The order will have the same force and effect and may be altered, modified or set aside in the same manner provided by statute for Commission orders issued on a litigated or stipulated record; (d) Except as provided by order of the Commission, any order issued pursuant to the agreement will become final upon service; (e) The agreement will not become a part of the public record unless and until it is accepted by the Commission; and (f ) If the Commission accepts the agreement, further proceedings will be governed by Sec. 2.34.

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Then, also similar to a proposed DOJ consent judgment, the proposed FTC consent orders must be published in the Federal Register for 30 days with an opportunity for public comment, along with a statement to aid public comment, which is similar to the DOJ’s CIS. After the comment period expires, the FTC may accept the proposed consent as final, may reject it and file an administrative complaint, or may amend it with the agreement of the respondent.36 Also, just as a DOJ consent judgment may be modified by the district court, any party subject to an FTC consent order can petition the FTC to modify or set aside that order upon a proper showing of “changed conditions of law or fact,” pursuant to FTC rule 2.51.37

3. Advantages of Consents in Civil Enforcement Actions While DOJ consent judgments and FTC consent orders follow somewhat different procedures, they share a number of important features that are directly relevant to affected third parties and related private causes of actions. The first relates to the ability of third parties to participate in government enforcement actions. As noted, supra, affected third parties have the right to comment on proposed consents during the public comment period, and, in fact, consents are sometimes modified in response to such public comments. Moreover, the fact that a proposed consent must be publicized gives notice to affected third parties that they may have colorable treble damages claims against the defendants/respondents. However, third parties generally have very limited rights directly to intervene in a Tunney Act proceeding to approve a DOJ consent,38 and usually no opportunity at all to intervene in the FTC’s approval process for a consent order.39 In addition, because consent judgments are court-ordered, the DOJ has the authority to enforce them by bringing contempt proceedings with the district court; in contrast, private third parties have no standing to enforce, modify, or terminate consent judgments.40 Similarly, Section 5(l) of the FTC Act authorizes the FTC to seek civil fines of up to $11,000 per day for violations of any FTC order, including

36

FTC Rule 2.34(3)(1), 16 C.F.R. § 2.34(3)(1). 16 C.F.R. § 2.51. 38 The Tunney Act does allow the reviewing district court to “authorize full or limited participation in proceedings before the court by interested persons or agencies, including . . . intervention as a party pursuant to the Federal Rules of Civil Procedure.” 15 U.S.C. § 16(f)(3). However, the DOJ typically opposes such formal third-party intervention, which has been rarely granted by the district court. See United States v. Microsoft Corp., 159 F.R.D. 318 (D.D.C.), rev’d on other grounds, 56 F.3d 1448 (D.C. Cir. 1995). 39 Third parties may seek to intervene in an FTC adjudication proceeding “upon good cause shown” pursuant to Section 5(b) of the FTC Act. 15 U.S.C. § 45(b). However, since most FTC consents are negotiated and agreed to prior to the filing of any administrative complaint, third parties usually have no ability to intervene. 40 See New York v. Microsoft Corp., 224 F. Supp.2d 76, 180–82 (D.D.C. 2002). 37

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consent orders, but provides no private third parties with standing to enforce, modify, or terminate any FTC orders.41 Another importance effect (or non-effect) of consent judgments and consent orders is that the corporate parties subject to consents usually suffer very limited adverse evidentiary or preclusive effect in related civil litigation with private third parties. Offers of settlement and statements made in settlement negotiations to the DOJ or FTC by defendants are generally not admissible as evidence to prove liability or damages in any subsequent or concurrent litigation, under Federal Rule of Evidence 408.42 For any case brought by the DOJ, either criminal or civil, the Tunney Act expressly states that any final judgment or decree “to the effect that a defendant has violated [the antitrust] laws shall be prima facie evidence against such defendant in any action or proceeding brought by any other party against such defendant under [the antitrust] laws as to all matters respecting which said judgment or decree would be an estoppel as between the parties thereto.”43 However, the Tunney Act also expressly states that “this section shall not apply to consent judgment or decrees entered before any testimony has been taken.”44 Indeed, consent judgments routinely contain language that the DOJ and the defendants “have consented to the entry of this Final Judgment without trial or adjudication of any issue of fact or law, and without this Final Judgment constituting any evidence against or admission by any party regarding any issue of fact or law.”45 Similarly, where the FTC has fully adjudicated an enforcement action resulting in a final order that the respondent has violated the antitrust laws, that order can be used as prima facie evidence in other private causes of action, pursuant to the Tunney Act.46 In contrast, a consent agreement with the FTC must contain “either an admission of the proposed findings of fact and conclusions of law submitted simultaneously by the Commission’s staff 41 15 U.S.C. § 45(l); 16 C.F.R. § 1.98. Federal courts have unanimously ruled that private parties have no implied right to enforce the FTC Act. See Holloway v. Bristol-Myers Corp., 485 F.2d 986, 997 (D.C. Cir. 1973); Guernsey v. Rich Plan of the Midwest, 408 F. Supp. 582, 686–87 (D. Ind. 1976). 42 Such evidence may be admitted for collateral purposes, such as showing witness bias. F.R.E. 408(b). 43 15 U.S.C. § 16(a). In addition, as noted, supra Section II.A, although corporations admitted to the DOJ’s Corporate Leniency Program are not subject to an adverse antitrust judgment, the requirement that corporations must fully confess their participation in illegal conduct essentially has the same evidentiary and preclusive effect. 44 Ibid. 45 See, e.g., United States v. Verizon Communications. Inc., Final Judgment, Civil Action No. 1:05CV02103 (EGS) (D.D.C. Mar. 27, 2007), http://www.usdoj.gov/atr/cases/f222300/ 222305.pdf. 46 The only distinction between a final judgment obtained by the DOJ and a final order by the FTC regarding their respective evidentiary effect is that the former may also be used as collateral estoppel against the defendant where the requirements of collateral estoppel are otherwise met, while any findings in an FTC order are expressly not subject to collateral estoppel. 15 U.S.C. § 16(a).

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or an admission of all jurisdictional facts and an express waiver of the requirement that the Commission’s decision contain a statement of findings of fact and conclusions of law.”47 As a practical matter, respondents in FTC consents almost always insist on an admission only of jurisdictional facts and waiver of other findings of fact and conclusions of law. Accordingly, consent agreements routinely contain language that the “Consent Agreement is for settlement purposes only and does not constitute an admission by Proposed Respondents that the law has been violated as alleged in the draft of Complaint here attached, or that the facts as alleged in the draft of Complaint, other than jurisdictional facts, are true.”48 Thus, corporations subject to DOJ or FTC enforcement actions have a strong incentive to settle with the government by consent because such consents have minimal prejudicial impact on related private causes of actions, while a fully adjudicated adverse judgment or order would have significant prejudicial effects. In addition, both the government agencies and defendant corporations have other strong incentives to settle civil cases, including the following: Cost Avoidance and Conservation of Resources. Even without the prospects of treble damages or criminal fines, civil antitrust litigation with the government is extraordinarily expensive. Out-of-pocket costs for outside counsel, economic and industry experts, and discovery vendors to handle document and data productions, can easily exceed six or even seven figures per month for a corporate defendant. Although the government agencies typically do not have the same outside counsel or discovery costs that defendants do,49 they are subject to limited resources for internal staff attorneys, economists, and other professionals, who are required to investigate and then litigate a civil antitrust action to final judgment. Thus, both parties have strong incentives to conserve monetary and human resources through a negotiated settlement. Flexibility. The prevalence of injunctive rather than monetary relief in civil enforcement actions actually encourages negotiated settlements: on the one hand, the governmental agencies can fashion relief that addresses their specific competitive concerns, while at the same time corporate defendants can obtain a workable and economically viable solution. Litigating to a final judgment or order may lead to (i) on the one hand, injunctive relief that does not satisfactorily remedy the competitive concerns of the agency (or an order 47

FTC Rule 2.32, 16 C.F.R. § 2.32 (emphases added). See, e.g., Mylan Labs. Inc. and E. Merck oHG, Agreement Containing Consent Order, FTC File No. 071-0164 (Sept. 20, 2007), http://www.ftc.gov/os/caselist/0710164/ 070921agree0710164.pdf. 49 The DOJ and FTC usually litigate civil actions with their own salaried staff attorneys and supervisors. However, they often will retain outside (and high-priced) testifying economists. Also, in certain high profile cases, the government agencies may retain outside counsel, such as the DOJ did in its case against Microsoft. 48

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in favor of defendants with no relief at all), and/or (ii) on the other hand, relief that is impractical or even devastating to the defendant from a business perspective. Predictability/Finality. Antitrust litigation is also inherently unpredictable, both in terms of the outcome and timing. Both the government agencies and the corporate defendants have an interest in expeditious resolutions of civil enforcement actions: the government desires to end the alleged anticompetitive conduct as quickly as possible; the corporate defendants desire to have final guidance as to what conduct they can or cannot engage in; and all parties desire to conserve resources, as noted above. Moreover, the agencies can obtain relief where the prospects of successful litigation are uncertain (because of a novel legal theory and/or lack of persuasive evidence), but the relief sought does not materially adversely affect the defendant’s business operations (e.g., the divestiture of non-material assets). Finally, the government agencies have institutional interests in avoiding litigation losses that may result from full adjudication on the merits both for the potentially harmful legal precedents set and the negative effects on staff morale. Accordingly, the vast majority of civil investigations are not resolved by means of a litigated adjudication. In fact, from 1998 to 2007, the DOJ initiated approximately 1821 civil investigations, filed only approximately 143 cases in federal district court, lost or had dismissed only seven cases, and obtained “wins” in only 147 cases.50 Similarly, since the beginning of 2004 until March 2008, the FTC has brought approximately 110 enforcement actions, 20 of which resulted in parties the abandoning the conduct at issue, and 73 of which resulted in consent orders.51 Most of these consent judgments/orders involved resolution of claims under Section 7 of the Clayton Act relating to mergers and acquisitions.52

C. Settlements of Private Actions In addition to criminal and civil government enforcement actions, private causes of action under the Clayton Act53 for violations of the federal antitrust 50 U.S. Department of Justice, Antitrust Division Workload Statistics, FY 1998–2007, http://www.usdoj.gov/atr/public/workstats.pdf. The DOJ statistics for “wins” include actual litigated judgments, as well as consent judgments and even transactions or conduct that are abandoned voluntarily by the investigated parties. 51 Federal Trade Commission, Summary of Bureau of Competition Activity, Fiscal Year 2004 Through February 29, 2008, at 1, http://www.ftc.gov/reports/aba/ abaspring2008.pdf. 52 Summary of Bureau of Competition Activity; Antitrust Division Workload Statistics. 53 Section 4 of the Clayton Act, 15 U.S.C. § 15, provides standing to private parties who injured “by reason of anything forbidden in the antitrust laws” to sue for treble damages, while Section 16, 15 U.S.C. § 26, provides standing to private parties who are threatened with damage by an antitrust violation to seek injunctive relief.

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laws play an important and a uniquely prominent role in antitrust enforcement in the United States.54 While a number of other countries provide for private causes of actions based on their own competition laws (or EC law in the case of EU member states), in no other country do private causes of action currently play a significant role in antitrust enforcement.55 Not surprisingly, there is almost no precedent to guide parties and practitioners for private settlements of antitrust actions in the EU (or anywhere else outside the U.S.). In contrast, defendants in the U.S. regularly settle antitrust actions brought by private parties for many of the same reasons defendants settle civil antitrust enforcement actions brought by government agencies, as discussed in the previous section. In this section, we first brief describe private antitrust settlements in direct actions cases where the plaintiff is directly represented in the litigation. Then, we describe the more complicated procedures and practices related to settlement of class actions.

1. Direct Actions Parties to direct actions have wide discretion to fashion settlement agreements in whatever manner they mutually agree upon, consistent with general contract principles.56 Such settlements are typically not filed with or approved by the district court, and thus, unlike consent judgments/orders, discussed, supra, or class action settlements, discussed, infra, their terms are rarely published.57 Indeed, the federal courts have a strong policy in favor of settlements federal court litigation, including antitrust cases, and accordingly are reluctant to upset settlements among represented parties in direct actions.58 54 See Illinois Brick Co. v. Illinois, 431 U.S. 720, 745 (1977) (noting “the longstanding policy of encouraging vigorous private enforcement of the antitrust laws”); Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 131–32 (1969) (“Moreover, the purpose of giving private parties treble-damage and injunctive remedies was not merely to provide private relief, but was to serve as well the high purpose of enforcing the antitrust laws.”). 55 Indeed, in Europe the Commission’s White Paper was expressly intended to address this perceived shortcoming of antitrust policy in the EU by noting that “to date in practice victims of EC antitrust infringements only rarely obtain reparation of the harm suffered.” White Paper, supra note 8, § 1.1. 56 See Gutta v. Standard Select Trust Ins. Plans, 530 F.3d 614, 618 (7th Cir. 2008); Justine Realty Co. v. American Nat. Can Co., 976 F.2d 385, 391 (8th Cir. 1992) (“Settlement agreements are generally encouraged and favored by the courts. In the absence of mistake or fraud, a settlement agreement will not be lightly set aside.”). 57 There are two situations where settlement agreements in direct actions may become public: (i) if one or both parties are public corporations and the settlement terms would be deemed material to the corporation, those terms may need to be reported pursuant to SEC regulations; (ii) if a subsequent dispute arises as to the interpretation of or performance under the settlement, one of the parties may bring a separate action to enforce the settlement, which may require disclosure of the settlement in public pleadings or motion filings. 58 See supra note 5; D. H. Overmyer Co. v. Loflin, 440 F.2d 1213, 1215 (5th Cir. 1971) (“Settlement agreements are highly favored in the law and will be upheld whenever possible because they are a means of amicably resolving doubts and uncertainties and preventing lawsuits.”).

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2. Class Actions In federal district court a class action under Federal Rule of Civil Procedure 23 is a procedural device that combines the claims of a large number of individual plaintiffs into a single class action.59 One or more “class representatives,” who are directly represented by counsel in the litigation, bring claims on behalf of the class, which consists of a large number of similarly situated parties who are not directly represented in the litigation and are known as “absent” class members. While a few other countries, such as the UK, have adopted collective or representative action procedures that allow a potentially large number of similarly situated plaintiffs to join a single action, those systems have various procedural restrictions, such as requiring plaintiffs affirmatively to opt into the collective action, which has resulted in a dearth of such actions actually being commenced.60 In contrast, antitrust class actions are quite common in the U.S.,61 where class action procedures provide for passive membership in a class, whereby each member of a properly certified class is bound by the results of the class litigation, unless the class member affirmatively opts out.62 Class actions have three main purposes; the first is to facilitate actions to address legal wrongs that affect a large number of parties and thus may be large in the aggregate, but where the harm suffered by any individual party may be too small to provide sufficient incentive to initiate costly and potentially risky litigation to recover such small damages. Secondly, class actions promote efficiency and save judicial resources by reducing the need for multiple parties to engage in separate discovery, pleadings, motion practices, etc. Finally, class actions promote uniformity by eliminating (or at least decreasing) the chances of inconsistent or conflicting outcomes in multiple litigations. In contrast to direct actions, federal courts are required to take an active role in reviewing, overseeing, and approving settlements in federal antitrust class actions, pursuant to Rule 23(e), to protect the interests of the vast majority of class members who are “absent” and thus have no direct representation in the litigation. A district court must evaluate three aspects of class action settlements: (i) whether the proposed class is properly certifiable as a class action under rules 23(a) and 23(b), (ii) whether the settlement comports with 59 Rule 23 expressly applies both to plaintiff classes and to defendant classes, but for all practical purposes, only plaintiff classes are relevant to antitrust cases. 60 See Commission Staff Working Paper, Annex to the Green Paper, Damages Actions for Breach of the EC Antitrust Rules, SEC(2005) 1732 of Dec. 19 2005, http://ec.europa. eu/comm/competition/antitrust/actionsdamages/sp_en.pdf, at § 31. 61 One study determined that of the 1053 antitrust cases filed in federal district courts in 2006, approximately 49% (over 500 cases) were proposed class actions. See Law 360, 2007 Litigation Almanac 5. 62 In fact, with certain types of class actions, known as mandatory class actions, discussed infra, class members do not even have the ability to opt out.

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the proper procedural requirements embodied in Rule 23(e); and (iii) whether the settlement is “fair, reasonable, and adequate” under Rule 23(e)(2). The court typically issues a written opinion setting forth its reasons for approving (or disapproving) a proposed settlement. (a) Class Certification. In all class actions, whether settled or not, the district court must determine at “an early practicable time”63 after the filing of the action whether a proposed class can be properly certified. The motion for class certification is brought by the party seeking to be the class representative. To certify a class, the court must find that the four prerequisites of Rule 23(a) are satisfied: Numerosity. The number of class members must be “so numerous that joinder of all members is impractical.” Commonality. There must be “questions of law or fact common to” all members of the class. Typicality. The class representatives have claims and/or defenses that “are typical of the claims or defenses of the class.” This does not mean that the class representatives have identical claims with all members of the class, but, at minimum, it does require that class representatives actually be members of the defined class. Adequacy. The class representatives “will fairly and adequately protect the interests of the class.” Thus, for example, class representatives must not have a material conflict of interest with other members of the class. Once the court has determined that these prerequisites are met, it must then find that the proposed class satisfies the requirements of either a mandatory class or a permissive class under one of the subsections of Rule 23(b). Mandatory class actions, which must satisfy the requirements of Rule 23(b)(1) or 23(b)(2), typically involve situations where it would be unfair, impractical, or impossible to fashion multiple orders or adjudications that may be inconsistent or even conflicting, such as when the class seeks injunctive or declaratory relief against a defendant. Accordingly, absent class members do not have the right to opt out of a mandatory class to pursue their own direct actions. However, the vast majority of antitrust class actions focus on monetary relief, due to the availability of treble damages. Class actions seeking monetary damages are usually permissive class actions, which allow absent class members to opt out of the class and pursue their own claims directly against the defendants (or no claims at all). To certify a permissive class, the district court must find that the proposed class satisfies the two criteria of Rule 23(b)(3): predominance and superiority. First, “the questions of law or fact 63

Rule 23(c)(1)(A).

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common to class members predominate over any questions affecting only individual members.” Courts have generally interpreted this requirement to mean that common issues of law and fact govern the defendant’s liability (i.e., whether the defendant violated the antitrust laws and whether each class member has antitrust standing), but typically do not require commons issues relating to each class members’ damages.64 Second, the court must find that “a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.” At the time the court orders certification, it also orders that appropriate notice be made to class member under Rule 23(c)(2) explaining the lawsuit, providing the definition of the class, and explaining how class members can opt out (in the case of Rule 23(b)(3) permissive classes). The court also must appoint class counsel pursuant to Rules 23(c)(1)(B) & 23(g), which is significant because, as a practical matter, class counsel typically controls the legal strategy of the class with little, if any, input from the class representatives (and certainly none from the absent class members).65 Although Rule 23(c)(1)(A) expressly requires class certification be determined at “an early practicable time,” often, where the parties quickly recognize that the action will likely result in settlement, the certification motion is delayed and filed simultaneously with the motion preliminarily to approve the proposed settlement under Rule 23(e). (b) Procedural Fairness Once the court certifies the class, it must then ensure that the settlement process is fair. Class action settlements undergo a two-step procedure. First, the parties file a motion for preliminary approval, which must contain the actual proposed settlement agreement.66 This motion is almost always unopposed and usually granted by the reviewing court. Once the court preliminarily approves the settlement, it then directs that reasonable notice of the terms of the settlement be made to all class members as well as providing absent class members another opportunity to opt out.67 The court must also provide

64 See Re Visa Check/MasterMoney Antitrust Litig., 280 F.3d 124, 139 (2d Cir. 2001); Bogosian v. Gulf Oil Corp., 561 F.2d 434, 456 (3rd Cir. 1977). 65 In addition, as noted, infra, acting as class counsel can be enormously lucrative. For these reasons, there is often a competition among interest plaintiffs’ attorneys to be appointed as class counsel in major antitrust class actions. See, e.g., Re Auction Houses Antitrust Litig., 197 F.R.D. 71, 74 (S.D.N.Y. 2000) (competition among 20 law firms to act as class counsel). The authors acted as counsel of record to the Christie’s defendants in Auction Houses and related cases. 66 Rule 23(e)(3). 67 Rules 23(e)(1) and 23(e)(4). If the court certifies the class at the same time it preliminary approves the settlement, it typically orders a single notice combining the class notice under Rule 23(c)(2) with the notice of settlement and as a single opportunity to opt out of the class and the settlement.

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absent class members who do not opt out a reasonable opportunity to file written objections to the proposed settlement and to appear at a public hearing on final approval.68 (c) Substantive Fairness Finally, the court must find that the proposed settlement is substantively “fair, reasonable, and adequate” under Rule 23(e)(2). Typically, this means that the settlement amount must bear some rational basis in relation to the class’ prospect of success on the merits, including the likely amount of total damages,69 although the court is not supposed to decide legal and factual issues as if it were trying the case on the merits.70 The court will also consider several other factors, including: (1) the complexity, expense and likely duration of the litigation; (2) the reaction of the class to the settlement; (3) the stage of the proceedings and the amount of discovery completed; (4) the risks of establishing liability; (5) the risks of establishing damages; (6) the risks of maintaining the class action through the trial; (7) the ability of the defendants to withstand a greater judgment; (8) the range of reasonableness of the settlement fund in light of the best possible recovery; [and] (9) the range of reasonableness of the settlement fund to a possible recovery in light of all the attendant risks of litigation.71

In addition to the total amount of the settlement, the court must also find that the method of distributing and allocating the settlement proceeds to the individual members of the class is “fair, reasonable, and adequate.”72 For example, the court must ensure that the settlement proceeds are not disproportionately distributed to favored members of the class (or withheld from disfavored class members) and that the procedures for filing individual proof of claims are not too burdensome. In some cases, it may be appropriate for the court to certify subclasses within a class, each of which may be subject to different allocation amounts and methodologies.73 Finally, the court must approve the award of legal fees to class counsel,74 taking into account counsel’s 68

Rules 23(e)(2 and 23(e)(5). See Wal-Mart Stores v. Visa U.S.A., Inc., 396 F.3d 96, 118 (2d Cir. 2005); Re Auction Houses Antitrust Litig., 2001 WL 170792, at *7, 2001–1 Trade Cas. ¶ 73,170 (S.D.N.Y. Feb. 22, 2001). 70 See Robertson v. NBA, 556 F.2d 682 (2d Cir. 1977). 71 Auctions Houses, 2001 WL 170792, at *6 (internal quotation marks and footnote omitted). See also Wal-Mart, 396 F.3d at 117. 72 See Auction Houses, 2001 WL 170792, at *15 (finding allocation of settlement funds between class members who were buyers at defendants’ auction and class members who were sellers was fair); Re Cardizem CD Antitrust Litig., 218 F.R.D. 508, 531 (E.D. Mich. 2003). 73 See Re Corrugated Container Antitrust Litig., 643 F.2d 195, 219 (5th Cir. 1981). Rule 23(c)(5) expressly provides for subclasses. 74 In some cases, the settlement agreement itself expressly provides for the amount of class counsel’s fees. In other cases, the defendants agree that they will not oppose class 69

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experience and qualifications, the settlement outcome in relation to the likelihood of success and the factual and legal difficulties of the class claims, the magnitude and complexities of the litigation, the amount of work done in the litigation (discovery, motion practice, etc.), and the overall quality of legal work.75 (d) Coercive Nature of Antitrust Class Actions Critics of the U.S. class action system have bemoaned the inherently coercive nature of such procedures on defendants, and that coercive nature is literally trebled with antitrust class actions.76 Because permissive class actions seeking damages are opt-out classes, where class members needn’t do anything to be included, those classes tend to be enormous, often encompassing tens of thousands and even millions of individual members.77 While the individual claim of any given member likely is not very large, on the aggregate level, the total potential class claims against the defendants often exceed tens of millions or even hundred of millions of dollars (even before trebling). In contrast, individual class members, even class representatives, risk very little as a result of the contingency system unique to the U.S., pursuant to which class counsel takes no upfront fees from the class and actually advances the considerable litigation costs in return for highly lucrative fees on the back-end after successful monetary judgment or settlement. Such contingency fee arrangements can take a variety of forms but typically involve some percentage of the total monetary recovery for the class, whether by settlement or judgment. Thus, class counsel often has a direct interest in maximizing the recovery from defendants regardless of the merits of the class’ claims. Moreover, except in egregious cases, losing plaintiffs typically do not have to pay the legal costs of counsel’s motion for legal fees, which comes out of the total settlement proceeds. The advantage of the latter type of settlement for defendants is that the court’s approval of the settlement itself is not dependent on whether the court also approves of the proposed legal fees. See Re Visa Check/MasterMoney Antitrust Litigation, 297 F. Supp.2d. 503, 522–25 (E.D.N.Y 2003) (approving proposed settlement but reducing class counsel’s proposed fees by approximately 60%), aff’d sub nom. Wal-Mart Stores, Inc. v. Visa U.S.A., Inc., 396 F.3d. 96 (2d Cir. 2005). Indeed, courts have disapproved proposed class action settlements in antitrust cases where the legal fees were disproportionately high compared to the value of the settlement proceeds actually going to class members. See Re Matzo Food Prods. Litig., 156 F.R.D. 600, 606 (D.N.J. 1994). 75 See Re Visa Check, 297 F. Supp.2d. at 523–25 (listing factors). Some district court judges obviate the need to approve counsel fees by holding an auction for class counsel based in part on the fees that counsel will charge the class. See Auction Houses, 197 F.R.D. at 78–81 (detailing prior examples of use of auctions to choose class counsel). 76 Indeed, while the White Paper recommended more robust procedures to facilitate collective actions, White Paper, supra note 8, §2.1, the accompanying Staff Working Paper also reported the widespread concerns over “[e]xcesses in US class action litigation.” Staff Working Paper at ¶ 43 fn. 24. 77 As noted, supra, mandatory classes do not even allow individual class members to opt out; individuals who fit the definition of a certified class member are in the class whether they want to be or not.

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prevailing defendants, as is done in the UK and other EU states. Accordingly, there is little disincentive for plaintiffs’ counsel to bring as many purported class actions as possible, with minimal regard to the merits of such cases, in the hopes that a few of them will truly be meritorious and result in substantial fee awards. Another aspect of U.S. antitrust class action litigation that is coercive is the asymmetric nature of discovery, which skews heavily in favor of class plaintiffs. Absent class members are not subject to discovery at all and class representatives are typically subject to limited discovery regarding their appropriateness as class representatives under Rule 23(a)(3) and 23(a)(4). In contrast, defendants in antitrust class actions are typically subject to massive discovery, pursuant to the lenient standards of Rule 26(b)(1),78 covering all aspects of the defendants sales, marketing, business and strategic planning, competitive intelligence and analyses, financial reporting, new product development, and communications and meetings with competitors and/or customers. In the current age of electronic files and email, it is not uncommon for an antitrust defendant to produce millions of pages of documents and/or several terabytes of data, as well as have dozens of its current and former business executives be deposed. As a result, an antitrust defendant may spend tens of millions of dollars in out of pocket costs and fees just for discovery (not to mention the distraction and disruption to business operations).79 Not surprisingly, “the threat of discovery expense will push cost-conscious defendants to settle even anemic cases before reaching” the summary judgment or trial stage.80 However, in recent years, the federal courts have begun to swing the pendulum back in favor of antitrust defendants, both by limiting the substantive scope of the Sherman Act and by increasing the procedural requirements for alleging a violation of the Sherman Act. Over the last dozen years, the U.S. Supreme Court has consistently cut back on the per se doctrine,81 has 78

This Rule states in pertinent part:

Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party’s claim or defense — including the existence, description, nature, custody, condition, and location of any documents or other tangible things and the identity and location of persons who know of any discoverable matter. For good cause, the court may order discovery of any matter relevant to the subject matter involved in the action. Relevant information need not be admissible at the trial if the discovery appears reasonably calculated to lead to the discovery of admissible evidence. 79 See Bell Atlantic Corp. v. Twombly, 127 S.Ct. 1955, 1967 (2007) (noting the “unusually high cost” and “extensive scope of discovery in antitrust cases”). 80 Ibid. 81 See Leegin Creative Prods., Inc. v. PSKA, Inc., 551 U.S. 877 (2007) (minimum vertical price fixing no longer subject to per se rule); Illinois Tool Works Inc. v. Independent Ink, Inc., 547 U.S. 28 (2006) (valid patent does not create presumption of market power required for per se unlawful tying arrangement); Texaco Inc. v. Dagher, 547 U.S. 1 (2006) (prices set by legitimate joint venture not subject to per se rule); State Oil Co. v. Khan, 522 U.S. 3 (1997) (maximum vertical price fixing no longer subject to per se rule).

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restricted both the subject matter 82 and geographic jurisdiction83 of the federal antitrust laws, and has limited the scope of monopolization claims under Section 2 of the Sherman Act.84 Perhaps most significantly, in Bell Atlantic Corp. v. Twombly,85 the Supreme Court substantially heightened the pleading requirements for alleging an illegal conspiracy under Section 1 beyond the long-standing simple notice pleading requirement under Federal Rule of Civil Procedure 8(a)(2) that the Court had previously espoused.86 Rather, the Court required further allegations of specific facts plausibly suggesting an illegal agreement.87 In doing so, the Court noted that “it is only by taking care to require allegations that reach the level suggesting conspiracy that we can hope to avoid the potentially enormous expense of discovery in cases with no reasonably founded hope that the discovery process will reveal relevant evidence to support a § 1 claim.”88 Since that decision, federal courts have directly followed Twombly to dismiss numerous Section 1 claims for insufficient pleadings.89 Nonetheless, so long as a class in an antitrust action (i) becomes certified by the district court and (ii) avoids pre-discovery dismissal, the pressures on defendants are so great (both in terms of ongoing litigation costs and potential treble damages) that they are essentially compelled to settle. Not surprisingly, while there were at least a dozen federal antitrust class actions settled in 2007 in excess of $50 million, there was not a single federal antitrust class action that was litigated to a full trial on the merits in that year.90 82 See Credit Suisse Securities (USA) LLC v. Billing, 551 U.S. 264 (2007) (federal securities laws and regulations covering initial public offerings impliedly repealed federal antitrust laws with regard to those covered activities); U.S. Postal Service v. Flamingo Indus. (USA) Ltd., 540 U.S. 736 (2004) (federal antitrust laws do not apply to U.S. Postal Service or other agencies of federal government, even when engaging in commercial conduct). 83 See F. Hoffmann-La Roche LTD. v Empagran S.A., 542 U.S. 144 (2004) (Foreign Trade Antitrust Improvements Act, 15 U.S.C. § 6a, divests Sherman Act of jurisdiction over plaintiffs’ claims where defendants’ violation had worldwide effects, but the foreign effects of the violation were independent of the domestic effects and plaintiffs were injured solely by foreign effects). 84 See Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., Inc., 549 U.S. 312 (2007) (claim of predatory buying must satisfy same elements of predatory pricing, i.e., buying at levels that make it impossible for defendant to earn profit with likelihood that defendant will recoup lost profits in future); Verizon Comms. Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398 (2004) (monopolist has no duty to deal with its competitors). 85 127 S.Ct. 1955 (2007). 86 See Conley v. Gibson, 355 U.S. 41, 47 (1957). 87 See Twombly, 127 S.Ct. at 1968–69. 88 Ibid. at 1967 (internal quotes and brackets omitted). 89 See, e.g., Kendall v. Visa U.S.A., Inc., 518 F.3d 1042 (9th Cir. 2008); NicSand, Inc. v. 3M, 507 F.3d 442 (6th Cir. 2007); Re Elevator Antitrust Litig., 502 F.3d 47 (2007); Re Parcel Tanker Shipping Servs. Antitrust Litig., 2008–1 Trade Cas. ¶ 76,080, 2008 WL 899228 (D. Conn. Mar. 12, 2008). See also Cosmetic Gallery, Inc. v. Schoeneman Corp., 495 F.3d. 46 (3rd Cir. 2007) (applying Twombly to dismiss conspiracy claims brought under New Jersey state antitrust statute). 90 Law 360, 2007 Litigation Almanac 7. Nor are the authors are aware of any federal treble damage antitrust class action that has been fully tried since then.

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III. Open issues concerning EU antitrust settlements As we have seen, antitrust settlements in the U.S. are governed by detailed statutes, regulations, and rules, which themselves have been extensively interpreted by federal courts in published opinions. While, in many instances, these precedents and procedures weigh to the disadvantage of antitrust defendants, at least they and their adversaries (whether governmental or private) can rely on this well-developed area of law to guide them through the settlement process. As a result, so long as they are represented by competent and experienced counsel, parties to antitrust cases, whether government enforcement agencies, private plaintiffs, or defendants, often have a good idea fairly early in the proceedings (i) whether the case is likely to settle, and if so, (ii) the likely range or scope of such settlement in terms of monetary and/or injunctive relief. In contrast, parties to Commission enforcement actions and private antitrust actions in the EU member states have very little to guide them in settling such actions because of the dearth of such actions. Up to now, that has obviously benefited defendants, but if the recommendations of the Commission’s White Paper are to be taken at face value, we can expect a significant upsurge in private enforcement action in the coming years, as well as the potential increase in the use of negotiated commitments under Article 9. Accordingly, antitrust defendants and (perhaps more importantly) entities that may become antitrust defendants in future European private causes of actions should take heed as to how the practice and procedures for antitrust settlements should develop within the EU. This section addresses a number of open issues regarding negotiated settlements in Europe, both for enforcement actions brought by the Commission and settled pursuant to Article 9 and for private causes of actions.

A. Private Right of Enforcement of Article 9 Commitments Pursuant to Article 27: Where the Commission intends to adopt a decision pursuant to Article 9 or Article 10, it shall publish a concise summary of the case and the main content of the commitments or of the proposed course of action. Interested third parties may submit their observations within a time limit which is fixed by the Commission in its publication and which may not be less than one month.

Thus, negotiated settlements by commitment under Article 9 are subject to requirements for notice and public comment that are similar to those required for DOJ and FTC consents.91 As in the U.S., interested third parties can make their concerns known to the enforcement agencies, though they have no formal right to intervene. In addition, while it is well-settled in the U.S. that private 91

Article 27(4) of Regulation 1/2003.

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third parties have no right to enforce DOJ or FTC consents, as noted supra, third-party enforcement rights are an open issue with regard to Article 9 settlements.92 Nonetheless, there are several compelling policy reasons why third parties similarly should not have standing to enforce Article 9 commitments. First, third-party enforcement would impinge on the decision-making authority and prosecutorial discretion of the Commission, which may have valid policy reasons for selectively enforcing or modifying commitments, including the balancing of countervailing interests in the public sphere. In contrast, private parties only have their own interests in mind. Second, it would unnecessarily complicate the process of monitoring and complying with those commitments. For example, courts would need to determine which third parties have legitimate interests in enforcing the commitments and may also need to sort out competing (and potentially conflicting) enforcement priorities of the Commission and multiple interested third parties. Thus, allowing third party enforcement would defeat one of the main benefits of Article 9 over Article 7 and Article 23 proceedings—i.e., avoidance of protracted and complex litigation. Finally, antitrust defendants would have a substantial disincentive to offer commitments to the Commission out of fear that the whole process could be “hijacked” by a third party who is likely to be hostile to their interests.

B. Evidentiary/Collateral Estoppel Effect of Negotiated Commitments As already mentioned, in the U.S. the Tunney Act expressly provides for the evidentiary and preclusive effect of judgments and orders on defendants in subsequent private causes of actions—recognizing adverse judgments and orders as prima facie evidence that the defendant committed a violation, but placing no evidentiary weight on consent judgments and orders.93 In addition, Federal Rule of Evidence 408 generally excludes from admissibility all settlement negotiations with any government agency. The recent Commission White Paper expressly recommends that applications for leniency from Article 23 fines should be excluded from discovery and be inadmissible by private third parties seeking to bring their own actions against the same defendants.94 On the other hand, the White Paper is silent as to the whether, and to what degree, Article 9 commitments and commitment offers should have any evidentiary or preclusive effect in subsequent or related private damages actions. Certainly, it would be reasonable, even necessary, for a defendant that is offering a commitment to concede jurisdictional facts, as is routinely done with DOJ and FTC consents, to ensure that the Commission has the authority to enforce the commitment. 92 See Wouter Wils, “Settlement of EU Antitrust Investigations: Commitment Decisions under Article 9 of Regulation No 1/2003,” 29(3) World Competition 345 (2006). 93 15 U.S.C. § 16(a). 94 See White Paper, supra note 8, § 2.9.

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However, a defendant should not be required to concede any substantive facts relevant to a putative violation, such as the existence of an agreement, competitive effects, market power, barriers to entry, etc. For the same reasons that defendants routinely enter into consents in the U.S.,95 a defendant in the EU may offer and agree to a commitment under Article 9 even if the defendant believes it has not actually committed a violation of Articles 81 or 82: it may not want to antagonize Commission staff; it may wish to avoid a protracted and expensive Article 7 proceeding; the commitment may not materially affect its business, while the possibility of an adverse Article 7 order that imposes substantial restrictions may pose an unacceptable risk. Potentially the most important policy rationale against granting evidentiary and/or preclusive effect to Article 9 commitments is that doing so would result in a substantial disincentive for defendants to offer or agree to such commitments because those defendants would be prejudiced in their ability to defend themselves in subsequent private causes of actions. Defendants would be subject to increased litigation and liability risks, thus undercutting the primary advantage of commitments to begin with. Although historically there has been relatively little private enforcement of the antitrust laws in the EU, as private causes of actions increase in the EU member states, consistent with the goals of the White Paper, this disincentive would correspondingly increase.

C. Settlement of Collective Actions Another important recommendation in the White Paper is that collective procedures should be encouraged.96 However, neither the White Paper nor the accompanying Staff Working Paper specifically addresses procedures or standards for settlement of collective actions.97 Perhaps defendants in European antirust collective actions would be more willing to litigate than defendants in U.S. antitrust class actions because the procedures in EU member states (as recommended in the White Paper) would be less heavily skewed in favor of plaintiffs.98 95

See Part II, supra. White Paper, § 2.1. The White Paper makes a distinction between representative actions, brought by “qualified entities, such as consumer associations, state bodies or trade associations”, and collective actions brought by individual plaintiffs who combine their claims in a single action. For purposes of this article, the term “collective action” refers both to collective actions and representative actions, unless otherwise noted. 97 The White Paper generally recommends that “[d]ue consideration should be given to mechanisms fostering early resolution of cases, e.g., by settlements” without specific reference or recommendations for settlement of collective actions. Ibid. at § 2.8. 98 For example, the White Paper recommends that collective actions would only be opt-in, not opt-out actions, ibid. at § 2.1, which would substantially reduce the number of joined plaintiffs (and correspondingly reduce damage exposure for defendants). Elsewhere, the White Paper calls for “a minimum level of disclosure” for discovery, ibid. at § 2.2, in 96

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Nonetheless, it is reasonable to assume that a large percentage of collective actions would result in a negotiated settlement. From the defendants’ perspective, the most important aspect of any collective action settlement is that the settlement be binding on all plaintiffs in the action, particularly with regard to the release of claims. Thus, procedures should be developed by which a competent court (or other appropriate adjudicative entity) issues a judgment or other final order that expressly incorporates the settlement and the release therein to prevent members of the collective action from thereafter re-litigating the same claims on their own or opting into another collective action that seeks recovery for the same or overlapping claims.

D. Potential Conflicts Between EU and U.S. Private Actions Antitrust enforcement by governmental agencies has become more global as antitrust defendants’ business activities have become more global and the world economy has become more interconnected.99 The DOJ and FTC routinely cooperate with foreign antitrust agencies in both criminal and civil matters.100 Indeed, the DOJ and FTC have a formal agreement with the Commission regarding cooperation on antitrust enforcement activities.101 As contrast to the liberal discovery standard of Rule 26, which again would benefit defendants, who typically bear the lion’s share of discovery burdens. 99 See Anne K. Bingaman, Assistant Attorney General, “International Cooperation and the Future of U.S. Antitrust Enforcement,” Address before the American Law Institute 72nd Annual Meeting, May 16, 1996, at 2–5, http://www.usdoj.gov/atr/public/ speeches/0656.pdf; Deborah Platt Majoras, Chairman, U.S. Federal Trade Commission, “Convergence, Conflict, and Comity: The Search for Coherence in International Competition Policy,” Remarks at the 34th Annual Conference on International Antitrust Law & Policy, Fordham Competition Law Institute, Sept. 27, 2007, at 3–11, available at http://www.ftc.gov/speeches/majoras/070927fordham.pdf. 100 See FTC, “United States and European Union Antitrust Agencies Issue “Best Practices” for Coordinating Merger Reviews,” Oct. 30, 2002, http://www.ftc.gov/opa/2002/ 10/euguidelines.shtm; Makan Delrahim, Deputy Assistant Attorney General, “Antitrust Enforcement Priorities And Efforts Towards International Cooperation at the U.S. Department Of Justice,” Nov. 15, 2004, at 9–13, http://www.usdoj.gov/atr/public/speeches/ 208479.pdf; Charles A. James, Assistant Attorney General, “International Antitrust in the 21st Century: Cooperation and Convergence,” Address Before the OECD Global Forum on Competition, Oct. 17, 2001, http://www.usdoj.gov/atr/public/speeches/9330.pdf; Majoras, “Convergence, Conflict, and Comity”, cited previous footnote, at 4–5; Roscoe B. Starek, III, Commissioner, U.S. Federal Trade Commission, “International Cooperation in Antitrust Enforcement,” Prepared Remarks before the Annual Conference of the American Corporate Counsel Association, European Chapter, Sept. 29, 1997, http://www. ftc.gov/speeches/starek/londspch.shtm. 101 Agreement Between the Government of the United States of America and the Commission of the European Communities Regarding the Application of their Competition Laws, dated Sept. 23, 1991, http://www.usdoj.gov/atr/public/international/ docs/0525.pdf; Agreement Between The Government of the United States of America and the European Communities on the Application of Positive Comity Principles in the Enforcement of their Competition Laws, dated June 4, 1998, http://www.usdoj.gov/atr/ public/international/docs/1781.pdf.

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a result, multinational corporations subject to enforcement actions in multiple jurisdictions can typically expect coordinated treatment and consistent outcomes from the respective enforcement agencies.102 On the other hand, private antitrust plaintiffs in multiple jurisdictions have no mechanism or incentives to cooperate and coordinate with each other. Indeed, in situations where a defendant may have solvency issues, different plaintiffs have a strong incentive not to cooperate with each other in sharing a potentially limited pool of funds for compensation. Until now, this has not been a major issue, because private antitrust causes of action have largely been limited to the U.S., so defendants did not have to concern themselves with potentially conflicting foreign private litigation. But the prospects of increased private antitrust litigation within the EU also increase the potential for conflicts between EU litigation and U.S. litigation relating to the same allegedly illegal conduct. Potential conflicts in two areas come to mind. 1. Discovery Conflicts. Conflicts could arise regarding discovery rulings103 and inefficient and multiple discovery requests.104 Within the U.S. federal court system, discovery (and other pre-trial proceedings) among multiple cases relating to the same set of facts can be coordinated pursuant to the multidistrict litigation procedures.105 Obviously, there is no analogue for “multination” litigation, nor is one likely to be created by treaty in the foreseeable future. However, discovery within the EU is generally very limited, and even the White Paper recommends that its member states allow only “a minimum level of disclosure inter partes for EC antitrust damages cases” and also emphasizes that it is “important to avoid the negative effects of overly broad and burdensome disclosure obligations, including the risk of abuses.”106 Thus, as a practical matter, potential discovery conflicts between U.S. and European litigation may not be a significant problem. In any event, defendants may be able to obtain relief from conflicting discovery in U.S. district courts through an appropriate protective order.107 102 However, there have been some notable exceptions where U.S. and EU enforcement substantially diverged, such as the GE/Honeywell merger and the Microsoft monopolization cases. See Majoras, “Convergence, Conflict, and Comity”, cited supra note 99, at 2, 20–27. 103 For example, certain information may be protected from disclosure as privileged in one jurisdiction, but not another; certain information may be withheld from public disclosure as confidential material by a protective order in one jurisdiction, but not another. 104 This could be pertinent, for example, where the same individuals are deposed in multiple proceedings. 105 28 U.S.C. § 1407. 106 White Paper, supra note 8, § 2.2. This is clearly a reference to the U.S. discovery system. As the accompanying Staff Working Paper explains: Whilst it is essential to improve in antitrust damages cases access to evidence held by the opponent or third persons, the negative effects of certain systems of disclosure must be avoided. In some (non-European) jurisdictions [i.e., the U.S.], opponents or third persons are obliged to cooperate in potentially very wide-ranging, timeconsuming and expensive disclosure procedures on the basis of rather low thresholds. Staff Working Paper ¶ 93. 107 See Fed. R. Civ. Pro. 26(c).

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2. Double Recovery. The White Paper states that parties injured by antitrust violations should, “as a minimum, receive full compensation of the real value of the loss suffered.”108 However, the Commission expressly deferred recommending any specific methodology or formula for calculating those damages, and rather declared its intention “to draw up a framework with pragmatic, non-binding guidance for quantification of damages in antitrust cases, e.g. by means of approximate methods of calculation or simplified rules on estimating the loss.”109 Interestingly, the White Paper does address an important issue of inconsistent or multiple recoveries by recommending adoption of both the passing-on defense and standing for indirect purchasers in appropriate situations.110 The White Paper does not, however, consider another issue raising the prospect of inconsistent or multiple recoveries against defendants, i.e., cases where European courts and U.S. courts may have overlapping jurisdiction. As with potential discovery conflicts, this would not be a major issue so long as U.S. courts retain their near “monopoly” on adjudicating private antitrust damages actions. Indeed, when the prospects of obtaining money damages outside the U.S. were dim, foreign plaintiffs regularly brought federal antitrust claims seeking treble damages in U.S. district courts for conduct that occurred outside U.S. jurisdiction.111 Although Congress intended to restrict the extraterritorial scope of federal antitrust laws in 1982 with the Foreign Trade Antitrust Improvements Act (the “FTAIA”),112 some federal courts still engaged in an expansive reading of Sherman Act jurisdiction under the FTAIA, such that whenever an alleged illegal global conspiracy had negative competitive effects in the U.S., any plaintiff who suffered competitive injury from that conspiracy was allowed to bring a Sherman Act claim in a U.S. district court, regardless of where that plaintiff actually was located or had been injured.113 108

White Paper, § 2.5 (citing Manfredi [2006] ECR 1-6619, paras. 95 and 97). Ibid. 110 Ibid. at § 2.6. In contrast, it is well-settled that neither of those doctrines is available under federal antitrust laws. Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977) (indirect purchasers lack standing to bring treble damages actions under Section 4 of the Clayton Act); Hanover Shoe, Inc. v. United Shoes Mach. Corp., 392 U.S. 481 (1968) (passing-on defense not available against claims under Section 1 of Sherman Act). 111 See, e.g., Hartford Fire Ins. v. California, 509 U.S. 764 (1993); American Banana Co. v. United Fruit Co., 213 U.S. 347 (1909); Den Norske Stats Oljeselsap As v. HeereMac Vof, 241 F.3d 420 (5th Cir. 2001); Caribbean Broadcasting Sys., Ltd. v. Cable & Wireless Plc, 148 F.3d 1080 (D.C. Cir. 1998). 112 15 U.S.C. § 6a, which provides that the Sherman Act “shall not apply to conduct involving trade or commerce . . . with foreign nations unless . . . such conduct has a direct, substantial, and reasonably foreseeable effect . . . on [domestic] trade or commerce . . . and such effect gives rise to a claim under the [Sherman Act.]”. 113 Kruman v. Christie’s Int’l PLC, 284 F.3d 384 (2d Cir. 2003), abrogated by F. HoffmannLa Roche LTD. v Empagran S.A., 542 U.S. 155 (2004); Empagran S.A. v. F. Hoffmann-La Roche LTD., 315 F.3d 338 (D.C. Cir. 2003), rev’d 542 U.S. 155 (2004). The authors were counsel of record to Christie’s in the Kruman action. 109

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However, in the 2004 decision of F. Hoffmann-La Roche LTD. v. Empagran S.A.,114 the U.S. Supreme Court, interpreting the FTAIA, restricted the territorial jurisdiction of Sherman Act claims by holding that where the defendants’ violation had worldwide effects, but the non-U.S. effects of the violation were independent of the U.S. effects, the FTAIA prevented Sherman Act claims by plaintiffs who were injured solely by the non-U.S. effects. The Court based this holding on two reasons: (i) under long-standing notions of comity, “the Court ordinarily construes ambiguous statutes to avoid unreasonable interference with the sovereign authority of other nations”;115 and (ii) the legislative history of the FTAIA did not support the more expansive reading of Sherman Act jurisdiction—to the contrary, Congress clearly intended the FTAIA to restrict the scope of the Sherman Act on foreign commerce.116 This more restrictive interpretation of the FTAIA should decrease the risk of Sherman Act claims in U.S. courts seeking redress for anticompetitive conduct that may also be actionable in a foreign jurisdiction.117 Nonetheless, these risks are not completely eliminated, particularly for situations where the challenged conduct itself is inherently transnational in nature, as is becoming increasingly common in our global economy. For example, assume a conspiracy between banks to fix foreign exchange rates. Assume that Corp X is located in London and trades U.S. dollars against British pounds with Bank A’s foreign exchange trading desk located in New York. Under these circumstances, Corp X likely would satisfy the jurisdictional requirements of the FTAIA in a claim against Bank A. However, Corp X might also have a claim against Bank A in a court in the UK for damages relating to the very same transaction. If Corp X were to bring a Sherman Act direct action under the Sherman Act in the U.S. District Court for the Southern District of New York, it should then not be able to bring another direct action under UK law in London, both against Bank A. Were Corp X to bring both actions, Bank A would presumably be able to obtain a stay or dismissal without prejudice of one of those actions as being cumulative. However, the situation becomes much more complicated if Corp X does not sue in its own capacity, but rather is an absent member of a Rule 23 class action in New York and a member of an opt-in collective action in London. Under such circumstances, Bank A may not even be aware that Corp X is a plaintiff in both actions until after one or both proceedings have substantially 114

542 U.S. 155 (2004). Ibid. at 164. 116 Ibid. at 169. On remand, the D.C. Circuit dismissed the plaintiffs’ claims. 417 F.3d 1267, 1270–71 (D.C. Cir. 2005). 117 Indeed, a number of lower federal courts have dismissed antitrust cases on FTAIA grounds following Empagran. See, e.g., Re Monosodium Glutamate Antitrust Litig., 477 F.3d 535, 538 (8th Cir. 2007); Re Rubber Chem. Antitrust Litig., 504 F. Supp.2d 777 (N.D. Cal. 2007); Re Intel Corp. Microprocessor Antitrust Litig., 452 F. Supp.2d 555 (D. Del. 2006); Emerson Elec. Co. v. Le Carbone Lorraine, 500 F. Supp. 2d 437 (D.N.J. 2007). 115

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progressed or even until final judgments in both cases,118 in which case, Bank A may end up compensating Corp X twice.119 In the event that foreign damages actions and particularly foreign collective actions increase, these conflicts would presumably increase.120 However, because the vast majority of U.S. antitrust class actions are settled (assuming they are certified and survive dispositive motions), defendants can protect themselves by negotiating appropriately broad releases that preclude class members from bringing other causes of actions in any forum relating to the same transactions that are the subject of the settled litigation. Alternatively, defendants can negotiate set-off or rebate provisions in the settlement agreement. For example, in the Kruman action, the class consisted of persons and entities that purchased or sold items at Christie’s and Sotheby’s auctions occurring in auction locations outside the U.S.121 During the settlement negotiations with class counsel, the defendants became aware of efforts by certain U.K. law firms to file potential damages actions against the auction houses in U.K. courts for claims based on the same auctions that were the subject of the Kruman action. To protect themselves, the defendants negotiated a provision in the settlement agreements that sets aside a certain portion of the total settlement funds in escrow until June 2006;122 in the event a class member brought an action in a U.K. court against Christie’s and/or Sotheby’s, money from the escrow fund would be offered to that class member to settle that action.123 Of course, in order to negotiate an effective release or set-off provision such as described in this section, corporate defendants must consider, and thus must have good information about, (i) the number of potential “overlapping” class members, i.e., members of the U.S. class who may also have foreign antitrust claims and vice versa; (ii) the aggregate amount of damages that could be claimed by those overlapping class members; and (iii) the relative 118 Indeed, unless it acts as the class representative, Corp X may not even be aware itself that it is an absent class member in the New York action until after that class has been certified and Corp X receives notice. 119 Actually, Bank A would end up paying four times compensation, taking into consideration the treble damages for the action in the Southern District of New York. 120 Ironically, foreign litigants seeking redress in U.S. courts under the Sherman Act have often have relied on the argument that the lack of effective foreign causes of actions would effectively leave those plaintiff uncompensated for their injuries. 121 The district court initially dismissed this case for lack of jurisdiction pursuant to the FTAIA, but the Second Circuit reversed and remanded. 284 F.3d 384. The parties then negotiated a settlement agreement prior to the Supreme Court’s Empagran decision, which abrogated the Second Circuit’s decision. 122 This was the date by which the statute of limitations would have expired for any competition claims under UK law by class members against the defendants. 123 The settlement agreements are available at http://www.internationalauctionsettlement. com/settlement_c.pdf. Ultimately, no Kruman class member actually brought another antitrust claim in the UK against either defendant based on the auctions that were the subject of Kruman, and after June 2006, all remaining monies were distributed in a second distribution to class members.

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legal strengths (substantive, procedural, and practical) of the overlapping class members’ claims in various jurisdictions.

IV. Conclusion Until now, antitrust defendants largely concerned themselves with private antitrust plaintiffs in the U.S., which has maintained a “monopoly” on private damages actions. However, the world is becoming more multilateral—not just in global politics and international commerce, but also (if the Commission has its way) in private antitrust enforcement. Just as multilateralism has increased complications in politics and trade, so too it has increasingly complicated matters for antitrust defendants. Thus, as private causes of actions become more prevalent in the EU and its member states, all parties involved—plaintiffs, adjudicative authorities, and particularly defendants—must have an understanding of (and input into) how those actions will develop and must also anticipate how they may affect, interact with and conflict with private causes of actions in the U.S.

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V Michael D. Hausfeld, Brian A. Ratner and Scott Campbell 1 Principles and Objectives of Formal and Informal Settlements in EU Competition Cases: The Claimant’s Perspective

Introduction This paper briefly examines the developments relating to both formal and informal mechanisms used in the settlement of competition law disputes in the European Union. In light of the European Commission’s drive to increase private enforcement of competition law as a complement to increasingly active public enforcement efforts (primarily spurred on by successful leniency programs), there is likely to be a continuing rise in the number of cases both investigated and prosecuted by the Commission and, more importantly, litigated privately (usually as follow-on actions) in the courts of the EU Member States. Experience in the United States with the private prosecution and settlement of global cartel claims, where there is a far more established heritage of private enforcement of antitrust laws by means of the class action vehicle, and recent creative private efforts in the EU to work within the systems and mechanisms that presently exist, have collectively shown that both defendants and claimants may be motivated to resolve private antitrust disputes rather than litigate to trial, especially where liability is unquestioned. The Commission is also looking at ways to expedite its own enforcement procedures through a formal settlement process available to alleged competition law infringers. This will help minimize delays in Commission investigations and accelerate claimants’ ability to pursue restitution for the economic harm caused. The principles and justifications for governmental and private enforcement against anticompetitive behavior are the same. The ultimate goal of state investigations and punishment of anticompetitive activity is to deter such behavior. Deterrence is also a key goal of private enforcement, along with restoring integrity to the relevant market for the total damage caused by cartel activity or abuse of dominant market power. Under public enforcement, the cartelist or 1 Hausfeld LLP, Washington, D.C. and London. Seth Gassman of Cohen, Milstein, Sellers & Toll, P.L.L.C. (formerly Cohen, Milstein, Hausfeld & Toll, P.L.L.C.) contributed to the original draft of this chapter. Since its original submission in June 2008, the text has been slightly updated to reflect relevant developments in 2009.

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dominant market abuser is held accountable to society within a form of punishment acceptable to the State, such as prison sentences for those individuals responsible for implementing the anticompetitive conduct (in the UK and US) and monetary fines. For private enforcement, the infringers are held accountable through compensation to the victims of their offense. The practice of settling claims of infringement has parallel and equal benefits in both the public and private sectors. The infringer receives finality and closure based on known and certain terms. Depending on the timing of settlement, the terms may be more favorable earlier in the process than later. The public authorities and private victims receive correspondingly similar remedies through settlements. Public enforcers achieve publicly acceptable forms of punishment (i.e. imprisonment or fines); private enforcers achieve restitution. Both achieve active cooperation against non-settling infringers, market behavior modification, and deterrence of market interference. Public and private infringement settlements should proceed in tandem.

General principles concerning public and private enforcement of competition law On 20 December 2005, the Commission published a Green Paper discussing how to facilitate actions for damages caused by violation of the EC Treaty competition rules on restrictive business practices and abuse of dominant market positions (Articles 81 and 82 EC respectively). The initiative was driven by the recognition that, to date, there have been very few damages claims brought before courts of the Member States for breaches of the competition rules. (A study carried out for the Commission by the law firm Ashurst2 in 2004 researched the main reasons for the “total underdevelopment” of damages actions.) On 3 April 2008, the Commission published a White Paper as a follow-up to the Green Paper, containing more detailed suggestions for new models to achieve compensation for consumers and businesses who are victims of breaches of EC competition law. The White Paper includes suggestions for making damages claims by victims more viable and efficient while ensuring respect for European legal systems and traditions. The model outlined by the Commission is based on compensation through single damages for the harm suffered. Furthermore, the Commission is proposing legislation to allow for the creation of “qualified” entities to conduct repre2 Denis Waelbroeck, Donald Slater and Gil Even-Shoshan (Ashurst), “Study on the condition of claims for damages in case of infringement of EC Competition rules”, 31 August 2004, http://ec.europa.eu/competition/antitrust/actionsdamages/comparative_ report_clean_en.pdf.

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sentative actions on an opt-out basis and to make the decisions of national competition authorities binding on national courts throughout the EU. The philosophy underpinning the Commission’s drive to encourage greater private enforcement of competition law is informed by the following perceived advantages: • effective private enforcement ensures that businesses and consumers harmed by anticompetitive activity are compensated for their actual losses;3 • it enhances the overall level of respect for the EC competition rules by discouraging companies from engaging in anticompetitive activity; and • it brings the benefits of Community law closer to the citizens of the Member States.4

The need for settlement Settlement in both the public and private arenas carries a net social benefit. While the settlement necessarily involves two sides compromising and reaching a partially disagreeable resolution, that resolution allows each side to achieve valued objectives. However, in order for this to happen, the relationship between public enforcement and private enforcement and/or settlement needs to be better understood. Public enforcement cannot be paternalistic with respect to private enforcement. If there is a resolution to the public enforcement of a cartel, that resolution should be accomplished in a manner that encourages the private enforcer to approach a similar settlement within the private enforcement context. The public enforcement agency responsible for the public resolution should make available, to the extent possible, all information produced to the public enforcer, and it should encourage the settling party to cooperate. Such encouragement can take many forms. The United States, for example, limits the damages available from those who cooperate with the Government with regard to entities to which restitution is

3 In Case C-453/99, Courage v Crehan [2001] ECR I-6297, the European Court of Justice explicitly recognized a right to damages for breaches of EC competition law. The Court stated that:

“The full effectiveness of Article [81] of the Treaty and, in particular, the practical effect of the prohibition laid down in Article [81](1) would be put at risk if it were not open to any individual to claim damages for loss caused to him by a contract or by conduct liable to restrict or distort competition. Indeed, the existence of such a right strengthens the working of the Community competition rules and discourages agreements or practices, which are frequently covert, which are liable to restrict or distort competition. From that point of view, actions for damages before the national courts can make a significant contribution to the maintenance of effective competition in the Community.” 4

Commission Press Release IP/05/1634 of 20 December 2005.

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made. Such mechanisms encourage public cooperation while simultaneously assisting wronged parties with recovery, thereby working to restore market integrity. In order to discourage cartel behavior and restore the integrity of the market, however, merely promoting the relationship between public and private enforcement is not sufficient. It must also be made clear, as a matter of policy, that the dominance of the supply relationship cannot itself deter the enforcement of private rights. The biggest obstacles to private settlement are not procedural. While different systems have different mechanisms, determined claimants and cartelists have shown an ability to reach amicable resolutions, as described below. A more significant obstacle to settlement is the fear on the part of purchasers that enforcing their rights will interfere with their supplier relationships. In many settlements we have negotiated, the suppliers have shown a desire to provide restitution to the victims of their cartel activity, but refuse to act unless forced. At the same time, victims are afraid to seek restitution because they fear retaliation from their suppliers. Until this threat of supply retaliation is removed from the market, private enforcement will be restrained, if not in whole, then at least in significant part. Once that threat is removed, however, purchasers will most freely exercise their rights of private enforcement, which will enhance overall deterrence. Another obstacle to the enforcement of private rights is the difficulty cartelists have in achieving global peace. Many cartelists demonstrate the need for a mechanism that provides for a civil settlement that gives finality for the entirety of the affected market, just as public enforcement provides for a resolution for the entirety of a public right. Defendants have expressed a willingness to enter into a private settlement, but only if they receive private peace for all participants in the market impacted by the cartel. Thus, the policy surrounding the issue of settlements in the public sector should equally encourage private settlements. There needs to be a private or ADR mechanism for achieving global settlements that provides certainty, finality and closure.

Informal settlement: the way ahead The Commission’s proposals effectively acknowledge that private enforcement of competition law, which compensates victims, discourages anticompetitive conduct and benefits the European Community at large, is underdeveloped at present in Europe.5 The extent to which this situation will be transformed by the Commission’s proposals remains to be seen. However, it is clear from the direction the Commission’s proposals take that a number of the obstacles to 5

See the Ashurst Report , cited supra note 2.

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effective collective redress for anticompetitive behavior will be eased. Initiatives to support greater consistency in the treatment of indirect purchasers by Member State courts and greater access to evidence early in the civil litigation process across the EU (and not just in common law jurisdictions) would be most welcome from the claimants’ perspective. Recent research6 in the UK (conducted by way of targeted questionnaires) suggests that, despite the relative lack of stand-alone or follow-on private actions for damages arising from breaches of competition law coming to the UK courts,7 there are indications that a number of private settlements of competition disputes have been concluded over the period from 2000 to 2005. Professor Rodger’s research concludes that there have been at least 43 competition dispute settlements over the relevant period, and that there is evidence of an increase in the number of settlements in recent years. Of the cases settled, a significant proportion are in fact abuse of dominance cases rather than cartel cases (although, where the settlement does relate to a cartel, it usually involves multiple parties). In almost half of the cases, there was payment in lieu of damages and, again, in almost half of all cases, there was some form of agreement as to future conduct as the basis for settlement. It is worth nothing that over the period from 2000 to 2004 the Commission decided 33 cartel cases, and from 2005 to 2008 it decided a further 22 cartel cases. (For its part, the OFT reaches on average 3 to 4 infringement decisions per year.) Many of these cases may have affected markets in the UK. During the period covered by Professor Rodger’s study, approximately 50 infringement decisions were issued by the Commission and by the OFT. Within this context of high numbers of published cartel decisions, the study identified relatively few privately settled cartel cases. This indicates that literally thousands of potential victims (including large, sophisticated companies) of the many cartels that have been uncovered have not yet taken action to recover their losses arising from the anticompetitive conduct. However, Professor Rodger’s research indicates that in reality, competition disputes (as with most other private disputes) are settled out of court. The likelihood is that, notwithstanding the initiatives of the Commission and the OFT to encourage private actions for damages, most private competition disputes will continue to be settled informally between the parties. This is perhaps a reflection of risks associated with the inherent uncertainty, cost and time frame of most complex litigation. More significantly, however, there is no formal, effective mechanism through which obstacles in the UK and the EU that prevent market-wide settlements can be addressed, such as: the lack 6 Barry Rodger, “Private Enforcement of Competition Law, The Hidden Story: Competition Litigation Settlements in the United Kingdom, 2000–2005”, 29(2) European Competition Law Review 96 (2008). 7 There have only been 15 final judgments in competition damages cases in the last 40 years in the UK, with only one “fully” successful claim in any of the cases. See ibid., at footnote 61.

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of an opt-out class action system that ensures global peace for defendants while simultaneously providing redress for those claimants who want it; and so-called “loser-pays” rules that require parties who are unsuccessful in a case (or indeed, parties who fail to sustain a motion) to reimburse attorneys’ fees and costs to the winning party. This is troubling because, in many of these situations in which there is or has been a government investigation, there is little question as to the defendant’s liability. Claimants should therefore be compensated for harm suffered as a result of the illicit activity. Given the lack of a formal private mechanism for global settlement, private claimants have been forced to implement creative settlement structuring in an attempt to achieve global remedies. One recent groundbreaking case demonstrates how settlements affecting European businesses and consumers can be structured. In early 2008, a £73.5 million settlement was reached on behalf of UK air passengers in the pricefixing class action lawsuit brought against British Airways and Virgin Atlantic in the United States.8 Under the terms of the settlement, passengers who purchased tickets from either airline for specified long-haul flights between 11 August 2004 and 23 March 2006 may claim a partial refund. Passengers who purchased tickets from the airlines in the UK are entitled to a refund of 33.3% of the fuel surcharge they paid on each flight segment purchased. Passengers who purchased tickets in the United States will receive their partial refund (also 33.3% of the fuel surcharge paid on each flight segment) in dollars rather than pounds out of a separate $59 million United States settlement fund. This unprecedented settlement represents the first instance in which such a case has been resolved simultaneously under the laws of the United States and England and Wales and has provided compensation to both United States and UK classes of purchasers. To date, more than 211,000 customers of British Airways and Virgin Atlantic have applied to the settlement fund for refunds. Some 170,000 of the claims were filed by UKbased passengers. Payment has already been authorized for 133,000 of the cases. That amounts to individual rebates of between £2 and £10 per flight, but with 5.6 million journeys affected, the total repayment is expected to be very substantial. With recent government activity, and with increased intergovernmental cooperation to enforce competition laws, more private settlements related to cartel activity will soon be forthcoming. Such cases need not be based on cartel activity that occurs mostly in the United States. It is easy to imagine a worldwide cartel that engages in anticompetitive activity with respect to a product sold throughout the world. (Such a cartel may or may not affect 8 Danny Fortson, “UK businesses braced for class action suits after BA and Virgin pay out $200m,” The Independent, (16 February 2008), http://www.independent.co.uk/news/ business/news/uk-businesses-braced-for-class-action-suits-after-ba-and-virgin-pay-out200m-783077.html.

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commerce in the United States.) Claimants now are using new tools to seek redress from the cartelist for their global anticompetitive activity. Using a combination of private agreement between private litigants, implemented through the use of an independent evaluation, and the laws of the United States, the EU and several EU Member States, one settlement can be used to attempt to resolve a cartelist’s global liability. The current state of laws outside of the United States in general, and the use of an opt-in rather than an opt-out system in particular, does not guarantee global resolution, but it can eliminate most of a cartelist’s exposure and provide sufficient comfort to the cartelist that most of its customers have been compensated for overcharges that resulted from the cartel while providing a mechanism to provide that compensation. For example, the parties can reach an agreement on general terms for an overall settlement prior to formally initiating litigation proceedings. The cartelist can agree to pay, for instance, a set percentage of its worldwide sales for the product affected by the anticompetitive conduct (an “overcharge percentage”), and it can agree to cooperate with claimants as they pursue other cartelists. In exchange, the settling cartelist can receive a near-worldwide release from any potential liability (and concomitant damages) stemming from its anticompetitive activity. This type of settlement is a private contract that does not require court approval, although approval can be sought in certain EU jurisdictions. In order to achieve such a settlement’s desired goal of reimbursing all potential claimants for the harm suffered as a result of the conspiracy, the settlement may require multiple mechanisms for multiple jurisdictions.9 One such mechanism can carve viable United States claims out of the worldwide settlement, which would allow such claims to move forward under the class action opt-out system in the United States.10 (And as with the air passenger case described above, claimants in different jurisdictions can receive refund payments in different monetary denominations.) Another mechanism, or series of mechanisms, can then be used to secure the release of and payment for claims not involving the United States through the use of a “claims made” system. For instance, the settling cartelist would deposit (or in certain situations would guarantee) the settlement amount, 9 For instance, in the Netherlands, a mechanism exists for court approval of privately agreed settlements under the Dutch Act on Collective Settlement of Mass Damages (the Wet collectieve afwikkeling massaschade). Under this mechanism, on April 11, 2007, Royal Dutch Shell PLC announced that it had reached a settlement with a class of claimants in connection with the adjustments of its proven oil and gas reserves in 2004. Shell agreed to make a maximum payment of $352.6 million, plus administrative costs, to members of the class without admitting any wrongdoing. 10 The air passenger case demonstrates that United States claims do not have to be carved out. There, the court in the United States exercised jurisdiction over the foreign claims, but it applied EC law to the European claims. If the cartel is structured differently, however, it may be easier to treat the claims that are viable in the United States as completely separate from all other global claims. That allows for use of the class action mechanism already available in the United States without raising comity concerns.

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excluding the amount related to claims that can be made in the United States (if any), in an account that will be made available to potential claimants until all applicable statutes of limitations have expired. Those victims who directly or indirectly purchased the product(s) affected by the anticompetitive behavior from the settling cartelist can then recoup a portion of the payments made for the product(s) (i.e. the estimated overcharge) from the account. Such worldwide claims would require an extensive notice program, which can be carried out under the laws of the UK or other relevant jurisdictions, to inform potential claimants of their rights against the settling cartelist. In order to allocate refunds to claimants, particularly in situations that are more complicated than the per-ticket purchased refund in the air passenger case, an expert can be appointed to make an expert determination regarding proper allocation. Such a position is a normal feature of settlements in many areas of the economy in the UK.11 As part of the settlement, the settling cartelist could also provide consideration other than reimbursement payments, such as an agreement to cooperate in the investigation of its co-cartelists and an agreement to participate in “funding”. By funding, the settling cartelist could agree to pay for the costs associated with losses in any litigation subsequently initiated outside the United States by settling claimants against the settling cartelists’ coconspirators. Funding is necessary to avoid the risks associated with the “loser pays” rules in the UK and elsewhere. A financial arrangement can normally be established between the settling cartelist and a third party funder that allows the settling cartelist to offset some or all of the costs of funding. Moreover, cartelists who settle early can demand that its later-settling coconspirators cover any funding costs for which the early settler (or settlers) were responsible and take over any future funding obligations. Thus, the funding requirement creates an incentive to reach early settlement. Other incentives for settling early can include the application of a lower overcharge percentage compared with those who settle later, which would translate into a settlement discount and reduced interest payments for the early settler. A private global settlement reached in February 2009 with Parker ITR in light of its involvement in the marine hose cartel included several features of the above-described structure.12 The above-described structure permitting a global settlement is only the beginning of what is possible, and necessary, to better enforce anti-cartel laws around the globe. Without such a structure, only settlements on behalf of large claimants that can marshal the resources necessary to force a cartelist to settle claims on an individual basis have been possible. As the air passenger case demonstrates, however, settlements that provide for compensation to 11 See generally John Kendall, Dispute Resolution: Expert Determination, 3rd edition, Sweet and Maxwell, 2001. 12 See www.marinehoseclaims.com.

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much smaller claimants (such as individuals who purchase airline tickets) are quite workable. Indeed, the model settlement structure described above is only one possibility for achieving compensation to cartel victims on a nearly global scale; each case will require a particularized approach in order to provide the maximum redress possible for as many victims of the cartel as possible. As the air passenger case, the Parker ITR settlement, and the concepts discussed above demonstrate, creative settlement structuring is developing and moving forward to provide that redress. It is up to the EU and its Member States to structure the law and make necessary policy changes to catch up with the private litigants and further accelerate private enforcement in Europe.

Regulatory settlements: an overview of the Commission’s cartel settlement procedure and the OFT’s cartel settlement practice The European Commission While private enforcement of competition law, both through litigation and informal settlement, seeks to compensate the victims of anticompetitive behavior, the Commission and its national counterparts seek to punish undertakings suspected of and found to be participants in illegal anticompetitive conduct by means of fines and other remedies. However, while the Commission seeks to punish those who have breached EC competition law, it is likely to be increasingly flexible in its dealings with suspected infringers in order to more quickly dispose of cases where the facts are uncontested. Due, in part at least, to the success of the Commission’s leniency program13 (under which cartelists may “blow the whistle” to the Commission on their involvement in anticompetitive conduct in return for a subsequent reduction in their eventual fine), the Commission has seen a dramatic rise in the number of reported cartels.14 As a consequence, the administrative burden on the Commission, in terms of the duration of investigations and the possibility of subsequent appeals by the defendants, has grown.15 Therefore, the 13 See Commission, Press Release IP/06/1705, MEMO/06/469 and MEMO/06/470, all of 7 December 2006. 14 http://ec.europa.eu/comm/competition/cartels/statistics/statistics.pdf. As seen from the Commission’s cartel statistics, the number of cases brought to the Commission’s attention and their complexity has caused a long backlog of unresolved investigations. The Commission has averaged just over six cartel decisions per year in recent years. 15 As far as we are aware, in the five years to the end of 2006, conditional immunity was granted by the Commission in 51 cases and a further 34 applications were rejected,

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Commission has introduced a settlement procedure for cartels which will allow it to settle cartel cases through a simplified procedure. Under this procedure, parties, having seen the evidence in the Commission file, choose to acknowledge their involvement in the cartel and their liability for it. In return for this acknowledgement, the Commission can reduce the fine imposed on the parties by 10%. Settlements aim to simplify the administrative proceedings and could reduce the litigation of cartel cases before the Community Courts. This will in turn free the Commission’s resources to pursue other cases. The Commission neither negotiates nor bargains the use of evidence or the appropriate sanction, but it can reward the parties’ cooperation to attain procedural economies. Such cooperation is different from the voluntary production of evidence to trigger or advance the Commission’s investigation, which is already covered by the Leniency Notice. Where both the settlement reduction and the leniency reduction are applicable, they are applied cumulatively. A decision finding an infringement of the EC antitrust rules and imposing fines pursuant to Regulation 1/2003 is adopted irrespective of whether the standard or the settlement procedure applies, although the length and detail of the decisions may differ. Parties have neither the right nor the duty to settle, but in cases where companies are convinced that the Commission could prove their involvement in a cartel, a settlement can be reached with the Commission on the scope and duration of the cartel, and the individual liability of the companies involved. To this end, parties will be informed about the envisaged objections and the evidence supporting them, and they will be given the occasion to state their views before formal objections are sent. If the parties provide a settlement submission, acknowledging the objections, the Commission’s Statement of Objections endorses the contents of the parties’ submission and can therefore be much shorter than an SO that is issued without prior cooperation. Since parties will have been heard in anticipation of the “settlement SO”, other procedural steps can be simplified so that, following confirmation by the parties, the Commission can proceed swiftly to adopt a final decision after consulting national competition authorities in the framework of the Advisory Committee. The Commission retains the possibility, until the final decision, to revert to the standard infringement procedure. If no settlement was explored or successfully concluded, the standard procedure would apply by default. A potentially positive consequence of the settlement procedure may be that claimants will be able to bring follow-on claims more expeditiously as a consequence of the truncated Commission investigation stage and (presumably) the absence of appeals by the settling party or parties. Indeed, due to the streamlined procedure, it may be possible for the Commission to prosecute suspended or passed to a national authority. Therefore, we think it is safe to assume that a significant proportion of leniency applications are effectively left “in limbo”—which not only acts to reduce the incentive to apply for leniency but also means that the victims of the cartels disclosed to the Commission will not be compensated.

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many more cartel and abuse of dominance cases per year, thereby producing more infringement decisions on which claimants will be able to rely for follow-on actions. However, there would be cause for concern if, in streamlining its procedures, the Commission discouraged or materially disadvantaged complainants and/or those who may wish to claim redress from the cartelists. Settlement of public accountability should not be seen as a way for settling companies to disadvantage or diminish the effectiveness of private accountability. In particular, from the potential claimants’ perspective, it is important to ensure that the Commission’s procedures are not rendered less transparent by its reforms. Some of the statements in the Commission’s draft settlement procedure package16 may be seen to imply that the rights of the defense override the rights of potential claimants. For instance, the proposed revised Regulation 773/2004 removes the right of a complainant to receive a disclosure copy of the SO in all cases—not just those where a settlement may be contemplated. Without the information provided in the SO, complainants may find it harder to bring follow-on claims once the Commission has settled the case. It would be particularly unfortunate if the revised procedure led to the impression that the Commission was doing “deals” with cartelists (in particular) in near secrecy. Such a perception would, we believe, seriously damage the credibility of the Commission’s enforcement effort against cartels.

The Office of Fair Trading In the UK, the Office of Fair Trading has pioneered a rather unique procedure to facilitate direct settlements between it and undertakings that it is investigating for suspected anticompetitive practices. First, on 19 May 2006, the OFT announced that it had agreed to a resolution of its investigation of an agreement between 50 independent schools to exchange information about their fees, which led to distortion of competition and breached the Chapter 1 prohibition of the Competitive Act 1998 (equivalent to Article 81 EC). Under the agreed settlement, which was formulated after the OFT issued its SO, the schools admitted that their participation in the exchange of information involved a distortion of competition and infringed the Chapter I prohibition of the Competition Act (although the schools made no admission that the agreement had an impact on fees), and that each school would pay a nominal penalty of £10,000 via the OFT to the UK Treasury and collectively make an ex gratia payment totaling £3 million into an educational charitable trust fund to benefit the pupils who attended the schools during the academic years 2001/2 to 2003/4 (the years of the infringement). 16

See Press Release IP/07/1608 of 26 October 2007.

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More recently, on 7 December 2007, following the issuing of its SO, the OFT reached “early resolution agreements” with Asda, Sainsbury’s, Safeway, Dairy Crest, The Cheese Company and Wiseman in relation to allegations of price collusion for dairy products. (The OFT’s investigation of alleged infringements by Tesco, Lactalis McLelland and Morrisons remains unresolved). The parties to the early resolution agreements admitted involvement in some of the anticompetitive practices set out in the OFT’s SO, admitted liability in principle, promised to cooperate with the OFT’s investigation and agreed to pay fines totaling a maximum of £116 million. Therefore, under the early resolution agreements, the OFT was able to expedite its investigation with respect to certain cartel participants in return for reduced fines. This model was also replicated in the OFT’s ongoing investigation into a construction bid-rigging cartel, and it represents a “fast-tracking” of investigation in order to avoid the unnecessary diversion of the OFT’s resources in cases where parties are willing, at an early stage, to admit liability. In light of these developments, the settlement in the schools case was described by the OFT as arising out of “novel and exceptional” circumstances, and it provided an opportunity for an “innovative and proportionate outcome”.17 The non-admission by the school as to the impact of the infringement on school fees means, however, that any parent seeking to rely on the settlement as a basis for a follow-on damages action against the schools would have the disadvantage of having to prove for themselves that they had suffered loss as a result of higher fees. It nevertheless seems clear from the dairy product and potential construction early resolution agreements that liability in principle must be admitted, which should allow potential claimants to bring follow-on claims before the Competition Appeals Tribunal on the basis of the OFT’s decision. As with the benefits envisaged in connection with the Commission’s formal settlement proposals, where the OFT can use its settlement models to expedite its investigation processes, which potentially can enable it to avoid appeals and prosecute more cases, claimants will have more cases to choose from for follow-on actions and may more quickly be able to bring claims in respect of those decisions.

Conclusion It has recently been remarked that enforcement authorities faced with global problems need to design global solutions. In order to match the globalization of anticompetitive behavior, public and private enforcement efforts should 17 Independent fee-paying schools, OFT decision of 20 November 2006 (Case CE/289003); OFT press release of 27 February 2006.

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be equally as coherent and harmonized as the behavior it seeks to keep a grip on. Litigation is not and should not be the monopoly response to competition infringements. Alternative dispute resolution should include consideration of settlements which appropriately achieve public and private objectives and principles and maintain degrees of fairness to the infringing party. Public settlements should enhance the ability to achieve private settlements where appropriate. Neither should impede the ability of the other. In a practical system which seeks to maximize the consistency of unified enforcement, convergence of settlement principles would benefit both public and private enforcers, as well as infringers, by bringing about a truer and more complete repose.

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VI Albrecht Bach* Negotiated Antitrust Settlements: Some Perspectives from the Point of View of (Potential) Plaintiffs

Introduction I have been invited to comment on negotiated settlements from a plaintiff’s point of view. Whilst it seems perfectly normal to call for comments by potential defendants or by agencies, at least with respect to the Commission’s proposal for negotiated settlements, potential plaintiffs play a bizarre role. On the one hand, they are completely inexistent, yet on the other hand they are almost omnipresent. They are inexistent insofar as neither the draft Settlements Notice nor the draft Regulation that would amend Regulation 773/2004 takes any notice of them. They are omnipresent, however, as almost every comment submitted to the Commission in response to the draft settlement procedure deals with a perceived danger or disincentive represented by the use potential plaintiffs could make of certain documents created in the settlement process. This justifies a closer look at the position of potential plaintiffs, and if I may propose to slightly enlarge the subject matter, it is useful to consider the position of third parties (understood more broadly) in negotiated settlements. Before properly addressing the subject matter, allow for a cautionary remark as to my ability and willingness to present the plaintiff’s point of view. It happens that my firm represents a plaintiff in proceedings in a German court directed against members of what the German Federal Cartel Office (FCO) has claimed to be a cartel of cement producers in Germany. We do so as lawyers in private practice and on the basis of the standards applying to members of the German Bar. In particular, we don’t act on a contingency basis nor do we otherwise identify with CDC, the plaintiff in this case, in a way different from the way we identify with any of our corporate clients. In addition, I understand this to be a scientific debate and I take the liberty to express my personal views, which will not necessarily be those of any particular plaintiff, nor of plaintiffs in general.

* Albrecht Bach is a partner at OPPENLÄNDER Rechtsanwälte and lecturer at Mannheim University.

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Why the absence of third party interests is not surprising We should not be too surprised that the draft Commission Notice does not address the role of or the possible effects on third parties. After all, the draft deals with negotiated—or to be more precise—“discussed” settlements and, those who will enter in these discussions are the Commission and the undertakings on whom the Commission is likely to impose a fine. Quite logically, therefore, the Notice starts with the Commission’s interest in realizing procedural efficiencies in order to free resources allowing it to deal with more cases in a shorter period of time. The proposal also looks at the incentives for former cartelists to settle the case by offering them what is called a settlement reward. The settlement discussions are held individually, secretly and exclusively between Commission and defendant. The “common understanding” (the term “agreement” is carefully avoided) is reached between those participating in it. It follows that the common understanding will only reflect the interests of those discussing or negotiating. Neither the cartelists nor the Commission have any incentive to include third party interests in the “common understanding” or agreement reached.

Third parties are interested in transparency For the subject matter of this discussion third parties comprise not only potential plaintiffs that may have been hurt by the cartel, but also complainants. Furthermore, I believe that the public interest in a fair trial and in transparent administrative proceedings is also a third party interest that needs to be taken into account. Any of these third parties are interested in transparent proceedings. Transparency should allow complainants and potential plaintiffs to make their voices heard during the instruction of the case. It should also allow them to assess the extent to which the Commission’s proceedings and their subject matter are likely to affect their legal or economic position. I believe that this interest in transparency coincides with fundamental legal principles which apply to any proceeding resulting in sanctions imposed on individuals or firms. They reflect the public interest in due process and fair proceedings. Currently, transparency is in part achieved by hearings and, to a larger extent, by the obligations incumbent on the Commission to publicly state the reasons motivating its decisions. Settlements, by their very nature, seem hostile to transparency. Settlements are reached behind closed doors; they involve none others but the parties “discussing” or negotiating. Furthermore, the terms of a settlement generally

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take the form of a package deal. It is part of the specific nature of such deals that neither party is too much interested in having detailed, discussed or commented upon the various elements which formed the package or the respective weight attributed to them. The importance of transparency becomes more apparent if we look at specific requirements with respect to what could be called “deals” in criminal proceedings. Others are much better placed than me to detail the elements of judicial supervision applied to US plea bargains. However, it seems apparent that one of the key functions judicial supervision has to provide is a minimum level of transparency and consistency. As a German lawyer I may offer a short reference to restrictions applied in our jurisdiction to “deals” in criminal proceedings. In Germany it has long been questioned to what extent deals are permissible at all in criminal proceedings.1 The German Supreme Court eventually accepted what it called institutionalized agreements,2 but only under a number of severe restrictions due to constitutional principles. A major element of these restrictions is the requirement to make the deal transparent and public. It is therefore necessary to state in the public hearing that institutionalized agreements have been reached, to detail their elements, and ensure that all parties to the proceedings have the ability to comment upon and to participate in the agreement.3 The UK Competition Appeals Tribunal has also stressed the requirements of fairness and transparency in relation to third party interests in settlement cases. In particular, the Office of Fair Trading (OFT) has to inform a complainant about the outcome of the negotiations, and it has to give him the right to be heard before it definitively commits itself to accept the undertakings offered.4 As regards negotiated settlements with the Commission, due to the administrative nature of these proceedings we already have to accept that there will be no proper judicial supervision. We therefore cannot afford any further reduction of the transparency which is built into the “normal” administrative process before the Commission. It would be a fundamental mistake to assume that the consensual character of settlements is some form of substitute for transparency in “ordinary” proceedings. The motivations to settle are manifold, and there is no reason to believe that any of them take sufficient account of the interests of third parties or the public interest in general. So, if anything, the nature of settlements rather increases than reduces the need for transparency. 1 BGH of 20.02.1996, BGHSt 42, 46, 47; Schmidt-Hieber, Verständigung im Strafverfahren, 1986, p. 91; Jeschek, JZ 1970, 204; Baumann, NStZ 1987, 157 m.w.N; Weigend, NStZ 1999, 57 ff. 2 BGH of 28.08.1997, BGHSt 43, 195, 202 ff.; BGH of 03.03.2005, BGHSt 50, 40. 3 BGH of 28.08.1997, BGHSt 43, 195, 205 ff., BGH of 03.03.2005, BGHSt 50, 40, 50 ff. 4 Case No 1017/2/1/03, Pernod Ricard SA and Campbell Distillers Limited v. Office of Fair Trading, [2005] CAT 9.

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Obligation to state reasons as a means of transparency A principal means to assure a minimum level of transparency is the obligation imposed on the Commission by Article 253 of the Treaty to state reasons for its decisions. It is established case law that the requirements to be satisfied by the statement of reasons depend on the circumstances of each case.5 These circumstances are not limited to the interest an addressee may have in obtaining explanations—an interest we expect to be extremely limited in settlement cases. The obligation to state reasons also depends on the interest of other parties to whom it may be of concern.6 It is apparent that a decision imposing fines for participation in a cartel does concern those possibly harmed by the cartel, and it is for good reason that the Commission, in its press releases on decisions taken against cartels, routinely invites consumers to consider whether they could be entitled to damages under Article 81 EC. It is perhaps also worth recalling that, normally, competition authorities would want to publicize as much information about an infringement as possible. This information enhances general awareness with respect to competition issues, and it will normally have a deterrent effect on all those participating in similar practices, or on those contemplating them. Finally, it should be recalled that the Court of First Instance (CFI) has in various cases stressed the interests of the public and of third parties in the reasons given for a Commission decision in competition matters. I may quote the CFI in the Bank Austria case, where it referred to “the public interest in knowing as fully as possible the reasons behind any Commission action, the interest of the economic operators in knowing the sort of behaviour for which they are liable to be penalised and the interest of persons harmed by the infringement in being informed of the details thereof so that they may, where appropriate, assert their rights against the undertakings punished”.7

It therefore seems fair to say that the interest of third parties in transparency not only coincides with the requirements of due process but also with the natural interest of competition authorities. So why is it that these authorities, including the Commission, seem inclined to considerably reduce the level of transparency for decisions taken in relation to settlements?

5 Case C-367/95 P, Sytraval v. Commission, [1998] ECR I-1719, para. 63; Joined Cases 296/82 and 318/82, Netherlands and Leeuwarder Papierwarenfabriek v. Commission, [1985] ECR 809, para. 19; Case C-350/88, Delacre and others v. Commission, [1990] ECR I-395, para. 16 et seq.; Case C-56/93, Belgium v. Commission, [1996] ECR I-723, para. 86. 6 Sytraval v Commission, cited previous footnote, para. 63. 7 Case T-198/03, Bank Austria Creditanstalt AG v Commission [2006] ECR II-1429, para. 78.

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Level of information on infringement as a cheap bargaining chip Reaching a settlement is a bargaining process, despite all the semantics about having discussions only and avoiding bazaar-type transactions. Primarily what the Commission has to offer in return for some form of admission of an infringement is the settlement reward, i.e. a reduction of the fine otherwise imposed. On the other hand, all parties subject to the proceedings have an apparent interest in reducing, as far as possible, the amount of information available to third parties in relation to their purported infringement. This may be due in part to PR considerations, but is certainly motivated by an interest to make follow-on actions for damages as difficult as possible, if not to avoid them altogether. This obvious interest provides a valuable bargaining chip to the Commission. The Commission may offer, in addition to the settlement reward, to limit the information contained in its Statement of Objections and in the subsequent decision to a bare minimum. This offers high value to the cartelists—at virtually no price for the Commission. The price to the Commission may even be negative: a decision reduced to its very minimum reduces its workload and thus increases the administrative efficiencies. Moreover, settlements may be obtained more easily if, in addition to the reduction in fine, a “skeleton decision” is on offer. A skeleton decision may fall short of the reasoning requirements under Article 253, but decisions based on settlements are unlikely to be challenged in court. In fact, the price for the absence of transparency and information is incurred by others. Those possibly harmed by the cartel may find it difficult to even determine precisely what the alleged infringement was, let alone to what extent they may have been hurt by the cartel. Complainants will find it extremely difficult to comment, as there is little to comment on, and they will never know to what extent the Commission took note of their arguments. In a more abstract way, the price will have to be paid by more general principles such as transparency of the administrative process and due process at large—and consequently by all of us or by nobody, depending on one’s perspective. In economic terms, the costs of this additional bargaining chip are externalized. We therefore cannot expect that the Commission, once the path to settlements is paved, will care sufficiently for the transparency of the settlement process and its outcome. Quite to the contrary, it has every incentive to use this bargaining chip and to obtain further concessions in return.

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Access to the Commission’s files for potential plaintiffs It seems, though, that the Commission misjudges the limits of its liberty to bargain with defendants in the course of settlement proceedings. At paragraph 35 of its draft Commission Notice on the conduct of settlement proceedings, the Commission seems to consider barring potential plaintiffs from access to the Commission’s files. In this context, it seems worth recalling a number of elements which are set out in more detail in the Commission Staff Working Paper accompanying the White Paper on Damages Actions.8 Competition cases are characterized by a very asymmetric distribution of the available information and the necessary evidence. Access to evidence is crucial for ensuring effective exercise of the right to seek compensation for antitrust damages. The Commission considers it indispensable to improve the position of victims as regards their access to the relevant evidence. It therefore proposes to introduce across the EU a minimum level of disclosure inter partes in antitrust damage cases, building on the approach adopted in the IP Enforcement Directive.9 Whereas the Commission’s proposal is ambitious and deserves support, it is certainly controversial and will meet at least a lot of scepticism from continental Member States which largely ignore inter partes discovery in their rules of civil procedure. We therefore cannot assume that the solution proposed will solve the access to evidence problem for those seeking redress for past damages. If it is still correct—as the ECJ confirmed in Manfredi—that the right to damages is necessary to guarantee the useful effect of the EC competition rules,10 the evidence contained in the files of competition authorities cannot be omitted. It rather seems necessary to access this evidence prior to the introduction of inter partes discovery. The authorities, however, collectively seem to dislike the idea of their files being used to obtain evidence for the purposes of pursuing private damage actions. The Commission Staff Working Paper expressly claims that Regulation 1049/200111 (sometimes referred to as “Transparency Regulation”) normally does not constitute an appropriate legal basis for obtaining access to evidence for this purpose.12

8 Commission Staff Working Paper accompanying the White Paper on Damages actions for breach of the EC antitrust rules, COM (2008) 404 of 2 April 2008. 9 Directive 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on the enforcement of intellectual property rights, 2004 OJ L157/45. 10 Case C-295/04, Manfredi [2006] ECR I-6619, para. 95. 11 Regulation (EC) No 1049/2001 of the European Parliament and the Council of 30 May 2001 regarding public access to the European parliament, Council and Commission documents, 2001 OJ L145/43. 12 Commission Staff Working Paper accompanying the White Paper, cited supra note 8, para. 104.

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This attitude is also reflected in the draft Settlements Notice, where the Commission, in its only—but indirect—reference to third party interests, considers that “normally public disclosure of documents and written or recorded statements received in the context of this Notice would undermine certain public or private interests, for example the protection of the purpose of inspections and investigations, within the meaning of Article 4 of Regulation (EC) No 1049/2001 of the European Parliament and the Council of 30 May 2001 regarding public access to the European parliament, Council and Commission documents, even after the decision has been taken”.13

After all I tried to demonstrate with regard to the Commission’s interest in settlement proceedings, and in particular with regard to the Commission’s built-in incentives to reduce information available to third parties, this comes as no surprise. The only (but important) question that remains is whether this attitude is in line with Community law. With respect to the private interests which are most obvious in a settlement context, it should be noted that there is no absolute protection granted even if these interests amount to professional secrets. According to the CFI in Bank Austria, the assessment as to the confidentiality of a piece of information requires a balancing operation in which the legitimate interests opposing disclosure of the information are to be weighed against the public interest in ensuring that the activities of the Community institutions take place as openly as possible. Before entering into this balancing operation the Commission has to assess whether the interests liable to be harmed by disclosure are, objectively, worthy of protection. It seems at least very doubtful whether the interest in avoiding disclosure of the participation in a cartel, its operation, duration and those potentially affected merits any protection at all. The CFI acknowledged in Bank Austria and confirmed in Pergan that “the interest of an undertaking which the Commission has fined for breach of competition law in the non-disclosure to the public of details of the offending conduct of which it is accused does not merit any particular protection, given, first, the public interest in knowing as fully as possible the reasons for any Commission action, the interest of economic operators in knowing the sort of behaviour for which they are liable to be penalised and the interest of persons harmed by the infringement in being informed of the details thereof so that they may, where appropriate, assert their rights against the undertakings punished, and, second, the fined undertaking’s ability to seek judicial review of such a decision”.14

13 Draft Commission Notice on the conduct of settlement proceedings, 2007 OJ C255/51, para. 35. 14 Case T-474/04, Pergan Hilfsstoffe für industrielle Prozesse GmbH v. Commission [2007] ECR II-4225, para. 72; Case T-198/03, Bank Austria Creditanstalt AG v. Commission [2003] ECR II-4879, para. 78

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As regards the necessary balancing, the CFI considers that the Community legislature has already balanced the public interest in the transparency of Community action against interests liable to militate against such transparency in various acts of secondary legislation, including inter alia Regulation 1049/2001.15 It therefore seems difficult to argue that the balance struck in that legislation should be disregarded in settlement cases. It seems even more difficult to claim, as the Commission does in the draft Settlements Notice, that the disclosure of settlement documents could infringe upon the protection of the purpose of inspections and investigations within the meaning of Article 4 of Regulation 1049/2001. The CFI has held that the third indent of Article 4(2) of the Regulation must be interpreted in such a way that this provision, the aim of which is to protect “the purpose of inspections, investigations and audits, applies only if disclosure of the documents in question may endanger the completion of inspections, investigations or audits”.16 Any inspections or investigation in competition cases are completed, at the latest, when the Commission issues a Statement of Objections. At any later stage, access to settlement documents cannot be refused by invoking the exception under the third indent of Article 4(2) of the Regulation. I would therefore conclude that, prior to the introduction of a minimum level of inter partes discovery, access to documents in the Commission’s files based on the Regulation 1049/2001 has to be regarded as an essential means of obtaining evidence in follow-on actions for damages.

Acknowledgement of liability is a price set by the Commission Many observers commenting on the Commission’s proposal criticized the fact that the Commission requires a written settlement submission and, in particular, a written acknowledgement of liability for the infringement. They usually point to the negative consequences any such acknowledgement might have for private actions. It seems to me that the Commission, in opting for a written settlement submission, had no intention to facilitate private follow-on actions. It simply set the price for a settlement reward. A written acknowledgement of liability is of no specific interest to third parties. Other possible pricing levels might also comply with the interests of third parties and of the Commission. It might be sufficient not to contest the facts established in a Statement of Objections, or to admit the facts only (as opposed to their legal 15 Case T-198/03, Bank Austria Creditanstalt AG v. Commission [2003] ECR II-4879, para. 72. 16 Joined Cases T-391/03 and T-70/04, Franchet and Byk v. Commission [2006] ECR II-2023, para. 109, emphasis added.

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qualification), or to come forward with any other form of nolo contendere. Clearly, any pricing level has different incentives and disincentives and allows for different levels of administrative efficiencies. This is a choice to be operated by the Commission as part of the overall institutional setting of agreed settlements. On the other hand, if the price (as is currently proposed) is the acknowledgement of liability, it is hard to see why it should be paid in full with respect to the imposition of fines but only in part, or even not at all, in relation to the consequences attributed to any such acknowledgement in the law of torts. One could of course argue that the Commission might easily accept a concept of “split prices”. If only the administrative part of the price was paid, the Commission would still obtain both the administrative efficiencies and the fine. Any arrangements that would make it possible to escape from the consequences of liability in relation to those harmed by the cartel would have no detrimental effect on the administrative enforcement process. Again, the negative consequences would only be borne by others, which could make it all the more attractive to accept split prices and obtain yet another bargaining chip at no (or only external) costs. However, I am convinced that this is no option available to the Commission—which is not a simple prosecutor, but the guardian of the Treaty. After the Courage and Manfredi judgments it should no longer be questioned that Article 81 directly confers rights to those harmed by restrictions of competition.17 The Commission, when considering institutional choices in relation to settlements, has to attribute the respective weight to these rights. I am fully aware that such institutional choices also have to take other elements into consideration, and the proper functioning of the Commission’s services, including the efficiency of the enforcement process, is certainly among those elements. On the other hand, mere administrative efficiencies definitely do not share the same rank as rights conferred to individuals and firms directly by the Treaty. The Commission will therefore have to protect the interests of those harmed by the cartel in question when making its choices for a settlement process. This clearly excludes a setting in which cartelists, while acknowledging their liability to the Commission, would be able to hide this liability and the elements of the wrongdoing from those harmed. Commentators have frequently drawn a parallel to the Commission’s practice under the Leniency Notice, urging a similar approach that would allow oral statements and avoid any discoverable documents in settlement proceedings. However, in my opinion, it seems highly questionable whether the Commission struck the right balance between facilitated enforcement and third party rights under Article 81 as regards leniency. In any event, the possible contributions to efficient enforcement of competition law of leniency 17 Case C-453/99, Courage and Crehan [2001] ECR I-6297, para. 26; Manfredi, cited supra note 10, para. 95.

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applicants on the one hand and parties prepared to settle an instructed case on the other differ considerably. Those prepared to settle will not uncover secret cartels which otherwise might have continued for years; they will simply facilitate the administrative tasks of the Commission to deal with cartels already discovered and dismantled. Administrative tasks, as opposed to the safeguarding of competition, though, should be addressed by increasing human resources, rather than by impeding access to remedies for potential plaintiffs, whose legal position is already difficult enough.

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VII John D. Cooke* Negotiated Settlements under EC Competition Law: A Judicial Perspective

All judges favour settlements but there is a sound judicial aphorism which says that “All easy cases settle; all difficult cases only get worse.” What I mean by this is that the most worthwhile settlements in litigation are those which are reached between parties bargaining on a level playing field and from positions of equal risk. If a case is straightforward, if the proofs are unassailable and the outcome inevitable, the weaker party will usually accept reality and throw in the towel for the best deal to be got. On the other hand, if the parties hold balanced hands and the risk in the outcome is delicately poised between them, there is every likelihood that there will be a fight to the death or, in judicial terms, a fight to the writing of a long and difficult judgment. From the point of view of the judge it is the settlement in this latter category of case which is the most welcome.

Administrative efficiencies and procedural short-cuts The modernisation programme which led to Regulation 1/2003 was driven by a desire to make the enforcement of Articles 81 and 82 more efficient and by the need to make more effective use of the Commission’s resources. This was done, as we know, first by streamlining Article 81; by giving paragraph 3 direct effect and by abolishing the procedures for notification for exemption and negative clearance: and secondly, by a spectacular outsourcing of the Commission’s functions to the competition agencies (and thus the budgets) of the Member States. A further innovation of Regulation 1/2003 designed to shorten cases was the facility for reaching settlements through the acceptance of binding commitments under Article 9. Now, apparently, the Commission is looking for further gains in efficiency by building on the possibilities for shortcut

* Judge of the Court of First Instance of the European Communities. The views expressed are entirely personal.

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solutions to cases, with its proposal for a new form of settlement procedure in cartel cases. Whether this is correctly described as a “settlement” procedure is open to question as it seems more akin to a bargaining procedure for guilty pleas inspired, no doubt, by the “consent decree” mechanism of US antitrust procedures. In jurisdictions like the US and some of the Member States where the decision on the existence and gravity of the infringement is made by a distinct authority or an independent court, the undertakings concerned are negotiating on a basis which is different in an important way in that they can resist being pushed further into concessions than they believe necessary or reasonable by simply saying: “OK, as we can’t agree, we’ll let the judge decide.” There is no such option, at least at the stage of the administrative procedure, where the Commission is involved. The Commission always has the whip hand. It can always say: “If you don’t accept my terms, I will decide to give them the legal force of a decision.” The dilemma inherent in the Commission’s position is reflected in its draft Settlements Notice. On the one hand it is a public authority which is obliged to apply the law objectively. It acknowledges this when it declares in paragraph 2: “Whilst the Commission, as the investigative authority and the guardian of the Treaty empowered to adopt enforcement decisions subject to judicial control by the Community Courts, does not negotiate the question of the existence of an infringement of Community law and the appropriate sanction, it can reward the cooperation described in this Notice.”

On the other hand, a few sentences earlier, the Commission explains that the incentive for its proposal lies in the need to “allow the Commission to handle more cases with the same resources . . .” To put it bluntly, the attraction for the Commission in both the Article 9 settlements and its new guilty-plea settlement proposals is that they permit the Commission to achieve results without having to hear the parties or prove a case. So the question arises as to how far the Commission should be encouraged or permitted to go down this road in the direction of disposing of infringement complaints in cartel cases by means of settlements? To what extent is it prudent to permit the Commission to acquire the sort of powers now envisaged in the proposals of the draft Notice? The nature of the proposed arrangement provokes many questions. Can the Commission be trusted to resist the temptation to secure settlements in tricky cases or in cases which threaten to absorb excessive resources, by exercising duress or by misleading the undertakings? If the procedures are open to misuse, will the Community courts be able to give undertakings adequate judicial protection? Can an undertaking entering into a settlement with the Commission be assured that the bargain is secure?

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Article 9 Settlements These are not purely academic questions because one such issue has already arisen before the CFI in the Alrosa1 case, a case which arose out of an Article 9 settlement. It demonstrates that the legal security of such settlements is by no means a foregone conclusion. The significance of the Alrosa case (which is currently under appeal to the ECJ2) in this context seems to me to be as follows. Regulation 1/2003 as we know, introduces for the first time a specific settlement facility into proceedings under Articles 81 and 82. It provides, in effect, for a genuine settlement of a Commission proceeding in that the undertaking agrees to submit to certain conditions in return for which the Commission forebears to proceed to a finding of infringement. There is no guilty plea and there is no sentence. The undertaking therefore has the incentive of avoiding a finding of infringement, the imposition of a fine as well as the distraction and expense of an administrative procedure. The Commission on the other hand saves resources, can devote itself to other cases and is relieved of the need to disclose the evidence at its disposal and how weak it may actually be. Such a settlement has mutual advantages. In the current jargon of the managerial community it appears to be a “win / win situation”, or so it might seem. This is not necessarily so however, from the point of view of the undertakings concerned. Clearly, there is always the possibility that the Commission may reopen the case either on its own initiative or at the request of some third party as provided for in paragraph (2) of Article 9. Quite apart from a case of non-compliance with the commitments, the Commission is entitled to do so if it finds that the parties have provided incomplete, incorrect or misleading information as the basis of the commitments. The Commission can also reopen the decision if it considers there has been a “material change” in any of the facts of which it is based. There is no definition of what is meant by ‘material change’ and there is no time-limit to the reopening. At what point in time does a material change in facts justify a simple reopening of the existing decision on commitments as opposed to requiring the Commission to open a fresh investigation into a new infringement? Another issue which arises is whether the possibility of reopening an Article 9 decision works both ways. Could the undertakings concerned make a request for reopening under paragraph 2 if they believed that there had been a material change or that they had been misled by incomplete or incorrect information from the side of the Commission? 1 2

Case T-170/06 Alrosa Co Ltd v Commission (not yet reported), 11 July 2007. Case C-441/07 P, Commission v Alrosa, not yet decided.

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If the Commission refused such a request, would undertakings which had volunteered the commitments embodied in the decision themselves be entitled to seek to annul the refusal before the Community courts?

The Alrosa case One’s initial reaction to these questions would be to doubt such possibilities. Normally, a party which has agreed to a measure cannot subsequently resile from it and seek to have it set aside. The Community Courts would say that there is no cause of complaint, no acte faisant grief. But the Alrosa case shows, subject, of course, to the pending view of the European Court of Justice, that Article 9 decisions are not per se immune from attack just because they are based upon an agreement freely (or, at least, more or less freely) entered into. The case was one which arose out of a procedure which straddled the abolition of notification for exemption and the coming into force of Regulation No 1/2003 on the 1 May 2004. Alrosa is a Russian company engaged in diamond production which had long-standing commercial relations with companies in the De Beers Group. In 2002 the two companies concluded a supply agreement which they notified for negative clearance and exemption to the Commission under the old regime. In 2003 the Commission came to the view that that agreement could not be exempted and it issued a Statement of Objections based on a possible infringement of Article 81. It also considered that there might be an abuse under Article 82. Alrosa first offered commitments which were later withdrawn. After Article 9 had entered into force, both companies offered joint commitments which the Commission then advertised, inviting comments from third parties before the commitments were embodied in an Article 9 decision. When a large number of third party comments had been received, the Commission had second thoughts and invited the parties to submit new commitments which would involve a complete cessation of the trade relationship between the two companies as from 2009. In response, De Beers alone offered individual commitments designed to meet the Commission’s demands. In February 2006 the Commission adopted an Article 9 decision which made those individual commitments binding upon De Beers. Alrosa then applied to the CFI to annul that decision.

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Alrosa’s grounds of attack Although the Commission did not formally challenge the admissibility of the action, the Court took it upon itself to confirm briefly that the Decision addressed to De Beers was nevertheless of direct and individual concern to Alrosa for the purposes of Article 230(4) EC, as it had the clear effect of putting an end to an existing trade relationship between the two companies. Alrosa’s claim for annulment succeeded on two grounds. In the second of its successful grounds it established that it had been deprived of its right to be heard when the Commission rejected the joint offer of commitments from De Beers and Alrosa and proceeded to base its Article 9 decision upon the individual commitments offered by De Beers alone. The Court held that Alrosa was not a mere ‘interested third party’ but a contracting partner of DeBeers in a long lasting trading relationship and the effect of the decision making the commitments binding was to put a complete end to that relationship as from 2009. Alrosa was therefore entitled to be heard before the Article 9 decision was adopted in its final form. The first ground of successful attack, however, is possibly the more interesting. In this, Alrosa alleged a violation of Article 9 combined with infringement of the right of freedom of contract and the principle of proportionality. It argued that Article 9 did not permit the Commission to impose binding commitments on an undertaking which had not voluntarily subscribed to them and that ordering the complete cessation of the trading relationship amounted to a permanent boycott of Alrosa which was wholly disproportionate.

Proportionality The Court held that although Article 9 does not require proof of the infringement, that does not relieve the Commission of the need to make a proper economic assessment of the appropriateness of the commitments as a solution to the concerns which have been identified in the Commission’s preliminary assessment. The Court found that, just as the Commission is obliged to comply with the principle of proportionality when adopting an infringement decision under Article 7, it has no basis for applying the principle differently under Article 9. The Commission cannot, in effect, seek to avoid imposing a measure which would be considered disproportionate under Article 7 by embodying it in the form of commitments for a decision under Article 9. The Commission was thus found to have infringed Article 9 and the principle of proportionality because it failed to consider whether a less onerous

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solution than the outright prohibition of the trading relationship might be appropriate. At paragraphs 130 and 131 of the judgment, the Court states: “It is true that the Commission is never obliged under Article 9(1) to decide to make commitments binding instead of proceeding under Article 7. It is therefore not required to give the reasons for which commitments are not in its view suitable to be made binding, so as to bring the proceedings to an end. However, compliance with the principle of proportionality requires that, when measures that are less onerous than those it proposes to make binding exist, and are known to it, the Commission should examine whether those measures are capable of addressing the concerns which justify its action before it adopts, in the event of their proving unsuitable, the more onerous approach.”

This appears to mean (and subject, again, to the view that the European Court of Justice may take on appeal) that the Commission is not entirely free to accept commitments just because from its point of view, they offer an efficient use of its resources by allowing a case to be closed without having to prove the infringement as it would be required to do under Article 7. A decision to make commitments binding under Article 9 instead of deciding an infringement and imposing remedies under Article 7 must be made by reference to an economic analysis of the appropriateness, adequacy and proportionality of those commitments as a solution to the concerns identified in the preliminary assessment. In this regard it is worth noting that Article 9 is based upon the supposition that “the Commission intends to adopt a decision requiring that an infringement be brought to an end etc.”. Although it is clear that all that is required is a so-called “preliminary assessment” for this purpose and it is not suggested that the Commission has to have gone so far as to formulate a Statement of Objections, it seems clear that the Commission must have formed such an intention and must have some firm basis for doing so.

The implications of Alrosa It also seems clear from the judgment that if the Commission had based its choice as between the joint commitments of the two companies and the individual commitments offered by De Beers on a complex economic assessment as to the proportionality and necessity of the solution, the Court would have applied only a limited review and left the matter to the margin of discretion of the Commission. However, the Commission had argued that the identification of alternative solutions to the individual commitments would have required a complex economic assessment which Article 9 is intended to avoid. Because of the difficulty in establishing alternative solutions, it had reached its conclusion that only a complete prohibition was appropriate in order to

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The cartel settlement proposals The Commission’s proposals for an entirely new form of settlement or plea bargaining decision under Article 7 of Regulation 1/2003 do, however, raise questions of a different magnitude. Some of the questions which arise at first sight may be due to the fact that, as of this writing, we have only a draft

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Notice on the conduct of settlement proceedings together with the draft proposal for amendment to Regulation No 773/2004. Some of the problems may well be solved before these are adopted in final form. I propose, accordingly, to comment on only a few of the more general problems which the proposals appear to raise as matters of principle or practicality. Before doing so I digress to mention one oddity of draughtsmanship which might deserve attention in the final texts. In the proposed amendments to Regulation 773/2004, the proposed Article 10a(1) and Article 15(1a) both begin with the words: “After the initiation of proceedings pursuant to Article 11(6) of Regulation No 1/2003 . . .” So far as I can see, no proceedings are initiated “pursuant to Article 11(6)”. That is the provision which stipulates that the effect of initiation of proceedings under Chapter III of Regulation No 1/2003 is to render the Member States no longer competent to apply Articles 81 and 82. It is one of the curiosities of both Regulation 1/2003 and Regulation 773/2004 that they contain nowhere a definition of the concept of “initiation of proceedings”.

The overview One’s first reaction to the proposal is two-fold. At first sight the procedure envisaged for settlement discussions appears to be unnecessarily formalistic, cumbersome and rigid. In ordinary commercial litigation settlement negotiations can occur at any time and there may be particular moments in the course of proceedings which are especially conducive to serious overtures. When a claim is first mooted and before an action is formally started the parties may have strong incentives to kill the dispute at the outset before costs are wasted and relations deteriorate. Similarly, the delivery of a defence may give the parties a better understanding of their respective strengths and the risks they face and thus encourage talks. But a settlement may in most jurisdictions occur at any time down to the night before a reserve judgment is delivered. It is not immediately apparent therefore why the Commission feels it necessary that its settlement procedure should be available only at a fixed point in time and within time-limits which it dictates. I suspect the approach is influenced by its experience of negotiating commitments under the Merger Regulation where it can often feel, and not without reason, put under pressure within tight deadlines to assess last-minute remedy proposals. But those deadlines do not apply here. The second initial impression is that the procedure is heavily weighted in favour of the Commission notwithstanding the lip service that is paid throughout the Notice to respecting the rights of defence of the undertakings.

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Negotiated Settlements under EC Competition Law 269 It is difficult to avoid the impression that the Commission not only wants to have its cake and eat it but that it expects the undertakings to supply the ingredients and help with the baking.

The settlement time window Thus, the settlement negotiations appear to be envisaged as taking place after an infringement proceeding has been initiated but before service of a Statement of Objections and on the basis of only limited information about the case which the Commission proposes to allege. The process seems to proceed on the basis that the Commission will first ask the undertakings if they are interested in settlement negotiations to which the undertakings must respond in writing within a limited time. Article 10A of the amended regulation then provides that the Commission “may inform the parties” of the objections it proposes to raise, the evidence supporting them and the potential fines. (In fact, everyone knows what the “potential fine” might be— up to 10% of turnover. Presumably what is meant is “the likely fine”.) Interestingly, paragraph 15 of the Commission’s Draft Notice says “information will be disclosed in a timely manner as settlement discussions progress”. This implies that the Commission will drip-feed information to settlement candidates in the light, one assumes, of the degree of cooperation that the Commission feels it is getting from them. Paragraph 17 of the Draft Notice then contains the curious phrase: “When the progress made during the settlement discussions leads to a common understanding regarding the scope of the potential objections and the estimation of the range of likely fines to be imposed by the Commission” the Commission can fix a time-limit for delivery of formal written settlement submissions from the undertakings. What this suggests is that the Commission is indulging in something of a fishing expedition. It implies that the Commission starts off with no fixed idea of the precise nature or number of objections it might eventually formulate in relation to an infringement and that it is willing to adapt and reformulate them in the light of information it gets from the parties during the process. This would be perfectly normal in typical commercial litigation or even in a criminal prosecution where plea bargaining is permissible. A plaintiff or prosecutor may drop or amend parts of a composite claim because it realises from the discussions that they are weak and should not be permitted to jeopardise obtaining satisfaction on remaining parts of the claim. But it must be borne in mind that these settlement negotiations in cartel cases still lead to a decision under Article 7 of Regulation 1/2003 and it is the Commission that must adopt that decision. It is, therefore, not immediately apparent how the Commission reconciles its willingness to explore reaching

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“a common understanding regarding the scope of the potential objections” with its declared inability to negotiate “the question of the existence of an infringement”.

Split cartel settlements The one-sidedness of the process in favour of the Commission is also apparent if one looks at it from the perspective of the issue in the Alrosa case. It seems reasonably clear both from the terms of the Draft Notice and the wording of the proposed amendments to Regulation No 773/2004, that the Commission envisages the possibility of entering into settlement negotiations with only some of the members of a cartel. In Paragraph 14 of the Notice the Commission says that it may decide to pursue settlement negotiations by means of bilateral contacts ‘should some of the parties to the proceedings request settlement discussions’. Take a fairly typical situation in which the Commission proposes to move against a cartel which it says comprised five undertakings and involved three anti-competitive activities, say, price fixing, dividing markets and sharing production information. Three of the undertakings pursue the settlement route and the other two stand aside denying their involvement in whole or in part. According to paragraph 6 of the Notice those three parties ‘may not disclose to any other undertaking or third party in any jurisdiction the content of the discussions’. This would seem to mean that the three undertakings are prohibited from consulting with the two other members of the cartel who may, after all, have valuable documentary evidence which might be used to weaken the Commission’s case or heavily influence the assessment of the duration or gravity of the activities. Suppose then that the three settlement candidates make important concessions in order to achieve a settlement including, for example, accepting that all five undertakings were involved in all three activities. If a formal Article 7 infringement decision is then made on those terms is it not likely that, even though it is only addressed to the three settlement candidates, the remaining two would have the necessary locus standi to attack it? The Commission would undoubtedly argue that such a decision imposes no fine on the remaining two and only indirectly implicates them in the infringement without there being any formal finding of infringement against them for the purposes of Article 81. But this is, once again, the Commission’s dilemma. How realistic is it to expect the Commission, as an adjudicating authority to make an independent, objective and impartial decision in continuing proceedings against the remaining two undertakings when it has formally committed itself under Article 7 to the existence of a specific cartel comprising identified members

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Negotiated Settlements under EC Competition Law 271 and involving all in three particular anticompetitive activities? Can the remaining two undertakings get a fair hearing from the same authority?

The role of the Statement of Objections The final general problem relating to the questionable one-sidedness of the procedure is the manner in which the role of the Statement of Objections is manipulated as a short-cut to an Article 7 decision. When the settlement discussions progress to the point at which the Commission decides to call a halt, it fixes a time within which the undertakings must come forward with a written settlement submission. As described in paragraph 20 of the Notice, this must amount to a form of unconditional surrender in which the guilty parties must: “—unequivocally acknowledge liability for the infringement; —themselves suggest the sort of fine they would be willing to pay; —effectively waive their rights of defence by acknowledging that they have had sufficient opportunity to make their views known and that they do not envisage requesting access to the file or an oral hearing.”

It is worth remembering that at this point the undertakings involved have had access only to the drip-feed of information which the Commission chooses to make available as mentioned already above. They have not had a Statement of Objections and they have not had access to the file. It is only at this point that a Statement of Objections is issued by the Commission. Moreover, at this point, notwithstanding the perhaps full cooperation of the undertakings throughout the settlement process, the Commission reserves to itself the right to abandon the process, reject the settlement submission and proceed as usual to a full Article 7 infringement decision based on a Statement of Objections wholly independent (so far as that is possible) of the settlement discussions. One of the more vague notions introduced by the Commission in this procedure and which may well give rise to future legal pitfalls, is the idea that the Commission remains free to deliver a Statement of Objections which may or may not “endorse the settlement submissions” of the parties. If the Statement of Objections expressly rejects the submission then, of course, all bets are off and the infringement proceeding continues its normal course. On the other hand, if the SO endorses or at least purports to endorse, the settlement submission, then the undertakings must so confirm in writing and there is then no access to the file and no oral hearing. A further problem that arises at this point is the possibility that it may not be totally clear whether the Statement of Objections does in fact endorse the settlement submissions put forward by the undertakings. Is the Commission

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required to accept or reject them in their entirety and in every detail? If the undertakings suggest a fine of 5 million euros and the Commission fixes 5.5 million is that a “non endorsement” from the point of view of the undertakings? If the undertakings suggest 5 euro million fine and the Commission imposes 4.5 million is that a “non endorsement” which would entitle a complainant to insist upon a full infringement proceeding including a hearing?

Why not settlement at any stage? Having regard to these problems and uncertainties, (and I happily leave to others the possible implications of third party follow-on claims) it is not at all apparent why the Commission has insisted upon restricting the settlement process to this artificial and inflexible gap between the ‘initiation of the proceeding’ and the formal step of serving the Statement of Objections. It carries, it seems to me, the risk of settlements being concluded or rejected on a potentially false basis. The undertakings are asked to submit to an unconditional surrender upon the basis of information from the Commission which may be incomplete so as to give them a false impression of the true basis of the case the Commission intends to pursue. That position is aggravated in a case where only some of the members of the cartel settle and the full picture is then subsequently disclosed in a proceeding which continues against the others. It is difficult to understand why the Commission does not permit a settlement procedure to take place after the statement of objections has been issued and access to the file has been obtained. Then the parties are negotiating on a more realistic basis and in a far better position to make informed decisions as to the liability and the exposure. This short-cut approach in order to obtain “procedural efficiencies” may in the long run be counterproductive for the Commission. What is the position if lengthy and detailed settlement negotiations are seriously conducted between the undertakings and the Commission during which some evidence is disclosed on either side, some concessions are made by the undertakings and they show their hand on the amount of fines they might be prepared to suffer and the settlement then breaks down? The Commission in the Notice acknowledges in effect that the settlement discussions would take place on what is described in the common law as a “without prejudice” basis. It says at paragraph 27 that “the acknowledgements provided by the parties in the settlement submissions would be deemed to be withdrawn and could not be used in evidence3 against any of the parties to the proceedings”. 3 Interestingly, the words “in evidence” did not appear in the original version of the draft Notice but were added in the text issued on 30 June 2008. Clearly, the Commission had second thoughts about the wisdom of foregoing all use of the parties’ acknowledgements.

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Negotiated Settlements under EC Competition Law 273 But how realistic is this forbearance? Is there not a risk that either directly or indirectly, a resulting infringement decision may, even inadvertently, rely or draw upon assessments of the anticompetitive activities or the attitudes of the undertakings derived from what was disclosed in the settlement discussions? And does the “without prejudice” work both ways? If it transpires during the subsequent administrative procedure that the information or evidence disclosed by the Commission during settlement discussions gave the undertakings false or misleading impression of the nature or strength of the Commission’s case against them, could they be precluded from relying on that fact in a later attack upon the Article 7 Decision?

Self-incrimination One final question which arises is that of possible double jeopardy and the fear of self-incrimination. In settlement procedures in national jurisdictions this is less of a problem because the undertakings are usually negotiating with a unitary national prosecutor or regulator. If a settlement is reached with that authority there is no risk of double jeopardy because there is no other authority which can bring a duplicate enforcement proceeding whatever the risk may be of follow-on damages claims by third parties. In Community law however, not only are Articles 81 and 82 also enforceable at national level but most if not all of the Member States now have national competition rules based closely, if not word for word, on Articles 81 and 82. In some jurisdictions the competition rules also carry criminal penalties. In Ireland, for example, sections 4 and 5 of the Competition Act 2002 contain, with only the element of effect on inter-state trade omitted, the exact wording of Articles 81 and 82. Moreover, infringements of all four rules can be prosecuted as criminal offences which carry penalties of fines up to 4 million euros or 10% of turnover and, for individuals, of terms of imprisonment of up to five years. It is true, of course, that once the Commission initiates a proceeding at Community level the national agencies cannot apply Article 81 at national level by virtue of Article 11(6) of Regulation 1/2003. But at least in theory that does not prevent, in the case of Ireland for example, a settlement candidate being exposed to criminal prosecution under Section 4 of the Act for the infringement to which it has admitted for the purpose of an Article 7 settlement. As a matter of Irish constitutional law an interesting and difficult question would arise as to whether such a prosecution should be permitted given that it would be based on the same facts as the Article 7 decision and given that the anticompetitive damage done in Ireland has already been covered by the sanctions imposed for the Community as a whole.

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One of the as-yet unexplored areas of Regulation 1/2003 is the interaction between the Commission and the NCAs in the combined operation of Articles 11(6) and 3(1) of the Regulation. Under Article 11(6), once the Commission initiates either an Article 7 or an Article 9 procedure the NCAs can no longer apply Article 81; but by virtue of Article 3(1), they can only apply national competition rules to an agreement with an inter-state dimension if they also apply Article 81. If an Article 7 procedure culminates in a settlement decision, does that exhaust the application of Article 81 to the cartel in question—and is an NCA thereby also precluded from applying its national rule on a stand-alone basis because if it did so it would be in breach of Article 3(1)? Article 16 on the other hand seems to contemplate that circumstances can arise where national courts or competition authorities may be required to “rule on agreements, decisions or practices” which are already the subject of a Commission decision. It is not entirely clear what such circumstances might be unless “ruling on an agreement under Article 81” is something different from “applying Article 81” to the agreement.

Conclusion One can see the attraction for the Competition Commissioner of the prospect of standing on the steps of the Berlaymont building to proclaim a successful plea bargaining capitulation by an important cartel, like a US prosecutor on the steps of a Federal District Court: an impressive fine is achieved at minimum costs to Community resources. But DG Comp is not the Federal Trade Commission or the Department of Justice. It is at the same time the policy maker, the legislator, regulator, investigator of complaints, hearing officer and the deciding authority. The immense administrative advantages which those roles confer upon the Commission carry with them important obligations and restraints and one of those is that it may be obliged, because of the overriding public interest in the soundness of the Community legal order, to forego the “administrative efficiencies” and procedural shortcuts that may be available to other enforcement agencies. Settlement decisions are and remain Article 7 infringement decisions and great caution should be exercised in permitting the Commission to create shortcuts in legal procedures to reach such decisions even if they are based upon the apparent agreement of the undertakings concerned. This is because the validity of the Community legal order is dependent in no small degree, given the potential world-wide impact of competition decisions, upon the legal soundness of decisions under Article 81. This is particularly so where the proposed shortcut involves the Commission offering to undertakings

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Negotiated Settlements under EC Competition Law 275 inducements based on adjustments in the application of public law designed to procure for it administrative efficiencies, and which require as a counterpart the waiver by those undertakings of guarantees such as rights of defence conferred upon them by the Treaty itself and by its case law.

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VIII Diane Wood Antitrust Settlements in the United States

Introduction Settlement plays a central role in the resolution of antitrust litigation in the federal courts of the United States. Indeed, settlement is a critical feature of all litigation in the United States. Statistics collected by the Administrative Office of the United States Courts show that for the 12-month period ending March 31, 2007, approximately 23% of cases were terminated with no court action whatsoever.1 But many more cases than that are settled, some after preliminary motions to dismiss are denied, some during the course of discovery, some after a motion for summary judgment is denied, and some on the eve of trial. Only a small number of cases actually make it to trial: 3,505 of the 254,349 cases filed, or 1.3%.2 The rest are either disposed of by the court or are settled.

I. Legal Regime Governing Settlements When we turn to antitrust, it is useful to distinguish among both the possible plaintiffs in the case and the type of case before the court. Broadly speaking, there are three general categories: government civil actions, private civil actions, and criminal prosecutions. Government civil actions might be brought by the U.S. Department of Justice’s Antitrust Division, by the Federal Trade Commission, or by a state attorney general.3 Private parties

* Circuit Judge, U.S. Court of Appeals for the 7th Circuit Senior Lecturer in Law, University of Chicago. 1 See Administrative Office of the U.S. Courts, Annual Report of the Director 2007 (cited as 2007 Annual Report), Table C-4, available at http://www.uscourts.gov/library/ annualreports/2007/Title_Page.cfm. 2 Ibid. 3 See 15 U.S.C. § 15a (suits by United States for injuries to its own business or property); 15 U.S.C. § 25 (suits by United States to enjoin anticompetitive behavior); 15 U.S.C. § 45 (authority of Federal Trade Commission to prevent unfair methods of competition); 15 U.S.C. § 15c (authority of state attorneys general to bring civil actions to enforce federal antitrust laws).

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are entitled to bring suits either for treble damages or for injunctive relief against persons accused of violating the antitrust laws.4 Those individual cases may be brought as class actions, if the normal requirements for class treatment are satisfied.5 Finally, the Department of Justice may, in appropriate cases, bring criminal prosecutions for alleged violations of the Sherman Act,6 although as a matter of prosecutorial policy the Department for many years has restricted its criminal activity to hard core cartels and has refrained from using its criminal authority to pursue single-firm monopolization charges. There is no single legal regime that governs settlement in each of these kinds of cases. The Department of Justice and the Federal Trade Commission are each subject to special rules designed to ensure that the settlements to which they agree are soundly based in the antitrust laws and are in the public interest. In contrast, private civil actions brought by individuals are typically accepted by courts with little or no scrutiny. Class actions are a different matter: they cannot be settled unless the parties comply with special procedural requirements and obtain affirmative judicial approval. Finally, if one accepts that guilty pleas and “no contest” or nolo contendere pleas are the criminal equivalent to settlements, then there are special rules governing this type of disposition as well. The section that follows provides a brief description of each of these settlement types.

Department of Justice Civil Actions Since 1974, whenever the United States wants to settle a civil action, it must comply with the procedures outlined in the Tunney Act.7 That statute requires the Department of Justice to publish any proposal for a consent judgment in the Federal Register for at least 60 days prior to the effective date of the proposed judgment, so that interested parties may file written comments on the settlement and the Department may respond to them. The publication must include not only the proposed settlement and any materials or documents that were “determinative” to the proposal, but also a compre4 See 15 U.S.C. § 15 (right to sue for any person injured in his business or property for treble damages); 15 U.S.C. § 26 (right of private parties to sue for injunctive relief for antitrust violations). 5 See Fed. R. Civ. P. 23 (setting forth criteria that must be met before a class action may proceed, and stipulating procedures that must be followed in pursuing a class suit). 6 See Sherman Act §§ 1, 2, 15 U.S.C. §§ 1, 2 (providing that it is a felony to violate either section, and stating that convictions may be punished by a fine not exceeding $100,000,000 for a corporation, or $1,000,000 for an individual, or by imprisonment not exceeding 10 years, or both). There are other rules that also apply to criminal sentencing, but that topic goes well beyond the scope of this paper. See generally ABA Antitrust Law Developments (Sixth), volume I, chapter 9, section D.6 (2007). 7 See 15 U.S.C. §§ 16(b) to (h) (reproduced in Appendix A).

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hensive competitive impact statement explaining the nature and purpose of the proceeding, the practices that gave rise to the alleged violation of the antitrust laws, an explanation of the proposed consent judgment and its likely effects on competition, the remedies remaining for private parties if the judgment is entered, a description of the procedures for modifying the judgment, and a discussion of alternatives that were actually considered.8 Before entering any such consent judgment, the district court before which the suit is pending must make a determination that the suit is “in the public interest.”9 It is required to take into account the competitive impact of the judgment—that is, how effectively it will terminate the alleged violations, how it will be enforced, whether it is ambiguous, as well as any other factors bearing on competitive considerations, including the impact of the judgment on competition in the relevant market, on the public generally, and on those injured by the violation. The court is not, however, supposed to second-guess the Department’s prosecutorial decisions, as the U.S. Court of Appeals for the District of Columbia Circuit made clear in United States v. Microsoft Corp.10 In that case, the district court judge refused to enter a consent judgment that the Department had negotiated with Microsoft, largely (the court of appeals found) because the Department’s prosecution had not focused on, and thus had not addressed, various alleged violations that had been described in a book the judge had read entitled Hard Drive. The court of appeals found that the district judge had gone too far when he effectively “reach[ed] beyond the complaint to evaluate claims that the government did not make and to inquire as to why they were not made.”11 “Congress,” the court wrote, “did not mean for a district judge to construct his own hypothetical case and then evaluate the decree against that case.”12 The court also held that the district judge’s evaluation of the remedies provided by a consent decree had to be of the same type or class as the violations, not something ranging far beyond the scope of the complaint. On the other hand, the court acknowledged that a district judge must “pay special attention to the decree’s clarity,”13 as well as to the compliance mechanisms adopted in the decree. Consent decrees, it is worth noting, are a special form of settlement recognized by the U.S. courts. As the Supreme Court put it in Rufo v. Inmates of Suffolk County Jail,14 “[a] consent decree no doubt embodies an agreement of the parties and thus in some respects is contractual in nature. But it is an agreement that the parties desire and expect will be reflected in, and be enforceable 8 9 10 11 12 13 14

15 U.S.C. § 16(b). 15 U.S.C. § 16(e). 56 F.3d 1448 (D.C. Cir. 1995). 56 F.3d at 1459 (emphasis in original). Ibid. Ibid. at 1461. 502 U.S. 367 (1992).

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as, a judicial decree that is subject to the rules generally applicable to other judgments and decrees.”15 Unlike an ordinary settlement, therefore, which must be enforced under the general rules of contract through a new suit on the contract, a consent decree may be enforced directly by the court, through its powers of contempt and any other ancillary enforcement powers it may have.

Federal Trade Commission Actions The Federal Trade Commission has also established a procedure, which it has set forth in its regulations,16 for resolving cases by consent. A party in proceedings before the Commission is entitled to submit a proposal for disposing of the matter through a consent order. Its proposal must contain either an admission of the proposed findings of fact and conclusions of law presented by the Commission’s staff, or at a minimum an admission of the jurisdictional facts and a waiver of the requirement of the substantive admissions. The Commission may, if it wishes, require the respondent to submit a report in which it sets forth “in precise detail” the manner in which it will comply with the consent order, if and when it is entered.17 Finally, after the Commission tentatively accepts the proposed agreement, it publishes the agreement and supporting materials and allows public comment, normally for 30 to 60 days. After the comment period closes, the Commission may withdraw its acceptance of the agreement, modify the agreement, or accept it finally.

Private Individual Civil Actions Private parties often settle civil litigation, and, as noted earlier, antitrust cases are no exception. The degree of judicial participation in this process varies widely. Some judges take no part in the settlement process; others use magistrate judges (who are, in a sense, adjunct judges for the district court) to try to facilitate settlement; others might call on the services of a colleague who would then step aside if the matter must be tried. The Manual for Complex Litigation discusses settlement at length, both in its general overview (applicable to all cases) and in its treatment of class actions.18 In general, it takes a very positive approach toward settlement, suggesting ways in which the judge 15

Ibid. at 378. See 16 C.F.R. §§ 2.31 to 2.34 (reproduced in Appendix B). 17 See 16 C.F.R. § 2.33. 18 See Manual for Complex Litigation, Fourth, section 13, at 167–182 (non-class settlements), and section 21.6, at 3080-334 (class settlements) (Federal Judicial Center, 2004) (cited as Manual for Complex Litigation (Fourth)). The Manual is available for purchase on the Federal Judicial Center’s website, http://www.fjc.gov, or it can be downloaded free of charge. 16

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can encourage the settlement process. For example, it speaks of ways in which the judge can “help overcome the intransigence or militance of clients.”19 It sets forth specific techniques that the judge might use to promote settlement, including the following: • Firm trial date • Reference to another judge or magistrate judge specifically for the purpose of settlement negotiations • Participation by parties (that is, clients) • Confidential discussions with the judge • Use of settlement counsel, special masters, or experts, who can adopt a different perspective than that of the litigating attorneys • Contribution bar orders, which would ban a claim for contribution or indemnification by non-settling defendants • Offer of judgment under the Federal Rules of Civil Procedure (Rule 68), which allow a party to avoid paying the plaintiff’s costs and attorneys’ fees if the ultimate award is less than the offer • Representative case(s), which may be useful if there are many similar lawsuits pending before the court • Severance of one or more key issues The last point worth mentioning relates to the ethical considerations. In the United States, rules of professional responsibility normally bar attorneys from communicating directly with a party represented by counsel, without that counsel’s presence or consent. This means that an attorney may not directly negotiate a settlement with a represented adverse party. Defendants are not permitted to condition settlement on an agreement that plaintiff’s counsel will not represent other persons with similar claims. Finally, ethical problems can arise if the attorney does not promptly submit a non-frivolous offer of settlement to his or her client, particularly if the delay has the effect of increasing the number of billable hours the attorney has accumulated. Once the parties have reached a settlement agreement, they normally file a joint motion with the court asking that the case be dismissed “with prejudice,” as the court is empowered to do under Federal Rule of Civil Procedure 41(a)(2). This ensures that the same suit cannot be filed again later—or at least it cannot be re-filed without meeting a defense of res judicata that would cause the new action to be dismissed promptly.

Settlements in Class Actions By way of background, a class action in U.S. federal court cannot exist unless and until the district court formally certifies it as a class. In deciding whether 19

Manual for Complex Litigation (Fourth), § 13.11.

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this is appropriate, the court must evaluate two sets of criteria. Rule 23(a) of the Federal Rules of Civil Procedure establishes four basic prerequisites that all proposed class actions must meet. It provides that: One or more members of a class may sue or be sued as representative parties on behalf of all members only if: (1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class.20 Class action lawyers refer to these, respectively, as the numerosity, commonality, typicality, and representativeness requirements. In addition, each class action must fit into at least one of the categories described in Rule 23(b). Subpart (b)(1) describes actions that, by their very nature, must proceed as class actions; if they do not, then the outcomes of separate lawsuits would either establish incompatible standards of conduct for the party opposing the class or would as a practical matter resolve conclusively the claims of absentee individual members of the class. Subpart (b)(2) applies if “the party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole.”21 In other words, if the only relief sought is injunctive, the class belongs under this section. Finally, and most commonly in antitrust cases, is subpart (b)(3), which is used whenever the court finds that “the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.”22 Important additional rules apply to these (b)(3) class actions, as they are normally called: the party seeking to represent the class must, at its own expense, send “the best notice that is practicable” (normally individual letters) to “all members who can be identified through reasonable effort,” telling them about the nature of the action, the definition of the class, the claims certified, and, critically, the right of any individual to opt out of the class. The notice must also warn the class members that a judgment either way in the case will bind them unless they opt out. Even if a class has been properly certified according to these procedures, special rules apply to class settlements. Once again, it is best simply to set forth the language of Rule 23(e), which controls all class settlements (including those in antitrust cases): 20 21 22

Fed. R. Civ. P. 23(a). Fed. R. Civ. P. 23(b)(2). Fed. R. Civ. P. 23(b)(3).

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(e) Settlement, Voluntary Dismissal, or Compromise. The claims, issues, or defenses of a certified class may be settled, voluntarily dismissed, or compromised only with the court’s approval. The following procedures apply to a proposed settlement, voluntary dismissal, or compromise: (1) The court must direct notice in a reasonable manner to all class members who would be bound by the proposal. (2) If the proposal would bind class members, the court may approve it only after a hearing and on finding that it is fair, reasonable, and adequate. (3) The parties seeking approval must file a statement identifying any agreement made in connection with the proposal. (4) If the class action was previously certified under Rule 23(b)(3), the court may refuse to approve a settlement unless it affords a new opportunity to request exclusion to individual class members who had an earlier opportunity to request exclusion but did not do so. (5) Any class member may object to the proposal if it requires court approval under this subdivision (e); the objection may be withdrawn only with the court’s approval. Courts take their responsibilities under this rule very seriously. It is not uncommon for members of the class to object to a proposed settlement. If they do so, the court has the power to hold a hearing at which the objectors are entitled to present their positions and any evidence tending to show that the settlement is unreasonable or unfair to them. Objectors who are unsatisfied with the outcome have the right to appeal, whether or not they formally intervened in the trial court proceedings.23

Criminal Cases Criminal cases are not “settled” in the same way as civil cases are, but they are quite often resolved by guilty pleas or “no contest” pleas (also known as nolo contendere statements). Although some guilty pleas are so-called “blind pleas”—that is, there has been no plea bargaining between the prosecutor and the defendant, and thus no plea agreement has been concluded—most are the result of discussions between the prosecutor and the defendant and result in a formal plea agreement. The Supreme Court of the United States has held for many years that plea agreements are contracts that are enforceable by the defendant, if the prosecution fails to live up to a promise it has made.24 Because guilty pleas (and nolo pleas), and the agreements that usually accompany them, are so important, Federal Rule of Criminal Procedure 11 23 24

See Devlin v. Scardelletti, 536 U.S. 1, 14 (2002). See Santobello v. New York, 404 U.S. 257, 262 (1971).

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prescribes a series of specific inquiries that a judge must make before the plea is accepted.25 After ensuring that the defendant is competent to plead (which involves an assessment of his mental state, an assurance that he is not presently under the influence of any drugs, that he has received assistance of counsel or has knowingly declined such assistance, and similar inquiries), the Rule requires the court first to remind the defendant that he is under oath and may be prosecuted for any false statement he makes. The court then reminds him of his right to plead not guilty, to put the government to its proof, to have a jury trial, to be represented throughout by counsel, to confront witnesses and obtain their presence at trial, and generally to have a fair trial. The court then informs the defendant of the charges against him and the penalties that accompany them. A factual basis for the plea must be put on the record. If there is any plea agreement, it must be disclosed in open court, unless the court for good cause permits it to be disclosed in camera (that is, before the judge, with a court reporter and both parties present, but in the judge’s chambers rather than in public). Most plea agreements leave the ultimate sentence up to the judge, even though the prosecutor may agree to recommend a certain sentence. Once a plea has been accepted, it is possible, though difficult, to withdraw it. The judge must be convinced that there is good cause to withdraw the plea. The mere fact that the defendant is unhappy with the court’s ultimate choice of fine or prison sentence is not enough. Antitrust offenses are covered by Part R of the U.S. Sentencing Guidelines (which are now advisory only, although they are still quite influential). For example, if a corporate executive is convicted of an antitrust offense, and it is his first criminal conviction (as is likely), his sentence will depend on the amount of commerce that was affected by the violation. (This term is defined as the volume of commerce done by the offender or his principal—i.e. the firm—in goods or services that were affected by the violation).26 If more than $10,000,000 was involved, his “offense level” is 12, and another 4 levels must be added, for a total offense level of 16. The Guidelines recommend a sentence of 21–27 months for such a person, but the prosecutor might, in a plea agreement, agree to recommend a more lenient sentence—perhaps even one that avoids imprisonment altogether.

II. Statistics on Antitrust Settlements in U.S. Federal Courts Antitrust cases account for a very small part of the overall business of the federal judiciary. As noted at the beginning of this paper, the 2007 Annual 25 26

The Rule is reproduced in Appendix C. See U.S.S.G. § 2R1.1(b)(2).

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Report of the Director of the Administrative Office of the U.S. Courts indicates that in the 12-month period ending March 31, 2007, 254,349 civil cases were filed in the district courts, and 66,629 criminal cases were commenced. Of that vast number of civil cases, a mere 686 were antitrust cases (of which 668 were classified as private antitrust suits and 18 as suits by the United States).27 Looking at the 18 cases brought by the United States, three were terminated without any court action, and none went to trial.28 As for the 668 cases brought by other parties, 236 were terminated without any court action, and only 22 went to trial.29 On the criminal side, antitrust offenses are placed within the “regulatory” category; only 19 cases (representing 30 defendants) are listed as being filed during the year ending March 31, 2007.30 All 30 of those defendants resolved their cases with a plea of guilty.31 As these statistics show, the number of antitrust cases on either the civil or the criminal side of the docket is quite small in relation to the overall caseload of the courts. The following table, kindly prepared for this paper with the assistance of John Rabiej, Chief of the Rules Committee Support Office in the Administrative Office of the U.S. Courts, and Maurice S. Galloway, a Management Analyst in the Statistics Division of that office, gives some additional detail about the way in which antitrust cases were resolved during Fiscal Year 2007. National Summary Report of Antitrust Terminations by Disposition Code32 FY 2007

27 28 29 30 31 32

2007 Annual Report, Table C-4. Ibid. Ibid. Ibid., Table D-2. Ibid., Table D-4. The table that follows uses the following disposition codes for dismissed cases: 02—Want of Prosecution 03—Lack of Jurisdiction 12—Voluntarily 13—Settled 14—Other

It uses the following codes for cases that were disposed of by some kind of court judgment: 04—Default 05—Consent 06—Motion before trial 15—Judgment of arbitrator 07—Jury verdict 08—Directed verdict (i.e., judgment as a matter of law by the court) 09—Court trial (court sits as trier of fact; no jury)

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Total 289

02—Want of Prosecution

7

03—Lack of Prosecution

8

12—Voluntarily

84

13—Settled

132

14—Other

58

B. After Judgment:

162

04—On Default

1

05—On Consent

9

06—On Motion Before Trial

54

07—On Jury Verdict

11

09—After Trial to Court

1

16—On Stay Pending Bankruptcy

1

17—Other

37

18—Statistical Closing

48

C. Other Disposition Action 00—Transfer to another District 01—Remanded to State Court 10—Multidistrict Litigation Transfer 11—Remanded to U.S. Agency NATIONAL TOTAL

245 82 2 160 1 696

Mr. Rabiej also offered the following useful explanation about the way in which the Administrative Office collects the data that form the basis of this table. The information is based on disposition sheets that are completed after the termination of each case by the individual Clerk of Court offices. When a case is terminated, a staff member in the office assigns a disposition code to the terminated case. Because settlements are normally concluded out of court, it has been difficult to find an accurate way to record them. The staff suspect that the reported numbers for settlements are understating the true settlement

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rate. Nonetheless, “settlement” (meaning “the action was disposed of after settlement between parties out of court”) is one of the disposition code numbers.

III. Judicial Encouragement of Settlements Unlike the situation in Europe, there is no ambivalence at all in the United States about the desirability of settlement. Both district (first instance) courts and courts of appeals employ a number of mechanisms to encourage settlement. In addition to the advice from the Manual on Complex Litigation noted above, the following programs exist to assist parties in reaching an agreed (if not amicable) resolution of their dispute. (Once again, most of these programs are available for all cases, not just for antitrust cases or cases in other specialized areas.)

Voluntary Mediation Programs Many district courts sponsor voluntary mediation programs, either for all cases or for particular kinds of disputes. For example, the U.S. District Court for the Northern District of Illinois (headquartered in Chicago) has established a program for voluntary mediation of cases arising under the Federal Trademark Act of 1946 (known as the Lanham Act).33 The Executive Committee of the court (a body composed of all of the district judges) establishes procedures for the mediation process. Confidentiality is assured: statements made by any party, attorney, or other participant are privileged and may not be reported, recorded, placed into evidence, made known to the trial judge or the jury, or used in any other way. No party is bound by anything that he or she says unless a settlement is reached, “in which event the settlement shall be reduced to writing and shall be binding upon all parties.”34 Note that these are contractual settlements, not consent decrees.

Settlement Assistance Program for Pro Se Litigants Many district courts, including again the court in Chicago, have a number of programs designed to assist civil litigants who are not represented by counsel. 33 34

See N.D. Ill. Local Rule 16.3, referring to the Lanham Act, 15 U.S.C. §§ 1051–1127. N.D. Ill. Local Rule 16.3(c).

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On November 6, 2006, the Northern District of Illinois established a courtwide program that allows pro se litigants to have the benefit of an attorney at settlement conferences.35 Volunteer lawyers from member law firms of the Chicago Lawyers’ Committee for Civil Rights Under Law provide free legal assistance to these pro se parties. They assist in preparing for the settlement conference; they participate in the conference on behalf of the pro se litigant; and they draft a settlement agreement and corresponding motion to dismiss, if appropriate. Their assistance is, however, limited to the settlement process; it does not carry over to any other part of the litigation process if the settlement effort is unsuccessful.

Alternative Dispute Resolution Generally More broadly, the Guide to Judiciary Policies and Procedures (available through the Administrative Office of the U.S. Courts) recognizes alternative dispute resolution as an important part of the services offered by the courts.36 The Alternative Dispute Resolution Act allows any district to refer a civil action to arbitration—naturally, only by consent of the parties.37 These referrals are in addition to the court-annexed arbitration programs that operate in ten districts; these programs are mandatory, in the sense that the parties are required to participate prior to going on to a possible trial.38 The court maintains a list of arbitrators who have been approved and certified as fit to serve. Typically, these programs are available only for small cases. Referrals to arbitration may not be made where the action is based on an alleged violation of a constitutional right, or where jurisdiction is based in part on the civil-rights and voting-rights jurisdictional statute,39 or where money damages exceed $150,000. As the last of these limits suggests, it will be a rare antitrust case that is eligible for this program.

Settlement Measures within Litigation The primary rule that spells out the district court’s authority to manage a case prior to the formal trial is Federal Rule of Civil Procedure 16. In addition to providing for pretrial conferences, scheduling orders, orders for managing 35 See the website of the Northern District of Illinois, http://www.ilnd.uscourts.gov/ press/sap2006.html. 36 See Guide to Judiciary Policies and Procedures, volume 4, Chapter 18. 37 See 28 U.S.C. § 654(a). 38 See 28 U.S.C. § 654(d). 39 28 U.S.C. § 1343.

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discovery, and similar matters, the rule specifically addresses settlement. Indeed, Rule 16(a) lists “facilitating settlement” as one of its five central purposes.40 Among the appropriate matters for consideration at a pretrial conference, the Rule lists “settling the case and using special procedures to assist in resolving the dispute when authorized by statute or local rule.”41 Many district courts rely heavily on their magistrate judges either for supervision of the entire pretrial process, or in particular for the conduct of settlement conferences.42 The courts of appeals also operate settlement offices for civil cases.43 In the Seventh Circuit, after a case has been filed, counsel, and sometimes the litigants, are often directed to meet with one of the court’s expert settlement conference attorneys for the purpose of exploring a voluntary disposition of the appeal. These conferences may be conducted either in person or over the telephone. If a party has not received an invitation to attend a settlement conference, it is also possible to request that one be convened. The court does not conduct conferences in pro se, prisoner-rights, immigration, social security, or habeas corpus cases, but they regularly take place for cases on the business docket. Proceedings are entirely confidential, and the judges themselves normally do not know whether or not a particular case has gone through the settlement procedure, should the case eventually reach the oral argument docket. A complete description of the Seventh Circuit’s program may be found in Appendix E to this paper.

IV. Conclusion Although this brief overview cannot do justice to the topic of the role that settlement plays in the U.S. federal courts—either in antitrust cases or in general—it should suffice to show that the role is central. When the government is a party or the rights of a large number of people are implicated, as in a class action, the court reviews a proposed antitrust settlement carefully, to ensure that it comports with the public interest and provides effective relief to persons injured by the alleged antitrust violation. When the case is solely between two private parties, there is more leeway for them to resolve it as they wish. 40

Fed. R. Civ. P. 16(a)(5). Fed. R. Civ. P. 16(c)(2)(I). 42 See, e.g., Wayne D. Brazil, “Hosting Mediations as a Representative of the System of Civil Justice,” 22 Ohio State Journal on Dispute Resolution 227 (2007). Judge Brazil is a Magistrate Judge of the U.S. District Court for the Northern District of California. He has written extensively about the use of ADR in the courts and the role of the magistrate judges in facilitating dispute resolution. 43 See Fed. R. App. P. 33 (reproduced in Appendix D), which authorizes “appeal conferences.” 41

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In antitrust, many vertical cases will fit the latter pattern. The courts have seen no reason why such parties should not be able to resolve their dispute consensually. This is particularly true given the fact that no such settlement would preclude a governmental authority from bringing an enforcement action, should the need arise. Settlements and plea agreements also play an important role in helping the courts to manage the ever-increasing numbers of cases that come before them. This consensual method of resolving antitrust disputes has won widespread acceptance in the United States, because it has helped to achieve effective antitrust enforcement without compromising the essential legal principles that the law embodies. It appears to be here to stay.

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APPENDIX A: The Tunney Act, 15 U.S.C. § 16 § 16. Judgments *

*

*

(b) Consent judgments and competitive impact statements; publication in Federal Register; availability of copies to the public Any proposal for a consent judgment submitted by the United States for entry in any civil proceeding brought by or on behalf of the United States under the antitrust laws shall be filed with the district court before which such proceeding is pending and published by the United States in the Federal Register at least 60 days prior to the effective date of such judgment. Any written comments relating to such proposal and any responses by the United States thereto, shall also be filed with such district court and published by the United States in the Federal Register within such sixty-day period. Copies of such proposal and any other materials and documents which the United States considered determinative in formulating such proposal, shall also be made available to the public at the district court and in such other districts as the court may subsequently direct. Simultaneously with the filing of such proposal, unless otherwise instructed by the court, the United States shall file with the district court, publish in the Federal Register, and thereafter furnish to any person upon request, a competitive impact statement which shall recite— (1) the nature and purpose of the proceeding; (2) a description of the practices or events giving rise to the alleged violation of the antitrust laws; (3) an explanation of the proposal for a consent judgment, including an explanation of any unusual circumstances giving rise to such proposal or any provision contained therein, relief to be obtained thereby, and the anticipated effects on competition of such relief; (4) the remedies available to potential private plaintiffs damaged by the alleged violation in the event that such proposal for the consent judgment is entered in such proceeding; (5) a description of the procedures available for modification of such proposal; and (6) a description and evaluation of alternatives to such proposal actually considered by the United States. (c) Publication of summaries in newspapers The United States shall also cause to be published, commencing at least 60 days prior to the effective date of the judgment described in subsection (b) of

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this section, for 7 days over a period of 2 weeks in newspapers of general circulation of the district in which the case has been filed, in the District of Columbia, and in such other districts as the court may direct— (i) a summary of the terms of the proposal for consent judgment, (ii) a summary of the competitive impact statement filed under subsection (b) of this section, (iii) and a list of the materials and documents under subsection (b) of this section which the United States shall make available for purposes of meaningful public comment, and the place where such materials and documents are available for public inspection. (d) Consideration of public comments by Attorney General and publication of response During the 60-day period as specified in subsection (b) of this section, and such additional time as the United States may request and the court may grant, the United States shall receive and consider any written comments relating to the proposal for the consent judgment submitted under subsection (b) of this section. The Attorney General or his designee shall establish procedures to carry out the provisions of this subsection, but such 60-day time period shall not be shortened except by order of the district court upon a showing that (1) extraordinary circumstances require such shortening and (2) such shortening is not adverse to the public interest. At the close of the period during which such comments may be received, the United States shall file with the district court and cause to be published in the Federal Register a response to such comments. Upon application by the United States, the district court may, for good cause (based on a finding that the expense of publication in the Federal Register exceeds the public interest benefits to be gained from such publication), authorize an alternative method of public dissemination of the public comments received and the response to those comments. (e) Public interest determination (1) Before entering any consent judgment proposed by the United States under this section, the court shall determine that the entry of such judgment is in the public interest. For the purpose of such determination, the court shall consider— (A) the competitive impact of such judgment, including termination of alleged violations, provisions for enforcement and modification, duration of relief sought, anticipated effects of alternative remedies actually considered, whether its terms are ambiguous, and any other competitive considerations bearing upon the adequacy of such judgment that the court deems necessary to a determination of whether the consent judgment is in the public interest; and

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(B) the impact of entry of such judgment upon competition in the relevant market or markets, upon the public generally and individuals alleging specific injury from the violations set forth in the complaint including consideration of the public benefit, if any, to be derived from a determination of the issues at trial. (2) Nothing in this section shall be construed to require the court to conduct an evidentiary hearing or to require the court to permit anyone to intervene. (f) Procedure for public interest determination In making its determination under subsection (e) of this section, the court may— (1) take testimony of Government officials or experts or such other expert witnesses, upon motion of any party or participant or upon its own motion, as the court may deem appropriate; (2) appoint a special master and such outside consultants or expert witnesses as the court may deem appropriate; and request and obtain the views, evaluations, or advice of any individual, group or agency of government with respect to any aspects of the proposed judgment or the effect of such judgment, in such manner as the court deems appropriate; (3) authorize full or limited participation in proceedings before the court by interested persons or agencies, including appearance amicus curiae, intervention as a party pursuant to the Federal Rules of Civil Procedure, examination of witnesses or documentary materials, or participation in any other manner and extent which serves the public interest as the court may deem appropriate; (4) review any comments including any objections filed with the United States under subsection (d) of this section concerning the proposed judgment and the responses of the United States to such comments and objections; and (5) take such other action in the public interest as the court may deem appropriate. (g) Filing of written or oral communications with the district court Not later than 10 days following the date of the filing of any proposal for a consent judgment under subsection (b) of this section, each defendant shall file with the district court a description of any and all written or oral communications by or on behalf of such defendant, including any and all written or oral communications on behalf of such defendant by any officer, director, employee, or agent of such defendant, or other person, with any officer or employee of the United States concerning or relevant to such proposal, except that any such communications made by counsel of record alone with the Attorney General or the employees of the Department of Justice alone shall

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be excluded from the requirements of this subsection. Prior to the entry of any consent judgment pursuant to the antitrust laws, each defendant shall certify to the district court that the requirements of this subsection have been complied with and that such filing is a true and complete description of such communications known to the defendant or which the defendant reasonably should have known. (h) Inadmissibility as evidence of proceedings before the district court and the competitive impact statement Proceedings before the district court under subsections (e) and (f) of this section, and the competitive impact statement filed under subsection (b) of this section, shall not be admissible against any defendant in any action or proceeding brought by any other party against such defendant under the antitrust laws or by the United States under section 15a of this title nor constitute a basis for the introduction of the consent judgment as prima facie evidence against such defendant in any such action or proceeding. *

*

*

APPENDIX B: Federal Trade Commission Regulations on Settlements 16 C.F.R. § 2.31. Opportunity to submit a proposed consent order. (a) Where time, the nature of the proceeding, and the public interest permit, any individual, partnership, or corporation being investigated shall be afforded the opportunity to submit through the operating Bureau or Regional Office having responsibility in the matter a proposal for disposition of the matter in the form of a consent order agreement executed by the party being investigated and complying with the requirements of § 2.32, for consideration by the Commission in connection with a proposed complaint submitted by the Commission’s staff. (b) After a complaint has been issued, the consent order procedure described in this part will not be available except as provided in § 3.25(b). 16 C.F.R. § 2.32. Agreement. Every agreement in settlement of a Commission complaint shall contain, in addition to an appropriate proposed order, either an admission of the proposed findings of fact and conclusions of law submitted simultaneously by the Commission’s staff or an admission of all jurisdictional facts and an express waiver of the requirement that the Commission’s decision contain a statement of findings of fact and conclusions of law. Every agreement also shall waive further procedural steps and all rights to seek judicial review or otherwise to

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challenge or contest the validity of the order. In addition, where appropriate, every agreement in settlement of a Commission complaint challenging the lawfulness of a proposed merger or acquisition shall also contain a holdseparate or asset-maintenance order. The agreement may state that the signing thereof is for settlement purposes only and does not constitute an admission by any party that the law has been violated as alleged in the complaint. Every agreement shall provide that: (a) The complaint may be used in construing the terms of the order; (b) No agreement, understanding, representation, or interpretation not contained in the order or the aforementioned agreement may be used to vary or to contradict the terms of the order; (c) The order will have the same force and effect and may be altered, modified or set aside in the same manner provided by statute for Commission orders issued on a litigated or stipulated record; (d) Except as provided by order of the Commission, any order issued pursuant to the agreement will become final upon service; (e) The agreement will not become a part of the public record unless and until it is accepted by the Commission; and (f) If the Commission accepts the agreement, further proceedings will be governed by § 2.34. 16 C.F.R. § 2.33. Compliance procedure. The Commission may in its discretion require that a proposed agreement containing an order to cease and desist be accompanied by an initial report signed by the respondent setting forth in precise detail the manner in which the respondent will comply with the order when and if entered. Such report will not become part of the public record unless and until the accompanying agreement and order are accepted by the Commission. At the time any such report is submitted a respondent may request confidentiality for any portion thereof with a precise showing of justification therefor as set out in § 4.9(c) and the General Counsel or the General Counsel’s designee will dispose of such requests in accordance with that section. 16 C.F.R. § 2.34. Disposition. (a) Acceptance of proposed consent agreement. The Commission may accept or refuse to accept a proposed consent agreement. Except as otherwise provided in paragraph (c) of this section, acceptance does not constitute final approval, but it serves as the basis for further actions leading to final disposition of the matter. (b) Effectiveness of hold-separate or asset-maintenance order. Following acceptance of a consent agreement, the Commission will, if it deems a

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hold-separate or asset-maintenance order appropriate, issue a complaint and such an order as agreed to by the parties. Such order will be final upon service. The issuance of a complaint under this paragraph will neither commence an adjudicatory proceeding subject to part 3 of this chapter nor subject the consent agreement proceeding to the prohibitions specified in § 4.7 of this chapter. (c) Public comment. Promptly after its acceptance of the consent agreement, the Commission will place the order contained in the consent agreement, the complaint, and the consent agreement on the public record for a period of 30 days, or such other period as the Commission may specify, for the receipt of comments or views from any interested person. At the same time, the Commission will place on the public record an explanation of the provisions of the order and the relief to be obtained thereby and any other information that it believes may help interested persons understand the order. The Commission also will publish the explanation in the Federal Register. The Commission retains the discretion to issue a complaint and a Final Decision and Order, incorporating the order contained in a consent agreement, in appropriate cases before seeking public comment. Unless directed otherwise by the Commission, such Decision and Order will be final upon service. (d) Comment on initial compliance report. If respondents have filed an initial report of compliance pursuant to § 2.33, the Commission will place that report on the public record, except for portions, if any, granted confidential treatment pursuant to § 4.9(c) of this chapter, with the complaint, the order, and the consent agreement. (e) Action following comment period. (1) Following the comment period, on the basis of comments received or otherwise, the Commission may either withdraw its acceptance of the agreement and so notify respondents, in which event it will take such other action as it may consider appropriate, or issue and serve its complaint in such form as the circumstances may require and its decision in disposition of the proceeding. (2) The Commission, following the comment period, may determine, on the basis of the comments or otherwise, that a Final Decision and Order that was issued in advance of the comment period should be modified. Absent agreement by respondents to the modifications, the Commission may initiate a proceeding to reopen and modify the decision and order in accordance with § 3.72(b) of this chapter or commence a new administrative proceeding by issuing a complaint in accordance with § 3.11 of this chapter.

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APPENDIX C: Federal Rule of Criminal Procedure 11: Pleas (a) Entering a Plea. (1) In General. A defendant may plead not guilty, guilty, or (with the court’s consent) nolo contendere. (2) Conditional Plea. With the consent of the court and the government, a defendant may enter a conditional plea of guilty or nolo contendere, reserving in writing the right to have an appellate court review an adverse determination of a specified pretrial motion. A defendant who prevails on appeal may then withdraw the plea. (3) Nolo Contendere Plea. Before accepting a plea of nolo contendere, the court must consider the parties’ views and the public interest in the effective administration of justice. (4) Failure to Enter a Plea. If a defendant refuses to enter a plea or if a defendant organization fails to appear, the court must enter a plea of not guilty. (b) Considering and Accepting a Guilty or Nolo Contendere Plea. (1) Advising and Questioning the Defendant. Before the court accepts a plea of guilty or nolo contendere, the defendant may be placed under oath, and the court must address the defendant personally in open court. During this address, the court must inform the defendant of, and determine that the defendant understands, the following: (A) the government’s right, in a prosecution for perjury or false statement, to use against the defendant any statement that the defendant gives under oath; (B) the right to plead not guilty, or having already so pleaded, to persist in that plea; (C) the right to a jury trial; (D) the right to be represented by counsel—and if necessary have the court appoint counsel—at trial and at every other stage of the proceeding; (E) the right at trial to confront and cross-examine adverse witnesses, to be protected from compelled self-incrimination, to testify and present evidence, and to compel the attendance of witnesses; (F) the defendant’s waiver of these trial rights if the court accepts a plea of guilty or nolo contendere; (G) the nature of each charge to which the defendant is pleading; (H) any maximum possible penalty, including imprisonment, fine, and term of supervised release;

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any mandatory minimum penalty; any applicable forfeiture; the court’s authority to order restitution; the court’s obligation to impose a special assessment; in determining a sentence, the court’s obligation to calculate the applicable sentencing-guideline range and to consider that range, possible departures under the Sentencing Guidelines, and other sentencing factors under 18 U.S.C. § 3553(a); and (N) the terms of any plea-agreement provision waiving the right to appeal or to collaterally attack the sentence. (2) Ensuring That a Plea Is Voluntary. Before accepting a plea of guilty or nolo contendere, the court must address the defendant personally in open court and determine that the plea is voluntary and did not result from force, threats, or promises (other than promises in a plea agreement). (3) Determining the Factual Basis for a Plea. Before entering judgment on a guilty plea, the court must determine that there is a factual basis for the plea. (c) Plea Agreement Procedure. (1) In General. An attorney for the government and the defendant’s attorney, or the defendant when proceeding pro se, may discuss and reach a plea agreement. The court must not participate in these discussions. If the defendant pleads guilty or nolo contendere to either a charged offense or a lesser or related offense, the plea agreement may specify that an attorney for the government will: (A) not bring, or will move to dismiss, other charges; (B) recommend, or agree not to oppose the defendant’s request, that a particular sentence or sentencing range is appropriate or that a particular provision of the Sentencing Guidelines, or policy statement, or sentencing factor does or does not apply (such a recommendation or request does not bind the court); or (C) agree that a specific sentence or sentencing range is the appropriate disposition of the case, or that a particular provision of the Sentencing Guidelines, or policy statement, or sentencing factor does or does not apply (such a recommendation or request binds the court once the court accepts the plea agreement). (2) Disclosing a Plea Agreement. The parties must disclose the plea agreement in open court when the plea is offered, unless the court for good cause allows the parties to disclose the plea agreement in camera. (3) Judicial Consideration of a Plea Agreement.

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(A) To the extent the plea agreement is of the type specified in Rule 11(c)(1)(A) or (C), the court may accept the agreement, reject it, or defer a decision until the court has reviewed the presentence report. (B) To the extent the plea agreement is of the type specified in Rule 11(c)(1)(B), the court must advise the defendant that the defendant has no right to withdraw the plea if the court does not follow the recommendation or request. (4) Accepting a Plea Agreement. If the court accepts the plea agreement, it must inform the defendant that to the extent the plea agreement is of the type specified in Rule 11(c)(1)(A) or (C), the agreed disposition will be included in the judgment. (5) Rejecting a Plea Agreement. If the court rejects a plea agreement containing provisions of the type specified in Rule 11(c)(1)(A) or (C), the court must do the following on the record and in open court (or, for good cause, in camera): (A) inform the parties that the court rejects the plea agreement; (B) advise the defendant personally that the court is not required to follow the plea agreement and give the defendant an opportunity to withdraw the plea; and (C) advise the defendant personally that if the plea is not withdrawn, the court may dispose of the case less favorably toward the defendant than the plea agreement contemplated. (d) Withdrawing a Guilty or Nolo Contendere Plea. A defendant may withdraw a plea of guilty or nolo contendere: (1) before the court accepts the plea, for any reason or no reason; or (2) after the court accepts the plea, but before it imposes sentence if: (A) the court rejects a plea agreement under Rule 11(c)(5); or (B) the defendant can show a fair and just reason for requesting the withdrawal. (e) Finality of a Guilty or Nolo Contendere Plea. After the court imposes sentence, the defendant may not withdraw a plea of guilty or nolo contendere, and the plea may be set aside only on direct appeal or collateral attack. (f) Admissibility or Inadmissibility of a Plea, Plea Discussions, and Related Statements. The admissibility or inadmissibility of a plea, a plea discussion, and any related statement is governed by Federal Rule of Evidence 410. (g) Recording the Proceedings. The proceedings during which the defendant enters a plea must be recorded by a court reporter or by a suitable recording device. If there is a guilty plea or a nolo contendere plea, the record must include the inquiries and advice to the defendant required under Rule 11(b) and (c).

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(h) Harmless Error. A variance from the requirements of this rule is harmless error if it does not affect substantial rights.

APPENDIX D: Appellate Rules on Settlements Federal Rule of Appellate Procedure 33: Appeal Conferences The court may direct the attorneys—and, when appropriate, the parties—to participate in one or more conferences to address any matter that may aid in disposing of the proceedings, including simplifying the issues and discussing settlement. A judge or other person designated by the court may preside over the conference, which may be conducted in person or by telephone. Before a settlement conference, the attorneys must consult with their clients and obtain as much authority as feasible to settle the case. The court may, as a result of the conference, enter an order controlling the course of the proceedings or implementing any settlement agreement. Seventh Circuit Local Rule 33: Prehearing Conference At the conference the court may, among other things, examine its jurisdiction, simplify and define issues, consolidate cases, establish the briefing schedule, set limitations on the length of briefs, and explore the possibility of settlement.

APPENDIX E: Settlement Conferences at the Court of Appeals THE SETTLEMENT CONFERENCE PROGRAM U.S. COURT OF APPEALS FOR THE SEVENTH CIRCUIT Pursuant to Rule 33 of the Federal Rules of Appellate Procedure (1) and Circuit Rule 33, the Court conducts conferences with counsel and clients to encourage and facilitate the settlement of civil appeals. Rule 33 conferences are conducted in all types of civil appeals except pro se, immigration, social security, habeas corpus, prisoners’ civil rights, sentencing, and mandamus cases. The Court spontaneously notices most eligible appeals for Rule 33 conferences. Attorneys for one or more parties may also request that a conference be conducted in any eligible case. Counsel and clients are well-advised to explore opportunities for settlement at the appellate level. Regardless of how unlikely it may seem, the fact is that 1

See Appendix D above.

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many cases can be settled at this stage, substituting a certain and acceptable outcome for the risk and expense of further litigation. The Court’s Settlement Conference Office has assisted counsel in settling many appeals without unduly delaying the progress of those appeals which do not yield to settlement efforts. The following information is intended to assist practitioners and their clients in understanding how the Seventh Circuit’s settlement conference program works and how they can make the best use of it to achieve favorable results. How do counsel learn that a Rule 33 conference will be conducted in their appeal? Counsel receive a Notice of Rule 33 Conference, which is an order of the Court, advising them of the date and time of the conference, whether it is to be in person or by telephone, and how they and their clients are expected to prepare. 䉴

How can a Rule 33 conference be requested? Counsel are invited to request a Rule 33 conference by contacting the Settlement Conference Office, U.S. Court of Appeals for the Seventh Circuit, 219 S. Dearborn, Room 1120, Chicago, Illinois 60604-1705 (Tel. (312) 435-6883/Fax (312) 435-6888/E-mail: [email protected]). At the request of any party or parties in an eligible appeal, the Settlement Conference Office will schedule a Rule 33 conference if its calendar permits. Counsel are then advised by notice that a conference will be held. 䉴

Do other parties have to be informed that a conference was requested? No. If a party prefers to keep its request confidential, the Settlement Conference Office will not disclose to other parties or to the Court that the conference was requested. 䉴

Is participation in Rule 33 conferences optional? No. When a Rule 33 conference is scheduled, participation is mandatory. 䉴

Are clients required to attend? Clients and insurance representatives are required to attend Rule 33 conferences whenever the Settlement Conference Office so directs. When clients or insurance representatives have not been directed to attend the initial conference, they must be available by phone— with full settlement authority—for the duration of the conference. 䉴

Is it mandatory to settle? No. Whether to settle is ultimately for the parties and their counsel to decide. However, counsel and parties are required to participate with the utmost diligence and good faith. Experience shows that settlements can often be achieved when neither side thought it possible. 䉴

Who conducts Rule 33 conferences? The Court has delegated the responsibility for conducting Rule 33 conferences to three full-time conference attorneys: Joel N. Shapiro, Rocco J. Spagna, and Jillisa Brittan. All were civil litigators in private practice prior to their appointment by the Court. 䉴

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Is there a fee for the services of the conference attorney? No. The assistance of the Settlement Conference Office is available to appellate litigants at no charge. 䉴

Must each party’s lead attorney attend the Rule 33 conference? Yes. It is essential that each party be represented at the Rule 33 conference by an attorney who not only is conversant with the case but is the attorney on whose advice the party relies. If more than one attorney meets these criteria, either of them may represent the client in the Rule 33 conference. 䉴

How is it decided whether a Rule 33 conference will be conducted by telephone or in person? When all participants reside in the Chicago metropolitan area, Rule 33 conferences are usually held in the Settlement Conference Office at the United States Courthouse. Otherwise, conferences are generally conducted by telephone. The telephone equipment used in these conferences accommodates up to six separate lines and enables the conference attorney to speak privately with any combination of participants. Experience indicates that telephone conferences are generally as effective as in-person conferences in fostering settlements. 䉴

Are in-person conferences ever held outside Chicago? Because the resources of the settlement conference program are limited, in-person conferences cannot routinely be held throughout the Circuit. However, from time to time inperson conferences are conducted at locations other than Chicago. If the participants believe that an in-person conference outside Chicago would be more productive than a conference by telephone, they are welcome to suggest it. 䉴

Are Rule 33 conferences confidential? Yes. The Court requires all participants to keep what is said in these conferences strictly confidential. Communications, oral and written, which take place in the course of Rule 33 proceedings may not be disclosed to anyone other than the litigants, their counsel, and the conference attorney.

䉴

> Do judges of the Court of Appeals learn what has happened at a Rule 33 conference? No. Participants in Rule 33 conferences, including the conference attorney, are forbidden to impart to any judge or other court personnel, in the Court of Appeals or elsewhere, what has been communicated in these conferences. 䉴 What occurs at a Rule 33 conference? Rule 33 conferences are official proceedings of the Court but are off-the-record and relatively informal. Discussion is conversational rather than argumentative. The focus is on realistically assessing the prospects of the appeal, the risks and costs of further litigation, the interests of the parties, and the benefits each side can gain through settlement. The conference attorney ordinarily meets with counsel both

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together and separately. Settlement proposals are discussed. A resolution may or may not be reached during the initial conference. Often, follow-up conferences or “shuttle” negotiations are conducted; letters or draft proposals may be exchanged. By the conclusion of the Rule 33 process, the parties will have either reached an agreement to settle or learned how far apart they are and what are the remaining obstacles to settlement. Is discussion of settlement limited to the appeal itself? Not necessarily. If settlement of the appeal will not dispose of the entire case, or if related litigation is pending in other forums, the parties are invited and encouraged to explore the possibility of a global settlement. 䉴

Is briefing deferred when a Notice of Rule 33 Conference is issued? Briefing is usually postponed until after the initial conference. If further modification of the briefing schedule would be conducive to settlement, an order to that effect may later be entered. 䉴

What preparation is required of counsel? In preparation for the initial Rule 33 conference, attorneys are required to consult rigorously with their clients and obtain as much authority as feasible to settle the case. Counsel must also review their legal and factual contentions with a view to being able to discuss candidly the prospects of the appeal and the case as a whole. If the conference attorney requests copies of pleadings, hearing transcripts, or other material in anticipation of the conference, counsel are expected to provide it promptly. 䉴

What is the role of the conference attorney? Because the format of Rule 33 conferences is flexible and each appeal is dealt with on its own terms, the conference attorney plays a variety of roles. He or she acts as moderator, facilitator, and intermediary. The conference attorney serves as a neutral evaluator and a reality check. He or she may suggest terms of settlement. Without being coercive, the conference attorney acts as a determined advocate for settlement.

䉴

What can counsel expect of the conference attorney? Before the initial conference, the conference attorney will have familiarized him or herself with the history of the litigation, the posture of the case, and the issues on appeal. During the conference, the conference attorney will seek additional information about the background of the dispute and the parties’ interests, claims and defenses in order to explore all possibilities for a voluntary resolution. The conference attorney is strictly impartial. He or she does not advocate for any party and avoids making comments that could advantage one side or another in arguing the issues on appeal. The conference attorney will disclose any affiliation or prior representation of which he or she is aware that could call his or her neutrality into question. The conference attorney does not force any party to settle or to accept terms it is not willing to accept. While he or she urges parties to take advantage of opportunities to settle favorably, the conference attorney recognizes that settlement is not always possible. 䉴

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How can counsel make best use of the Rule 33 conference to benefit their clients? Recognize that the Rule 33 conference is an opportunity to achieve a favorable outcome for your client. Without laying aside the advocate’s responsibility, approach the conference as essentially cooperative rather than adversarial. Help your client make settlement decisions based not on overconfidence or wishful thinking, but on a realistic assessment of the case; not on emotion, however justified it may be, but on rational self-interest. Suggest terms of settlement that maximize the benefits of settlement for all parties. Take advantage of the opportunity to talk confidentially and constructively with counsel for the other parties and, if clients are present, to address them respectfully but convincingly. Let the conference attorney know how he or she can help you obtain a satisfactory resolution. Be candid. Don’t posture. Listen closely to what other participants have to say. Give the process a chance to work. 䉴

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IX John Ratliff * Negotiated Settlements in EC Competition Law: The Perspective of the Legal Profession

Introduction The object of this chapter is to outline some considerations which practitioners raise about the two new settlement procedures in EC competition law: under Article 9 of Regulation 1/2003 for the provision of commitments for alleged competition infringements (“an Article 9 settlement”);1 and that which the European Commission has proposed in relation to cartel cases, where an infringement is found (a “proposed cartel settlement”).2 In doing so I have been asked to focus on how the legal profession views such developments, rather than the position of defence counsel. Clearly, as such counsel, one would tend to say that these developments are welcome: techniques to reduce fines and shorten procedures, which often involve huge fines, consume large amounts of senior executive time and can take several years are usually very welcome to our clients and therefore usually would be supported, whether or not they are “fully correct” in terms of legal process. These procedures may do that: an Article 9 settlement leads to no fine and considerably shorter proceedings. Proposed cartel settlements would not go that far, but still may lead to a material reduction in fine (a proposed 10% discount, with deterrence increases limited to a multiplier of two, where appropriate)3 and shorter proceedings (especially if, as a result of the procedure, companies also do not feel the need to appeal to the European Courts). This chapter considers, rather, whether legal practitioners view these settlement procedures as “legally correct”, in the sense of being legally fair and respectful of defence rights. * WilmerHale LLP, Brussels. The views expressed in this chapter are personal and do not necessarily reflect those of Wilmer Cutler Pickering Hale and Dorr LLP. 1 Council Regulation (EC) No. 1/2003, 2003 OJ L1/1. 2 At the time of the Workshop in June 2008, these were still proposals, as reflected in the present text. The proposals were adopted shortly afterwards. See European Commission Press Release IP/08/1056 and MEMO/08/458, both of 30 June 2008, and the Commission Notice on the conduct of settlement procedures in view of adoption of Decisions pursuant to Article 7 and Article 23 of Council Regulation (EC) No. 1/2003 in cartel cases (“Settlements Notice”) and Commission Regulation (EC) No. 622/2008 of 30 June 2008 amending Regulation (EC) No. 773/2004 as regards the conduct of settlements procedures in cartel cases, 2008 OJ C167/1 and C171/3 respectively. 3 See the Settlements Notice, cited previous footnote, at para. 32.

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At the outset, I should stress that it is clear that the Commission has sought to achieve “legally correct” results in both procedures and, to that end, has engaged in widespread consultation processes with respect to each proposed procedure.4 The issue here therefore is whether there are residual concerns in the procedures concerned, as the Commission seeks to balance other administrative constraints with the objectives of each settlement procedure and respect for due process. It will also be apparent that, since the two procedures are different, there are different issues in each case. I propose to address seven main issues:

1. Is there too much pressure to settle? A concern which some legal practitioners have is that there is too much pressure on the defence to settle, even though the Commission’s case is not correct and goes too far in some way. The idea is straightforward. Proceedings can take ages. Fines can be colossal. The diversion of resources to defend cases may be very significant in time and expense. Companies also want to avoid bad publicity. All of this may lead to considerable incentives on defendants to settle. As a result, some lawyers ask the question whether there can really be a “free” decision to settle.5 Clearly, weighing up the pros and cons of settlement requires specific assessment in each case. There are also differences between an Article 9 settlement and a proposed cartel settlement. The incentives to settle in Article 9 cases are very significant. By settling, a company may achieve: no fine;6 no finding of infringement which could lead to a fine increase for recidivism in a subsequent case; no finding of infringement which could be used against it in any related private litigation; and an ability to wrap up the Commission’s proceedings in a year or two, as opposed to what can be almost a decade (with possible appeals etc.). It is clear that 4 See the Commission’s competition webpage, http://ec.europa.eu/competition/cartels/ legislation/settlements.html. 5 See, notably, Anne Vallery, “Les procédures de règlement négocié de la Commission européenne en matière de concurrence : entre flexibilité et securité juridique”, in Aline De Walsche and Laure Levi, eds., Mélanges en hommage à Georges Vandersanden : Promenades au sein du droit européen, Bruylant, 2008, pp. 735 et seq.; Denis Waelbroeck, “Le développement en droit européen de la concurrence des solutions negociées (engagements, non-contestations des faits et transactions): que va-t-il rester aux juges?” GCLC Working Paper 1/08, p. 19. 6 In principle, though, such a settlement should not be available if the Commission intends to impose a fine. See Regulation 1/2003, cited above, at Recital 13.

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Negotiated Settlements in EC Competition Law 307 many will prefer to settle such general Article 81 and 82 EC infringement cases! However, one would think that a company would still not do so in some cases, notably if a key point of principle is at stake. This might be the case, for example, if the company contests the legal basis for Commission intervention as a matter of substance or procedure. Or if the economic cost of the settlement is too great—either directly in the terms of settlement itself, because the nature of the undertaking given is very costly (even if there is no fine), or because the risk of the settlement encouraging follow-on litigation is too great, despite the lack of legal findings in the settlement itself. The equation is more balanced in proposed cartel settlements, but may still be difficult because the gain to the defence is less and the context different: In financial terms, as already noted, companies will be weighing up the possibility of obtaining some 10% off their fines, plus limitation of the deterrence multiplier to two (where it is applicable), as against their chances of proving that their fine should be at least that much less, if they pursue the full procedure without such settlement. A key question raised is whether a company’s defence rights can be exercised adequately through the proposed cartel settlement process, in comparison to the more formal one. As currently presented, it appears that may be so, although we will have to see how it works in practice and there may be cases where formal proceedings still make sense for the defence. Notably, one would think that a company would not settle, if the company considers that it will be key for its defence to see the full Commission file in order to check for exculpatory documents, or other documents which might lead to a material reduction in its fine and that this may not be achieved adequately through the proposed cartel settlement procedure. Or again, that a company would not settle, if it considers that, on a point of principle, the Commission is legally wrong (e.g. in qualifying the company as leader of the infringement), or some key fact is contested, so the economic cost is considered too great. For example, the duration of the infringement is not accepted, so the Commission’s fine is considered too high and the related follow-on litigation consequences are excessive. Overall therefore, although there will be no substitute for individual review in each case, it appears that there is likely to be clear pressure on the defence to settle in Article 9 cases. However, this is less clear in proposed cartel settlement cases, because the financial incentives of settlement are less and the counter pressure on the company is great to ensure that its infringement is not found to be more extensive or serious than is strictly proved. This may still lead the company to “leave no stone unturned” in full defence proceedings.

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2. The need for the defence to consider the overall consequences of settlement It is not new, but is a point regularly emphasised by practitioners, that before settling a case, it is essential for companies to think through what the full consequences may be. Above all, in proposed cartel settlement cases to consider the implications, in terms of people, sanctions and knock-on effects in what may be multijurisdictional cases.7 In such cases, sanctions are generally so serious that this is usually done in-depth. Since, if a company admits an infringement in some cases it is now quite possible that some executives will go to prison, it is particularly important that no more is admitted than is correct and proved. The extent of the infringement can directly affect the nature of the charge and individual plea (and usually separate counsel for the individuals will be instructed to check on this as a result). It is also important to bear in mind that, in some cases, the company and people concerned may have to settle and admit the infringement around the world. In a worldwide cartel case, a settlement on an issue in Europe can easily have consequences from Canada to Brazil and Korea to Australia (to name just a few active jurisdictions). This requires careful consideration and review, as each jurisdiction has different sanctions and procedures. Further, a company has to consider that if it settles, it may have to pay significant amounts in damages (trebled in the United States, unless the company is the first in, benefiting from special rules reducing its damages exposure to single damages8), plus related lawyers’ fees. Admitting a cartel infringement may also be a factor triggering recidivist fine increases in the future, which in Europe is a very serious matter involving major fine increases9 (although in some settlement cases this may have been considered already if a company sought leniency). If a company settles, these things will also likely happen faster, which may be positive in some ways (as the company and those concerned can put the matter behind them quicker), but clearly may also be negative (as major fines and/or damages have be paid and imprisonment may have to be faced).

7 See also John Taladay, “Implications of International Cartel Settlements for Private Rights of Action”, this Volume, p. 317, noting amongst other things the need to ensure that the right company is settling in terms of subsidiary and parent, because this can have wider implications in other jurisdictions. 8 See the Antitrust Criminal Penalty Enhancement and Reform Act (“ACPERA”), Pub. L. No. 108–237, § 213, 118 Stat. 661. 9 See the Commission’s Guidelines on the method of setting fines pursuant to Article 23(2)(a) of Regulation No. 1/2003, 2006 OJ C210/2, at para. 28 (up to 100% for each repeated infringement).

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Negotiated Settlements in EC Competition Law 309 One may add that it is also not clear that a company can “settle” in all relevant jurisdictions. It appears from recent ICN material that there are at least some nine settlement systems in place so far. The systems appear different, reflecting varying considerations, but at least the idea that a company should be able to “settle” appears to be growing worldwide.10 In Article 9 cases, the overall consequences to be considered are not usually as far-reaching, but there are still risks. Notably, despite the fact that the relevant decision does not involve an admission that there is an infringement, there is always the possibility of “follow-on” court actions, purporting to infer an infringement from the proceedings. There is also the risk that other national competition agencies in the EU may still bring proceedings, so that the settlement is not effective for the EU as a whole.11 This remains controversial and, one would think, is likely to occur only in exceptional circumstances (e.g. if there is a specific impact in an EU Member State which somehow was not picked up before and taken into account).

3. What is the legal value of a settlement? An important issue which comes up for practitioners is the legal value of a settlement. The main point here is that its legal value is limited: an Article 9 settlement is useful and generally will be effective vis-à-vis the Commission, because the Commission will not go back on it, save in defined circumstances (e.g. where it was based on incomplete information or there has been a material change in the facts on which the decision was based).12 However, otherwise the value of a settlement may be ambiguous. For example, even though a settlement decision will not involve a finding of infringement, it may be said that settlements can still be used in national proceedings “as a fact”.13 Something which worries defence counsel greatly, while meeting the approval of plaintiff counsel! 10 See the Cartel Working Group, Report to the ICN Annual Conference (Kyoto), “Cartel Settlements”, April 2008, http://www.icn-kyoto.org/documents/materials/Cartel_ WG_1.pdf, at pp. 2 and 39. (The Netherlands is not included there although, as noted at the Workshop, in relation to the construction sector the NMa has been willing to pursue settlements.) See also the OECD Policy Roundtable on Plea Bargaining/Settlement of Cartel Cases (2006), DAF/COMP(2007)38 of 22 January 2008, http://www.oecd.org/ dataoecd/12/36/40080239.pdf. 11 See Regulation 1/2003, Recitals 13 and 22 and Waelbroeck, cited supra note 5, at pp. 10–13. 12 See Regulation 1/2003, Article 9(2). 13 See Wouter Wils, “Settlements of EU Antitrust Investigations: Commitment Decisions under Article 9 of Regulation No 1/2003”, 29(3) World Competition 345, 361 (2006).

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Plaintiff counsel may seek inferences from any proceedings. Notably, they often seek to obtain the Statement of Objections in a case from the Commission even though such documents are expressly stated not to be evidence, but only a means of allowing a company facing allegations to explain itself.14 It may be therefore that attempts will be made to do something similar in Article 9 cases, even though there is no finding of infringement and there is more tentative wording in the preliminary assessment and the decision published. Some also argue that a settlement can be an indication of “discomfort”. The idea is that there was an infringement, but the Commission simply did not pursue it because of higher priorities. One should recall the risk of applications to the Commission under the EU Transparency Regulation 1049/200115 or, even if these are denied, of applications to a judge or arbitrator for disclosure of documents, which may still be successful. One may also note that there are cases where companies have been surprised by what plaintiffs have been able to obtain as regards settlements with the Commission through these routes (even those settlements expressly indicating that no admission of infringement was made). This is disturbing and a deterrent to settlements. It may be noted that the Commission apparently agrees and is currently seeking appropriate modifications to the EU Transparency Regulation.16 Finally, there is clearly a distinction between Article 9 cases and proposed cartel settlement cases. In cartel settlement cases, the Commission’s decision would still be evidence of the infringement in national courts (unlike Article 9 settlements).

4. Concern that any administration needs to be subject to proper checks and balances Clearly this is the overriding concern for practitioners. Without it, there can be a tendency for decision makers to confuse administrative expediency with what is correct and, on occasion, to “exaggerate” (i.e. ask for more than they are legally entitled to). One may note here, for example, a comment made by Doug Melamed when he was working in government enforcement in the United States: “some [US]

14 See, e.g., Order of the ECJ, Joined Cases 142/84 and 156/84, BAT and Reynolds Industries v Commission [1986] ECR 1899, paras. 13–14. 15 2001 OJ L145/43. 16 See the Commission’s recent proposals on the revision of the EU Transparency Regulation, COM (2008) 229 final, 30 April 2008.

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Negotiated Settlements in EC Competition Law 311 consent decree remedies appear to go beyond what the government could realistically anticipate as a remedy in a contested case”.17 The key point appears to be that many administrators are not lawyers and (even though supported by the Commission’s Legal Service) do not therefore have the same legal reflexes as to what is legally correct, as one would expect from a legally qualified official or a judge. The result is that, unfortunately, there are cases where officials go too far. For example, it has been suggested to companies and their counsel that, if the Commission were to agree to settle an Article 81 EC infringement case with no fine, the defence would agree ‘in honour’ that there would be no appeal.18 In other cases companies receive requests for information which go too far. Or the Commission may seek to attach “collateral conditions” to a decision, i.e. obligations which are not strictly related to the competition issue, but which are added in pursuit of some broader competitive agenda (such as, classically, to create market openings in a context of liberalisation). These things may be more the exception than the rule. However, the problem is that they can happen and, when they do, they are a source of great concern. Notably, taking the examples noted above: practitioners generally think that a company settling will not want to appeal, but that the issue should be left at that, with no effort to prevent an appeal through an undertaking to that effect in the settlement itself. Counsel also strongly resent Commission questions which appear like fishing expeditions or test the limits of legal defence privilege. Leveraging market changes through collateral settlement conditions is also a tactic which is thought very unfair. Finally, it may be that the Commission’s argument is new in law and untested, or weak, but is accepted anyway, because the company concerned wants an end to the case (again bringing us back to the pressure to settle described above). Such situations are very difficult for the companies and their counsel, who do not want to antagonise the officials on whom they depend for their case decisions, the Commission being both judge and prosecutor and in a far stronger position to force through what it seeks. A further problem is that sometimes such “exaggeration” will also go unnoticed, as companies prefer to say nothing and others in the administrative hierarchy do not realise what is going on. Clearly, companies will likely not give way in the face of such “exaggeration”, where the negative consequences for the defence are too high, e.g. as noted above in cartel cases, if a duration or key feature of the infringement is wrong. 17 See Melamed, “Anti-trust: The New Regulation”, 10 Antitrust 13 (1995) at pp. 13–14; also quoted by Wils, supra note 13, at p. 351. 18 See Floris Vogelaar, “Plea Bargaining—The Balancing of Workload, Transparency, Effectiveness and Efficiency”, presentation at the “EU Cartel Enforcement: Practice and Policy” Conference, Brussels, 19 October 2006. See also Waelbroeck, cited supra note 5, at p. 33.

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However, in some cases, companies may leave things alone, e.g. if they are already obtaining leniency cooperation reductions and do not want to “rock the boat”. For example, this appears to have happened under the 1996 Leniency Notice, because lawyers and companies were concerned that to challenge facts in the Statement of Objections might cost them 10% off the overall fine. Some ventured “clarifications”, but always nervous of losing that 10% reduction. Against this, you may say: “Well, what are lawyers for then in these proceedings?” This is fair comment. Usually, by careful representation these issues can be resolved, either with the officials concerned or their superiors in the Commission and that is at the heart of effective advocacy in administrative proceedings. However, if that does not work and the Commission is still thought to be “exaggerating” in its settlement position, substantively or procedurally, the company simply should not give way and settle, but should pursue its full legal defence.

5. Are self-executing rules and self-restraint enough? This brings us to what appears to be the core discussion point in terms of legal process: Are self-executing rules and guidelines and “self-restraint” (i.e. only accepting remedies for clearly provable infringements) enough? As I understand it, most (if not all) practitioners would say “no”, unless there is a real possibility of prompt, independent judicial review, a view echoed in Article 6, paragraph 1 of the European Convention of Human Rights. Unfortunately, most will also say that appeals to the European Courts are too slow and often will be impossible in business terms. Some practitioners also argue that the Hearing Officers do not offer an adequate alternative, because of limits to the Hearing Officer’s mandate,19 or because they are not perceived as sufficiently independent of the Commission. As a result, in practice, legal counsel focus heavily on trying to ensure that the best self-executing rules and guidelines are established, as the “best available” solution for most cases. In that context, there remain residual concerns among legal counsel on these settlements rules and procedures: As regards the proposed cartel settlement procedure, some are concerned, for example, as to whether the defence will have seen enough of the file to know what it should settle on: How do you check and know without reviewing the whole case file? 19 Commission Decision on the terms of reference of hearing officers in certain Competition proceedings, 2001 OJ L162/21.

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Negotiated Settlements in EC Competition Law 313 The Commission is apparently planning to give those contemplating settlement a “mini” Statement of Objections, with access to all the documents relied on and the ability to ask for further documents if required. It is argued that this may reduce the administrative burden considerably (to say 2,000 pages, instead of 30,000 pages of case file) but still give the defence what it actually needs.20 It is also argued that such access, together with the right to be heard through the settlement discussions with the Commission, should be enough to compensate for full access to file and the more formal type of process with Statement of Objections, response and formal hearing. As noted above, this appears to be a serious effort by the Commission to give the defence the right to be heard adequately. However, the problem is how does the defence know if it will be enough? In practice, only one or two documents may materially affect key issues. Will the defence have seen them? As a result, as noted above, some will not settle. Another issue raised is whether the “settlement team” in the Commission should be different from the ordinary investigatory team because things said “without prejudice” in settlement discussions can hardly just be forgotten by those hearing if the settlement fails, despite what the Commission says about not using such information.21 Again, this is a difficult issue. A similar logic, that Commission officials cannot read privileged opinions and then just forget them, was upheld recently by the CFI in Akzo Nobel.22 There also appear to be cases where competition courts have recognised the need for parallel yet distinct settlement procedures (see, e.g., the Israeli “Momentum Building” case referred to in the ICN Cartel Settlements Report23). However, one expects the Commission to say that it does not have the resources to bring in a duplicate team (especially. if they have to read everything) and that for the Commission to do so would cancel out the efficiency saving for which it offers the 10% discount. At present, it has not been proposed. Another issue is whether the defence should be asked to acknowledge that it has had sufficient opportunity to make known its views and does not seek further access to file.24 Some argue that this is not the sort of statement which a company can make freely if it wants the fine reduction and that such statements should not therefore prevent reasonable appeals. In any event, the risk of disproportionate remedies will remain, even if consent is apparently given. 20 See Kirtikumar Mehta and Maria Luisa Tierno Centella, “EU Settlement Procedure: Public Enforcement Policy Perspective” this Volume, at pp. 400 and 409. 21 See Vallery, cited supra note 5. 22 Joined Cases T-125/03 and T-253/03 ECR II-3523, Akzo Nobel and others v Commission, [2007] ECR II-3523, at paras 86–87. On appeal: Case C-550/07 P, not yet decided. 23 Cited supra note 10, at p. 11. 24 See, now, the Settlements Notice, cited supra note 2, at paras. 20(c) and (d).

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Some practitioners also think that, in any event, these matters are all too serious and the Commission should have to submit its cases to a judge to ensure an independent appraisal of any settlement. They focus on the general “inequality of bargaining position” (“inégalité d’armes”) of a company dealing with the Commission’s intervention.25 Clearly, as matters stand, this is a radical suggestion, going to the root of this type of public law enforcement. However, the very fact that it is proposed shows again the difficulty and discomfort which some feel in these proceedings about dealing with a prosecutor who is also the judge and therefore has such a powerful position. At present, it has also not been proposed.

6. A limit to settlements? It may be interesting to note that since the Alrosa judgment,26 the Commission has been talking of Article 7 of Regulation 1/2003 (i.e. full procedures) as the main basis for decisions, with carefully measured remedies.27 The Commission has also emphasised its discretion not to use the EU cartel settlement procedure.28 It may be that settlement may not be the only way out and lawyers can still exercise their full court skills after all!

7. Lawyers serve clients Finally, as I have said before in these EUI proceedings, lawyers clearly serve clients who are on different sides of these issues. On the defence side, client companies often want to move on fast and are used to making compromises to do so all the time, so that they can apply their resources as best they can. While on the plaintiff’s side, client companies rely on formal rights and transparency and want all they can obtain. In my view, overall the practitioner’s perspective on the increasing use of these settlement procedures parallels these divergent interests. In other words, lawyers are generally supportive of the flexibility offered and aware that too 25 See Vallery, cited supra note 5. See also Waelbroeck, supra note 5, who states, at p. 3: “La négociation avec une autorité n’est en effet rien une négociation à ‘armes égales’ . . .”. 26 Case T-170/06, Alrosa Company Ltd v Commission [2007] ECR II-2601, on appeal: Case C-441/07 P, Commission v Alrosa, not yet decided . 27 See Philip Lowe and Maier-Rigaud, “Quo Vadis, Antirust Remedies?”, in Barry Hawk, ed., International Antitrust Law and Policy: Fordham Competition Law 2007, Juris Publishing, 2008, chapter 20, at pp. 609 and 611. 28 See the Settlements Notice, cited supra note 2, at para. 5.

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Negotiated Settlements in EC Competition Law 315 much formalism and transparency will deprive them of the ability to settle and move on as their clients wish. Nevertheless, there is concern that today’s rights may only be tomorrow’s privileges, with a fundamental loss of the rule of law. The growth of informal settlement procedures is therefore being regarded with some considerable reserve by practitioners. Defence rights matter, as should be clear when we are talking about millions of euros of possible fines and people going to prison but also, in less dramatic terms, when we consider the small procedural or substantive “exaggerations” which may undermine the whole quality of justice and legal process. It is therefore critical that in settlements, as in other cases, both those inside and outside the Commission are vigilant to spot such issues and quick to eliminate them.

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X John M. Taladay* Implications of International Cartel Settlements for Private Rights of Action

I. Introduction Plea agreements or negotiated settlements will maximize their potential as a means of settling international cartel cases only if defendants are able to predict, with reasonable precision, the cost of settlement as to both government and private actions. To date, with private rights of action prevalent principally in the United States and with plea agreements utilized in a limited number of jurisdictions, the ability of parties to predict the full costs of plea agreements has been manageable. But expanding use of plea agreements and proliferating private rights of action will complicate the cost of assessment for defendants. Individual jurisdictions can make the best use of plea agreements if they understand the dynamics faced by cartel defendants and impose a system of settlement that avoids imposing extraneous costs and risks on defendants with no resultant benefit to the individual jurisdiction’s cartel enforcement program. This chapter explores some of the potential consequences that result from cartel settlements on private actions both in the jurisdiction in which settlement is taking place, as well as in other jurisdictions. First, I examine the incentives and considerations of parties to a settlement proceeding and evaluate the principles that govern bargaining. Next, I explore the unique considerations of defendants that result from private rights of actions. Finally, I consider certain agency settlement requirements that may impose costs on defendants outside of the settlement process itself.

II. Considerations of Stakeholders in Negotiating Cartel Settlements The benefits of settlements can be significant for all stakeholders. From the perspective of the defendants, settlements can provide finality by allowing the * Partner, Howrey LLP. The author gratefully acknowledges the assistance of his colleague, Eryk Dziadykiewicz.

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party to quantify and contain the antitrust exposure resulting from an offense. From the standpoint of the enforcer, settlements can impose sanctions which have both a punishment and deterrent effect and allow redeployment of organizational capacity to detect and remedy other competition law violations. From the standpoint of the legal community, it can add to the transparency of enforcement efforts, ensure proportionality of treatment, and free courts of the burdens of case administration to permit a refocusing of those assets on other matters of judicial importance.1 The principal interest of the legal community is to ensure the efficient administration of justice. In the case of clear-cut cartel violations, this obviously augers for settlements (plea bargains) between the agency/authority and the party to dispense with cases. The ability to strike a settlement agreement on terms that appropriately reflect the severity of the offense assumes equal bargaining power (in view of the facts) on the part of each party. However, bargaining power can be significantly influenced by institutional constraints and extraneous influences. One such consideration involves information asymmetry that the parties face during the investigation process. At the very outset of the investigation, the defendant may have better information about the infringement, or at least that defendant’s role in it, than the agency. The defendant could thus take advantage of this situation by obtaining a more favorable settlement than the authority would concede should it know the whole picture. Conversely, towards the end of the investigation, the agency typically has a more complete picture of the infraction and the relative role of the defendant in the illegal enterprise. The agency is then in a superior bargaining position and can extract a settlement that more accurately reflects the actual level of defendant’s culpability. However, it is often the case that by that stage of the investigation substantial agency resources have been devoted to the case and the administrative efficiencies that the settlement was meant to generate are lost. The agency might thus be inclined not to settle at all and instead seek a fine without any “settlement discount” and defend it in court when necessary. A settlement would ideally take place once the agency has established the relevant facts and before avoidable agency resources have been expended. Imagine an instance in which Defendant X has participated in a cartel is being investigated by Agency A. Agency A and Defendant X may both be of the view that it would be fair and reasonable to resolve cartel charges by entering into a plea arrangement that would impose a fine of €20 million on Defendant X. Putting aside all extraneous factors—i.e., those relating to civil actions and other jurisdictions—as well as non-monetary considerations, we 1 For a more complete discussion of the benefits of cartel settlements, see International Competition Network, Cartel Working Group, Subgroup 1—General Legal Framework, Cartel Settlements—Report to the ICN Annual Conference, Kyoto, Japan (Apr. 2008), http://www.internationalcompetitionnetwork.org/media/library/Cartels/Cartel_WG_1.pdf.

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can calculate the point at which the parties will agree to settle. Defendant X will agree to a settlement if the fine imposed under the agreement is less than or equal to the quotient of the probability of conviction times the euro equivalent of punishment imposed after trial, including the legal fees and the cost of trial itself.2 Agency A, on the other hand, will accept a settlement if the fine is greater than the quotient of the probability of conviction times the euro equivalent of punishment imposed after trial, minus the cost of the trial.3 It should be noted that the costs of the agency are arguably sunk and not necessarily factored in to the same degree as the defendant’s legal fees, which are avoidable in the event of a settlement. Instead, the costs to the agency, in euro terms, relate to opportunity cost of penalties that the agency could extract in other cases with the resources that would be used for the trial of Defendant A.4 Prior to actually entering into the agreement, however, both parties will have to consider a host of other factors that include extraneous costs. Defendant X’s considerations will include: • What is the impact of a settlement in Jurisdiction A on potential private actions in Jurisdiction A? • What is the impact of settlement in Jurisdiction A on outstanding cartel investigations in other jurisdictions? • What is the impact of a settlement in Jurisdiction A on potential private actions in other jurisdictions (B, C, D, etc.)? Agency A will have to consider: • What impact will a settlement with Defendant X have on the credibility of the ongoing cartel enforcement program in Jurisdiction A? • Proportionality: how does the settlement and fine against Defendant X compare to the fines of other defendants in the same cartel?5 • What impact will settlement with Defendant X have on the potential for successful prosecution of other defendants in the cartel? 2 Non-monetary considerations can be very influential on the defendants decision to settle. These can include, inter alia, damage to reputation and goodwill, customer relations and ongoing business, impact on the market value of the company’s securities, distraction of management time and business resources, potential debarment from federal contracting. While these factors could theoretically be reduced to a monetary value, the calculation of that value is more subjective than the value of the fine imposed on the company. 3 Whether or not the their assumptions about the payoffs are right depends largely on the procedural stage of the investigation, as alluded to above 4 This consideration is intertwined with the issue of how much flexibility in granting discounts the agency exercises (below). For further discussion, see OECD, Plea Bargaining/Settlement of Cartel Cases, Directorate for Financial and Enterprise Affairs, Competition Committee, DAF/COMP(2007)38 (Jan. 22, 2008), http://www.oecd.org/ dataoecd/12/36/40080239.pdf. 5 For example, in the EU, the administrative savings are available virtually only when all parties to the cartel investigation settle. This brings up the particularly difficult issue of crafting an appropriate settlement regime with regard to so-called “hybrid” cases, i.e. cases where only some defendants settle.

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In this context, various factors (extraneous to the offense itself) can significantly skew the outcome of the negotiation: • Is the cartel enforcement system in Jurisdiction A a regulatory regime (where fines are imposed unilaterally by Agency A) or a prosecutorial regime where Agency A must prove Defendant X’s guilt before an independent court or tribunal? • If the jurisdiction is a prosecutorial system, does Jurisdiction A have an effective and impartial judicial system? • Are adequate due process protections available to Defendant X if they choose not to settle? • Is Agency A independent or can it be influenced by political means? • Is a settlement or plea agreement final or can it be challenged or appealed? Predictability and proportionality are key principles that should be considered by every settlement system. From the defendant’s standpoint, the more predictable and quantifiable the settlement, the greater the incentive to pursue plea bargaining negotiations. The existence of clear sentencing guidelines with explicit provisions for settlement discounts can greatly contribute towards achieving this objective. To achieve this dual effect of predictability and proportionality, sentencing guidelines must at the same time provide for a certain degree of flexibility and prosecutorial discretion to the ensure equity of the settlement in any given case. On the other hand, an agency should not be allowed to have too much discretion in determining the allowed discount. One of the principal factors impacting a defendant’s evaluation of settlement, but which is far less relevant to the prosecuting agency in an individual case, is the prospect of private actions and the level of exposure that may result from such actions. In evaluating the exposure attributable to private actions, there are a host of jurisdictional, procedural and evidentiary issues that must be considered. These considerations are not divorced from settlement of government actions, but instead are inextricably intertwined. Often, the timing, scope, nature and terms of settlement with a government agency significantly impact a defendant’s assessment of private exposure. The intertwining of government and private exposure can be complicated within the confines of a single country. The analysis becomes far more challenging however, as the number of countries involved in government procedures expands. The key point is that an agency should not look necessarily to assist cartelists, who by definition have demonstrated the capacity to violate the law, but if parties are to reach a negotiated settlement that maximizes the benefit to the agency, the agency must not create unnecessary costs and burdens in other jurisdictions for defendants that do not benefit the agency or are not necessary for the administration of that agency’s antitrust laws.

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III. Private Action Risks Arising from Foreign Cartel Settlements A. Jurisdictional Risks A settling defendant subjects itself to the judicial or regulatory process of the country or jurisdiction with which it is settling. In this regard, a defendant must consider whether a settlement will expand the potential for the exercise of jurisdiction over any part of its business. For example, under roughly the same set of facts, the terms of settlement in Jurisdiction A could implicate either a remote subsidiary of a corporation, or it could implicate the direct liability of the parent company.6 While Agency A may be indifferent to these implications, they could be of major importance to Defendant X in other legal matters in Jurisdiction A or in other jurisdictions. Under most legal systems, a significant defense available to a defendant in any legal proceeding is the lack of in personam jurisdiction. This can be particularly important when an operating subsidiary has far more limited capitalization or assets than the parent. Imagine that one of Company X’s subsidiaries (let’s call it “S” for simplicity) has engaged in a cartel in Country A, and assume that the Parent X is headquartered in Country A. The courts in Country A would clearly have in personam jurisdiction over Parent X in Country A—its headquarters location—under traditional legal principles. Now assume that Subsidiary S participated in a similar conspiracy in Jurisdiction B, where Parent X operates solely through its subsidiary and has had no independent minimum contacts or direct sales activity. It could well be that Parent X does not have sufficient minimum contacts with Jurisdiction B to justify the exercise of in personam jurisdiction in Country B. Thus, the extent of Parent X’s exposure in Country B, all other things equal, would be the total capital or assets of Subsidiary S. Suppose for a moment that the cartel in country A was the work of Subsidiary S rather than its parent, X. If, in the course of negotiating a settlement in Country A, Agency A insists on imposing an order, ruling or judgment (depending on the procedures of Country A) that names Parent X and which does not differentiate between the conduct of Parent X and Subsidiary S, Parent X could be held to have submitted to the general jurisdiction of Country A and could therefore face exposure in other legal proceedings. This 6 For an extended discussion, see John Briggs and Sarah Jordan, “Presumed Guilty: Shareholder Liability for a Subsidiary’s Infringements of Article 81 EC Treaty”, 8 Business Law International 1 (2007), also published sub. nom. “Présumé Coupable: Responsibilité de l’actionnaire pour les infractions commises par une filiale à l’Article 81 du Traité Instituant la Communauté Européenne”.

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undermines the corporate structure regime that is designed to protect companies and encourage foreign investment. Moreover, it could expose Defendant X to additional exposure in Country B either because (i) the order from Country A is deemed prima facie evidence of an offense in Country B; (ii) it is views as an admission of Defendant X in Country B; or (iii) it is deemed to constitute probative evidence in the proceeding in Country B and increases the risk of liability over Defendant X. If these risks for Defendant X in Country B as a result of the settlement terms in Country A, then the “cost” of settlement in Country A increases.7 If Jurisdiction A unintentionally or unwittingly increases these “costs” for Defendant X in the context of negotiating the terms of a settlement agreement, it could inhibit a settlement or—worse yet from the standpoint of Agency A— reduce the “price” that Defendant X is willing to pay to settle in Country A.8 There are other examples of settlement terms impacting total costs to defendants. For instance, in a country with private rights of action a defendant would generally be willing to pay a substantially higher fine if the settlement does not require an admission of guilt, thereby significantly decreasing the risk of private litigation. If the agency is allowed (and willing) to put the admission of guilt on the negotiation table (so as to allow a nolo contendere plea), it can potentially extract a higher fine from the defendant. Importantly, an admission of guilt in Country A can increase the likelihood that a defendant will incur costs in a civil action in country B. Thus, for any jurisdiction without an effective domestic private right of action, there is arguably little or no benefit to the welfare of Country A (or its citizens) by requiring an admission of guilt.9 Waiving the right to appeal also can be an important element in the equation. Waiving the right to appeal is defended by commentators who view the right to appeal as a personal right that can be traded away in private 7 For instance, one of the most widely employed tests, the so-called “instrumentality test,” which has been applied in both contract and tort cases and was formulated by the New York Appellate Division many years ago, obligates a party seeking to pierce the corporate veil to satisfy a rigorous three-prong test. See Lowendahl v. Baltimore & O. R. Co., 247 A.D. 144, 287 N.Y.S. 62, (N.Y. App. Div. 1936), aff’d, 272 N.Y. 360, 272 N.Y. (N.Y.S.) 360, 6 N.E.2d 56 (1936). This test requires proof of: “(1) [c]ontrol, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; and (2) [s]uch control must have been used by the defendant to commit fraud or wrong, to perpetrate the violation of a statutory or other positive legal duty, or a dishonest and unjust act in contravention of plaintiff’s legal rights; and (3) [t]he aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.” See ibid. at 157. Courts applying this test generally hold that a shareholder cannot be held liable for obligations of its corporation unless the shareholder exercised complete domination and control with respect to the complained of conduct and engaged in some wrongful conduct that is causally related to the claimed injury. See ibid. at 158. 8 See supra note 1, at § VI, at 17. 9 This begs the question of whether private rights of action in any jurisdiction are truly effective in compensating cartel victims, but that is not the subject of this chapter.

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contract, as is arguably the case in a settlement agreement. Others oppose it on constitutional law grounds by highlighting the importance of constitutional law protection against self-incrimination. Waiving the right to appeal in a regulatory enforcement regime may arguably give the agency too much discretion to establish its own investigatory standards. Such danger exists to a lesser extent in prosecutorial enforcement systems where plea agreements need to be approved by a judge.

B. Evidentiary Risks Perhaps the most significant risks arise from the effects of the foreign settlement on the creation or admission of evidence in a foreign proceeding. These risks can arise with respect to a number of factors that can significantly impact private action liability.

1. Discovery of Foreign-Located Evidence Different countries have very different views of discovery, including the appropriate scope of discovery and the permissibility of domestic discovery based on foreign-filed cases. For example, many countries view discovery in the United States as inconsistent with their laws, procedures and national interests. It is possible, but not always practicable, to use the normal discovery mechanisms of the litigating court in a private antitrust action to gain foreignlocated evidence. For example, in the U.S., the court may authorize foreign discovery pursuant to Rules 28 and 29 of the Federal Rules of Civil Procedure. The use of these discovery mechanisms, however, may be viewed as violating the sovereignty interests of the foreign government(s). In order to protect against foreign discovery that may run contrary to public policy, a number of countries, including the United Kingdom, France, Canada and Australia among others, have imposed so-called “blocking statutes.” These statutes are designed to make it difficult for foreign parties to obtain evidence for use in foreign court proceedings. They typically prohibit the domestic person from complying with the unilateral discovery orders of the foreign court in some cases by making it a criminal offense to cooperate with US discovery requests. However, even though a production of certain pieces of evidence might be illegal and carry a risk of fine/imprisonment in a foreign jurisdiction, US courts may order their production nonetheless, provided that i) the court has in personam jurisdiction over the addressee of the order and ii) the addressee has control over the piece of evidence.10 10 Re Uranium Antitrust Litigation, 480 F. Supp. 1138, 1144–45 and n.4 (N.D. Ill. 1979) (a court is not prohibited from exercising its power to enforce law simply because such

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U.S. discovery of foreign-located evidence takes place through a number of means, including the Federal Rules of Civil Procedure (in particular Rule 28 covering the depositions of foreign witnesses), statutory authority (such as letters rogatory under 28 U.S.C. §1781), or through the procedures of the Hague Convention on the Taking of Evidence Abroad in Civil or Commercial matters (Hague Convention). The Hague Convention formalizes traditional international discovery mechanisms and facilitates the taking of evidence abroad for civil, but not criminal, proceedings. Parties proceeding pursuant to the Hague Convention can either submit a letter of request, proceed through diplomatic or Consular officers, or proceed through persons designated by the Court. A letter of request must be submitted by a judicial authority to a central authority.11 However, France, Germany, Norway, Luxembourg and Portugal have objected to providing evidence for pre-trial discovery pursuant to Article 23 of the Convention.12 Not all of these procedures are available for all countries, and the effectiveness of these procedures varies even among countries in which the same procedures are accepted. For example, there is a significant difference among the 40 countries that have adopted the Hague Convention in the application of the Convention, the speed of compelling production, the application of blocking statutes, and other important criteria. Even within a particular country, the rules may differ depending on the nature and identity of the person or body from which the discovery is sought and on the type of information sought. For example, the breadth of discovery may depend on whether the evidence is testimonial or documentary. Some countries may refuse to compel a witness to provide testimony. Moreover, they may prohibit the voluntary production of information altogether in some circumstances. In reaching a settlement, a defendant will evaluate the impact of the settlement on admissibility of evidence in other jurisdictions, particularly in the United States. If the settlement risks the transfer of evidence to the United States, the “price” of settlement will increase for the defendant. Agencies should realize this potential cost and should not seek to impose these costs on defendants unless there is a countervailing benefit to their own consumers. exercise may cause a person to engage in conduct that will subject her to liability in another jurisdiction also having jurisdiction over the conduct). Furthermore, a person may still be considered to be “in control” of documents for the purpose of discovery orders notwithstanding the fact that if the person reveals the documents she may be subject to criminal sanctions in her home country. See Société Internationale Pour Participations v. Rogers, 357 U.S. 197, 204 (1958). 11 ABA, Section of Antitrust Law, International Antitrust Cooperation Handbook 18 (2004). 12 For example, in December 2007, France’s Cour de Cassation rejected the challenge of a French attorney trained in the U.S. to his criminal conviction and €10,000 fine for attempting to gather evidence on behalf of the California Insurance Commissioner. See Mutuelle Assurance Artisanale de France (MAAF), judgment of the Cour de Cassation, Chambre Criminelle, of December 12, 2007 (Bull. crim., No. 7168).

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2. Time Period of Conspiracy This factor can also create substantial risk for defendants in other jurisdictions. Illegality under antitrust laws often turns on the presence of an “agreement,” however defined. Many cartels begin with an exchange of information that may or may not be illegal. They then often evolve over time into a full-fledged price fixing or bid rigging arrangement. The precise moment of transition from “information sharing” to “agreement” is often hard to detect and may be subject to different views, even among the defendants who are engaging in the activity. In addition, for many multi-national cartels (as compared to cartels involving “global” relevant geographic markets), a cartel may start in one country and then “creep” to others. Again, the moment at which this occurs may be subject to debate. The consequences for a defendant in a private action may be quite significant. These timing issues can be a key element of defence, particularly if there are statute of limitations issues. These defenses might include, for example: • The company disposed the offending subsidiary prior to another country’s statute of limitations and should therefore bear no liability; • The company did not join the cartel in the other country until a much later time than in the country of settlement; • The company had not yet initiated sales in the country in the period encompassed by the cartel and should not bear joint and several liability; and • The sales levels during the relevant part of the cartel in which the defendant participated period were extremely small. In each of these cases, having to enter into a settlement agreement in Country A that defines an exacting time period of the conspiracy without further limitation or explanation may cause Defendant X to sacrifice some of these defenses, thereby increasing the costs of settlement and decreasing the “price” at which Defendant X is willing to settle in Country A.13

3. Scope of Damages In the United States, plaintiffs have at times sought to recover damages not only for domestic injuries, but also for foreign injuries. In Empagran, the U.S. Supreme Court ruled that foreign purchasers are barred from recovering 13 For instance, it is noteworthy that the most pivotal issue at which the fines imposed by the European Commission are decreased on appeal by the Court of First Instance is the length of the infringement. For discussion, see Damien Geradin and David Henry, “The EC Fining Policy for Violations of Competition Law: An Empirical Review of the Commission Decisional Practice and the Community Courts’ Judgments”, GCLC Working Paper 03/05 (Feb. 2005), http://www.coleurope.eu/content/gclc/documents/ GCLC%20WP%2003-05.pdf.

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damages in U.S. courts where the foreign injuries are “independent of any adverse domestic effect.”14 The 1982 Foreign Trade Antitrust Improvements Act (FTAIA) provides that the Sherman Act “shall not apply” to matters involving foreign commerce unless the challenged conduct had a “direct, substantial, and reasonably foreseeable impact” on domestic commerce.15 While this eliminates a degree of risk for defendants in U.S. courts, it does not rule out entirely the possibility of foreign injuries being recoverable in the U.S. A foreign antitrust settlement that suggests a relationship of foreign injury to U.S. effect could create significant risk for a defendant in a U.S. private action relating to the cartel.

4. Product Market Definition The potential exposure of a defendant in a private litigation can be impacted significantly by the scope of the defined market. This is particularly the case in markets involving differentiated goods or homogeneous goods with multiple end markets. For example, assume a cartel in several countries involving a price fixing agreement among the manufacturers of personal computers for government procurement contracts. If the settlement agreement in Country A is not properly constrained to federal procurement contracts, then even though the fine against Defendant X may be proportionate, the risks in any private right of action in Country A may increase significantly. Moreover, even if Country A does not allow for private rights of action, Defendant X will have to weigh the impact of that settlement agreement on private actions in other countries.

5. Effects on Direct/Indirect Purchasers This is another example of the potential collateral impact of a settlement in one country on the evaluation of effects in another. In some countries, the federal antitrust laws do not allow for recovery of damages by indirect purchasers.16 The rationale that is sometimes used for this conclusion relates to the collective action problem: individual purchasers may have suffered such miniscule damages that they do not have sufficient incentives to institute follow-on damages actions. This is further aggravated by difficulties in calculating the exact overcharge that has been passed on to the indirect purchasers. A settlement in Country A that places undue and inaccurate emphasis upon the effect of the cartel on direct purchasers could therefore increase potential exposure for a defendant in civil actions in Country A another jurisdiction. 14 15 16

F. Hoffmann-La Roche Ltd. v. Empagran S.A., 542 U.S. 155 (2004). Pub. L. No. 97-290, 96 Stat. 1234, Title IV, codified at 15 U.S.C. §§ 6a and 45(a)(3). Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977).

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C. Procedural Risks The disposition of an action by settlement can also have significant implications on the procedural posture of cases in other jurisdictions. The U.S. Supreme Court recently decided an influential case concerning the pleading standards required to sustain a Complaint in federal antitrust actions under the Sherman Act.17 Plaintiffs in private follow-on litigation will often cite to the presence of an investigation in foreign locations as a basis for alleging a conspiracy in the United States. Following Twombly, it is far less likely that a Complaint will be allowed to proceed through discovery based solely on such an investigation. A plea or settlement in a foreign jurisdiction, however, is likely to carry much more weight with the U.S. courts in allowing plaintiffs to overcome the Twombly pleading requirements. Thus, the timing of resolving foreign cartel matters is likely to become much more important to defendants that face possible private exposure in the U.S. than it had been in prior years.

IV. Agency Requirements Implicating Risks in Private Actions Agency procedures usually require certain defined steps in order to resolve a matter through settlement. Many of these requirements are necessary in order to ensure transparency, due process and other crucial elements of the legal system. Some elements, however, may not be strictly necessary. These agency requirements can impose significant extraneous costs on defendants and discourage settlement. Among the more elements important are: • The use of written decisions in settlements: agencies often require defendants to acknowledge facts in written settlement documents. In other cases, the agencies themselves adopt extensive, detailed recitations of facts, some of which may not be necessary to support the settlement process. As discussed above, such statements can have broad-ranging impacts on the costs to defendants in civil actions and in other jurisdictions; • Requirements for transporting physical evidence into the jurisdiction; cooperation of the settling defendant is often a requirement of reaching a plea agreement. This is helpful as it facilitates the preservation of agency resources and may speed the resolution of the matter as to other defendants. However, if the agency requires defendants to bring evidence into the country that is otherwise outside the reach of the jurisdiction, it can have significant impacts on civil proceedings. Timing is also an important factor. Requiring defendants to produce evidence before it is needed may 17

Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007).

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unnecessarily subject a defendant to exposure and may, in fact, subjugate the country’s judicial process and discovery rules to the settlement proceedings. These effects may discourage settlement; • Requiring an admission of guilt by pleading defendants. As discussed above, an admission of guilt has immediate impacts in the country of settlement, as well as potential impacts in other countries. As this can discourage settlement, an admission should be required only if necessary to achieve the objectives of the country and its consumers; • Confidentiality of evidence gathered in the course of investigation and prosecution of defendants; • Descriptiveness and conclusiveness of key evidentiary issues such as duration of conspiracy, product market definition, scope of damages, impact on direct/indirect purchasers, etc.

V. Conclusion It is important to emphasize that the objective of settlement agreements is not to make life easy for the defendants. But in the interest of equitable and expeditious resolution of disputes, agencies should construct a settlement process that does not introduce unnecessary costs on defendants in civil proceedings or in foreign jurisdictions. At times, such costs can be fully justified, particularly when the settling jurisdiction seeks to ensure that private rights of action in its own jurisdiction can be pursued or that criminal sanctions against individuals can be maintained. But in many cases the procedures adopted by jurisdictions in their settlement proceedings carry significant costs to defendants that do not accomplish these secondary goals. In these cases, imposing costs will only deter settlement and lead to less efficient administration of the antitrust laws.

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SESSION TWO

SETTLEMENTS IN CARTEL CASES: PRACTICAL EXPERIENCES IN MAJOR JURISDICTIONS PANEL III The United States, Canada, and the European Union

1 PANEL DISCUSSION

Chair: Heike Schweitzer Participants: John Cooke John Fingleton Bill Kovacic Rob Kwinter Lynda Martin Alegi Santiago Martínez Lage

Kirti Mehta Ann O’Brien Mario Siragusa María Luisa Tierno Centella Jim Venit

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Panel III: The United States, Canada, and the European Union 䉴 HEIKE SCHWEITZER: Welcome to the afternoon session, which is dedicated to the comparative perspective. We’ve heard some comparative reflections this morning but we’ll treat this more systematically this afternoon. Two of the guiding questions in this respect are, first, what can we learn from other jurisdictions? And second, is there a trend towards convergence? In order to evaluate those questions we’ll hear first of all about the experiences in the US, Canada and the EU, and later we’ll hear about the EU Member States. Regarding convergence, we’ve already heard a plea for convergence from Ann O’Brien of the Department of Justice, and then a different view from the European side based on some of the EU’s distinctive procedures. We’ve heard some of the major themes this morning, including the question of how to design a settlement procedure that ensures efficient incentives for both firms and the competition authority, and the question of the conflict between the need for administrative efficiency and the need to respect fundament rights. We have seen that there are different institutional designs in different jurisdictions. We’ve seen differences linked to whether settlements are agreed in a criminal versus an administrative procedure. And there are big questions concerning the interaction of public and private enforcement. Several times this morning we heard about the problems created by the crossborder effects that settlements in one jurisdiction can have in other jurisdictions. We will start with the US perspective, and Bill Kovacic of the FTC will be our first speaker.

BILL KOVACIC: Thank you, Heike. I’d like to thank Claus and the EUI for asking me to participate in the program. When you look at the US experience with criminal enforcement, which is the context in which plea bargaining arises, it’s easy to forget, in light of the enormous success that the DOJ has had in making this a foundation for cartel enforcement, that the success of this enterprise was hardly a sure thing. The enterprise began in earnest roughly 35 years ago. I trace it back to 1974,1 that’s the year that our Congress converted the status of the offence from a misdemeanour to a felony, which is a much more serious infringement, and compared to past practice this dramatically raised the sanctions available for infringements. From 1890 to 1955, the maximum penalty that the DOJ could impose for a criminal infringement was five thousand US dollars. In 1955, the maximum jumped to 50 thousand dollars. But it was not until 1974 that the fines changed again, this time going up to a million dollars, and as I said the offence was made a felony. 䉴

1

See 15 U.S.C. § 16.

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It was hardly evident, when these steps were taken, that criminal enforcement would truly become a significant deterrent force, or an effective mechanism for prosecuting cartels. Part of the story that I’d like to address in relation to plea bargaining is how that happened. In many respects it’s a story of developing social norms of acceptance, and developing the notion that cartel offences are serious enough to warrant the stigma of criminality for nonnatural persons, and the removal of the freedom of natural persons engaging in cartel practices. Thirty-five years ago that was far from an obvious proposition. Success required a deliberate effort to roll out and expand the program over time so that it could achieve the status that it has now. I will suggest with respect to plea bargaining—but more generally with respect to the overall enterprise—that two issues attended the long and persistent efforts to attain that success. The first issue was, generally speaking, a concern for legitimacy in the eyes of the public, our legislature, our bar and our practitioners. Second was a need to demonstrate effectiveness. The legitimacy point is related to two basic considerations. In the first place there had to be fair treatment in the application of a plea bargaining system. Similar cases and similar circumstances had to be handled in generally the same way. The second consideration had to do with whether or not prosecutors were getting a good deal from the prospective of broader social interests. Diane Wood’s observations regarding civil settlements apply with equal force here. There is a large literature that documents all of the incentives, motivations and lapses that might lead enforcers to get bad deals.2 In some cases they might be willing to sell the public interest short. There is a growing literature on cartel enforcement suggesting that public enforcers are so captivated with the prospect of becoming the leader in the global clubhouse for fines and the prospect of hitting the biggest number yet, that they’re willing to make the following trade. They’re willing to shrink the conspiracy period in return for a big fine. This might not capture the full period of the conspiracy but what they want is the big number that allows them to say: largest, biggest, hugest, most significant sum ever. On the point about getting good deals for the public as a safeguard of legitimacy, as Diane told us the Tunney Act, which is the legislation that introduced the higher fines and the felony status, had this provision allowing the DOJ to reach civil settlements, but they had to be approved by a court. That is not a de novo review of the merits but it’s an assessment of the quality. In the civil arena, there is also legislation that requires consumer protection class action private settlements to be notified to the FTC so that we can comment, if we wish, on whether the interests of the class have in fact been served. In the case of pharmaceutical products, we are notified, by law, every 2 See, e.g., Albert Alschuler, “The Prosecutor’s Role in Plea-Bargaining”, 36 University of Chicago Law Review 50 (1968); Stephen Schulhofer, “Criminal Justice Discretion as a Regulatory System”, 17 Journal of Legal Studies 43 (1988).

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time a branded manufacturer reaches an accommodation with a potential generic entrant by which the latter delays entry or avoids entry altogether. So these are mechanisms designed to ensure some third party observation in relation to settlements. With respect to legitimacy, since the mid-1970s you can see several things that have served to make the DOJ’s program not only acceptable but a widely agreed suitable mechanism for resolving claims. The first, as Ann mentioned before, is an enormous investment in transparency. That is: making clear what terms were actually struck. The DOJ has a large database, both of record individual matters but also of speeches. You’ve probably heard Scott Hammond, or Jim Griffin before him, or Gary Spratling before him, speak about precisely what was done in great detail—this with the aim of making sure that individuals observing the Department do not come to think that its policies are being applied improperly. Then there is judicial control with respect to all criminal settlements. There’s a significant degree of judicial oversight before plea agreements are taken. One might challenge the robustness of how those requirements are applied in any individual case, but I think they provide an important check on the discretion of the public prosecutor. Those measures have served, to a large extent, to gain acceptance for plea agreements. And the DOJ has made an effort to pick cases wisely. In the 1970s, when it was unheard of for individuals to go to prison in cartel cases, the DOJ started doing this mainly in the context of public procurement. One might have asked in the abstract: “Is that really so bad as to send the whitecollared manager to prison? Will juries convict?” But a powerful message delivered by the DOJ in the 1970s and through the 1980s was: “These are people who are stealing your money. They are robbing the public Treasury. Perhaps you should set aside qualms about taking their freedom away.” That had a great deal to do with gaining acceptance of a social norm that criminal prosecution was not only suitable, it ought to be demanded, and that incarceration was a perfectly acceptable solution to that form of what was frequently called in the courtroom, “theft”. You would put a bank robber in prison, this is someone robbing the Treasury. I said that the second key issue for the DOJ to establish a successful cartel program, and a successful plea bargaining system in particular, was effectiveness. Transparency played a crucial role in that. The DOJ has made clear to private parties that they can calculate, with a great deal of precision and confidence, the tradeoffs to be made between coming in and making a plea as opposed to staying out and taking your chances. The Department does a very good job of helping you calculate the potential payoffs, both by identifying how fines will be set, and how discounts will be determined. This means that outside counsel will not have to be a true Kremlinologist and simply guess, by the ordering of the people on the organization chart, or the faces that appear at the equivalent of May Day parades—antitrust conferences and events—

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exactly what will be done. Calculating that payoff is indispensable for what Ann O’Brien has called truly the “bargain” which is part of plea bargaining: cooperation with respect to providing information in return for some attenuation of sanctions. If you don’t know what the payoffs are, you can’t set bargaining in motion in a meaningful way. Another ingredient of effectiveness is something else that I can echo from Ann’s paper, and this the fact that the negotiation process can take place at any time during the investigation and prosecution life cycle. A key point in giving dispensation early is to acquire useful information that can contribute to what Ann called the “momentum-building process” of prosecution. In the US experience, as I said, negotiation can take place at any phase of the process. Remember, we’re talking about silver medallists, not gold medallists, since the gold medallists get complete dispensation from criminal sanctions. But these silver medallists can come in at any time. The availability of information early and often has been quite valuable in building successful prosecutions. Another important check is the availability of private rights in follow-on actions. Let’s suppose that the prosecutor fails to make a socially optimal choice with regard to, say, the conspiracy period, that’s one of the most critical elements in determining the amount of exposure in private suits. Suppose the prosecutor fixes a period shorter than it should have been. They don’t do that as a matter of sloth, corruption or inattentiveness. They make a judgment that one might say is simply due to the limitations of humankind. Why might private rights be useful? Robust private rights permit private actors to stretch the period out and obtain damages for events from the earlier period. Exemplar: Vitamins.3 The plea period in Vitamins started in 1989 and goes forward. A private suit went back to 1985 and extended the rectangle—the vast base on which damages were calculated. That caused the defendants in this instance to write a check for 1.5 billion dollars. That’s a lot of additional deterrence. You’ll never read a better expert’s report than Doug Bernheim’s report for the class plaintiffs in that case,4 it is a masterful treatment, both for its quantitative story and for its exposition of how the cartel worked. So the private cases were a very valuable supplement there. A closing thought about what makes the US plea bargaining system useful is to view this process as incremental experimentation. Here individual experiments can be regarded as prototyping, investment and adjustment over time. I think those are the characteristics of the DOJ’s program, with a fascinating sequence of adjustments from 1974 forward. A critical part of that sequence is ex post assessment. There’s a larger cultural question—and this is implicit 3 Re Vitamins Antitrust Litigation, Misc. No. 99-197 (TFH) MDL No. 1285 (D.D.C. 2002). 4 Expert Report of B. Douglas Bernheim, In Re Vitamins Antitrust Litigation, Misc. No. 99-0197 (TFH) (24 May 2002).

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in John Ratliff’s question about what kind of deterrence we’re actually getting—the larger question about plea bargaining, settlements, leniency and others is to what extent have these measures cleaned up the neighbourhood? Have they just chased bad guys into other jurisdictions without this kind of oversight? Is North America largely clean, apart from cartels orchestrated overseas? Or to the contrary, given firms’ capacity for adaptation and given the powerful incentives to engage in collusion, are we simply seeing an arms race in which this continuing process of experimentation, assessment, adjustment and re-assessment will be critical elements? But I think that the evolutionary, incremental adjustment that’s been inherent in the Department’s program is a good model for any jurisdiction to think about as it gauges its own progress over time. 䉴 HEIKE SCHWEITZER: Thank you, Bill. Now we go directly to Canada. Cal Goldman could not join us, but his colleague Rob Kwinter is kindly filling in for him, Rob now has the floor.

䉴 ROB KWINTER: In Canada the cartel offence is a criminal offence, and individuals may be imprisoned. And settlements have long been accepted in Canada. I’ve been practicing for 23 years and since I started working as a lawyer settlements have always been possible. Traditionally that meant plea negotiations, and then a few years ago Canada introduced an immunity program not too dissimilar from that in the US and other jurisdictions. So in more recent cases there has been the immunity applicant and then others come in later and have obtained some form of leniency by way of plea negotiation. I approach settlements from the perspective of defence counsel, but I think there’s an important balance that has to be struck between flexibility on the one hand, and predictability and certainty on the other. Our clients typically want to have the opportunity to negotiate as many of the settlement terms as they can, but they also want to have some sense, going into the process, of what the outcome will be. As I said, Canada has had for many years a formal immunity program. Leniency is given in the context of a plea negotiation, but we’ve had no formal leniency program and no sentencing guidelines. So, particularly as cartels become increasingly international in scope is that a cartel participant would say, “Well, I’m not first in in Canada, but I can negotiate a reduction in the penalty.” But unfortunately, it has been difficult to advise on what the ultimate fine will be because of the fact that we don’t have formal guidelines. The Competition Bureau has sought to address that, and they recently released a draft paper setting out, for the first time, formal sentencing 5 See Draft Information Bulletin of 28 April 2008, available at http://www. competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/02663.html. Following review and comment, the Bureau on 25 March 2009 published a revised draft. See http://www. competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03027.html.

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guidelines and the terms of leniency.5 This draft has a good deal of detail. The first leniency applicant would obtain up to a 50 percent reduction in the fine, and the base amount for the fine would be 20% of the volume of commerce. I won’t go into the details here, but I can tell you that the battleground will be over things like: what is the “volume of commerce”? Why 20 percent, is that the right number? There’s also kind of a throwaway line in the Bureau’s materials about the inclusion of indirect sales in certain contexts, with no specific explanation. That’ll be a big issue in Canada because in many instances there aren’t a lot of direct sales, they’re only indirect. How do you calculate those? So there’s a lot a room for debate, and it remains to be seen what the final form of the policy will be. The important point, as I say, is that defendants will have to know what the endgame will look like. Another point that has come up today relates to the impact on incentives of the availability of private damages actions. I’d like to offer a cautionary tale from Canada. Many of you may have heard about a chocolate bar pricefixing conspiracy there, and a cartel investigation was launched in November of 2007 against the major Canadian chocolate bar manufacturers.6 The Competition Bureau has carried out dawn raids and gathered evidence. Now, the allegations made by the Bureau with respect to the chocolate bar cartel relate solely to Canada. There’s not one sentence in the allegations that suggest that the alleged cartel has any international aspect whatsoever, even though some or all of the companies concerned are active, to some degree, internationally. Well, the story was picked up by the Wall Street Journal and within a week 50 class actions in the United States. Now there are 80 class actions in the US relating to a matter which, on the face of it, does not appear relevant to any jurisdiction other than Canada. The point is that, in any immunity or settlement proceedings, the inevitability of a vast number of class action proceedings has to be kept in mind. Turning to settlements on the civil side, there has not yet been a contested class proceeding in a cartel case in Canada. Every case that has been brought has been settled. So settlements are very common. Like the situation in Europe, Canada does not have a proper multi-district litigation resolution system of the kind that applies in the US.7 So there is no formal concept of a national class. This has tremendous practical implications for parties seeking to settle a cartel class proceeding in Canada. And again, if defendants are going to settle, they want to do so with as much certainty and finality as possible. But with no MDL system that’s a problem if a defendant cannot settle 6 For a brief discussion of the case, see Susan Hutton, “Canada and the EU: Cooperation is a Two-Way Street”, in The European Antitrust Review 2009. 7 See 28 U.S.C. § 1407, available at http://www.jpml.uscourts.gov/28_usc_1407.pdf. The US Judicial Panel on Multidistrict Litigation considers motions for consolidated pre-trial proceedings where civil actions in different federal districts concern common questions of fact. Actions subject to an MDL transfer, if not terminated in the transferee district, are later remanded to the original districts for trial.

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on a national basis. As a typical practical solution, the case will be started by one class plaintiff firm, and then that firm will start class actions in other Canadian provinces, teaming up with other class plaintiffs. This allows them to cooper together a “national class”. As a result the lead plaintiffs’ counsel can approach the defendant’s lawyers and say, “If you settle with us you can effectively settle on a national basis.” A claim approved in the first jurisdiction will then similarly be approved on a province-by-province basis. Now this system is not perfect. There is at least the possibility of claims being brought in jurisdictions where there has been no court approval, but in general it seems to work. However, I would not recommend this non-system for Europe. As Europe moves forward on the private enforcement front, it would be highly advisable to ensure that defendants get as full and effective release as possible. The efficiency of a settlement system is lost if there are disincentives to participate in it, and the ability to settle on a broad, comprehensive basis is crucial. 䉴 MARI´A LUISA TIERNO CENTELLA: Since I assume that you all know how the settlement procedure will be dealt with, I will focus more on items which are not expressly mentioned in the draft Settlement Notice.8 We were careful not to put everything in the document because everything that is published in the final Notice will bind the Commission. We have limited experience with this procedure, and therefore a certain amount of time will be necessary in order for both the companies and the Commission to learn best practices. So we want to maintain sufficient flexibility for experimentation during an initial period. The first point is that settlement decisions will still be decisions taken under Articles 7 and 23 of Regulation 1/2003. That means that there will be a formal finding of infringement, and we will impose fines. The decision will have to be supported by reasoning; it will have to be sufficiently motivated to permit meaningful judicial review. The decision will be based on the Statement of Objections that has been prepared after a thorough investigation and notified to the defendants. It is important to understand that we are not adopting the settlement procedure to spare us anything as far as the investigation is concerned. So the investigation will be carried out as it has always been carried out: on the basis of leniency, on the basis of whistleblowers, and pursuant to our ex officio power to open cases and our authority under Article 18.9 It 8 Draft Commission Notice on the conduct of settlement proceedings, 2007 OJ C255/51. The draft Notice was accompanied by a Proposal for a Commission Regulation amending Regulation 773/2004, 2007 OJ C255/48. The final versions of the Notice and the amending Regulation were adopted as: 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, 2008 OJ C167/1; Commission Regulation (EC) No 622/2008 of 30 June 2008 amending Regulation (EC) No 773/2004, as regards the conduct of settlement procedures in cartel cases, 2008 OJ L171/3. 9 Article 18 of Regulation 1/2003 empowers the Commission to require undertakings to provide all information necessary to enable it to carry out its enforcement duties under the Regulation.

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is only when the Commission—after having seen the results of the investigation—considers that it has enough proof to proceed with a cartel case, it is only then that we will think about the possibility of exploring a settlement. Internally, DG Comp will have to consult the Commission’s legal service, and we will have to go to our Commissioner, as Mr Ehlermann will very well remember, with a draft SO. We have to explain our findings and the objections that we want to raise. And we will only think about a settlement when we feel that our case is sufficiently strong that companies will realize it is better to accept a 10 or 15 percent fine reduction and that it is not worthwhile for them to contest liability. Companies will not be making a choice based on what we tell them, they will make their choice based on the evidence in our file. We won’t oblige companies to settle. We will explore the option of settlement with them. We will contact them and tell them that we are initiating proceedings and that they are likely to receive an SO. And we’ll ask them if they’d be interested in settlement discussions. Companies have nothing to lose when they come in to talk about a settlement; it is completely free of charge. The advantage of coming in is that the defendant will learn more about the file, and it will hear what the Commission thinks about the case. If the discussion continues, the defendant will also learn about the parameters of the fine. So if anyone is risking something in these discussions it is the Commission, not the parties. The parties are simply obtaining information. In the same letter in which we ask whether a company is interested in exploring a settlement, we will also tell them that we are closing the leniency window.10 So if the company has anything to provide in connection with a leniency application, this is the time to do it. We have to do this because the company will have access to the file. We don’t want people to tailor what they will give as extra evidence so that they can just have the additional significant added value that they would need for leniency. We want the race for leniency to be genuine. Otherwise we will be interfering with the incentive to apply for leniency, and leniency is essential to fight cartels, we can’t compromise that. Much of what appears in the draft Notice is there directly or indirectly to protect leniency and leniency applicants. Exploring settlements will not always be an option. Why? Well the Commission will know, for instance, how many of the defendants have obtained leniency. Normally, parties that have already contributed to the case with evidence and have acknowledged that they have participated in a cartel would also be likely to settle and by doing so secure an additional advantage. So those parties are more likely to be in than out. But then you have situations where companies will never give you the same versions of facts or liability. The story of one contradicts the story of another. In this scenario there 10 For details on leniency in the EU, see Commission, Notice on Immunity from fines and reduction of fines in cartel cases, 2006 C298/17.

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is no point settling with both parties. When there are multiple parties, if all the parties tell us they are interested in a settlement, then going forward with settlement discussions would seem to be a likely way to resolve the case. Settlement discussions will proceed, on a bilateral basis, contemporaneously with all the parties. We want to advance the case at more or less the same pace. But if some of the parties say they are not interested in settling, then at that stage the Commission probably will not settle with anybody. What happens during the actual settlement discussions? I acknowledge that there is not a lot of information about this in the draft proposal, but this is a reflection of our need for flexibility. We need to know from the beginning whether the parties are serious about settling the case, or whether they are more interested in simply fishing for more information and keeping our resources busy. So normally in the settlement discussions we would like to have as few meetings as possible but still it will be something progressive that develops. And the companies will have the complete guarantee that the Commission will never ask them to settle if they haven’t had access to the all the evidence that is referred to in the SO-to-be. They will also have the opportunity to go through the case file list and ask for other documents in order to ascertain their own position. This is because, while it is true that cartelists generally know about their own illegal behaviour it is also true that over time there can be discontinuities of management, such as where there has been a takeover, or where an individual cartel participant with key information has died, and so on. Another important point that is not in the draft proposal is that there will be a draft settlement submission. We will develop something like a template when we have more experience with settlements. This is different from leniency, where an application is prepared by the party and then the Commission sees whether it fits. In the case of settlements, the settlement submission must be closely linked to the SO, so we really have to think about it in advance. If a party and the Commission disagree about something, such as a piece of evidence, then if we cannot agree there will be no settlement. If the party wants to convince us to change our mind, it can do so the same way today parties convince us of a weakness of the SO. So the party will reply to our assessment of the case, and we might be convinced to drop charges or to change the relevant period of infringement. In coming to a common view of what will be in the settlement submission, agreement will have to be reached on the parameters and range of the fine on the basis of the Fining Guidelines.11 We will have to discuss the relevant turnover and the other relevant circumstances. (My time is limited so I have to go quickly now.) 11 Commission, Guidelines on the method of setting fines imposed pursuant to Article 23(2)(a) of Regulation 1/2003, 2006 OJ C210/2.

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Then the Commission will give the companies a fixed time in which to present their settlement submissions. There might be some cases in which one party among several parties changes its mind and fails to continue with the procedure. The Commission technically can always depart from the possibility of settling. The Commission would then have to consider whether to maintain the settlement agreement with the parties who made their submissions while discontinuing the settlement procedure for the party that changed its mind. I cannot provide a position on this point at this stage. Finally, I will emphasize again what has already been pointed out by Wouter Wils, and that is that settlement submissions are without prejudice to the possibility of seeking judicial review on appeal. Settling parties will always retain the right to appeal a settlement decision. 䉴 HEIKE SCHWEITZER: Thank you. Your presentation raises a point which may sometimes be forgotten, namely that if the settlement procedure poses risks, the most important one may not be borne by undertakings but may be the risk that a deal will fail to fully protect the public interest.

䉴 JIM VENIT: Coming at this from a practical perspective it seems to me that the rationale for this initiative is the need to accelerate the Commission’s procedures. There is some tension there because sometimes those procedures are fairly bulky and the Legal Service may have an interest in keeping them bulky. But to my mind the settlement procedure only makes sense as a way of avoiding steps and doing things more quickly. There are two situations now that can come up in a cartel case. There is either a leniency application, or the case is initiated by the Commission without the benefit of a leniency applicant coming forward. I suspect—but I don’t know—that the settlement procedure will be predominantly if not exclusively used in the first class of cases where there’s already a leniency applicant. The question there is how much will that add to accelerating the procedure. One example from my own recent experience suggests that there is substantial scope for acceleration. In the case I am thinking of, I represented the leniency applicant and the case was finally closed after a period of five years. But within 18 months of the commencement of the case, the defendants had already served their jail sentences in the United States. So even though the Commission had the benefit of a leniency applicant, the difference in the time required to process the same case in Europe and in the US was dramatic. In the leniency context, the leniency applicant comes in first, and then normally there’s a race between the other members of the cartel. They will try either to kick out the leniency applicant (because he’s a scoundrel, or because he lied or deceived the competition authority) and to step into his shoes; or, if that can’t be done, then the race is to get in line to get as big a reduction as possible by being the second or third company to contribute value to the

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Commission’s case. In that type of scenario, it is not clear that all the cartel participants have the same attitude toward settlement: number 2 and number 3 may be more interested in trying to add value by bringing forth additional facts than by agreeing to the version presented by the leniency applicant. If that is the case, settlement will only become interesting after the jockeying for position is over. What would happen if a leniency applicant didn’t want to participate in the settlement? I think that’s unlikely and unrealistic. But we could suppose that in a leniency case one defendant held out and hadn’t cooperated, and hadn’t acknowledged his guilt. Would it be worth it for the Commission to go down the settlement route? From a ruthlessly practical perspective, if the Commission would have to go through the normal procedure anyway with one party, then what’s the advantage of doing the other parties a favour and settling with them? I could be wrong, but my suspicion is that one of two things will happen over time. Either there will be a flat-out refusal unless everyone is on board; or there may be attempts to run cases in such a way that it becomes apparent to the one hold-out company and to the rest of the world that staying out is not a wise strategy. Outside the context of leniency, where nobody has come in and no one has confessed, settlement would seem to be a more difficult proposition. In that scenario, the Commission may not be able to use the settlement procedure as an effective investigative tool. A fair amount of work has to be done before a settlement discussion can begin, and this suggests that a settlement may not be as attractive in that situation because the Commission will already have done the work itself. There may be exceptions and cases at the margins where a settlement may still be viewed as advantageous in that context. But at least a priori (never having consumed the good before, never having seen it on the market), this general picture might be what we can expect. Is settlement a good thing? In the leniency context, I think it will be uncontroversial. If it takes five years to process a case where the facts are really not contested, it would seem desirable to gain some efficiencies and cut down that time period. Would settlements be a good thing in the other type of case? I think it depends on your view of vigorous investigation or the different strategies one can use in an investigative context. I can envision a situation where the defendant is aware that he is the last hold-out preventing a settlement, and that he is going to get a humongous fine for that reason. That might motivate him. Whether the settlement procedure would permit that kind of pressure I can’t assess. But one can envision the potential for that. What I’ve learned from my experience in cartel practice is that criminal sanctions in the US result in a much more rapid resolution of cases because of plea bargaining by individuals facing potential imprisonment. The DOJ may not be getting to the whole truth, but they sure get the convictions quickly. The devices that we have to try and compensate for that are more muted, that’s because we don’t have a criminal system, and that’s just a big

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fact of life. That doesn’t mean that the leniency program hasn’t been effective in Europe; it has been. But it may limit the effectiveness of the settlement initiative. And that brings me to a final point, which is that even if the settlement procedure only turns out to be meaningful in leniency cases, my rough understanding is that this actually would cover between 70 and 90 percent of the cases. The vast majority of cases the Commission is dealing with now have come in via the leniency route. So, to say it would be useful only in leniency cases is not to say that it wouldn’t be useful. To the contrary, it would add some value in the majority of cases. 䉴 HEIKE SCHWEITZER: Thank you, Jim. We now have about a half-hour for discussion, and I’ll reserve some time at the end for our speakers to come back and say something if they want to. We’ll begin with Judge Cooke.

䉴 JOHN COOKE: First, a remark. Speaking for myself, I don’t think that the representatives of the Commission should feel that they have to defend themselves. I’m genuinely intrigued to understand how I can reconcile what appears in the Commission’s draft Notice with how the Commission officials themselves anticipate the settlement procedure will operate. To my mind there seems to be a gap between what is contained in the proposal and the way in which the process has been explained by Wouter and María Luisa. I’d like to ask two concrete questions. Take a not atypical situation in which the Commission decides to investigate a cartel of, say, six members. Three come forward and say they’re interested in settlement negotiations. The other three stand outside and say, “We did nothing wrong, and we’re not involved at all.” The three who stand outside will in due course have access to the file. The three who negotiate will obtain access to all of the information material to the Commission’s objections. The first question is: does the Commission reserve the right to divulge a different degree of information to the three settlement candidates compared to the other three? The second question is: does the Commission envisage adopting one or more Article 7 settlement decisions with respect to the settlement candidates at the same time as the normal Article 7 infringement decisions against the three who stand outside? If the Commission envisages that the discussions will all proceed in parallel with each other, surely there’s a risk that the three settlement candidates will lose their some of their incentive to settle. Because for them the motivation is to get rid of this case quickly and early, and not to have to wait another year or two for the adoption of their Article 7 decision, depending on the progress of the case that proceeds with the respect to the holdouts.

KIRTI MEHTA: That demonstrates how important it is for the Commission to know at a very early stage whether all the parties are going to settle or not.

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In the kind of scenario that you described, we would probably advise the Commissioner that this is probably not an appropriate case for settlement. Let me explain further. In a leniency case, a successful leniency applicant will obtain no reward for settling because he won’t have to pay any fine anyway. For leniency applicants that don’t earn full leniency, they would usually like to settle, for the reasons Jim Venit explained. They will be rewarded for leniency, and then they’ll be able to take advantage of the 10 percent reduction of the fine. If a company prefers to contest the case because it maintains its innocence, so be it—the company should say so and then follow the normal procedure. The worst scenario for the Commission is to start a settlement procedure and then to find out later that only three of the parties are willing to settle (amongst them the immunity applicants), while the other three refuse. In that case, the Commission has to run two procedures. They’re both Article 7 procedures but they operate differently. And you need the companies that want to settle in the hearing. After all, the hearing is quite useful—for both sides. So it’s no good adopting a decision covering the ones who want to settle two years before the other procedure is concluded. As Judge Cooke pointed out, in that case the companies lose their incentive. That’s why our approach is perhaps a modest one. In the system we have, there will be certain situations where the evidence is strong and where the case is compelling. Mind you, there may be situations where an immunity applicant may not want to settle due to the possibility of private litigation. But for us it would not normally be a problem if the immunity applicant declines to settle but everyone else settles. This is because adopting a decision as far as the immunity applicant is concerned is relatively easy. The applicant brought in most of the evidence and he doesn’t contest anything. Mr Venit wondered about the possibility that the last holdout might be told that if he doesn’t settle he will face a big fine, but this is simply not realistic. The Commission simply can’t do that with credibility when the reward is only 10 percent of the fine. I think people are rational in that respect. Another criticism I’ve heard elsewhere in that respect is: “How do we know that the Commission will not jack up the fine first and only then apply the discount?” But whatever anyone may say about the Fining Guidelines, they provide a much greater basis now for predictability. And in the settlement discussions we will be able to have a precise dialogue about the relevant information. What are the direct and indirect sales? And furthermore people will know their leniency position. Today people discover this in the decision. The applicant knows it is in this band of 30 to 50 percent, but it doesn’t know where. So these elements mean that you have much greater transparency and certainty. Now DG Comp will not fix the precise fine, the College of Commissioners will do that. But you will have a range. And we may see some appeals where people say “I made my oral submissions subject to the maximum fine, but I hoped that you would fine me less.”

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One last comment. I’ve done 45 or 50 cartels but I have not yet seen a complainant who has brought a case. The ones who have brought a case are the ones who do not want to be in the procedure. And the only time that we’ve had a complainant in the case there was a very long procedure, and in one case the parties even went to court to stop the Commission from giving to the complainant a non-confidential version of the SO. In the end the complainant realized it was better for him to have a decision adopted so that there was at least a finding of infringement. 䉴 JOHN FINGLETON: If I take John Cooke’s example a bit further, let’s suppose five parties have agreed to settle and one refuses. Potentially, this gives the holdout a lot of power. Will you tell the sixth that the other five have settled? Does that depend on whether the other five have given you permission to say that? And do you need to maintain some ambiguity about whether you would do a partial settlement in that case? The point would be to try to keep the holdout ignorant about its bargaining power.

䉴 KIRTI MEHTA: My own view is that in the case you just described we would not want to settle. Today, when we talk to the parties we do not have discussions about the discussions we’re having with the other parties. We just don’t do that. And if you have two camps, some who want to settle and others who don’t it becomes difficult to treat the parties equally. As I said, though, we would be more comfortable in a scenario where the party that doesn’t want to settle is a leniency applicant. There we could settle with everybody else because it’s much easier to do that. In other cases, if the Commission gets into the business of pressuring firms to settle, then there is a risk that the procedure would lose its credibility. We don’t want to influence the decision to settle, people should make that decision freely. My experience suggests that at the end of the day companies will make choices on the basis of dollars and cents, taking account of private litigation and other costs. To give you an example, we have cases where some parties have plea bargained and settled in the US, while other parties have not. Those two types of defendants are in completely different situations. In that kind of case, if you say “You are the last one who doesn’t want to settle”, it doesn’t matter because the parties have a completely different exposure to liability in another jurisdiction. Someone was raising this point earlier. And their decision about whether to settle with us will be driven by those kinds of factors, not whether they are the last company to settle with us.

ANN O’BRIEN: I wanted to clarify that when I spoke this morning about drawing lessons from leniency I didn’t mean convergence, although we have achieved some degree of convergence there. Convergence is not the same issue in the settlements context. Settlements are jurisdiction-specific, and I realize

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not all the same elements of a program can work in all jurisdictions. What I was really saying is relevant to the discussion that we’ve just had this afternoon, because the lesson we’ve learned from leniency is that the race works. We do have a combined system, but whether you do or not, it’s how you implement it. And it’s incredibly important to keep that race going beyond the first applicant in. And if you use that as a guiding principle, you can’t go wrong. Nowhere is it more important to incentivize someone to come in than in the settlement context. Obviously we have high stakes in the US, but I think you can incentivize in other jurisdictions even where individual criminal sanctions are not an issue. I don’t think it’s necessary to focus on criminal sanctions, and I deliberately didn’t focus on that in my paper. The way that we’ve structured our system is really quite contrary to what Kirti just explained. We’ve done a lot of work to be more transparent about this, and we have some speeches out there, including Scott’s “second in the door” speech,12 where we just go through all the benefits that we give to a second in company. The earlier in, the more value the defendant has to offer us. So yes, a defendant must admit guilt, and it must waive certain rights, including the right to appeal. But that defendant has a lot to offer in the form of substantial assistance to us. The further we go in the process the less the defendant has to offer. And Bill Kovacic is right to point out that our enforcement system at the DOJ has evolved. Bill rightly identified that change in the status of the crime from misdemeanour to felony, and the penalties were ratcheted up. Another key point is that the success of our system is due in part to bringing the right cases and building up our track record with the courts. And our successes in court, and our transparency with the bar give us the credibility we need to make the system work. As an example of evolution, I’d refer to the nolo contendere pleas. As Judge Wood explained, these are not admissions of guilt. Prior to 1974, when cartel offences were misdemeanours, the Department accepted nolo pleas. We don’t do that anymore. Obviously any defendant can refuse a plea agreement and they can go to trial. But if a defendant seeks a plea agreement and then pleads nolo contendere, it is our policy to object. And we’ve been successful in that regard; there are only a couple of instances that I’m aware of in the last 15 years where companies have been able to do that. MARIO SIRAGUSA: I’m puzzled by the idea that if the immunity applicant does not want to settle, that’s fine because the Commission will go ahead with the settlement. Is it not strange that the immunity applicant will be the only one that refuses to give an express acceptance of liability? After all, he is the one that has been quickest to use the process, he is the one who is causing

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12 Scott Hammond, “Measuring the Value of Second-In Cooperation in Corporate Plea Negotiations”, speech, Washington, D.C., 29 March 2006, available at http://www.usdoj. gov/atr/public/speeches/215514.htm.

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damage to his competitors, but he is the only one who does not admit his liability. Strange. Second, I think that the Commission’s proposal has a good aspect because defendants will be able to carry on discussions with the Commission before it issues the SO. I have always thought that the Commission’s normal investigative procedure is very unusual. A defendant has access to the file, and can begin to have a dialogue with the Commission only after he has received the SO. But with the settlement procedure, at least the most important evidence will be available before the SO is officially served. I think that’s positive. But shouldn’t this be the normal procedure? Shouldn’t the Commission make the evidence available to everybody once its instruction of the case is complete? And at that point, people who want to settle will settle, and those who don’t won’t. I’ve always thought that it makes little sense for the Commission to ruminate over its evidence until the SO is ready, because once the SO is issued it is difficult for the defendants to move to the position of the Commission. If we had access to the evidence at an earlier stage, maybe we could submit views on the evidence before the SO has been finalized, and that could improve the process. Finally, I’d like to refer to the possibility of “partial” settlements. This could be an interesting application of the procedure. Defendants could be allowed to say, “I agree with this part of the allegations.” In that case, certain parts of the case could be subtracted on the basis of an agreement between the defendant and the Commission. And then the case would continue with respect to the other allegations. This could simplify the case. 䉴 LYNDA MARTIN ALEGI: I realize that these “holdout” scenarios can be difficult. But I do think that the Commission should consider the negative impact for the credibility of the procedure if parties have been invited to settle, and then those parties have cooperated in good faith and have done everything they need to do, but then in the end there’s no settlement because of this holdout sixth defendant. That’s really important. Second, it might cross our minds that the sixth defendant might be innocent. In a lot of these cases there’s an assumption that everyone charged is equally guilty. That is absolutely not the case. My final point verges into a question, and I appreciate the fact that our time is limited. If the Commission does intend to proceed as suggested, then it will be all the more important to guarantee that the settlement discussions will be entirely confidential. That will require, as an absolute minimum, that any settlement submissions be oral.

SANTIAGO MARTI´NEZ LAGE: I have a question for Kirti and María Luisa. In your paper, you say that the Commission would be inclined to try to reach a settlement when there is a likelihood of achieving procedural economies.13

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13 Kirtikumar Mehta and María Luisa Tierno Centella, “EU Settlement Procedure: Public Enforcement Policy Perspective”, this Volume, p. 391.

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This leads you to say that this will only happen when all or most of the companies will also be inclined to reach a settlement. But on the preceding page of the paper, you say that cartel cases concern three points: procedural issues; circumstances relating to the amount of the fine; and the liability of parent companies. My question is: would you be inclined to agree a settlement if the economies are reached by solving these common problems? MARI´A LUISA TIERNO CENTELLA: As you know, our procedure is one in which the time frame is the same for all the companies. That’s different from what happens in the US. In the US, they tackle companies one at a time. But we send the SO to all the companies at the same time, and we adopt a decision for all the companies in the cartel. So our race is about leniency and getting evidence as soon as possible. The race is not about where we establish procedural efficiencies. That is something we achieve with regard to all parties at the same. That means that if I accept partial settlements, I would still have to prepare a full SO. I’d have to address all the different points of view of this party and that party. And I would have to do the same thing for the decision. So I would not have important efficiencies, either in drafting or in translating. There would still be a hearing, and the parties would still have full access to the file. So what are the procedural efficiencies for the Commission in such a scenario? 䉴

JIM VENIT: On Mario’s comment, implying that it’s sort of unfair to settle with everybody but the leniency applicant because all of the settling parties have confessed but the leniency applicant hasn’t. Well the leniency applicant has confessed; he’s put in his corporate statement that the decision will find him liable. You don’t need to do any more with him.

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䉴 ROB KWINTER: Two brief points. Canada recently changed its longstanding policy of requiring immunity applicants to admit contravention of the Competition Act as a condition of immunity, and this was done in response to concerns expressed by immunity applicants that this was a high hurdle to signing up for immunity because of the civil exposure. So this is an indication of the willingness of the Competition Bureau to be flexible and to take account of its wider interest in the effectiveness of its own system. The second point is that the Bureau accepts any number of applicants. The settlement procedure does not depend on all of the defendants agreeing. And I couldn’t agree more with Lynda’s observation—Ann made this point too— about the need to encourage people to come forward. It seems to me that the competition authorities should be ready to resolve a case with anybody, rather than having it turn on the agreement of other participants.

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BILL KOVACIC: As a matter of process, I think it is ultimately less important where you set the policy at the initial stage, what’s more important is where you end up over time. In conditions of uncertainty, I’d be inclined to adopt a model that spells out assumptions clearly and identifies exactly what the initial expectations are. Ongoing evaluation, as I have said, is critical to establish whether actual experience matches those expectations. Ann and her colleagues at the DOJ have sent a transparent message in many settings, going back to Anne Bingemann’s extraordinary breakthrough with leniency itself,14 which was based on an earlier model but it was a breathtakingly successful experiment. And I do see these techniques of criminal enforcement as being inherently experimental. And again, having a process in place to assess actual outcomes as you go along, and a commitment to making adjustments, these are key ingredients. 䉴

䉴 HEIKE SCHWEITZER: Thanks a lot for this last word, which sums up some of our discussion. Now we’ll break for coffee before coming back to discuss the different models in the Member States.

14 See, e.g., Anne Bingaman, “Antitrust Enforcement, Some Initial Thoughts and Actions”, speech, New York, 10 August 1993, available at http://www.usdoj.gov/atr/public/ speeches/0867.htm.

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I William E. Kovacic* Plea Bargaining and the Enforcement of Competition Law Against Cartels in the United States

1. Introduction The impact of a competition law, or any other statute, depends on how its commands are implemented.1 The choice of measures to enforce the law is just as significant as the definition of what the law permits or forbids. In deciding whether to obey a competition law, affected parties ordinarily ask what will happen if they transgress. Knowing how the law is likely to punish wrongdoers is fundamental to answering the question. This paper discusses experience in the United States with the prosecution of cartels that infringe competition laws. It considers the role of plea bargaining in the prosecution of rules that forbid cartels among producers or suppliers. The paper emphasizes steps that U.S. enforcers have taken— notably, transparency and other means to ensure fairness and predictability—to gain acceptance for efforts to subject individuals and corporate entities to criminal punishment.

2. Factors Influencing Compliance with a Legal Command The impact of any legal command depends heavily on five variables: • The substance of the command (e.g., a prohibition upon cartels). • The legal standards by which an adjudicatory tribunal decides whether the defendant has transgressed the command. * Commissioner, U.S. Federal Trade Commission. On Leave: George Washington University Law School. The views expressed here are the author’s alone. Parts of this chapter are adapted from William E. Kovacic, “Competition Policy and Cartels: The Design of Remedies”, in Katalin Cseres, Maarten Pieter Schinkel and Floris Vogelaar, eds., Criminalization of Competition Law Enforcement, Edward Elgar, 2006, chapter 3. 1 See Richard Posner, Antitrust Law, 2nd edition, University of Chicago Press, 2001, p. 266 (“It is not enough to have good doctrine; it is also necessary to have enforcement mechanisms that ensure, at reasonable cost, a reasonable degree of compliance with the law.”).

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• The likelihood that violations will be detected. • The likelihood that detected violations will be prosecuted. • The power of the sanctions imposed for violating the command. A legislature can determine a law’s impact by adjusting any one of these variables. Legislators can expand or curb the law’s substantive requirements; bolster or weaken the legal standard that plaintiffs must satisfy to establish culpability; increase or reduce the probability that violations will be observed, strengthen or weaken the means for prosecuting violations; or augment or diminish the consequences that flow from a violation. Any single adjustment alters the law’s significance. Plea bargaining serves a useful purpose in helping ensure that infringements will be detected, prosecuted, and punished. Perhaps most important, plea bargaining encourages early cooperation by culpable individuals with law enforcement officials and, by supplying strong inducements for the revelation of violations, helps deter illegal conduct.2

3. Expanding Cooperation by Cartel Participants in Revealing Cartels As the framework from the preceding section suggests, a jurisdiction seeking to increase efforts to defeat horizontal collusion can do so in five basic ways. First, it can strengthen the existing substantive prohibition against collusion. A country that presently uses a rule of reason standard to assess all horizontal restraints could denominate certain forms of horizontal collaboration (e.g., bid-rigging) as illegal per se. The modern trend in competition policy in the United States and a growing number of other nations is to treat horizontal schemes to fix prices, rig tenders, allocate customers, or divide geographic territories as extremely serious offenses. Second, a jurisdiction could alter the standard of proof that plaintiffs must satisfy to show that a violation has occurred. A nation that currently requires illegal agreements to be proven by a writing signed by the alleged violators might amend its rules of evidence to allow the fact of illegal cartel agreements to be established with testimony or circumstantial proof. A country also could expand the types of circumstantial evidence that might suffice to establish the fact of an unlawful cartel agreement—perhaps by increasing the 2 The specific features of the U.S. framework are reviewed in Scott D. Hammond, Deputy Assistant Attorney General for Criminal Enforcement, Antitrust Division, U.S. Department of Justice, “The U.S. Model of Negotiated Plea Agreements: A Good Deal With Benefits For All” speech at the OECD Competition Committee, Working Party No 3, October 17, 2006.

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Plea Bargaining and Enforcement of Competition Law Against Cartels 351 weight that a fact finder should give to parallel, industry-wide adjustments in conduct where such adjustments would be foolish if undertaken by a firm acting unilaterally. Third, a jurisdiction could take measures to increase the likelihood that misconduct will be detected. It could expand the public prosecutor’s investigational powers, including the use of search warrants and wire-taps, and increase the penalties for those who obstruct government inquiries. Or, as discussed in this paper, a country could attain this end by increasing inducements for private parties to report violations. Fourth, a jurisdiction could increase the likelihood that misconduct, once discovered, will be prosecuted. For public institutions lacking resources or technical capability, a country could strengthen the prosecution process by increasing the competition authority’s funds or establishing training programs to improve the capacity of its professional staff. Where the impediment to effective prosecution is the lassitude, capture, or corruption of a monopolist public prosecutor, one could diversify the sources of prosecutorial authority by establishing a second center of public prosecutorial power or by creating private rights of action. Fifth, a jurisdiction can increase sanctions for unlawful behavior. One approach is to increase monetary penalties for illegal collusion, including the recovery of damages equal to some multiple of the monopoly overcharges imposed by the cartel. Another is to treat certain offenses as crimes, to impose personal liability, and to punish culpable individuals with fines as well as imprisonment. The discussion below briefly tracks the evolution of U.S. policy against cartels by organizing policy developments according to these strategies.

3.1. The Development of U.S. Strategy Against Cartels Since the creation of a national antitrust system in 1890, the prohibition of concerted horizontal price and output restraints has formed the core of U.S. antitrust policy.3 This section sketches the development of the U.S. campaign against cartels by identifying changes in policy concerning the substantive rule governing horizontal collusion, changes in doctrine governing the plaintiff’s burden of proof in establishing the existence of concerted action, enhancements in the means for detecting cartels, the allocation of prosecutorial power, and adjustments in sanctions.4 As a group, these developments 3 See Robert Lande and Howard Marvel, “The Three Types of Collusion: Fixing Prices, Rivals, and Rules,” 2000 Wisconsin Law Review 941, 941 (“Antitrust law has long held collusion to be paramount among the offenses that it is charged with prohibiting.”). 4 The discussion in this section is based on part on the historical framework used in William E. Kovacic and Carl Shapiro, “Antitrust Policy: A Century of Economic and Legal Thinking,” 14 Journal of Economic Perspectives 43 (2000).

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reflect a progressive strengthening of measures to discourage the formation of collusive schemes.

3.1.1 Substantive Rule of Liability As enacted in 1890, the Sherman Act forbids “[e]very contract, combination . . . or conspiracy . . . in restraint of trade or commerce.”5 In 1911, in Standard Oil Company of New Jersey v. United States,6 the Supreme Court interpreted the statute’s seemingly categorical language to condemn only unreasonable restraints and established the rule of reason as the principal tool for analyzing challenged behavior.7 Following some variation in decisions in the following three decades, the Court made clear in 1940 in United States v. Socony-Vacuum Oil Co.8 that, even within an overarching rule of reason framework, some agreements were so inherently unreasonable and competitively dangerous that they warranted condemnation as per se offenses.9 Since Socony-Vacuum, U.S. courts usually have used a rule of per se illegality to strike down agreements whose purpose or effect is to set prices or output levels, allocate customers or geographic sales territories, or rig tenders. Modern decisions have tolerated horizontal restraints when the restrictions are reasonably necessary to facilitate collaboration that improves economic efficiency by reducing prices, increasing output, or creating new products. Notwithstanding the exception for ancillary restraints that support efficiency-enhancing collaboration, unadorned horizontal price and output restraints remain categorically forbidden.10

3.1.2. Plaintiff ’s Burden of Proof to Establish Concerted Action In U.S. antitrust jurisprudence, the determination of liability in cases involving allegations of a hard core cartel typically entails no inquiry into the actual competitive effects of the defendant’s conduct. Firms accused of cartel offenses usually may not present proof concerning their market significance (e.g., by showing a lack of market power) or present efficiency justifications. When the plaintiff alleges the existence of a cartel, the principal line of defense for the defendants is to show that the behavior at issue was unilateral and not concerted. 5

15 U.S.C. § 1 (1994). 221 U.S. 1 (1911). 7 Ibid. at 60–70. 8 310 U.S. 150 (1940). 9 Ibid. at 223–224 and footnote 59. 10 See, e.g., United States v. Giordano, 261 F.3d 1134, 1142–44 (11th Cir. 2001) (affirming district court’s refusal to require Government to prove that horizontal price-fixing agreement was unreasonable). 6

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Plea Bargaining and Enforcement of Competition Law Against Cartels 353 U.S. jurisprudence denominating cartel agreements as per se illegal has motivated cartel members to take precautions to avoid creating evidence that readily would establish the fact of an unlawful agreement. Cartel members try to orchestrate their behavior covertly and to avoid generating written records that the prosecutor could introduce in a trial to prove concerted action. These precautions can limit the amount of direct evidence—testimony or documents—that show the existence of concerted action. Where the Sherman Act’s prohibitions on collusion have driven cartels underground, plaintiffs in collusion cases in the United States often have relied on circumstantial evidence to prove the requisite agreement. From the early decades of enforcement under the Sherman Act, courts have ruled that circumstantial evidence can suffice to permit the fact finder to infer concerted action.11 The search for informative standards for testing the adequacy of circumstantial proof has proceeded with great difficulty. To promote the development of aggressive anti-cartel doctrines, courts might have adopted an evidentiary rule that permitted juries to infer an unlawful agreement based on parallel conduct that results from the recognition of oligopolistic interdependence. Considerations discouraging judicial acceptance of this definition of agreement would include a reluctance to impose liability on the basis of arguably ambiguous proof where the consequence of guilt would be to sanction the defendant with treble damages or criminal punishment. At one time, it seemed that the Supreme Court might define the concept of agreement broadly to encompass purely parallel conduct. Since the mid1950s, however, the Court has emphasized that conscious parallelism alone does not provide an adequate basis for finding concerted action. Modern U.S. jurisprudence on agreement issues has tended to err on the side of exculpating defendants where the plaintiff relies on circumstantial evidence and the evidence presented is ambiguous.

3.1.3. Detection Precaution-taking by cartel members to avoid creating readily observable proof of collusion and the emergence of doctrinal limits upon using circumstantial evidence to establish concerted action have inspired U.S. enforcement agencies to improve tools for detecting covert arrangements and generating direct evidence of unlawful agreements. Since the early 1980s, federal enforcement officials have pursued a number of initiatives to increase their ability to obtain direct evidence of collusion. DOJ has resorted more frequently to 11 See, e.g., Theatre Enterprises., Inc. v. Paramount Film Distrib. Corp., 346 U.S. 537, 540 (1954) (“business behavior is admissible circumstantial evidence from which the fact finder may infer agreement”); Eastern States Retail Lumber Dealers’ Ass’n v. United States, 234 U.S. 600, 612 (1914) (“It is elementary . . . that conspiracies are seldom capable of proof by direct testimony, and may be inferred from the things actually done . . .”).

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investigation techniques such as wire-tapping and electronic surveillance and broadened cooperation with other law enforcement entities and government bureaus. These steps have increased the likelihood that efforts by competitors to coordinate their behavior through a direct exchange of assurances will be detected. In 1993 and 1994, DOJ expanded leniency programs that provide incentives for cartel participants to inform the government about episodes of collusion. Many of these information-gathering mechanisms seek to obtain the assistance of cartel insiders. Cooperation by insiders—such as a disgruntled employee or a cartel member which feels betrayed by other cartel participants—is vital to many successful efforts to unmask covert coordination among rivals. By eliciting a greater level of informing by cartel insiders, DOJ’s leniency program has demonstrated the benefits of using decentralized monitoring to enforce antitrust commands. To date, antitrust enforcement agencies have enlisted informants chiefly by offering leniency or immunity to offenders, or simply by relying on voluntary disclosures by non-culpable individuals (such as a sales manager who objects to a supervisor’s instructions not to fulfill orders from a loyal customer) who are upset by what they perceive to be improper conduct. Beyond offering dispensations from criminal sanctions and encouraging pure volunteerism, the U.S. antitrust system provides no further incentives to gain the assistance of informers. A final element in the U.S. campaign to increase the detection of cartels has been cooperation with foreign governments. Improved cooperation between the United States and Canada since the mid-1990s has strengthened DOJ’s ability to obtain documentary and testimonial evidence of illegal collusion and has proven instrumental in several successful prosecutions. Expanded efforts by national competition authorities to cooperate in conducting investigations hold promise for increasing the detection and prosecution of international cartels. Plea agreements have played a valuable role in the detection process by spurring culpable individuals and entities to cooperate with prosecutors. DOJ has ensured the legitimacy of the use of plea agreements by providing extensive information about the plea bargaining process. Transparency about plea bargaining rules and their application has provided clarity about the mechanism and supplied assurance about the evenhandedness of the procedure.

3.1.4. Prosecution The Sherman Act of 1890 created a two-tiered distribution of prosecutorial power. The statute vested federal prosecutorial power in DOJ and established a private right of action. As interpreted by the courts, the private persons eligible to file private suits have included state and municipal governments. In 1914 Congress added the last major element of the U.S. enforcement scheme

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Plea Bargaining and Enforcement of Competition Law Against Cartels 355 by creating the Federal Trade Commission, which provided an administrative forum for articulating and applying competition policy standards. By 1914, Congress had completed the basic distribution of prosecutorial power that remains in place today with two federal antitrust enforcement bodies (DOJ and the FTC) and a private right of action that encompasses standing for injured consumers, commercial actors, and state governments and their political subdivisions. The relative importance of each of these prosecutorial agents has varied over the subsequent decades, but DOJ has been the preeminent force in pressing cases against cartels. DOJ’s criminal enforcement powers have provided the most potent weapon for challenging cartels, although follow-on private treble damage suits have supplied an influential complement to the federal government’s criminal enforcement authority. Amid intense debates over the proper content of antitrust, the consensus among prosecutorial agents about the benefits of vigorous enforcement against cartels has been strong and stable. Private rights can provide an important supplement to the use of plea agreements to determine the scope of sanctions to be imposed upon violators. For example, where a plea agreement denominates a conspiracy period, private rights give injured parties the ability to bring suits that argue that the period of the conspiracy was longer than the period specified in the plea agreement. The mix of public and private enforcement in this context provides assurance that the fuller dimensions of a conspiracy will be identified and prosecuted.

3.1.5. Sanctions From its creation, the U.S. federal antitrust regime has exposed cartel participants to two major forms of sanctions. The main tool of federal prosecutors has been the power to treat cartels as crimes, to seek fines and imprisonment for individuals, and to impose criminal fines on corporate persons. As originally designed, the U.S. system relies primarily upon private actions to recover civil damages, including overcharges attributable to cartel behavior. Successful private plaintiffs can recover three times their actual harm and attorneys fees when they prevail. In recent years the Federal Trade Commission has used Section 5 of the Federal Trade Commission Act to obtain restitution as a remedy for antitrust violations. In 1990, Congress gave DOJ power to obtain treble damages for injuries suffered by federal purchasing authorities that are the victims of antitrust violations. The modern history of U.S. competition policy has featured major enhancements of criminal and civil sanctions for wrongdoers. The potential civil damage consequences of participating in illegal collusive schemes also have grown more formidable in the modern era. This is not the result of any significant adjustment in the original statutory scheme of civil damages. Rather, the most important development has been the emergence of an

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increasingly sophisticated and capable plaintiffs’ bar. Private class actions seeking treble damages inevitably follow the initiation of DOJ criminal charges against cartels.

4. Strategy for Implementation Several challenges confront a competition policy system that denominates antitrust offenses as crimes and sanctions culpable individuals with imprisonment. Among other tasks, the government antitrust agency must: • Develop an internal norm that encourages employees to treat certain acts as extremely grave offenses worthy of aggressive investigation. • Persuade external constituencies—legislators, business officials, the bar, and the broader society (including potential jurors)—to respect an enforcement norm that deems certain antitrust violations to be worthy of criminal condemnation. • Convince courts and juries that wrongdoers deserve conviction and stout punishment. • Clearly delimit the category of offenses that will elicit criminal prosecution to avoid the fact or perception of unfair surprise in the application of the law. • Accumulate evidence that provides a confident basis for prosecution and conviction. • Ensure that sanctions are sufficient to accomplish remedial and deterrence goals. It is unlikely that an antitrust enforcement agency will establish an effective criminal enforcement program overnight. Social and political acceptance for robust criminal antitrust enforcement will vary from nation to nation depending on each country’s legal framework and sensibilities. U.S. experience indicates that the development of a successful criminal antitrust program is a cumulative process through which individual enforcement techniques, such as plea bargaining, are tested, implemented, and refined. The effect of criminal enforcement upon the incentive of firms to comply with the law depends on three principal factors: the likelihood that misconduct will be detected, the frequency with which the government prosecutes the relevant transgressions as crimes (rather than resorting to civil actions), and the severity of sanctions for violators. U.S. policy since 1960 has involved a collection of measures to address all three factors. The Justice Department’s prosecution of criminal antitrust violations progressed through several phases in the second half of the 20th century. A pivotal development in the late 1950s and early 1960s was the successful pros-

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Plea Bargaining and Enforcement of Competition Law Against Cartels 357 ecution of cases against producers of turbine generators and other electrical equipment used in the production of electricity. The electrical equipment cases yielded prison terms for a number of culpable company executives and took an important step toward building a broader awareness in the business community and in the public at large that horizontal price fixing was a gross transgression of competition law and suitable grounds for incarceration. The second key steps took place in the 1970s. In 1974, Congress raised the status of a Sherman Act criminal offense from misdemeanor to felony; increased the maximum prison sentence for individuals from one year to three; and boosted the maximum fine from $50,000 to $100,000 for individuals and from $50,000 to $1 million for corporations. In the mid- to late 1970s, DOJ urged courts to apply the enhanced penalties vigorously and pressed to make the imprisonment of culpable individuals a routine sanction. The decades since have featured further dramatic enhancements to sanctions for hard core violations. In the 1980s, the Reagan administration pressed for increases in statutory sanctions and sentencing policy reforms that would increase the average prison term served by individuals guilty of antitrust offenses. Enforcement activity since 1970 increased in parallel with enhancements in the formal system of sanctions. The Justice Department in the 1980s and early 1990s augmented the criminal enforcement initiatives begun in the 1970s. From 1981 through 1988, DOJ initiated more criminal prosecutions than the total of government criminal antitrust cases from 1890 to 1980. As in the 1970s, DOJ in this period emphasized imprisonment as the punishment for individual offenders. In the late 1980s and early 1990s DOJ also pioneered the use of criminal actions to prosecute certain invitations to collude. By the early 1990s, the legislative and policy adjustments of the previous two decades had accomplished several important ends. The augmentation of penalties significantly had raised the risks to violators, including a growing likelihood of imprisonment for guilty individuals, and increased the government’s capacity to impose truly severe fines on violators. The aggressive prosecution of cartel schemes served to establish the social and political legitimacy and regularity of severe criminal sanctions for cartels. By the early 1990s, the fact of routine prosecution and severe punishment had become accepted elements of the nation’s competition policy. The prosecutions of the 1980s expanded efforts begun in the 1970s to use criminal sanctions as the tool of choice to redress hard core horizontal collusion and to imprison culpable individuals. Repeated, well-publicized prosecutions not only made clear the government’s determination to attack cartels criminally but also served to persuade courts, legislators, business leaders, and the public generally that cartel activity warranted severe sanctions. Embedding this norm in the regulatory environment and the political economy, even through the prosecution of comparatively smaller enterprises, can promote deterrence more generally.

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The 1990s brought further important innovations in criminal enforcement. The most important of these concerned the detection of offenses. Since the early 1980s, federal enforcement officials had pursued a number of initiatives to increase their ability to obtain direct evidence of collusion. DOJ resorted more frequently to investigation techniques such as wire-tapping and electronic surveillance and broadened cooperation with other law enforcement entities and government bureaus. These steps increased the likelihood that efforts by competitors to coordinate their behavior through a direct exchange of assurances would be detected. In 1993 and 1994 DOJ expanded leniency programs that provide incentives for cartel participants to inform the government about episodes of collusion. Agreements with foreign governments and the U.S. immigration authorities increased DOJ’s capacity to gather information from overseas jurisdictions and induce foreign citizens to subject themselves to the U.S. criminal process. The strengthening of tools for detection and sanctions for violations converged to yield major enforcement breakthroughs in the 1990s. From 1995 through 2000 DOJ collected more fines for antitrust crimes than it had obtained from 1890 to 1994. From the vitamins cartel alone, DOJ obtained hundreds of millions of dollars in criminal fines from the participating companies and gained prison terms for individual offenders (including foreign nationals who subjected themselves to the jurisdiction of the U.S. judicial process).

5. Conclusion Modern U.S. experience with criminal enforcement presents a pattern of progressive, cumulative development of competition policy. Beginning at least with the electrical equipment prosecutions of the late 1950s and early 1960s and carrying forward to the present, DOJ’s criminal enforcement program has completed each decade in a stronger condition than it was at the decade’s start. The methodology of enhancement involved a mixture of statutory improvements and policy experiments. An accurate view of the contributions of each initiative is necessary to see how the U.S. system developed, to appreciate the interaction of factors affecting compliance (frequency of prosecution, likelihood of detection, severity of sanctions), and, more generally, to identify what a country must do to build a successful criminal enforcement program. DOJ rolled out new enforcement approaches, tested the policy “prototypes,” assessed the results, expanded the use of successful techniques, and pursued necessary modifications in Congress or by means committed to the Department’s discretion.

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II Calvin Goldman, Rob Kwinter, Navin Joneja and Evangelia Litsa Kriaris* Cartel Settlements in Criminal and Civil Proceedings: A Canadian Perspective

I. Introduction In a recent speech, Canada’s Commissioner of Competition (the “Commissioner”) re-iterated a point she has made many times: “eradicating cartels is our number one antitrust priority”.1 Indeed, the coordination of cartel enforcement has been a top priority among many antitrust authorities around the world. This is particularly true when it comes to alleged international price-fixing conspiracies. In fact, we have witnessed an increasing degree of cooperation and information exchange between international antitrust authorities (particularly in the United States, the European Union and Canada). Given the international cooperation among antitrust authorities, it becomes increasingly important for counsel who represent an accused to coordinate their efforts where concurrent investigations of alleged cartel activities are ongoing in several jurisdictions. Such cooperation is essential not only at the initial investigative stage, but also when settlement is being contemplated and/or negotiated. A recent study by the International Competition Network’s Cartel Working Group identified six benefits of cartel settlements.2 These included: the saving of time and resources; momentum and cooperation; transparency; proportionality; finality; and certainty. Undoubtedly, the settlement of cartel proceedings results in benefits for both antitrust authorities and defendants. For the defendants, however, these benefits must be weighed against the risks of settling and effectively pleading guilty to an offence. These can include: receiving a penalty that exceeds what otherwise might have been ordered had * Calvin Goldman, Rob Kwinter and Navin Joneja are Partners at Blake, Cassels & Graydon LLP, based in Toronto. Mr Goldman is a former Director of the Canadian Competition Bureau (a position now known as the “Commissioner of Competition”). Evangelia Litsa Kriaris is an associate at Blake Cassels & Graydon LLP. The views herein are those of the authors and not necessarily those of Blakes or any of its clients. 1 Sheridan Scott, Address to the Federation of Industries of São Paulo State (May 12, 2008), http://www.competitionbureau.gc.ca/epic/site/cb-bc.nsf/en/02678e.html. 2 “Cartel Settlements”, International Competition Network Cartel Working Group, Report to the ICN Annual Conference (Kyoto, Japan), April 2008.

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the matter proceeded to trial and even exposure of corporations and individuals to convictions where a substantive defence could have been available. Thus, in Canada, careful consideration must be given to whether the prosecuting authorities will be able to meet their burden of proof and establish all the elements of a cartel offence to the criminal standard of proof beyond a reasonable doubt. Also important is the consideration of whether there is a sufficient jurisdictional nexus which gives Canadian authorities the power to proceed in a matter. Finally, there is the ever growing importance of considering the effect any settlement can have on possible civil actions being brought. In fact, in Canada, since the introduction of class proceedings legislation, class actions in respect of alleged cartels have increased. It cannot be emphasized enough that all considerations relating to both criminal proceedings and civil actions must be discussed and coordinated with counsel in all jurisdictions where a client may be facing antitrust scrutiny, to ensure that an action in one jurisdiction does not impact a client’s defence or settlement in another jurisdiction. As the title suggests, this paper is intended to provide only an overview of cartel settlements in Canada in respect of criminal and civil proceedings. We do not intend to cover all relevant issues, factors and considerations. However, we do try to highlight some of the more significant matters that parties and counsel (particularly those outside of Canada) should be aware of in respect of Canadian settlements. We begin first with a consideration of the relevant provisions of the Competition Act (the “Act”) and then turn to an examination of the types of criminal and civil settlements that have been negotiated in Canada.

II. An Overview of the Canadian Law of Conspiracy— Relevant Provisions of the Competition Act This section will begin with a brief overview and examination of: (i) the relevant provisions of the Act relating to conspiracy; (ii) the remedial provisions available when the conspiracy provisions are contravened; and (iii) the relevant provision of the Act which allows for civil remedies relating to cartel behaviour.

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i. Criminal Provisions under the Competition Act a. Conspiracy Provision 3 The principal prohibition against agreements or arrangements among competitors is set out in section 45 of the Act.4 Under this section, it is an indictable criminal offence to conspire or otherwise agree with another person to prevent or lessen competition “unduly” in the provision of a good or service in Canada. A contravention of section 45 is not a per se offence. Canadian conspiracy law does not incorporate either the per se or the “rule of reason” elements found in, for example, U.S. antitrust law.5 Rather, the focus of section 45 is on whether the agreement or arrangement in question prevents or lessens competition “unduly”. Whether the effect of an agreement is “undue” is assessed by examining the severity of its impact on competition in the relevant markets and the degree of market power the parties have. The Supreme Court of Canada has described this type of analysis as a “partial rule of reason”, falling on a spectrum between a per se and “rule of reason” approach.6 What this means is 3 For a more detailed discussion of Canadian conspiracy law, see “Competition Law of Canada” (New York: Juris Publishing, Inc.), C. Goldman and J. Bodrug, eds. 4 Competition Act, R.S.C. 1985 c. C-34, s. 45. 5 For a more detailed discussion of the differences between Canadian and U.S. Conspiracy law, see the following papers: Deciding Whether to Defend a Cartel Prosecution at Trial: A Canadian Perspective, Cal Goldman, Q.C. and Robert Kwinter; American Bar Association/International Bar Association, International Cartel Workshop, February 9, 2006, London, UK; The Investigative Powers of the Canadian Competition Bureau: Domestic and International Dimensions, Calvin S. Goldman, Robert E. Kwinter and Angie L. Morris, European University Institute, Robert Schuman Centre for Advanced Studies, 2006 EU Competition Law and Policy Workshop/Proceedings; International Cartel Enforcement: A Canadian Perspective. Calvin S. Goldman, Q.C. and Robert Kwinter; International Bar Association April 20–21, 2005 Tokyo, Japan; International Cartel Cases in Canada: An Overview of Enforcement Considerations and Related Current Issues, Calvin S. Goldman, Q.C., Robert Kwinter, Chris Hersh and Navin Joneja, American Bar Association Section of Antitrust Law, February 5–6, 2004 New York, USA; Reforming Canada’s Conspiracy Laws—Towards a Workable Proposal, Jack Quinn, Mark Nicholson, Chris Hersh and Prudence Watson, 2003 Competition Invitational Forum, Competition Reform—Again The Discussion Paper and Bill C-249, November 17, 2003, Toronto, Canada; Canadian Conspiracy Law; Current and Prospective Applications in the Civil Context, Robert E. Kwinter, Kikelomo Lawal and Chris Hersh, Toronto, Canada; International Cartel Enforcement: A Canadian Perspective, Calvin S. Goldman Q.C., Robert E. Kwinter and Kikelomo O. Lawal, British Chamber of Commerce in Belgium, Understanding Global Cartel Enforcement, February 11, 2003; International Hard-Core Cartel Enforcement and Possible Reform of Section 45 of the Competition Act, Calvin S. Goldman Q.C. and Robert E. Kwinter, Canadian Bar Association 2002 annual Fall Conference on Competition Law, October 2–4, 2002, Toronto, Canada; A Canadian Perspective on International Cartel Criminal and Civil Enforcement, Calvin S. Goldman, Q.C., Robert Kwinter, Mark Katz and Chris Hersh, International Forum 2002: Advanced International Cartel Program, American Bar Association Section of Antitrust Law, January 31–February 1, 2002, New York, US. 6 R. v. Nova Scotia Pharmaceutical Society, [1992] 2 S.C.R. 606.

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that while agreements or arrangements to, for example, fix prices, may not be per se illegal in Canada, Canadian courts could ignore any pro-competitive elements, such as efficiency gains or other possible benefits arising from the agreement, in determining whether the agreement or arrangement has the requisite “undue” effect on competition.7

b. Related Criminal Conspiracy Provisions In addition to the Act’s general conspiracy provision under section 45, there are other related provisions available for enforcement purposes.8 For example, the following two provisions have been used in international cartel investigations and convictions in Canada: section 46 relating to foreign directives and section 47 relating to bid-rigging. Under section 46 of the Act,9 it is a criminal offence for a corporation carrying on business in Canada to implement a directive or instruction from a person outside of Canada in order to give effect to a conspiracy or agreement that would have contravened Canadian law had it been arranged in 7 Because U.S. and Canadian conspiracy laws currently differ in their respective approaches, it is conceivable that the same type of activity could attract different consequences in the two countries, for example, arrangements between competitors to embrace a common distribution network, to cooperate in the creation of a new product, or to benchmark with respect to matters which comprise a significant proportion of their total costs. Under the U.S. “rule of reason” approach, such agreements may be considered legal; in Canada, the same arrangements could be illegal under section 45 if they lessen competition unduly. In contrast, an agreement between two local competitors who have a very small share of a relevant market is not likely to offend section 45 (although it could raise issues under the Act’s horizontal price maintenance provision, which is a per se offence), but would be per se illegal in the U.S. The Government of Canada has considered amending the Act’s conspiracy provisions by, among other things, more closely emulating the U.S. approach and making certain practices (in particular, price fixing, market allocation, boycotts, restrictions on production) per se criminal offences. See Government of Canada, “Discussion Paper: Options for Amending the Competition Act: Fostering a Competitive Marketplace”, June 20, 2003 and Konrad von Finckenstein, Q.C., “Section 45 at the Crossroads”, 2001 Invitational Forum on Competition Law, October 12, 2001. 8 In addition to sections 46 (foreign directives) and 47 (bid-rigging) which are discussed in this paper, the other conspiracy sections include section 48 (conspiracy relating to professional sport) and section 49 (agreement or arrangements of federal financial institutions). In a few cases, the Competition Bureau has also elected to prosecute certain agreements among competitors under the Act’s price maintenance provision (section 61), which is sufficiently broad to encompass both vertical and horizontal agreements to fix prices. For example, in 2003, Toyo Tanso USA Inc. pleaded guilty to charges of attempting to maintain prices with respect to isostatic graphite and was fined (Cdn.) $200,000. One of the other companies involved, Carbone of America Industries Corp. pleaded guilty to fixing prices and was fined (Cdn.) $300,000. The other participant, Ibiden Co. Ltd., pleaded guilty to aiding and abetting a conspiracy to fix the price of isostatic graphite and was fined (Cdn.) $50,000 (See “Japanese Company Pleads Guilty to Price Fixing”, Competition Bureau News Release, September 19, 2007). Unlike the general conspiracy provision in section 45, horizontal price maintenance under section 61 is a per se offence and does not require proof of an “undue” (or any other) effect on competition. 9 Competition Act, R.S.C. 1985 c. C-34, s. 46.

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Cartel Settlements in Criminal and Civil Proceedings 363 Canada.10 It is no defence that the entity’s officers or directors in Canada were either unaware of the foreign conspiracy or did not know that the actions they were directed to perform were intended to further that conspiracy.11 This lack of defence raises a number of issues related to the proper interpretation and constitutionality of this section, which have not yet been tested by the courts. Unlike sections 45 and 47 (discussed below), the section 46 foreign directives provision is only applicable to corporations. The concept of foreign directives implemented in Canada has also been used to obtain guilty pleas to the offence of aiding and abetting the implementation of a foreign conspiracy in Canada, pursuant to section 21 of Canada’s Criminal Code.12 For example, in 2005, Mitsubishi Corporation and Nippon Carbon Co. Ltd. pled guilty to aiding and abetting the implementation of a foreign-directed conspiracy to fix the price of graphite electrodes.13 A second related criminal conspiracy provision is set out in section 47 of the Act dealing with bid-rigging.14 Under section 47, it is an offence for two or more parties, in response to a request for bids, to agree to submit a prearranged bid or agree that one or more of the parties will not submit a bid.15 Unlike the general conspiracy provision under section 45, bid-rigging is a criminal per se offence. That is, as long as the elements of the offence are established, there is no need to show an “undue” effect on competition. However, bid-rigging is only unlawful where the agreement or arrangement is not made known to the person calling for or requesting bids or tenders at or 10 For example, UCAR Inc. was convicted of implementing pricing directives from its U.S. parent company, UCAR International Inc., as part of a worldwide scheme designed to coordinate the prices of graphite electrodes. UCAR Inc. was sentenced to pay a fine of $11 million (Cdn.). (See “Record $30 Million Fine and Restitution by UCAR Inc. for PriceFixing Affecting the Steel Industry”, Competition Bureau News Release, March 18, 1999.) In addition, Roussel Canada Inc., a subsidiary of Hoechst Marion Roussel S.A., pled guilty under section 46 for implementing a foreign-directed conspiracy involving vitamin B-12. (See “Federal Court Imposes a Fine for a Foreign-Directed Conspiracy Under the Competition Act”, Competition Bureau News Release, October 26, 1999.) SGL AG of Germany was also convicted under section 46 for implementing pricing directives in Canada as part of an international conspiracy to fix prices and allocate markets for graphite electrodes and was fined $12.5 million. (See “Foreign Corporation Fined $12.5 Million for Price Fixing”, Competition Bureau News Release, July 18, 2000.) 11 Competition Act, R.S.C. 1985 c. C-34, s. 47(1). For example, in 2004, Morganite Canada Corp. pleaded guilty to a charge under section 46 that between 1995 and 1998 it received and unknowingly implemented pricing directives from its foreign affiliate in relation to an international conspiracy to fix the prices of carbon brushes and current collectors used in public transit vehicles. The company was fined (Cdn.) $450,000. (See “Morgan companies fined $1 million for obstruction and price-fixing”, Competition Bureau News Release, July, 16, 2004.) 12 Criminal Code, R.S.C, 1985 c. C-46, s. 21. 13 See “Mitsubishi Fined $1,000,000 for Aiding and Abetting Graphite Electrode Cartel”, Competition Bureau News Release, May 12, 2005 and “Nippon Carbon Pleads Guilty to Participating in International Graphite Electrodes Cartel”, Competition Bureau News Release, December 8, 2005. 14 Competition Act, R.S.C. 1985 c. C-34, s. 47. 15 Competition Act, R.S.C. 1985 c. C-34, s. 47(1).

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before the time when any bid or tender is made by any person who is a party to the agreement or arrangement. In short, if the agreement or arrangement has been disclosed, then no bid-rigging offence has been committed.16 Section 47 has been used to convict participants in both domestic and international cartels. For example, in 2001, the Canadian subsidiary of a Frenchbased company pled guilty to participating in what was described as “an international bid-rigging scheme” regarding the supply and installation of a system to reinforce the concrete base of the Hibernia oil project located off the coast of St. John’s Newfoundland.17

c. Other Criminal Provisions of the Act It should be noted that the conspiracy provisions are not the only provisions of the Act which constitute a criminal offence if breached. Additional provisions include: sections 50 and 51 (predatory pricing, price discrimination and discriminatory promotional allowances), section 52 (misleading advertising), section 52.1 (deceptive telemarketing), and, as already mentioned, section 61 (price maintenance).18

d. Remedial Provisions A contravention by a corporation or individual of the conspiracy (or related) provisions of the Act can result in the commencement of prosecution against the offenders. Contravention of such provisions can lead to the imposition of fines, imprisonment and/or the issuance of prohibition orders pursuant to the Act.19 (Prohibition orders will be discussed in greater detail in section IV.) There is no limitation period in Canada for prosecuting criminal conspiracy offences. Accordingly, it is possible that an alleged conspirator could

16

Ibid. See “Company Pleads Guilty to Bid Rigging Under the Competition Act”, Competition Bureau News Release, January 8, 2001. 18 Competition Act, R.S.C. 1985, c. C-34, ss. 50, 51, 52, 52.1, and 61. 19 Companies and individuals may also be subject to offences under Canada’s Criminal Code, such as aiding and abetting and obstruction. For example, in 2004, The Morgan Crucible Company (a holding company based in the UK) pleaded guilty to obstruction of justice charges under section 139(2) of the Criminal Code for wilfully providing false and incomplete evidence to Competition Bureau investigators. Additionally, section 64 of the Act provides that no person shall in any manner impede or prevent or attempt to impede or prevent any inquiry or examination under the Act. Every person who contravenes this provision is liable to a fine of up to (Cdn.) $5,000 and/or imprisonment for a term up to two years. (See “Mitsubishi Fined $1,000,000 for Aiding and Abetting Graphite Electrode Cartel”, Competition Bureau News Release, May 12, 2005; “Nippon Carbon Pleads Guilty to Participating in International Graphite Electrodes Cartel”, Competition Bureau News Release, December 8, 2005; and “Morgan companies fined $1 million for obstruction and price-fixing”, Competition Bureau News Release, July, 16, 2004.) 17

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Cartel Settlements in Criminal and Civil Proceedings 365 face prosecution in Canada for conduct that could be statute-barred in other jurisdictions. Thus, when considering issues of potential liability and relevance insofar as Canada is concerned, a longer-term approach may be necessary. Parties convicted of contravening section 45 are liable to imprisonment for up to five years (in the case of individuals) and/or to fines of up to Cdn. $10 million (per count).20 Corporations convicted of contravening the section 46 foreign directives provision are liable to fines in the discretion of the court (there are no maximum fine provisions with respect to this offence)21 and parties convicted of committing the criminal offence of bid-rigging (in contravention of section 47) can face up to five years in jail (in the case of individuals) and/or fines in the discretion of the court (there are no maximum fine provisions with respect to this offence).22 Parties convicted of engaging in cartel activity in Canada face increasingly severe penalties in terms of both the amount of fines levied against them and the likelihood and duration of imprisonment. One of the reasons for this is because there is no statutory limitation on the prosecuting authority’s ability to charge the same entity with multiple counts. Thus, aggregate fines can well exceed the specified statutory maximums. This is the case even where a settlement or plea agreement has been reached. For example, for its participation in the Bulk Vitamins conspiracy, F. Hoffmann-La Roche Ltd. pleaded guilty and was fined (Cdn.) $48 million,23 the largest fine ever imposed for a contravention of a provision of the Act. In recent cases, fines imposed against corporations for violations of sections 45 and 46 of the Act have been substantial. For example, companies which were convicted of participating in the Bulk Vitamins conspiracy were collectively fined over (Cdn.) $95 million,24 and the six companies which were convicted of participating in the Graphite Electrodes conspiracy were collectively fined approximately (Cdn.) $25 million.25 In each case, the fines paid were part of a plea agreement. The largest fine ever imposed on a domestic conspiracy was (Cdn.) $12.5 million against each of the three companies (Cascades Fine Papers Group, Inc., Domtar Inc. and Unisource Canada, Inc.) that pleaded guilty to participating in a conspiracy involving carbonless sheets.26 And the largest fine ever imposed under section 46 of the Act was a (Cdn.) $12.5 million 20

Competition Act, R.S.C. 1985 c. C-34, s. 45(1). Competition Act, R.S.C. 1985 c. C-34, s. 46(1). 22 Competition Act, R.S.C. 1985 c. C-34, s. 47(2). 23 See “Federal Court Imposes Fines Totalling $88.4 Million For International Vitamin Conspiracies”, Competition Bureau News Release, September 22, 1999. 24 See “Competition Bureau investigation leads to over $4-million in fines for international bulk vitamin conspiracies”, Competition Bureau News Release, October 16, 2002. 25 See “SEC Carbon Pleads Guilty to Conspiracy”, Competition Bureau News Release, November 9, 2007. 26 See “Competition Bureau Investigation Leads to Record Fine in Domestic Conspiracy”, Competition Bureau News Release, January 9, 2006. 21

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fine on SGL Carbon Aktiengesellschaft for its participation in the Graphite Electrodes conspiracy.27 Fines levied against individuals for conspiracy related convictions can also be high, even where plea agreements have been reached. For example, several executives involved in the Bulk Vitamins conspiracy and the Sorbates conspiracy received fines ranging from (Cdn.) $150,000 to (Cdn.) $250,000.28 Fines have even reached up to (Cdn.) $550,000 (e.g., a senior official with Gestion des rebuts DMP Inc. was fined for his participation in a conspiracy to share the market for the hauling and disposal of commercial waste in Québec (the Déchets Trois Rivières conspiracy)).29 While individuals can face imprisonment for contravening the criminal conspiracy provisions of the Act, Canadian courts have rarely imposed prison terms, let alone the maximum of five years, on individuals for conspiracy related offences. For instance, in the Déchets Trois Rivères conspiracy, two individuals were sentenced to twelve months in prison (to be served in the community). In the Choline Chloride conspiracy, one person was sentenced to nine months in prison (to be served in the community) plus 50 hours of community service. This was as a result of a plea agreement.30

ii. Civil Provisions under the Competition Act a. General Overview Section 36 of the Act gives plaintiffs a private right of action to sue when they have suffered damages as a result of a breach of one of the criminal provisions of the Act. Although such relief has been available under the Act since 1976, uncertainty regarding the constitutional validity of section 36, coupled with the unavailability of class actions and contingency fee arrangements, resulted

27 See “Foreign Corporation Fined $12.5 Million for Price Fixing”, Competition Bureau News Release, July 18, 2000. 28 See “Federal Court Imposes Fines Totalling $88.4 Million For International Vitamin Conspiracies”, Competition Bureau News Release, September 22, 1999; “Former Roche Executive Convicted and Fined For International Conspiracies Under the Competition Act”, Competition Bureau News Release, October 25, 1999; “Fines totalling $2.71 million imposed for international conspiracy under the Competition Act”, Competition Bureau News Release, September 19, 2000; “Competition Bureau Investigation Leads to $1.4 Million Fines in International Price Fixing Conspiracy Case”, Competition Bureau News Release, July 30, 2001; and “Competition Bureau investigation leads to over $4-million in fines for international bulk vitamin conspiracies”, Competition Bureau News Release, October 16, 2002. 29 Annual Report, for the year ending March 31, 1997, Competition Bureau. 30 See “Executive Convicted and Sentenced to Nine Months Imprisonment for Price Fixing under the Competition Act”, Competition Bureau News Release, September 17, 1999.

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Cartel Settlements in Criminal and Civil Proceedings 367 in few antitrust claims being brought in Canada.31 However, with the increased priority the Commissioner has placed on cartel enforcement and the introduction of class proceedings legislation across various provinces in Canada,32 the number of claims brought under section 36 has increased, both in respect of “copycat” litigation arising from actions initiated in the U.S.33 and follow-on litigation arising from enforcement actions of the Bureau.34 These developments have also led to the emergence of a Canadian class action bar that is increasingly bringing forward more claims based on breaches of the Act, particularly with respect to cartel activity. Given the fact that most actions commenced under section 36 in respect of cartels are class actions, this paper will focus specifically on such actions in discussing civil settlements. Section 36 of the Act provides that “any person who has suffered loss or damage” arising out of conduct which contravenes the criminal provisions of the Act can bring an action to recover damages from the breaching party.35 Under section 36, a private plaintiff (acting in his individual capacity or as a representative of a class of plaintiffs in a class proceeding) can bring an action against someone who has either breached one of the criminal provisions of the Act, or has failed to abide by an order of a court or of the Competition Tribunal made under the Act. The claim is for damages suffered and can include the full cost of the investigation and legal proceedings. Unlike the United States where civil plaintiffs can seek treble damages, in Canada, damages are limited to the actual amount suffered. To make out a cause of action under this section, a plaintiff must establish: (i) that conduct contrary to the 31 Calvin S. Goldman, Robert E. Kwinter, Jeff Galway and Chris Hersh, “Private Access to Antitrust Remedies: The Canadian Experience” presented to the American Bar Association, Section of Antitrust Law, 2003 Spring Meeting (2–4 April 2003) at 5. 32 Class proceedings legislation has either been proposed or enacted in every province in Canada except Prince Edward Island. Even where such legislation may not exist, the Supreme Court of Canada has found that class proceedings are available in every jurisdiction under the provincial rules of civil procedure. (See Western Canadian Shopping Centres Inc. v. Dutton (2000), 201 D.L.R. (4th) 305 (S.C.C.). See “Caught in A Trap: Ethical Considerations for the Plaintiff’s Lawyer in Class Proceedings”, by the Honourable Chief Justice of the Ontario Warrant K. Winkler and Sharon D. Matthews, presented at the 5th Annual Symposium on Class Actions April 11, 2008, http://www.ontariocourts.on.ca/coa/ en/ps/speeches/caught.htm. Additionally, relatively new class action rules have been introduced in the Federal Court of Canada, which are applicable to matters which fall within its statutory jurisdiction. 33 Many of the antitrust class actions instituted in Canada are “copycat” cases (i.e., actions that are essentially derivatives of previously instituted U.S. actions). Because many class actions have facts that are common to the U.S. and Canada, a greater number of plaintiffs’ law firms on both sides of the border have been forging formal and informal relationships. In practice, the majority of cases first arise in the U.S., followed by proceedings in Canada. U.S. counsel often assist their Canadian counterparts in various aspects of a case, and Canadian courts have recognized the validity of these arrangements by approving counsel fees that include the fees of U.S. counsel. (See Vitapharm Canada Ltd. v. Hoffmann-La Roche Ltd., [2005] O.J. No. 1117 (S.C.J.) (Q.L.)). 34 These cases include follow-on litigation regarding cartels involving graphite electrodes and vitamins. 35 Competition Act, R.S.C. 1985 c. C-34, s. 36.

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Act has occurred, and (ii) that actual loss or damage, as a result of the illegal conduct, has been suffered.36 These elements must be proven on a balance of probabilities—the civil standard of proof. However, there is some authority that the standard is somewhat higher than a balance of probabilities, but lower than the criminal standard of proof beyond a reasonable doubt.37 Claims brought under section 36 are usually accompanied by other economic torts available under common law, such as unlawful interference with economic relations and civil conspiracy, and these torts can provide a plaintiff with additional relief (e.g., injunctions, punitive damages). Government action, either through prosecution or conviction, is not required for the launch of a civil action under section 36. However, the Act provides that the record of the court proceedings (whether a conviction at trial or a guilty plea) can be used as evidence of the anticompetitive conduct in a civil action, in the absence of evidence to the contrary.38 As a result, where a conviction has been obtained, civil actions are likely to be brought since evidence for establishing the first of the two elements required to make out a cause of action is available. In such cases, the plaintiff’s focus will be on establishing the second requisite element—that of damages. Thus, pleading guilty to a criminal conspiracy can have considerable implications on the potential scope of one’s civil liability. Unlike criminal proceedings in Canada, there is a limitation period applicable to actions brought under section 36. Specifically, a claim must be brought within the later of: (i) two years of the occurrence of the conduct complained of, or (ii) two years following the disposal of any criminal proceedings relating to the conduct complained of.39 The running of item (ii) will commence with either a conviction or a discontinuance of the investigation. Since there is no limitation period for the laying of charges with respect to a criminal offence, it is possible that a civil claim could be brought more than two years after the alleged conduct has ceased if a criminal investigation of the conduct began more than two years from the time the conduct was last engaged in.

b. Class Actions A class proceeding allows one or more plaintiffs to commence an action on behalf of a group of injured persons. They are often launched soon after an accused is convicted of an offence or even when an investigation is commenced by the Bureau. At times, they will even be launched prior to any 36

Competition Act, R.S.C. 1985 c. C-34, s. 36(1). See Janelle Pharmacy Ltd. v. Blue Cross of Atlantic Canada (2003), 27 C.P.R. (4th) 19 (N.S.S.C.). 38 Competition Act, R.S.C. 1985 c. C-34, s. 36(2). 39 Competition Act, R.S.C. 1985 c. C-34, s. 36(4). 37

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Cartel Settlements in Criminal and Civil Proceedings 369 criminal proceedings in Canada if there are proceedings brought in foreign jurisdictions.40 Accordingly, any corporation facing criminal sanctions under the Act must appreciate that one or more class actions will likely be brought following a conviction or even during the investigation stage. In Canada, class actions with respect to the following products have been brought for violations of the Act: biotin, bulk vitamins, carbonless paper, choline chloride, ethylene propylene diene monomer (EPDM), lysine, methionine, niacin, nucleotides, rubber chemicals, and sorbates, to name a few. Actions brought under class proceedings legislation follow a similar procedure to non-class actions. This includes: the filing of pleadings, documentary and oral discovery, and various interlocutory motions. However, once pleadings are filed such actions cannot go to trial until they are certified by the court (i.e., the plaintiff seeking to represent the class must establish that the test for certification has been met). If an action is certified, it will be litigated on the merits and the court will render a final judgment on the matter. Certification has, for example, been sought on a contested basis in the following cases: Chadha, Price, Harmegnies, Quizno’s, and Infineon.41 In each of these cases, certification was denied. In the most recent case, Infineon, the proposed action alleged that from April 1, 1999 to June 30, 2002, the defendants engaged in an international price fixing conspiracy with respect to the sale of computer memory chips, or DRAM (dynamic random access memory), a component found in virtually all electronic products used today. Most of the defendants in the class action had been criminally convicted in the United States with respect to DRAM price-fixing.42 The issue before the court in Infineon was whether the class should be certified. The application was unique in that this was the first certification application which included both direct and indirect purchasers. Unlike the U.S., Canada does not have Supreme Court authority equivalent to Hanover 40 For example, the DRAM class action was launched in Canada against defendants who had not paid any fines or penalties to Canadian regulators, had not paid compensation to Canadian consumers, and had not been charged with any criminal activity under Canadian law. However, the defendants, except for one, had been criminally convicted in the United States with respect to DRAM price-fixing and had collectively paid (US) $731 million in fines. Some executives had also accepted plea bargains to pay fines and serve varying periods of imprisonment. See Pro-Sys Consultants Ltd. v. Infineon Technologies AG et al., [2008] B.C.J. No. 831 (B.C.S.C.) (Q.L.) at paras. 3 and 37 (“Infineon”). See also Option Consommateurs c. Infineon Technologies a.g., [2008] J.Q. no 5796 (C.S.) where the Superior Court of Québec also declined to certify a class action involving makers of DRAM chips. 41 Chadha v. Bayer Inc., [2003] O.J. No. 27 (C.A.), leave to appeal to SCC denied [2003] SCCA No. 106 (QL) (“Chadha”); Price v. Panasonic Canada Inc. (2002), 22 C.P.C. (5th) 379 (Ont. S.C.J.) (QL) (“Price”); Harmegnies c. Toyota Canada, [2007] J.Q. No. 1072 (C.S)., aff’d [2008] J.Q. No. 1446 (C.A.) (QL) (“Harmegnies”); 2038724 Ontario Ltd. v. Quizno’s Canada et al., [2008] O.J. No. 883 (S.C.J.) (QL) (“Quizno’s”) and Infineon, cited previous footnote. Quizno’s is currently under appeal. 42 Infineon, supra note 40 at para. 3.

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Shoe and Illinois Brick that specifically precludes indirect purchasers from bringing antitrust damages actions.43 The most significant Canadian authority that directly addressed this issue was the decision of the Court of Appeal in Chadha, a case where certification was sought for a proposed class of plaintiffs consisting of essentially indirect purchasers of new homes who claimed that they had sustained damages as a result of an alleged iron oxide (a pigment used to colour bricks and concrete blocks) price-fixing conspiracy. Although the Court of Appeal refused to certify the class of indirect purchasers, its reasons did not prohibit other claims from being brought by indirect purchasers under section 36 of the Act. Instead, the court’s decision indicated that indirect purchasers seeking damages for a breach of the Act’s criminal provisions faced a strict evidentiary burden—they would be expected to enter evidence that substantiated that all members of the proposed class were directly affected by the anticompetitive conduct in issue. In Infineon, the court found that it was necessary for the plaintiff to establish that harm from the alleged conspiracy to fix prices could be determined on a class-wide basis for the direct and indirect purchasers. The court required evidence that the alleged price-fixing conspiracy caused a wrongful gain that arose from the overcharges passed to indirect purchasers. The court concluded that the plaintiff’s evidence did not satisfy its onus to establish harm on a class-wide basis44 and that a class proceeding was not the preferable procedure.45 Accordingly, certification was denied. What this decision means is that unless there is evidence that shows that there is a way of determining the loss on the part of class members (or gain to the defendants) on a class-wide basis, then cases with combined direct and indirect purchasers may be unsuitable for class actions. The decision of the court in Infineon is being appealed. This case will be watched with great interest as it will have an effect on how class actions are litigated in Canada, and in turn, on how they are settled.

III. Settlements of Criminal Proceedings i. Overview of the Criminal Settlement Process Virtually all recent Canadian conspiracy cases have ended in guilty pleas rather than contested trials. There are a variety of factors that have contributed to this result: 43 Hanover Shoe v. United Shoe Mach., 392 U.S. 481 (1968); Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977). 44 Infineon, supra note 40 at para. 145. 45 Ibid., at para. 207.

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Cartel Settlements in Criminal and Civil Proceedings 371 • in many cases the Canadian proceedings have followed convictions (also generally based on guilty pleas) in other jurisdictions (most frequently, the U.S.); • greater cooperation and information exchange between and among international antitrust enforcement agencies can lead parties to conclude that a positive defence is more difficult to establish; • the increasing number of immunity and leniency applicants can make it more difficult for other participants to lead positive defences; and • it is not uncommon for a corporation to choose the certainty of an agreed resolution over the uncertainty of a protracted trial process. This can be especially compelling in cases where an accused may be facing proceedings in numerous jurisdictions. Given the foregoing, it is important to know the process by which an alleged violation of the Act will be investigated, and, assuming negotiated settlement is pursued, how such settlements are reached.

a. Overview of the Investigative Process Alleged contraventions of the criminal conspiracy (and related) provisions of the Act are investigated by the Commissioner, who has been entrusted with the enforcement and administration of the Act.46 The Commissioner, through the Competition Bureau (the “Bureau”), will investigate alleged contraventions of the Act. In conducting such investigations, she has considerable investigatory tools (judicially authorized powers to obtain evidence) at her disposal once she has initiated a formal inquiry into a possible violation of the Act.47 These include: the power to conduct searches of premises and seize records (paper and electronic);48 the power to seek orders requiring the production of documents, testimony or written returns;49 and the power to intercept communications through wiretaps.50 Prosecution of the alleged contraventions, however, is conducted by the Director of Public Prosecutions of Canada (“DPP”).51 This process is different from, for example, the United States where the U.S. DOJ both investigates and prosecutes criminal matters. Where the Commissioner finds evidence of a 46

Competition Act, R.S.C. 1985 c. C-34, s. 7(1)(a). Specifically, the Commissioner can commence an inquiry where she has reason to believe that a criminal offence has been, or is about to be committed. See Competition Act, R.S.C. 1985 c. C-34, s. 10. 48 Competition Act, R.S.C. 1985 c. C-34, s. 15. 49 Competition Act, R.S.C. 1985 c. C-34, s. 11. 50 Criminal Code, R.S.C, 1985 c. C-46, s. 183. 51 The DPP is the head of the Public Prosecution Service of Canada, which is entrusted with the initiation and conduct of prosecutions under federal jurisdiction. (See Competition Bureau Information Bulletin on the Immunity Program Under the Competition Act, Competition Bureau, October 2007 (the “Immunity Bulletin”), footnote 3). 47

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criminal offence, she may refer the matter to the DPP for consideration,52 along with the Bureau’s analysis, assessment, and view on sentencing.53

b. The Plea Process Once a matter has been referred, any plea or settlement negotiations are conducted by the DPP as he alone has the sole authority to engage in plea and sentencing discussions with counsel for an accused.54 However, the DPP can consult with the Bureau regarding a recommended plea or sentencing.55 Two programs that can have an impact on plea agreements and sentencing are the Bureau’s Immunity Program and Leniency Program. These will be discussed below.

ii. Settlements There are a range of settlements that can be negotiated with respect to criminal proceedings depending on the nature of the activity in question, the willingness of the party to cooperate and several other factors. In the hard core cartel context, these typically include: (i) immunity; (ii) leniency; and (iii) plea agreements. It is possible, however, in certain circumstances to negotiate alternative settlements, such as (iv) a prohibition order, and (v) voluntary undertakings. Each of these is described below, with some examples of the types of settlements that have been reached in Canada under each of these headings.

a. Immunity As with many other jurisdictions, Canada has an immunity program in place whereby an individual or corporation implicated in criminal anticompetitive activity can apply for immunity from prosecution in exchange for cooperation with the DPP. In October 2007, the Bureau introduced some changes to its Immunity Program, which helped bring it in line with those in other jurisdictions such as the United States and the European Union.56 52 Competition Act, R.S.C. 1985 c. C-34, s.23; Immunity Bulletin, cited previous footnote, at para. 9. 53 Draft Information Bulletin on Sentencing and Leniency in Cartel Cases (for public consultation), Competition Bureau, April 28, 2008 (the “Draft Leniency Bulletin”), p. 4. 54 Draft Leniency Bulletin, cited previous footnote, at para. 14. 55 “Cartel Settlements”, International Competition Network Cartel Working Group, Report to the ICN Annual Conference (Kyoto, Japan) April 2008, pp. 3–4. 56 The Bureau’s Immunity Program is set out in the Immunity Bulletin, supra note 51, which is to be read in conjunction with the Bureau’s “Responses to Frequently Asked

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Cartel Settlements in Criminal and Civil Proceedings 373 Immunity from prosecution is the highest form of settlement an accused can negotiate.57 In order to qualify, an immunity applicant must meet the following requirements:58 • the applicant must be the first to disclose the offence to the Bureau, and the Bureau is either unaware of the offence, or is aware of the offence but has insufficient evidence to warrant a referral of the matter to the DPP;59 • the applicant must terminate its participation in the illegal activity; • the applicant must not have coerced others to be a party to the illegal activity;60 • the applicant must not be the only party involved in the offence; and • throughout the course of the Bureau’s investigation and subsequent prosecutions, the applicant must provide complete, timely and ongoing cooperation. Among other things, this includes full, complete, frank and truthful disclosure of all information, evidence and records. If a company qualifies for immunity, all current directors, officers and employees who admit their involvement and provide complete, timely and ongoing cooperation, also qualify for the same recommendation. Agents of the company and former directors, officers, employees may also qualify. But this will be determined on a case-by-case basis.61 If a company does not qualify for a recommendation for immunity, current or former directors, officers, employees or agents may nonetheless be considered for immunity (as if they had approached the Bureau individually) if they admit their involvement and provide complete, timely and ongoing cooperation.62 If a party is not “first in”, it may qualify for “immunity plus” status if it meets the requirements set out in the Immunity Program and can provide the Questions”. See the following paper for a discussion of changes to the immunity program: Recent Developments in Canadian Criminal and Civil Cartel Enforcement and Joint Defence in Canada, Calvin S. Goldman, Q.C., Robert Kwinter and Angie Morris, American Bar Association/International Bar Association, 2008 International Cartel Conference (January 30–February 1, 2008). 57 Immunity from criminal prosecution does not mean immunity from civil prosecution. Successful immunity applicants may still be sued by civil plaintiffs. 58 Immunity Bulletin, supra note 51 at paras. 13–17 59 An applicant is able to secure a marker as “first in” line to request immunity even if on the first contact with the Bureau the information provided is on the basis of a “limited hypothetical disclosure”, as long as the applicant identifies the nature of the criminal offence it has committed in respect of a specified product. (See Immunity Bulletin, supra note 51 at para. 23) 60 The adoption of the “coercion test” is one of the changes introduced to the Immunity Program. Previously, the Bureau could disqualify an applicant who was the instigator, leader or sole beneficiary of a cartel. This change provides a clearer standard and increased predictability for international immunity applications and is consistent with the disqualification standards applied in other jurisdictions such as the United States and the European Union. 61 Immunity Bulletin, supra note 51 at paras. 20–22. 62 Ibid.

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Bureau with evidence regarding other cartel activities.63 In such a case, the Bureau can recommend that the DPP grant immunity with respect to the new offence and that the party receive enhanced lenient treatment in sentencing with respect to the original offence.64 In the case of international criminal activity, it is important to note that the Bureau will not afford any special consideration to a party solely because it has been granted immunity or another form of favourable treatment in another jurisdiction.65 Whether immunity or “immunity plus” may be available in a particular situation is one of the first things that should be determined in an international cartel matter. As a rule, once the decision to apply for immunity is made, contact with the authorities should be made as quickly as possible to maximize the likelihood of being “first in” as only the first qualified applicant will receive immunity. This is especially true in cases where there is reason to believe that other parties to the cartel may be considering making an application for immunity. See Appendix “A” for some illustrative examples of settlements involving immunity.

b. Leniency The second highest form of settlement an accused can negotiate is leniency. As discussed above, only applicants who are “first in” and who meet all of the requirements for immunity (or “immunity plus”) may actually obtain immunity from prosecution. Nevertheless, a party who does not qualify for immunity, but cooperates with the Bureau, may receive a recommendation from the Bureau to the DPP that some form of leniency be granted.66 The Bureau’s policy in developing sentencing and leniency recommendations to the DPP was recently set out in a draft information bulletin released in April 2008.67 The purpose of the bulletin was to establish the Bureau’s Leniency Program with respect to cartel cases—that is, the circumstances under which the Bureau will recommend to the DPP that parties who are not eligible for a grant of immunity under the Immunity Program, be considered for lenient treatment in sentencing.68 According to the Draft Leniency Bulletin, the Commissioner will make a recommendation to the DPP for the lenient treatment of a party where the DPP has not yet filed charges against a party in a cartel offence, and where the party:69 63

Draft Leniency Bulletin, supra note 53 at para. 70. Ibid. 65 Immunity Bulletin, supra note 51 at para. 30. 66 Immunity Bulletin, supra note 51 at para. 11. 67 On April 28, 2008, the Bureau released the Draft Leniency Bulletin, supra note 53, for public consultation. The period for public comment closed on July 25, 2008. 68 Draft Leniency Bulletin, supra note 53 at para. 1. 69 Ibid, at para.62. 64

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Cartel Settlements in Criminal and Civil Proceedings 375 • has terminated its participation in the illegal activity; • cooperates fully with the Bureau’s investigation and any subsequent prosecution by the DPP;70 and • admits that it has engaged in the anticompetitive conduct which may constitute an offence under the Act and agrees, if charged by the DPP, to plead guilty and be sentenced for its participation in the illegal activity. In making its recommendation to the DPP that a party receive lenient treatment, the Draft Leniency Bulletin advises that the Commissioner will consider the timeliness of cooperation (i.e., how quickly a party fully cooperates with the Bureau’s investigation) and the value of the evidence.71 According to the Draft Leniency Bulletin, where a party meets (and continues to meet) the requirements of the Leniency Program, the Bureau may recommend to the DPP the following sentence reductions:72 • First Leniency Applicant: A reduction of up to 50 percent of the fine that would have otherwise been recommended. If the applicant is a business, that no separate charges be laid against the applicant’s current directors, officers or employees if they agree to cooperate with the Bureau’s investigation (with exceptions where the individual engaged in coercion, had been involved in other cartel offences, or engaged in obstruction). • Subsequent Leniency Applicants: A reduction of up to 30 percent of the fine that would have otherwise been recommended. The Commissioner may consider a higher rate (up to 50%) where the first leniency applicant does not satisfy the requirements under the Leniency Program or the evidence of the subsequent applicant is of exceptional value (i.e., greater than the first). The Bureau’s recommendation is subject to approval by the DPP (the Leniency Program does not bind the DPP), as he retains full discretion as to whether to accept the recommendation, whether to engage in negotiations, whether lenient treatment should be given, and if so, how much.73 See Appendix “A” for an illustrative example of a settlement involving leniency.

c. Plea Agreements Where a party does not qualify for immunity or leniency, it may still try to negotiate a reduced penalty for its involvement by cooperating with the Bureau. The main steps in negotiating a reduced penalty as a party to a plea agreement are as follows: 70 This refers to the same type of cooperation required under the Bureau’s Immunity Program. 71 Draft Leniency Bulletin, supra note 53 at paras. 64–69. 72 Ibid. at para. 71 (The rate of reduction depends on the value of each party’s cooperation in a given case.) 73 Draft Leniency Bulletin, supra note 53 at para. 82.

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• Negotiation of the Plea Agreement: A plea agreement will address the following key issues: (i) sentencing; (ii) ongoing obligations such as cooperation with any continuing investigations; (iii) whether there will be a prohibition order; and (iv) confidentiality of the plea agreement, among others.74 Additionally, it is important to ensure that appropriate protection (e.g., individual immunity) is provided for any directors, officers or employees who are required to provide information to the Canadian authorities. Unlike other jurisdictions, plea agreements are not made public in Canada. • Negotiation of the Agreed Statement of Facts: An agreed statement of facts is a public document. Thus, great care must be taken to minimize any admissions made and references to any related companies or individuals. This document can and will be used by plaintiffs’ counsel in any related civil actions, both in and outside of Canada. As a result, it is imperative that the possible implications associated with the content or timing of publication of the proposed agreed statement of facts be considered by defence counsel in all relevant jurisdictions before an agreement regarding the contents of the statement is reached. • Entering of the Guilty Plea: The guilty plea will be entered before a judge of a provincial Superior Court or of the Federal Court of Canada. Such a plea will be accompanied by submissions made by both counsel for the defendant and the DPP regarding the appropriateness of the sentencing recommendation. At times, the DPP and the accused may come to an agreement regarding a plea and sentencing, and they may make a joint sentencing recommendation. However, in Canada, the courts are ultimately responsible for sentencing upon conviction.75 Sentencing is within the sole discretion of the judiciary (judges are not bound by sentencing recommendations that may be made by the DPP or that may be made jointly by the parties).76 Judges have the authority to determine the appropriate sentences with reference to the statutory sentencing objectives and principles set out in the Criminal Code.77 Therefore, it is important to keep in mind that

74

An admission of guilt or confession is required to enter into a plea agreement. A guiding principle in the court’s exercise of discretion on sentencing is the need to deter the guilty party and others that might engage in similar conduct. (See R. v. Armco Canada Ltd. and 9 Other Corporations (No. 2) (1975), 19 C.P.R. (2d) 273 at p. 274.) While penalties for individuals are based on the same considerations used for corporations, there is a wider range of sanctions available than there is for corporations, including fines, probation, community service and/or imprisonment. 76 Subsection 718.3(2) of the Criminal Code reads as follows: “Where an enactment prescribes a punishment in respect of an offence, the punishment to be imposed is, subject to the limitations prescribed in the enactment, in the discretion of the court that convicts a person who commits the offence, but no punishment is a minimum punishment unless it is declared to be a minimum punishment.” 77 Draft Leniency Bulletin, supra note 53 at paras. 16, 23–25, and 35. 75

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Cartel Settlements in Criminal and Civil Proceedings 377 neither the Bureau nor the DPP can guarantee specific sentencing outcomes in cartel cases.78 See Appendix “A” for some illustrative examples of settlements resulting in reduced penalties.

d. Prohibition Orders Under section 34 of the Act, a court can issue an order precluding a person from continuing or repeating offensive conduct, or conduct that is directed towards the continuation or repetition of an offence.79 Such orders can also enjoin persons other than the accused, as long as such persons are connected to the accused (i.e., they are usually officers, directors, agents or employees).80 Subsection 34(1) provides that where a person has been convicted of a criminal offence, the court may, at the time of the conviction issue a prohibition order.81 Thus, where a conviction has been obtained, prohibition orders are not automatically issued. Rather, they are often made in addition to another penalty, such as a fine, and are issued when a fine is likely not sufficient to prevent the repetition or continuation of objectionable behaviour.82 Some of the factors that a court will consider in determining whether a prohibition order is warranted include: the likelihood of continuation, duration of the conduct, the isolated nature of the act, company policy, deliberation, and the control the company has in the market. No one factor is determinative. Examples of settlements which have included prohibition orders, in addition to other penalties, have included the following: • Settlements with respect to the Bulk Vitamins conspiracy resulted in fines and prohibition orders issued against the following companies:

78 In practice, however, Canadian courts have, in recent years, approved joint sentencing submissions of the DPP and the accused. Although a judge can depart from a joint sentencing recommendation, he or she is unlikely to do so except where accepting the recommendation would either be contrary to the public interest or would bring the administration of justice into disrepute. Draft Leniency Bulletin, supra note 53 at footnote 15. 79 Competition Act, R.S.C. 1985 c. C-34, s. 34. 80 The Bureau has generally taken the position that prohibition orders, alone, are insufficient to effectively deter and punish anticompetitive conduct. See, for example, Harry Chandler, Deputy Director of Investigation and Research, Criminal Matters, Competition Bureau, “Getting Down to Business: The Strategic Direction of Criminal Competition Law Enforcement in Canada”, March 10, 1994. 81 Competition Act, R.S.C. 1985 c. C-34, s. 34(1). 82 For example, the court imposed fines and prohibition orders against Roquette Frères and Glucona for their participation in an international conspiracy to fix prices and share markets for sodium gluconate. The purpose of the prohibition orders was to “deter and prohibit any repetition of this offence”. See “$700,000 In Fines Paid by Roquette Frères for International Conspiracy Under the Competition Act”, Competition Bureau News Release, May 25, 1999 and “$700,000 in Fines Paid by Akzo Nobel and Glucona for Pricefixing under the Competition Act”, Competition Bureau News Release, July 23, 1999.

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F. Hoffmann-La Roche Ltd., BASF AG, Rhone-Poulenc S.A., Eisai Co. Ltd., Daiichi Pharmaceutical Co., Ltd., Takeda Chemical Industries, Ltd., and Merck KGaA.83 • Settlement of the domestic conspiracy relating to carbonless sheets. On January 9, 2006, Cascades Fine Papers Group Inc., Domtar Inc. and Unisource Canada, Inc. each pleaded guilty to two counts of conspiring to lessen competition and each company was fined (Cdn.) $12.5 million. A prohibition order was issued against the companies. It required that key personnel involved in the conspiracy be removed from their positions in the paper merchant business and that the companies educate their directors, officers, employees and agents about complying with the Act and inform them of the identity of the personnel who would be removed from their positions. The companies also had to provide the Bureau with written proof of compliance with the prohibition order for the next three years.84 A prohibition order can also be ordered where there is no prosecution or conviction. Subsection 34(2) applies to situations where no criminal offence has been committed but where the court prohibits the “commission of the offence or the doing or continuation of any act or thing” that is “directed toward” the commission of an offence.85 A prohibition order under subsection 34(2) will usually be sought by Canadian authorities where the illegality of the conduct is uncertain or where there are other mitigating circumstances (e.g., the circumstances may be unusual, there may be evidentiary and jurisdictional issues, etc.). Such prohibition orders also raise an interesting alternative for corporations or individuals that are trying to negotiate a settlement with Canadian authorities. A criminal conviction under the Act, whether it results in a fine or imprisonment, can have a detrimental effect on a corporation or individual’s reputation. Additionally, the costs of defending a criminal proceeding can be high. The availability of a prohibition order, which is not dependent on a finding of guilt, reduces the effect on one’s reputation and the risk of public admissions available to civil plaintiffs. Thus, the availability of a remedy which settles a matter, without an admission of liability or guilt under the Act, is something that can be quite desirable for alleged conspirators. However, this means that a defendant is still potentially subject to civil proceedings, notwithstanding the fact that no admission of guilt was made.

83 See “Federal Court Imposes Fines Totalling $88.4 Million For International Vitamin Conspiracies”, Competition Bureau Press Release, September 22, 1999; “Federal Court Imposes a Fine of $5.2 Million for International Vitamin Conspiracies”, Competition Bureau Press Release, March 1, 2000; “Federal Court Imposes A Fine of $1 Million For International Vitamin Conspiracies”. 84 See “Competition Bureau Investigation Leads to Record Fine in Domestic Conspiracy”, Competition Bureau Press Release, January 9, 2006. 85 Competition Act, R.S.C. 1985 c. C-34, s. 34(2).

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Cartel Settlements in Criminal and Civil Proceedings 379 Examples of prohibition orders under subsection 34(2) have included the following: • In January 1988, prohibition orders were issued against the Kent County Law Association and the Waterloo Law Association and their respective members and executives that prohibited: (i) any agreement to unduly prevent or lessen competition in the supply of legal services, and (ii) communications of any kind among members concerning the fees charged to clients, the promulgation of fee schedules and the formation of committees respecting fees. Additionally, each association was ordered to publish a copy of the applicable order in their local newspaper and to comply with measures that would assist the Commissioner to monitor compliance with the terms of the order.86 • In December 1988, prohibition orders were issued against several real estate associations/boards prohibiting, among other things, the associations from fixing or controlling commission rates and fees for listing services and prohibiting the restriction of the advertisement of rates and fees in any publication, and prohibiting refusal of board membership. The order also required that the contents of the order be published in local and national newspapers and that the Canadian Real Estate Association give a yearly seminar for its membership explaining the application of the Act to the real estate industry.87 • In August 2006, a prohibition order was issued against Sotheby’s and its Canadian subsidiary, Sotheby’s (Canada) Inc. which prohibited them from “committing any offence contrary to the conspiracy and foreign directives provisions” of the Act and from “doing any act or thing directed toward the commission of an offence under sections 45 and 46 of the Act”. The order also required the companies to (i) maintain and implement compliance measures that would prevent any future illegal activities, (ii) educate their directors, officers, employees and agents about complying with the Act, and (iii) provide written proof to the Commissioner of compliance with the order. The Bureau’s inquiry looked into an international conspiracy to suppress and eliminate competition by fixing auction commission rates. But “[n]o evidence was uncovered that the conspiracy affected auctions held in Canada”.88 • Most recently, in April 2008, the Bureau obtained a prohibition order against two companies (GDG Environnement Ltée and La Société génerale de foresterie Sylvico Inc.) and their respective CEOs, preventing them from committing any offence contrary to the conspiracy and bid-rigging provisions of the Act. The order was issued without any admission of liability or 86

Annual Report for the year ending March 31, 1988, Competition Bureau, p. 17. Annual Report for the year ending March 31, 1989, Competition Bureau, pp. 22–23. 88 See “Competition Bureau Obtains Prohibition Order Against Sotheby’s and Sotheby’s (Canada) Inc.”, Competition Bureau Press Release, August 28, 2006. 87

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guilt under the Act and was issued following the Bureau’s investigation into attempts made by the two companies to make arrangements with some of their competitors to protect their market shares in the supply of bioinsecticides and insect control services, primarily in Québec. The court order also required the companies and their CEOs to implement and maintain measures to enable them to comply with the conspiracy and bid-rigging provisions of the Act, and to provide all employees with a notice that a conformity policy (with the Act) was in place, and that non-conformity could lead to disciplinary action, and even dismissal.89 Prohibition orders have a maximum duration of ten years, unless the court expressly orders a shorter period (at one time, they could be perpetual).90 A court may vary or rescind an order if the circumstances that originally led to the order have changed.91 The punishment for violating a prohibition order includes either discretionary fines or up to two years imprisonment (for individuals) or both.92

e. Voluntary Undertakings A final type of settlement is a voluntary undertaking, where a person, in lieu of prosecution or a criminal offence, agrees to engage or not engage in certain behaviour. An example where such a settlement was reached was in the following case: • In February 1992, the Commissioner agreed to terminate the Bureau’s investigation under sections 45 and 47 of the Act into “certain potentially anticompetitive aspects of the land surveying industry” when undertakings were received from the Association of Ontario Land Surveyors (the “Association”). Because of the undertakings, surveyors were no longer prevented by the Association from advertising their services and prices, or from entering into competitive bidding situations. The Association also undertook not to establish suggested minimum prices for members’ professional services and products, but would instead, conduct an annual survey and report a range of prices for certain surveying services for each participating region.93 Undertakings are not specifically mentioned in the Act. However, their function is similar to that of prohibition orders. Additionally, they are closely

89 See “Competition Bureau obtains prohibition order against two bio-insecticide and insect control service companies”, Competition Bureau Press Release, April 4, 2008. 90 Competition Act, R.S.C. 1985 c. C-34, s. 34(2.2). 91 Competition Act, R.S.C. 1985 c. C-34, s. 34(2.3). 92 Competition Act, R.S.C. 1985 c. C-34, s. 34(6). 93 Annual Report for the year ending March 31, 1999, Competition Bureau, p. 42.

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Cartel Settlements in Criminal and Civil Proceedings 381 monitored by the Bureau. Today, such undertakings are generally used in the settlement of less egregious criminal offences (i.e., consumer-related matters).

iii. Some Considerations Regarding the Settlement of Criminal Proceedings In negotiating settlements involving criminal proceedings in Canada, there are a few things that should be considered by parties contemplating settlement. These include the following considerations: timing, attornment, service and confidentiality. • Timing: While there is no specific time for negotiating a plea, Canadian authorities will generally not finalize a plea agreement or the agreed statement of facts until they are satisfied that they have sufficient information regarding the facts of the conspiracy and the role played by the party seeking to negotiate a plea. From the perspective of the party seeking the plea agreement, the sooner it approaches the authorities, the greater the likelihood that it will be able to provide assistance with their investigation, possibly with the result that it will be able to negotiate more favourable treatment than would otherwise be the case.94 • Attornment: While convictions against corporations and individuals involved in domestic conspiracies have been obtained through the prosecution of such cases at trial, and subsequent findings of guilt by the court, to date, all of the prosecutions of international cartels in Canada have been resolved by way of plea agreements, which have involved foreign parties voluntarily attorning to Canadian jurisdiction in return for lenient treatment. • The issue of extraterritorial application is not addressed directly in the Act.95 Thus, it must be considered with respect to each provision on its own. There is nothing in section 45 of the Act which expressly sets out the territorial limits of its application. And the issue has not yet been litigated in a contested proceeding against international cartel participants, as all of the prosecutions have been resolved by way of guilty pleas, which have involved foreign parties voluntarily attorning to Canadian jurisdiction in return for more lenient treatment. (Indeed, voluntary attornment is usually one of the key bargaining chips foreign cartel participants can use in their

94 Another consideration regarding timing is that a party may wish to time the entering of their plea to coincide with that of another party in an attempt to minimize publicity. 95 As a matter of Canadian law generally, criminal law statutes are deemed to have only domestic application unless they expressly provide otherwise.

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negotiations with Canadian authorities.)96 Thus, it remains to be seen how Canadian courts will decide this issue should a foreign entity decide to challenge jurisdiction.97 • Service: A related issue that can arise is whether Canadian authorities can bring cartel participants before a Canadian court. To do so, service must be effected on the cartel participants. However, the general rule in Canada is that non-resident persons (including corporations) cannot be served with a summons or other form of initiating criminal process unless a statute specifically allows for service outside Canada. Without service of initiating process, the Canadian courts cannot assume jurisdiction over nonresidents. Since the Act and the Criminal Code do not expressly provide for the service of an initiating criminal process extraterritorially, there may be situations when the Canadian authorities will not be able to initiate process on a cartel participant. • Confidentiality: It is the policy of Canadian authorities to keep plea agreements, immunity agreements and the identity and the information provided by a party requesting leniency confidential.98 Notwithstanding this policy, 96 A related consideration is whether attorning to the jurisdiction of Canadian courts for the purpose of a criminal plea agreement also constitutes attornment to Canadian courts for the purposes of civil proceedings brought in relation to the same offence. Thus, consideration must be given as to what effect criminal proceedings could have on subsequent civil proceedings. 97 The position of Canadian authorities which enforce the provisions of the Act is quite clear, from both their enforcement track record in pursuing participants of international cartels, to comments made by the Commissioner regarding settlements reached with such participants. For example, in speaking of settlements reached with participants in the Bulk Vitamins conspiracy, Konrad von Finckenstein, Q.C., the then-acting Commissioner, had the following to say:

“Today’s convictions send an important message to business that the Bureau will aggressively pursue the parties involved in international cartels that target Canadian consumers from outside the country. This type of criminal behaviour will not be tolerated.” (See “Federal Court Imposes Fines Totalling $88.4 Million For International Vitamin Conspiracies”, Competition Bureau News Release, September 22, 1999.) “It is the Bureau’s policy to pursue executives who engage in anticompetitive activities that affect the Canadian market. It does not matter whether these individuals are Canadian citizens or foreign nationals, residents or non-residents in Canada, we will go after them to the full extent of the law.” (See “Former Roche Executive Convicted and Fined for International Conspiracies under the Competition Act”, Competition Bureau News Release, October 27, 1999.) Some degree of support for the position of the Canadian authorities can be found in various judgments of the Supreme Court of Canada, decided in a non-competition law context, in which that Court held that extraterritorial jurisdiction may be asserted over parties and conduct whenever there is a “real and substantial link” between the offending act and Canada. (See, for example, R. v. Libman, [1985] 2 S.C.R. 178 and Morguard v. De Savoye, [1990] 3 S.C.R. 1088.) 98 For example, in respect of the Immunity Program, the Bureau advises that it treats the identity of a party requesting immunity, along with the confidential information obtained from that party as confidential and will not disclose it, except under certain circumstances, including disclosure being required by law. See (Immunity Bulletin, supra note 51 at paras. 31, 32 and 34).

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Cartel Settlements in Criminal and Civil Proceedings 383 it is possible that confidential information provided to the Bureau with respect to plea negotiations and immunity or leniency applications could become public. Specifically, one line of cases in the U.S. holds that civil plaintiffs in U.S. antitrust proceedings can obtain disclosure of certain types of documents provided by defendants to the Canadian authorities, notwithstanding the fact that such documents would be subject to settlement privilege under Canadian law.99 • For this reason, parties seeking immunity or negotiating a plea must appreciate there are risks of foreign discovery of various documents that would otherwise be protected from production in Canada and may be well advised to treat settlement documents as potentially discoverable in foreign proceedings, notwithstanding any settlement and public interest privileges that may be applicable in Canada, or the existence of confidentiality covenants with the Bureau or the DPP.100 Thus, a practice has arisen that as much

99 In the U.S. MDL Vitamins antitrust litigation (Re Vitamins Antitrust Litigation, Misc. No. 99-197 (TFH) MDL No. 1285 (D.D.C. April 4, 2002) U.S. plaintiffs sought the production of documents submitted to the Canadian authorities during the plea negotiation process. Both the Canadian authorities and the European Commission (“EC”) intervened in the case and made virtually identical submissions against the disclosure of the information. Although the Court acknowledged that Canadian settlement privilege applied to all of the documents in question and that potential harm could result to the Immunity Program if the documents sought by the plaintiffs were ordered disclosed, it ordered the production of documents that would be made public in the ordinary course—despite the fact that they had not yet been made public. The only documents that were not recommended to be produced were those that the Court believed would harm Canada’s ability to enforce its competition laws in the future. While weight was given to the interests and submissions of the foreign antitrust enforcement agencies, minimal weight was given to any legitimate expectation of confidentiality or privilege that the defendants may have had. In stark contrast, a similar motion brought in the context of the methionine class proceedings (See Re Methionine Antitrust Litigation, (Case No. C-99-3491 CRB (JCS) MDL No 1311 (N.D. Cal. July 29, 2002)) had a different outcome. In that case, U.S. class plaintiffs sought information provided to the EC and Australian competition authorities. Counsel for the party challenging production made virtually identical arguments to those made by Canada and the EC in the Vitamins litigation and the court took judicial notice of the amicus brief filed by the EC in that litigation (the production motion in the Vitamins litigation not having been heard). The Court in this case declined to order production on the following grounds: (i) U.S. investigative and self-evaluative privileges applied to the documents in question; (ii) production would cause considerable harm to foreign leniency programs and antitrust enforcement generally; and (iii) principles of international comity. Given the conflicting judicial decisions on this issue in the U.S., the possibility exists that leniency or immunity applicants or parties who negotiate pleas may face the production of documents created and correspondence exchanged between counsel and the Bureau during the context of an immunity application or plea negotiation in connection with United States civil litigation. 100 There may also be some disclosure under Stinchcombe v. The Queen (1991), 68 C.C.C. (3d) 1 (“Stinchcombe”). In Stinchcombe, the Supreme Court of Canada held that the Crown is required to disclose to an accused all of the material it proposes to use at trial and all other evidence that may assist the accused in making its defence. It is our understanding that the Bureau takes the view that the Stinchcombe rule will oblige the Crown to disclose to an accused the information provided by an immunity applicant. It is not clear, however, whether this obligation also extends to the immunity agreement itself.

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communication as possible, with the authorities, be made orally and not in writing.

IV. Settlements of Civil Proceedings i. Overview of the Civil Settlement Process Many class actions brought under section 36 result in settlement. There are a number of reasons for this, including the desire to conclude litigation which is resulting in an expensive drawn out process (perhaps with multiple interlocutory motions) and the desire for finality. Class action settlements can be negotiated and entered into by all defendants to a class action. In fact, it is not uncommon for defendants to enter into joint defence agreements agreeing to cooperate with one another and share information. Such agreements may also include defendants who were granted immunity from criminal prosecution, but who were not spared from a civil class action. In such cases, the defendant with criminal immunity will not share information which relates to the criminal proceedings. Where all defendants to a class action are involved in negotiating a settlement, they will all be involved in negotiating the determination of the settlement amount and the terms of the settlement agreement. In other cases, only a few defendants (or even only one defendant) will settle with the plaintiffs, resulting in a partial settlement. In such cases, the plaintiffs will typically want terms which require the settling defendant’s cooperation included in the settlement agreement. This can include the production of documents relevant to the litigation, the attendance of company representatives at examinations and/or at trials, and the disclosure of information regarding the conspiracy.101 In the case of a partial settlement, one of the most important terms of a settlement agreement will deal with limiting the potential for claims by non-settling defendants. This is discussed in the next section. In Canada, if a class action is settled prior to litigation on the merits, the settlement must be approved by the court, with notice given to all class members. A final judgment is binding on all members of the class, subject to their right to opt out of the settlement within a specified period of time. To date, certification of class proceedings relating to criminal conspiracies (i.e., sections 45, 46 and 47 of the Act) have only been obtained in the 101 “Partial Settlements in Price-Fixing Cartel Cases”, by Charles M. Wright and Linda J. Visser, CBA Conference on Competition, Crime and Punishment: The Practice, Procedure and Substance of Criminal Competition Law (April 28–29, 2008) at pp. 5–6.

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Cartel Settlements in Criminal and Civil Proceedings 385 context of settlements.102 While class actions are filed in several provincial courts across the country, the vast majority of cases settle long before they get to trial. Examples of certifications include the following: the citric acid litigation, the sorbates litigation, the nucleotides (MSG) litigation, and the bulk vitamins litigation. See Appendix “A” for a brief overview of these settlements.

ii. Some Considerations Regarding the Settlement of Civil Proceedings In negotiating settlements involving civil actions in Canada, there are a few things that should be considered by parties contemplating settlement. These include the following considerations: amount or quantum of the settlement, terms of the settlement agreement, and approval of the settlement. • Amount or Quantum of the Settlement: In a conspiracy case, the settlement amount is usually based on a percentage overcharge multiplied by the amount of sales of each defendant. Negotiations will focus on what that overcharge percentage should be and what the amount of sales should be (these will be based on the length of the conspiracy period). Settlements reached in other jurisdictions are not necessarily instructive of what the settlement amount should be in Canada, as the civil processes in those jurisdictions and the availability of damages may be different.103 • Terms of the Settlement Agreement: For defendants, it is important that the settlement agreement brings finality to a case and provides them with a complete release. It is this need for a complete release that has led to the introduction and use of bar orders in Canadian settlement agreements. Specifically, this arises in cases where not all of the defendants are willing to settle a class action and a partial settlement is reached with some of the defendants. To protect against the possibility that non-settling defendants can sue them for contribution and indemnity,104 settling defendants will 102 In the recent decision of Axiom Plastic Inc. v. E.I. DuPont Canada Co. (2007), 87 O.R. (3d) 352, the court found that the claims against the defendant with respect to one alleged price maintenance offence (under section 61) was suitable for certification. The case is currently under appeal (see Quizno’s supra note 41 at para. 118). 103 For example, unlike the U.S., treble damages are not available in Canada and the availability of a trial by jury for civil matters is much more circumscribed. These factors, although taken into consideration in U.S. settlements, are not applicable in Canada and so would have no determination on the settlement amount. Therefore, using a U.S. settlement amount as a reference point in negotiating the quantum of a settlement in Canada would be inappropriate. 104 In Canada, it is generally believed that, as with virtually all other torts, members of a conspiracy will likely be jointly and severally liable for the damages sustained by the plaintiffs. Defendants to an action brought under section 36 of the Act could seek contribution and indemnity from each other, something which is not available in the U.S. for example. This possibility complicates matters when not all defendants agree to enter into a settlement

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require the inclusion of a bar order in any class action settlement to preclude claims for contribution and indemnity by non-settling co-defendants. Such bar orders have been judicially sanctioned (i.e., they have been included in settlements which have received certifications as class actions, such as the Bulk Vitamins class action). • Approval of the Settlement: A defendant does not want to enter into a settlement agreement which it believes is supposed to compensate all Canadian class members, only to face another lawsuit from a jurisdiction other than the one in which the settlement was reached. This is particularly relevant in Canada where there is no formal procedure similar to the multi-district litigation procedure available in the U.S. for coordinating trials among provinces.105 To reduce the likelihood of this occurring, defendants will seek to have the settlement approved by as many courts as is deemed necessary. The procedure works as follows: one province is designated as the “main” jurisdiction, and approval of a national class (referring to all Canadians) is sought in the courts of that province. Provincial courts in other jurisdictions will then approve the settlement involving a national class, with their own residents covered by the settlement of the action which arises in their own province. The rationale is that if a provincial court approves a settlement, a subsequent plaintiff who might later come before that same court, would be prevented from commencing another claim in that province.

V. Conclusions In this paper, we have attempted to provide a practical summary of considerations relevant to the settlement of Canadian criminal cartel and civil proceedings. This is of course only a brief overview. Experienced counsel should be consulted if and when a case arises. Some key considerations that counsel should have regard to in dealing with the settlement of an international cartel matter in Canada include: (i) the need to coordinate all steps in the process with counsel in all other relevant jurisdictions; (ii) determining whether immunity is available in Canada and moving quickly to secure it if the client so instructs; and (iii) considering the possible impact of any step taken on exposure to civil proceedings in Canada and elsewhere. with the plaintiffs. Without some form of protection in place, it is possible that a party could settle a case with a plaintiff, only to be later faced with an action from a co-defendant for contribution and indemnity for damages that were ultimately determined at a trial in which the party did not even participate. 105 See generally Uniform Law Conference of Canada, Civil Law Section, “Report of the Uniform Law Conference of Canada’s Committee on the National Class and Related Interjurisdictional Issues: Background, Analysis, and Recommendations” (March 9, 2005).

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Cartel Settlements in Criminal and Civil Proceedings 387

APPENDIX “A” Illustrative Examples of Settlements Reached in Respect of Criminal Proceedings (i) Immunity Examples of Canadian settlements where immunity was granted include the following: • In 1991, Abbott Laboratories (“Abbott”) and subsidiary companies were granted immunity from prosecution after voluntarily providing evidence (unknown to the Bureau at the time) of an illegal agreement with Chemagro Limited (“Chemagro”) to share the market for biological insecticide for forest protection in Canada. Additionally, Abbott provided restitution to the Québec and Ontario forestry authorities of $2.1 million and agreed to a prohibition order under subsection 34(2) of the Act.106 (Abbott was the first corporation to receive immunity for an offence under the Act.)107 As a result of Abbott’s disclosure, a former employee of Chemagro was also granted immunity in return for exposing and cooperating in an unrelated conspiracy of a separate insecticide market involving Sumitomo Canada Limited.108 • In 1998, Kyowa Hakko Kogyo Company, Ltd. was granted immunity from prosecution for having been the first to provide evidence to the Bureau in cooperation with its investigation of the international conspiracy to fix prices and allocate market shares among the participants in the lysine market worldwide.109 • In October 1999, the Bureau reported that a co-conspirator in an international price fixing and market sharing conspiracy related to sorbates was “granted immunity from prosecution in exchange for evidence in furtherance of the Commissioner’s investigation”.110 106 One of the changes to Canada’s Immunity Program is that the Bureau no longer requires that applicants agree to pay restitution as a condition for obtaining immunity. 107 Annual Report for the year ending March 31, 1993, Competition Bureau, pp. 16–17. 108 Annual Report for the year ending March 31, 1994, Competition Bureau, pp. 6 and 29 (end of 1999). 109 See “$3.57 Million in Additional Fines Under the Competition Act”, Competition Bureau News Release, July 23, 1998. 110 See “Federal Court Imposes $3.28 Million in Fines for International Conspiracy under the Competition Act”, Competition Bureau Press Release, October 26, 1999.

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• In January 2001, VSL Corporation, carrying on business in Canada through its wholly-owned subsidiary ICS Inc., was granted immunity from prosecution for bid-rigging relating to the Hibernia project, for “being the first to approach the Bureau with information on the bid-rigging case”.111

(ii) Leniency A recent example of a Canadian settlement where leniency was granted was the following: • In September 2007, Ibiden Co. Ltd. (“Ibiden”) pleaded guilty to aiding and abetting a conspiracy to fix the price of isostatic graphite. However, because Ibiden’s “significant and early cooperation” in connection with the Bureau’s inquiry assisted the Bureau’s investigation of other individuals and corporations for violations of the Act, the Commissioner “recommended lenient treatment, despite the serious nature of the offence”. The company was fined (Cdn.) $50,000.112

(iii) Plea Agreements Examples of Canadian settlements where cooperation with the Bureau has resulted in reduced penalties: • In October 1998, Jungbunzlauer International A.G. (“Jungbunzlauer”) and Haarmann & Reimer Corporation (“H&M”) pleaded guilty to having participated in a conspiracy to fix prices and share markets for citric acid. Jungbuzlauer was fined (Cdn.) $2 million and H&M was fined (Cdn.) $4.7 million. The court also imposed a prohibition order on Jungbunzlauer. According to the Bureau, both companies chose to cooperate with and provide assistance to the Bureau in its investigation of other parties and other products in the food and feed additives market, and this early cooperation “was an important factor in the fines that were imposed.”113

111 See “Company Pleads Guilty to Bid-Rigging under the Competition Act”, Competition Bureau Press Release, January 8, 2001. 112 See “Japanese Company Pleads Guilty to Price Fixing”, Competition Bureau Press Release, September 19, 2007. 113 See “$6.7 Million in Fines Paid by Jungbunzlauer International A.G. and Haarman & Reimer Corporation for Violations of the Competition Act”, Competition Bureau Press Release, October 21, 1998.

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Cartel Settlements in Criminal and Civil Proceedings 389 • In September 1999, Chinook Group Limited (“Chinook”) was convicted for its participation in an international conspiracy to fix prices and share markets for choline chloride. Chinook was fined (Cdn.) $2.25 million. According to the Bureau, the amount of the fines resulted from “a decision to seek a reduced sentence, due to the company’s early and valuable cooperation with the Bureau’s investigation and the difficult financial circumstances of Chinook”.114

Illustrative Examples of Settlements Reached in Respect of Civil Class Actions

Examples of civil class actions which have resulted in settlements in Canada include the following: • Citric Acid Litigation: In October 2001, the Ontario Superior Court of Justice certified and approved the settlement of the citric acid litigation. Class actions had been commenced in Ontario, British Columbia and Québec alleging price fixing and market allocation in respect of a conspiracy relating to citric acid. The court found that the settlement was fair, reasonable and in the best interests of the class as a whole. The settlement amount was over (Cdn.) $13 million.115 • Sorbates Litigation: In January 2002, the Ontario Superior Court of Justice approved the settlement of the sorbates litigation. (The action had been certified in earlier proceedings.) Class actions had been commenced in Ontario, British Columbia and Québec alleging that the defendants conspired to fix the prices and allocate the market share of sorbates. The court found that the settlement represented “a reasonable compromise of what would be a complex, expensive, risky and potentially protracted litigation”. The settlement amount was over (Cdn.) $3 million.116 • Nucleotides (MSG) Litigation: In March 2004, the Ontario Superior Court of Justice certified and approved the settlement of the nucleotides (MSG) litigation. The action, commenced in 2001, alleged that the defendants had illegally fixed the price of MSG and nucleotides in the Canadian marketplace. The court found the terms of the settlement to be fair and sufficiently

114 See “Canadian Participant in an International Price-Fixing Conspiracy For a Feed Additive Fined $2.25 Million”, Competition Bureau Press Release, September 24, 1999. 115 Alfresh Beverages Canada Corp. v. Archer Daniels Midland Co., [2001] O.J. No. 6028 (S.C.J.) (QL). 116 Alfresh Beverages Canada Corp. v. Hoeschst AG, [2002] O.J. No. 79 (S.C.J.) (QL).

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representing the interests of the class members. The settlement amount totalled (Cdn.) $6.9 million.117 • Bulk Vitamins Litigation: In March 2005, the Ontario Superior Court of Justice certified and approved the settlement of the bulk vitamins litigation. The litigation was commenced in 1999 by multiple putative class actions in Ontario, British Columbia and Québec for damages in respect of an alleged price-fixing and market-sharing conspiracy related to the sale of vitamins in Canada. The court held that the settlement was fair, reasonable and in the best interests of the class. The settlement amount totalled more than (Cdn.) $140 million.118

117 118

(QL).

Bona Foods Ltd. v. Ajinomoto U.S.A., Inc., [2004] O.J. No. 908 (S.C.J.) (QL). Vitapharm Canada Ltd. v. F. Hoffmann-La Roche Ltd., [2005] O.J. No. 1118 (S.C.J.)

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III Kirtikumar Mehta and María Luisa Tierno Centella* EU Settlement Procedure: Public Enforcement Policy Perspective

I. Introduction to the EU concepts of “settlement” and “settlement procedure” From the perspective of the European Commission, a “settlement” refers to a procedure culminating in a formal infringement decision which reflects the findings of the investigation and imposes a fine, and which is adopted at the end of a simplified procedure in which the addressees have expressly accepted liability for an infringement of Article 81. EU settlements are thus not conceived as an informal way of closing infringement procedures. They are regular, streamlined procedures, and the resulting decision is subject to judicial review.1 EU settlements, the purpose of which is to benefit from parties’ cooperation as a means to achieve procedural economies, do not foresee any negotiation2 on the scope of the envisaged objections, or on the use of evidence or the appropriate sanction. Instead, the settlement procedure ensures that parties will be heard effectively and will have the opportunity, through argument, to exercise their rights of defence in relation to the Commission’s objections. The EU settlement procedure is devised to be inserted into the existing institutional and legal framework, introducing adjustments only at the level of implementing legislation. The aim is to ensure that: parties cannot be * Mr Mehta is Director for Cartels in the Directorate General for Competition of the European Commission; Ms Tierno Centella is Deputy-Head of Unit G-2 in the same Directorate. We gratefully acknowledge comments and suggestions from Wouter Wils. The opinions expressed in this paper are personal and do not necessarily reflect those of the Commission. 1 See Commission Notice on the conduct of settlement proceedings in view of the adoption of Decisions pursuant to Article 7 and Article 23 of Council Regulation (EC) Nº 1/2003 in cartel cases (“Settlements Notice”), 2008 OJ C167/1, para. 41: “Final decisions taken by the Commission under Regulation (EC) No 1/2003 are subject to judicial review in accordance with Article 230 of the Treaty. Moreover, as provided in Article 229 of the Treaty and Article 31 of Regulation (EC) No 1/2003, the Court of Justice has unlimited jurisdiction to review decisions on fines adopted pursuant to Article 23 of Regulation (EC) No 1/2003.” 2 Paragraph 2 of the Settlements Notice (cited previous footnote) states: “Whilst the Commission, as the investigative authority and the guardian of the Treaty [. . .] does not negotiate the question of the existence of an infringement of Community law and the appropriate sanction, it can reward the cooperation described in this Notice.”

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forced into settling, and they make an informed choice in view of the evidence in the file and in full awareness of the charges and consequences they face; and the Commission can judge whether the progress made overall is likely to result in procedural efficiencies justifying the settlement reduction. The introduction of the option to settle cases, i.e. the possibility of allowing for procedural efficiencies in a scenario of explicit consent by the parties with the Commission on the scope of liability that the Commission can attribute and the elements of the infringement that it can prove, requires the adoption of an amendment of Commission Regulation 773/2004 and a dedicated Notice. The amendment of Regulation 773/2004 3 is technically necessary to accommodate the settlement option in the existing legal framework, since this entails: a) introducing variants in the provisions dealing with initiation of proceedings, participation of complainants in proceedings, access to the file and oral hearings; b) allowing for the choice of a different sequence of procedural steps, advancing certain ones in anticipation of the notification of the Statement of Objections; and c) ensuring that companies choosing to explore and, eventually, to commit to settlements will be bound by some obligations indispensable for procedural efficiency, since a Commission Notice binds the Commission but cannot create obligations for companies. Paragraph 3 of the Settlements Notice clarifies that Regulation 773/2004, as amended, “bestows on the Commission the discretion whether to explore the settlement procedure or not in cartel case, while ensuring that the choice of the settlement procedure cannot be imposed on the parties”. The Settlements Notice4 sets out the specifics of the settlement procedure, interprets the new provisions in the amended Regulation, and provides guidance for the legal and business community to enable companies to: a) rely on a basic framework; b) anticipate the kind and extent of cooperation expected from them in order for settlement to succeed; and c) estimate the individual benefits and value of settling.

II. Policy grounds for introducing settlements in the EU II.1. Enforcement policy considerations The introduction of settlements in EU cartel enforcement has to be seen in the wider context of the Commission’s active search for ways to maintain and 3 See Commission Regulation 622/2008 amending Commission Regulation No 773/2004 in connection with the conduct of settlement procedures in cartel cases, 2008 OJ L171/3. 4 Cited supra note 1.

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EU Settlement Procedure: Public Enforcement Policy Perspective 393 improve its performance in its relentless fight against cartels for the benefit of consumers. EU settlements are not meant to replace the ordinary procedure, but to constitute an alternative course in appropriate cartel cases. Therefore, EU settlements are neither driven by any intention to emulate other settlement procedures, which target different objectives and respond to different contexts and legal constraints,5 nor do they respond to any need to cope with a hypothetical backlog.

a) Settlements in jurisdictions where cartels are prosecuted as criminal offences The conclusion of a settlement between the public prosecutor and the individual or the company subject to an investigation is the standard practice followed in jurisdictions which have a long tradition of prosecuting cartels as criminal offences. In such a context, the public prosecutor is required to prove, before a judge and sometimes a jury, the involvement of the individual or company in a cartel. Individuals risk a criminal record and imprisonment. The public prosecutor also deals with each company separately. In order to make a convincing case, experience shows that the public prosecutor stands a better chance to dissipate any reasonable doubt if the company or individual at stake admits the infringement and accepts the penalty in a negotiation process resulting in a plea agreement, including a waiver of the right of appeal. In that context, the best efficiencies are reached if the prosecutor uses settlements as an investigative tool (or as a substitute for investigation). This explains why settlements are the only means available to companies which were not the first to report the cartel (the first to report the cartel benefits from amnesty and does not face prosecution), if they are to negotiate a lower penalty in exchange for cooperation. EU settlements cannot follow that model because the Commission proceeds simultaneously against all cartel members under a strict interpretation of the principle of non-discrimination. The Commission is obliged to carry out a full investigation and to adopt a reasoned decision that satisfies the requisite legal standard under the control of the Community Courts. The EU leniency program grants reductions in fines for substantial cooperation with the investigation, next to the granting of immunity for the first company to report the cartel.

5 These issues are explained below under heading IV: “Settlement procedure in the EU context”.

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b) Settlements in administrative systems with separation between the investigative and the adjudicating bodies Some enforcement systems applying administrative or civil penalties operate settlement variants in the context of separation between the investigative body and the adjudication board. In those systems, settlements are not used as investigative tools either; they are used to reduce the delay between the moment the findings are established and the imposition of fines, in the specific context of the respective system. For instance, in France, settlements currently offer the Competition Council the possibility to forego a report summarizing the parties’ replies to the objections which the rapporteur would otherwise have to prepare. This procedural economy is possible in any competition case, and settlements are options not only in cartel cases but in other kinds of cases as well. However, since the Commission procedure does not include an additional report between the Statement of Objections and the decision, there would be no point in reproducing a settlement system that would not offer an equivalent economy out of its particular context.

c) EU settlements do not respond to any backlog Some commentators have argued that the Commission is contemplating settlements because it is the victim of the success of the leniency program, which is supposed to have created a considerable backlog. However, there is no such problem. Any hypothetical backlog would have been solved by increasing or reallocating resources, rather than by introducing a new procedural instrument. The rationale for introducing a settlement procedure for certain categories of cartel cases is to further reinforce the deterrence against cartel conduct. Reducing, through procedural efficiencies, the duration of the administrative procedure will mean that the fines will be imposed when the senior management incumbent during the period of infringement may still be in place. Furthermore, the efficiencies can be expected to release resources that can be deployed to other cases, thus materially increasing the enforcement effort.

II.2. Objectives Settlements aim at simplifying the procedure leading to the adoption of a final decision establishing the involvement of the companies in a cartel and imposing a fine on them. As an instrument for regular application, by freeing resources to deal with other cases, settlements could increase the detection rate and overall efficiency of the Commission’s antitrust enforcement. Recital 4 of the amending Regulation justifies the introduction of a settlement procedure

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EU Settlement Procedure: Public Enforcement Policy Perspective 395 “in order to enable the Commission to handle faster and more efficiently cartel cases”. The crucial procedural economies envisaged in individual cases are due to changes: —allowing for the drafting of shorter Statements of Objections (i.e., shorter than in the case where the parties are expected to contest the Commission’s findings) and shorter final decisions, since the Commission would not normally expect substantive contestation in Court; and —economizing on redundant screening for confidentiality and other resource-intensive procedural steps post-SO, which become superfluous if a settlement is achieved, such as the processing of substantive replies to the adversarial SO, translations, access to the remainder of the Commission file, and the holding of an oral hearing.

II.3. Method: Channelling parties’ legitimate procedural choices to ensure procedural efficiencies overall The EU antitrust procedure is one of the most comprehensive as regards procedural steps and legal safeguards for parties subject to an investigation. Such completeness justifies a certain rigidity meant to ensure that companies contesting the Commission’s views have all means and opportunities to exercise their rights of defence and to challenge the disputed decision in court. Under the existing rules (the ordinary procedure), it is theoretically possible for a company to decide, for example, to contribute to the Commission’s investigation, to acknowledge the facts and assessment, to choose not to request access to the file (at all or partially), and not to request an oral hearing. Provided that these preferences are not imposed on companies, they are legally unimpeachable, and companies do exercise some of those options from time to time. However, the ordinary procedure cannot ensure that, in appropriate cases, those choices would be likely to be made by all or most parties under investigation, and hence it cannot guarantee efficiencies for the procedure overall, because: —A hearing would still need to be held (and full access to the file would still need to be prepared) for all the other parties, and the Commission would still have to draft the Statement of Objections expecting contestation, because each cartel decision groups as many decisions as addressees; —The structure of the ordinary procedure was not conceived to facilitate this, and it does not specifically provide for the possibility of the Commission hearing the parties only in anticipation of the formal objections and taking the result of those discussions into account in its objections;

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—The ordinary procedure does not provide any incentive or safeguard for those choices. The settlements package is based on the recognition that parties to a cartel procedure will only opt for a streamlined procedure when the companies consider that this course of action is more advantageous to them. It is when all parties make an informed choice to take the settlement route that the efficiencies sought are likely to be achieved. Companies who do not fundamentally contest the Commission’s findings, or who contribute to lighten the Commission’s burden of proof in exchange for leniency, for instance, and who are interested in putting the procedure, the fines and the reputational costs behind them, do not voluntarily request the exhaustive exercise of each and every auxiliary right (these are rights currently exercised upon parties’ request within the ordinary procedure) in all modalities available (for example, request to be heard orally in a multilateral hearing after having been heard both in writing and orally in a bilateral setting). Experience shows that, in many cartel cases, parties that go to court challenge conclusions which have a direct impact on the amount of the fine, rather than the existence and features of the cartel and their involvement in it (although, since the entry into force of the new Commission Guidelines on fines,6 several cases have not been appealed at all). It follows that, for procedural efficiencies to be attained, the settlements package needs to provide transparent rules, conditions, safeguards and incentives for parties to the proceedings to make similar use of procedural rights that can be exercised upon parties’ request. This enables the Commission to deal with cases more efficiently and puts all companies involved in the same cartel on an equal footing. (The principle of non-discrimination is a demanding one in the EC case law.) The settlement package respects the freedom of the parties to stick to the ordinary procedure and dispute the case, by all means and in all possible aspects, up until the final decision and beyond. But it also enables the parties to make another strategic choice.

II.4. Settlements distinguished from commitments: the need for a different instrument When Commissioner Kroes announced for the first time that she had instructed the services of DG Competition to devise a settlement instrument, many commentators speculated on the possibility of introducing settlements for all EU antitrust cases (not only in the cartel field) and of using for this purpose commitment decisions pursuant to Article 9 of Regulation 6 Guidelines on the method of setting fines imposed pursuant to Article 23(2)(a) of Regulation No 1/2003, 2006 OJ C210/2.

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EU Settlement Procedure: Public Enforcement Policy Perspective 397 1/20037 or some similar instrument. It might be argued from a linguistic, semantic point of view that companies “settle” a case with the Commission when they offer commitments which become binding on them by a decision adopted pursuant Article 9; however, since the adoption by the Commission of a “settlements package” for its submission to a public consultation, the terms “settlement” and “settlement procedure” used in the EU context properly refer only to the instrument and regulated procedure described mainly in new Article 10a inserted in Regulation 773/2004 and in the “Settlements Notice”, which result in the adoption of a decision pursuant to Articles 7 and 23 of Regulation 1/2003. These distinct legal bases for “commitments” and “settlements” reflect a number of essential differences. On the one hand, commitment decisions: a) are adopted provided that commitments offered by the relevant company are appropriate to put an end to competition concerns. They allow for prioritization of cases. b) do not formally establish an infringement8 or impose a fine; they bring suspect behaviour to an end9 by giving binding force to the commitments offered by companies to meet the Commission’s concerns.10 —The commitment procedure requires the level of investigation of the case that enables the Commission to raise concrete competition concerns and the choice of procedure in a (formal) preliminary assessment of the case. The preliminary assessment can be less detailed than a Statement of Objections. —The fact that the Commission had serious concerns (which the company was willing to meet) and adopted a decision can be taken into account by a court in private litigation, but if a court wishes to grant damages it will need to make its own assessment as regards the infringement because the infringement as such has not been established. —Commitment decisions are not precedents to establish recidivism for subsequent infringements. —If EU (or EEA) National Competition Authorities and courts decide on the same case on the basis of Article 81 EC (or Article 53 EEA), they do not encounter any problems related to the ne bis in idem principle 7 Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Article 81 and 82 of the Treaty, 2003 OJ L1/11. 8 According to recital 13 of Regulation 1/2003, commitment decisions are to be adopted “[. . .] by the Commission without concluding whether or not there has been or still is an infringement [. . .]”. 9 According to Article 9 of Regulation 1/2003, commitment decisions require that “[. . .] the Commission intends to adopt a decision requiring that an infringement be brought to an end [. . .]”. 10 Also according to Article 9: “[. . .] the undertakings concerned offer commitments to meet the concerns expressed to them by the Commission in its preliminary assessment, the Commission may by decision make those commitments binding [. . .]”.

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Session Two: Settlements in Cartel Cases because commitment decisions “are without prejudice to the powers of competition authorities and courts of the Member States to make such a finding [of an infringement] and decide upon the case”.11 The initiation of proceedings only suspends the competence of EU/EEA National Competition Authorities, at most until the commitment decision is adopted. Arguably, the reason for this is that even proceedings leading to a commitment decision are initiated either with a view to or with the possibility of adopting an infringement decision pursuant to Article 7, if necessary. If, ultimately, an Article 9 decision is adopted, the finding of infringement is not made, and there is no adverse precedent.

c) are not appropriate in cartel cases because they “are not appropriate in cases where the Commission intends to impose a fine”,12 and a commitment decision would simply conclude that “there are no longer grounds for action by the Commission”.13 —In principle, the Commission can be expected to impose a fine in all cartel cases against which it decides to act, and it considers them a priority amongst antitrust cases because cartels are outright, deliberate violations which are often concealed and difficult to detect and investigate. It is therefore crucial to impose sanctions for them which are set at a level sufficient to deter. The two possible reasons not to fine cartel behaviour against which the Commission intends to act would also exclude the adoption of a commitment decision: i) prescription: under Article 25 of Regulation 1/2003 fines may no longer be imposed if the behaviour in question ended at least five years before the first investigative measure undertaken by the Commission or an EU National Competition Authority. In that case, the company is not in a position to offer any commitment to terminate its involvement in the infringement;14 and ii) parties’ uncertainty: fines may be inappropriate in exceptional cases where parties were uncertain that their conduct was an infringement. However, it is hardly conceivable that a cartel modality has no precedent whatsoever, or that parties are unaware that they are in a cartel. —Possible commitments to terminate cartel behaviour normally consist of simple abstention from contacts, exchanges of information and concerted or agreed action. As a rule, cartels are interrupted from the moment that parties become aware of the Commission investigation. Moreover, 11

See recital 13 of Regulation 1/2003. See ibid., in fine. 13 See Article 9(1) of Regulation 1/2003, in fine. 14 Article 7 of Regulation 1/2003 in fine reads: “If the Commission has a legitimate interest in doing so, it may also find that an infringement has been committed in the past”. 12

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EU Settlement Procedure: Public Enforcement Policy Perspective 399 since cartels are multilateral infringements by nature, they are unlikely to terminate through individual unilateral commitments to act or abstain from acting (that would require all members to unilaterally decide to defect from the cartel). On the other hand, settlement decisions: a) are adopted pursuant to Articles 7 and 23 of Regulation 1/2003,15 which are the standard legal bases for Commission decisions acting against violations of Articles 81 and 82. b) establish the existence of an infringement, describing and proving all the relevant parameters thereof, require the termination of the infringement and impose a fine. Hence, settlement decisions: —are adopted at the end of a regular procedure including an ordinary, thorough investigation of the cartel and the notification of a Statement of Objections; —can be the basis for follow up damage actions; —create a precedent valid to establish recidivism for subsequent similar infringements; and —preclude the adoption of another decision for the same facts and pursuant to the same legal basis (ne bis in idem). Already at the stage in which the Commission initiates proceedings with a view to take a decision pursuant to Articles 7 and 23, National Competition Authorities are relieved of their competence to act in that case, irrespective of whether the ordinary or the settlement procedure applies. c) are only foreseen for cartel cases, for the reasons explained below. It is clear, therefore, that the only similarities between commitment decisions and settlement decisions are that they are both formal, perfectly regular procedures, and they both require the cooperation of the undertakings concerned.

15 New Article 10(a) 3 of Regulation 773/2004 makes this clear: “[. . .] The Commission may then proceed to the adoption of a decision pursuant to Article 7 and Article 23 of Regulation (EC) No 1/2003 [. . .]”. In this regard, see also paragraphs 2, 28 and 30 of the Settlements Notice, cited supra note 1.

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III. Why is the EU settlement procedure reserved only for cartel cases? III.1. Scope for procedural efficiencies Cartel investigations are comparatively more frequent than other antitrust cases, and procedural burdens are high because they often entail a heavier procedure worth simplifying in view of the multiplicity of parties and languages involved and the jurisdictional issues they raise (e.g., discovery). The average cartel file numbers tens of thousands of pages (between around ten thousand to two hundred thousand pages), all of which have to be screened for confidentiality issues, while only a few hundreds of those pages on average are actually used in evidence. Preparing a whole cartel file for access to file requires screening, deciding upon the scope and justification of confidentiality claims, and clearing contradicting requests by other parties for access to the documents, pages, paragraphs or data that have been claimed confidential. This exercise is done irrespective of whether those data or texts have been used at all to establish the facts, because the Commission can only select what it uses to inculpate a company, and it cannot choose which evidence or information may be useful to exculpate it. Moreover, disagreements on confidentiality claims and access requests can be brought before the Hearing Officers and, ultimately, they can be appealed separately to the CFI (“Akzo procedure”), irrespective of whether they are simple pieces of information which will not be used for or against any party. However, experience shows that only a few hundreds of pages in the file—at most around two thousand—are actually used in evidence in our cases (by the Commission and by the parties, in their defence). This has been established on the basis of our files from recent years, which systematically illustrate this point. This tremendous effort is subject to constraints particularly exacerbated when parallel proceedings are conducted in third country jurisdictions where parties face discovery issues, when there is a great number of companies and/or languages, and when parties make unmotivated claims. Substantial savings in efforts, resources and time could be gained if only the hundreds of pages on which the case turns were screened and cleared, rather than the whole file. Of course, full access to the file is granted, upon request, to the addressees of a formal SO in order to allow them to exercise their right to be heard as concerns the objections provisionally retained against them. Engaging in settlement discussions before the issuing of a formal SO does not detract from this right. Full access remains available after the SO if parties are not convinced and choose not to settle.

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EU Settlement Procedure: Public Enforcement Policy Perspective 401 Since, as a rule, Commission cartel investigations concern multiple undertakings from different Member States, the burdens associated with translation are often considerable. This is a concern that the CFI has addressed itself in the expedited appeal procedure. Shorter SOs and more concise decisions would help to alleviate that burden. Generally, therefore, in cartel cases there is scope for substantial procedural savings that would justify a reward for cooperation and a dedicated legal instrument.

III.2. Probability of success in reaching a settlement with the parties concerned Cartels16 are deliberate infringements which companies often try to conceal and which count, by their very object, amongst the most serious infringements of Article 81. Competition authorities fight cartels resorting to investigative powers and leniency programs tailored to encourage insider cooperation. It has already been mentioned that, unlike for other competition cases, litigation in cartel cases rarely relates to the infringement itself and mainly regards procedural issues, circumstances having a bearing on the amount of the fine, and liability of parent companies for actions undertaken by their subsidiaries. This is particularly so in cases driven by leniency. When cartel participants are confronted with a procedure for their conduct, they are interested in knowing whether the Commission has managed to uncover their secrets, whether it has gathered enough evidence to prove the full scope of their involvement and what the likely penalty is. Parties are presented with the option to agree on an assessment exclusively depending on the quality and extent of the evidence gathered during the investigation. Hence, in cartel cases the Commission and the parties do not need to dispute more debatable issues intrinsic to other antitrust cases, such as proof of intent, market definition or the extent, nature and relative weight of pro- and anticompetitive market effects produced by the conduct over time. In those cases, bilateral rounds of settlement discussions would be likely to delay rather than accelerate the procedure. In view of these characteristics, the Commission considers that it is in the field of cartels where a common 16 Cartels are “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 anticompetitive actions against other competitors”. Commission Notice on Immunity from fines and reduction of fines in cartel cases (“Leniency Notice”), 2006 OJ C298/17, recital 1, and footnote 2 of the Settlements Notice, cited supra note 1.

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understanding can be reached relatively quickly with the companies involved, on the basis of the evidence gathered against them. Therefore, the settlement procedure will only concern selected cartel cases.

III.3. Only for suitable cartel cases The settlement procedure will not replace the ordinary antitrust enforcement procedure for all cartel cases. Neither companies nor the Commission are obliged to enter settlement discussions;17 nor are they obliged, once discussions have started, to ultimately settle.18 Settling a cartel case is an option available only if parties submit an explicit request, and only if the Commission finds the case suitable for settling. In deciding whether or not to settle a case, the Commission will consider, in particular, the probability of reaching a common understanding with all or most of the parties on the relevant facts, the scope of the objections and of liability, and therefore the likelihood of achieving procedural economies.19 This flexibility is possible, both for the Commission and for the parties, because the ordinary procedure (with substantive replies to the SO, full access to file and oral hearing post-SO, upon request): —remains in force and will be applicable by default to cartel cases, if the parties do not request a settlement20 or if the Commission does not open the case for settlement or does not follow up on the parties’ request; and

17 Paragraph 5 of the Settlements Notice (cited supra note 1) states, in fine, that “The Commission may only engage in settlement discussions upon the written request of the parties concerned”, in coherence with the provisions in new Article 10a(1) of Regulation 773/2004. 18 Paragraph 20 of the Settlements Notice distinguishes parties choosing settlement from the rest: “Parties opting for a settlement procedure must introduce a formal request to settle in the form of a settlement submission”. 19 Paragraph 5 of the Settlements Notice states: “The Commission retains a broad margin of discretion to determine which cases may be suitable to explore the parties’ interest to engage in settlement discussions, as well as to decide to engage in them or discontinue them or to definitely settle. In this regard, account may be taken of the probability of reaching a common understanding regarding the scope of the potential objections with the parties involved within a reasonable timeframe, in view of factors such as number of parties involved, foreseeable conflicting positions on the attribution of liability, extent of contestation of the facts. The prospect of achieving procedural efficiencies in view of the progress made overall in the settlement procedure, including the scale of burden involved in providing access to non-confidential versions of documents from the file, will be considered. Other concerns such as the possibility of setting a precedent might apply. The Commission may also decide to discontinue settlement discussions if the parties to the proceedings coordinate to distort or destroy any evidence relevant to the establishment of the infringement or any part thereof or to the calculation of the applicable fine [. . .].” 20 Paragraph 19 of the Settlement Notice provides: “Should the parties concerned fail to introduce a settlement submission, the procedure leading to the final decision in their regard will follow the general provisions, in particular Articles 10(2), 12(1) and 15(1) of Regulation (EC) No 773/2004, instead of those regulating the settlement procedure.”

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EU Settlement Procedure: Public Enforcement Policy Perspective 403 —is the fallback procedure if the settlement process fails—if the parties’ formal settlement proposals do not reflect the results of settlement discussions with the Commission, or if the College of Commissioners departs from them.21

IV. Settlement procedure in the EU context IV.1. The EU enforcement system has its own rules and equilibrium Having been inserted into the existing institutional and legal framework, the settlement procedure also implements the basic rules of the EU procedure as established in Regulation 1/2003,22 which is not modified by the new rules. In adopting the settlement procedure, the Commission is building on half a century of EU case law and Commission practice, and on the achievements made over time. In that regard: —A well-designed and well-functioning cartel enforcement system must be congruent with its own legislative context and institutional environment, and suitable to converge upon the expectations of expediency and justice created in the business community and the public at large. The specific instruments, factors and features of any given enforcement system are closely interrelated in a subtle equilibrium, and one cannot alter 21 Paragraph 27 of the Settlements Notice states: “The Commission retains the right to adopt a statement of objections which does not reflect the parties’ settlement submission. If so, the general provisions in Articles 10(2), 12(1) and 15(1) of Regulation (EC) No 773/2004 will apply. [. . .]”. Similarly, paragraph 29 reads: “The Commission retains the right to adopt a final position which departs from its preliminary position expressed in a statement of objections endorsing the parties’ settlement submissions, either in view of the opinion provided by the Advisory Committee or for other appropriate considerations in view of the ultimate decisional autonomy of the Commission to this effect. However, should the Commission opt to follow that course, it will inform the parties and notify to them a new statement of objections in order to allow for the exercise of their rights of defence in accordance with the applicable general rules of procedure.” 22 Cited supra note 7. As is well known, Regulation 1/2003 establishes the basic framework for the handling of antitrust cases by the Commission. It contains a number of safeguards and rights conceived to ensure due process, to enable parties to be effectively heard before the adoption of any final decision, and to allow for efficient scrutiny by the Court of First Instance. Procedural rules guarantee that companies make informed choices, that their views are taken into account and that they have several occasions and modalities (in writing and/or orally) to dispute the Commission’s findings during the administrative procedure and thereafter. As noted in the main text, the procedural framework established in Regulation 1/2003 is not altered by the introduction of the settlement procedure for cartel cases.

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them lightly or simply import them in isolation from another system, without revisiting the whole system and preserving the overall balance. —It would be disproportionate to change the EU’s paradigms, institutional division of powers, and the nature of our procedures and sanctions, (applicable to all antitrust cases and not only to cartels) for the sole purpose of obtaining some procedural efficiency in selected cartel cases. —In an enforcement context where only administrative sanctions are applicable, the burden of proof does not justify a readiness on the part of the Commission to negotiate with companies in order to gather evidence. There are a number of advantages to proceeding in this way. First of all, the Commission’s approach does not call for any change in the founding Treaty regarding the competences of the Court of Justice and Court of First Instance on the one hand (to make the final decision, rather than review it) or of the Commission on the other (as a simple prosecutor and not a decision maker). Nor would it imply a radical change in our procedures (Regulation 1/2003, Commission Regulation 773/2004, and all the implementing Notices). The legislative and institutional framework in the EU imposes some basic rules and constraints: —Articles 7 and 23 of Regulation 1/2003 will remain the legal basis for all Commission decisions finding a cartel, irrespective of whether the case has been settled or not. As we have seen, this means that the Commission will in any event establish the infringement and impose a fine in a reasoned decision based on an SO notified to the parties after a thorough investigation. —The College of Commissioners only fixes its final position in the decision. This preserves the decisional autonomy of the College,23 and it allows for the possibility that the Opinion of the Advisory Committee might influence the decision of the College at the last minute. This should of course happen very exceptionally if the instrument enabling settlements is to be preserved. In such a scenario, the Commission will send a new, “fully fledged” SO to the parties, who will be able to exercise their rights of defence anew according to the ordinary procedure and withdraw their acknowledgements so that they cannot be used against any party to the proceedings.

23 The principle of collegiality needs to be respected. Therefore, until the final decision is adopted, a settlement is not binding upon the College. See Joined Cases T-129/95, T-2/96 and T-97/96 Neue Maxhütte Stahlwerke and Lech-Stahlwerke v Commission [1999] ECR II-17, para. 231; Case T-16/02 Audi v OHIM [2003] ECR II-5167, para. 75; Case T-15/02, BASF AG v Commission [2006] ECR II-497, para. 94.

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EU Settlement Procedure: Public Enforcement Policy Perspective 405 —Whether settled or not, any Commission decision establishing an infringement and imposing a fine can be appealed to the CFI, which enjoys unlimited jurisdiction as regards the calculation of fines.

IV.2. Settlements do not replace leniency EU settlements will not replace leniency: these are separate but complementary tools in the Commission’s enforcement arsenal, and reductions under the Leniency Notice 24 and reductions for settlement can be cumulated for parties entitled to both.25 The Leniency Notice rewards companies involved in a cartel which voluntarily disclose its existence to the Commission and provide evidence to prove the infringement. The Settlements Notice will reward concrete contributions to procedural efficiency. The main difficulty in fighting cartels lies in the fact that companies often try to conceal them from the authorities as well as from their customers and from other outsiders. To this end, they turn to increasingly sophisticated means and practices. Therefore, the enforcement of anti-cartel rules also requires specific means and instruments in order to enable the competition authority or enforcement agency to detect secret cartels and obtain the necessary evidence to prove infringements. Cartels often involve many companies and can only be uncovered with the help of insider information. There is a consensus today that an efficient fight against cartels requires the protection of whistleblowers and the provision of adequate incentives to encourage cartel members to terminate their conduct and self-report the infringements. Leniency policy is an instrument conceived to destabilize cartels, to uncover secret cartels and to obtain decisive evidence thereof with insider cooperation. Leniency instruments are devised to encourage self-reporting by providing the appropriate incentives ensuring that companies are always better off by cooperating with the authority. To this end, leniency programs normally grant a complete exemption from sanctions in favour of the first cartel member to report a secret cartel to the authority, thus enabling it to take appropriate action. In some jurisdictions, the first cartel member to report is also spared prosecution and a formal finding of an infringement. This creates incentives to participate in a “race” to self-report. 24

Leniency Notice, cited supra note 15. Paragraph 1 of the Settlements Notice reads: “[. . .] The cooperation covered by this Notice is different from the voluntary production of evidence to trigger or advance the Commission’s investigation, which is covered by the Commission Notice on Immunity from fines and reduction of fines in cartel cases (the Leniency Notice). Provided that the cooperation offered by an undertaking qualifies under both Commission Notices, it can be cumulatively rewarded accordingly”. Likewise, paragraph 33 states: “When settled cases involve also leniency applicants, the reduction of the fine granted to them for settlement will be added to their leniency reward.” 25

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In order to guarantee that companies are not subject to discrimination, the initiative to approach the authority necessarily rests on them. Moreover, in Europe, the race continues for the second, third and following companies providing additional evidence, because decreasing levels of fine reductions may still be available if they contribute significant added value to the investigation compared to the evidence already existing in the file. The incentive to race for a fine reduction is created by two factors. Firstly, the order in which companies apply for leniency affects the level of the fine to which they can be entitled. Secondly, the assessment of whether the evidence provided contributes significant added value to the investigation is done in relative terms, and the chances to qualify logically decrease once other companies have provided the evidence at their disposal. If the Commission were to pick the order in which companies could apply, it would discriminate between companies and undermine the race for leniency. The Commission assesses leniency applications but it does not have the discretion to refuse leniency if the relevant threshold is met and the subsequent conditions are fulfilled. The CFI can control this assessment. Unlike leniency, settlements are not an investigative tool, and by the time settlement discussions take place the possibility to obtain leniency will have lapsed. The leniency window closes because the core investigation has already been conducted and because settlements should not interfere with the incentives to race for leniency. If parties knew that they could still expect leniency in the settlements phase, they could start considering whether it is more interesting to wait until they have been informed by the Commission of the envisaged objections against them and they have seen the evidence supporting the objections. In this way they could tailor their contribution of significant added value to the minimum required. When it comes to settlements (as the Commission conceives of them), if the case can be resolved through this mechanism, all parties contribute in an equivalent way to the procedural efficiencies. Different rewards for equivalent contributions would discriminate between companies. Obtaining the procedural efficiencies sought depends not only on the individual company but also on the overall behaviour of all parties. Therefore, the Commission needs to retain discretion as to whether a settlement procedure is available and whether settlement will in the end be likely or worthwhile (or whether, e.g., the ordinary procedure will need to be followed in parallel against other, non-settling companies that participated in the same cartel). This is the necessary counterpart to the parties’ discretion to enter or discontinue settlement discussions or to ultimately settle. In view of their specific features, blurring the differences between settlements and leniency in the Commission procedure would only render both instruments less well targeted for their respective objectives, and could contribute to confusing the investigation with efforts to gain procedural efficiency. This could lead to apparent or real negotiations on evidence and objections.

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EU Settlement Procedure: Public Enforcement Policy Perspective 407 As we have seen, in the EU’s administrative system, settlements may be convenient or more efficient in some cases, but they will not be an unavoidable path to reach a decision. Hence, maintaining the incentives to report under a leniency program is far more important for the Commission’s fight against cartels than reaching a settlement with cartel members.

IV.3. Short description of the settlement procedure in cartel cases IV.3.1. Investigation: putting facts together The Commission investigates the cartel in the usual way and with the usual means (e.g., inspections, leniency applications and information requests). Regulation 773/2004 has not been amended in this regard to introduce any alternative to the investigation or alternative role for the Commission. Indeed, paragraph 2 of the Settlements Notice reaffirms the Commission as “the investigative authority and the guardian of the Treaty”. The Commission will not be ready to assess whether a given case is in principle suitable for settlement until it has gathered and analyzed evidence and is ready to raise formal objections against the companies involved. Since the settlement procedure does not involve any bargaining or negotiation on charges or evidence (although parties will be effectively heard, and although this may have consequences regarding the objections retained, as in any other regular antitrust procedure), the Commission will investigate and provisionally qualify the facts internally before it explores settlements with the parties.

IV.3.2. Exploring parties’ interest in settling In assessing for the first time the desirability of exploring settlements in a given case, the Commission will evaluate the prospects that all companies concerned would consent with the Commission’s findings, and that the case could be handled faster and more efficiently than it would be if the ordinary procedure applied. To this end, as explained in paragraph 5 of the Settlements Notice, the Commission will consider factors such as the number of parties concerned, the number of parties which have not applied for or will not obtain a leniency reward, the number of parties having spontaneously declared their readiness to engage in settlement discussions, the foreseeable divergences in their relative positions and contradicting interests regarding the attribution of liability, the predictable margin for contestation, etc. If the balance of factors favours exploring settlements, the Commission will notify to the relevant companies a decision with “the effect of formally

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initiating proceedings within the meaning of Article 11(6) of Regulation No 1/2003”.26 From that moment on, the EU National Competition Authorities are relieved of their competence to apply Article 81 in that case, and those companies become “parties” to the Commission proceedings.27 The parties will also receive a letter setting a time limit within which each of them can declare its interest in participating in bilateral settlement discussions with the Commission. If the Commission has initiated proceedings against several legal entities which it identifies with the same group of undertakings, it will also indicate this to all the legal entities concerned, which can only participate in settlement discussions if they appoint a single representative.28

IV.3.3. The leniency window “closes” Parties will be reminded that the time limit set to declare their interest in participating in settlement discussions is also the time limit for submitting any leniency application under preparation. Beyond that time limit, leniency applications are not forbidden, but they may be rejected on the ground that the time limit has expired.29

IV.3.4. Bilateral settlement discussions The settlements procedure has created space for bilateral settlement discussions with the parties between the initiation of proceedings (and the exploratory letter followed by favourable reactions by the parties) and the issuing of a formal SO. Taking part in settlement discussions does not imply any admission of illegal conduct or duty to settle for the parties concerned.

26 See Case T-339/04, France Télécom SA v Commission [2007] ECR II-521, para. 81. The principle is also explained in section 3.2 (“The initiation of proceedings by the Commission under Article 11(6) of the Council Regulation”) of the Commission Notice on cooperation within the Network of Competition Authorities, 2004 OJ C101/43. 27 Article 2 of Regulation 773/2004, “Initiation of proceedings” in Chapter II, of the same heading already refers to the companies against which proceedings have been initiated as “parties” in its paragraph 2, which ensures that the parties concerned are informed in advance of the fact that Commission will make public the initiation of any proceedings. Likewise, Chapter V (“Exercise of the right to be heard”) and Chapter VI (“Access to the file and treatment of confidential information”), which deal with actions that take place only after the initiation of proceedings, systematically distinguish the “parties concerned” by the procedure from other “persons”. 28 This does not prejudge the attribution of parental liability, but it facilitates the conduct of bilateral discussions and allows parties with identical or similar interests to be equally and simultaneously aware of the content and conclusions of the meetings. 29 Paragraph 13 of the Settlements Notice reads: “The Commission may disregard any application for immunity from fines or reduction of fines on the ground that it has been submitted after the expiry of the time-limit referred to in point 11.”

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EU Settlement Procedure: Public Enforcement Policy Perspective 409 Settlement discussions aim at allowing the parties (but also the Commission) to evaluate the benefits of settling from their respective viewpoints and to make an informed choice between the settlement procedure and the ordinary procedure. Parties cannot be asked to acknowledge anything formally, or to accept the prospect of a certain level of fines, unless they have been able during the settlement discussions to effectively exercise their rights to be heard on the envisaged objections, and unless they have been informed of the range of fines that they may incur. To this effect, as discussions progress the Commission will inform them of the objections envisaged against them, and it will make available the evidence supporting those objections and disclose the fine range calculated according to the Fining Guidelines. Parties will have the full opportunity to express their views on the objections and the evidence, and to argue their position. The Commission may modify or drop some original objections if the parties’ arguments are convincing, and this may have a consequence for the range of potential fines. Such discussions should not be construed as negotiations. Where a company genuinely lacks information about its own past behaviour or the circumstances surrounding a certain period or aspect of the cartel (e.g., if it no longer has access to any of the employees or the members of the board who represented them in the cartel at the time in a given product or area, etc.), it can also lodge a reasoned request justifying this and specifying the (non-confidential versions of) accessible documents or categories thereof that it would like to consult to assess its interests and possibly to make an informed choice to settle. To this end, parties would consult the list of the case-file as it stands at that point in time. Parties can always call upon the Hearing Officer for any issue concerning access to file or due process. The Commission will grant these requests when they are justified and when the access requested is not such that it would jeopardize the procedural economies envisaged with the settlement procedure. The Commission will not refuse to grant access to those documents or to grant full access to the file altogether, but it may refuse to grant access before issuing the SO, in line with the ordinary procedure. Settlement discussions will take place on the basis of a template settlement submission. The Commission is not obliged to pursue settlement discussions if the parties’ positions and arguments lead to the conclusion that no agreement will be reached which would serve the public interest or that, overall, the efficiencies sought with a settlement procedure are not likely to be achieved. In such a scenario, the Commission may put an end to the settlement discussions and hence to any further disclosure of evidence or information, thus reverting to the ordinary procedure. Settlement discussions can be bilateral in the same way that it would be legally possible to undertake formally separate proceedings against each party, issue individual SOs and adopt individual decisions. Actually, each joint SO or decision constitutes as many SOs or decisions as addressees. At

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the stage of settlement discussions, parties have not yet decided or expressed their formal position and the Commission has not yet adopted a formal SO either. In this light, settlement discussions are bilateral to allow for confidential, open exchanges where parties will not be concerned about the presence of other parties and where confidential information relative to the relevant undertaking can be discussed, including the very sensitive information regarding the likely range of the fine. Discussions are also bilateral to be focussed and efficient in dealing with the concerns of the relevant undertaking in a relatively short sequence of meetings, without having to carry out comparative exercises.30 Procedural efficiencies would be lost if bilateral meetings were used to discuss with each party the arguments of all other parties on the basis of the exchanges they had between parties. In such a scenario, the settlement procedure would be more laborious and lengthy than the ordinary one, in which all parties can reply to the common SO within the same period. It is worth noting that recitals 12 and 14 of the Leniency Notice forbid leniency applicants to disclose the fact or the contents of their leniency submissions to others until the issuing of the formal SO. This duty remains unchanged in settlement cases. Other jurisdictions with long experience in settlements that take place before the formal adoption of objections by the agency or authority in charge (the US, Canada, Australia . . .) require parties to keep discussions confidential. It is certainly essential to keep the content of settlements discussions secret as regards third parties in any jurisdiction, for the same reasons that settlement submissions and leniency corporate statements are protected (see in this regard recital 7 of the Settlements Notice and new Article 10a(2) of Regulation 773/2004 31). It has sometimes been argued that the Commission has an interest in having companies to discuss their respective views and the terms of their draft settlement submissions, so that those more favourable to settle might “convince” others to do so. Nothing prevents parties from encouraging others to take part in settlement discussions. Nor does anything prevent them from telling each other that they actually intend to settle. However, just as the Commission does not bargain or negotiate with companies but simply relies

30 The exception to this is the exchange of information between parties within the same group of undertakings, which is actually encouraged, since all parties belonging to the same group or undertaking will be present in the same discussions through a joint representation. 31 Recital 7 of the Settlements Notice reads: “The parties to the proceedings may not disclose to any third party in any jurisdiction the contents of the discussions or of the documents which they have had access to in view of settlement, unless they have a prior explicit authorization by the Commission. Any breach in this regard may lead the Commission to disregard the undertaking’s request to follow the settlement procedure. Such disclosure may also constitute an aggravating circumstance, within the meaning of point 28 of the Guidelines on fines and may be regarded as lack of cooperation within the meaning of points (12) and (27) of the Leniency Notice”. Article 10a(2) of the Regulation reads: “[. . .] This information shall be confidential vis-à-vis third parties, save where the Commission has given a prior explicit authorization for disclosure [. . .]”.

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EU Settlement Procedure: Public Enforcement Policy Perspective 411 on the compelling value of the evidence gathered and the benefits of the procedure in order to get companies to settle, it would not be appropriate to rely on undertakings bargaining or negotiating joint settlement terms amongst themselves or providing persuasive positive or negative incentives to each other. Parties are therefore warned that coordination to distort the facts, or to distort the evidentiary value of documents in the file to find the “minimum common denominator” suiting all parties can lead the Commission to terminate the settlement discussions, to impose higher fines by finding an aggravating circumstance, and by withdrawing leniency (see recital 5 of the Settlements Notice32).

IV.3.5. Parties’ Settlement Submissions In settlement discussions, the Commission and the parties concerned will reach a common understanding on the wording of the settlement submission that the parties will introduce in the next procedural phase. In principle, only when this understanding is reached and when similar progress has been made with all parties concerned by the settlement discussions will the Commission set a time limit for the undertakings to lodge their respective settlement submissions. The contents of the parties’ settlement submissions are established in new Article 10a(2) of Regulation 773/2004, and they are further explained in recital 20 of the Settlements Notice. They should contain, in the terms agreed at the end of the settlement discussions: —An acknowledgement of the parties’ liability for the infringement and of their involvement in it (object, duration, main facts, legal assessment, etc.); —An indication of the maximum amount of the fines the parties would expect to be imposed; —The parties’ request to handle the case through the settlement procedure and confirmation that they: a) have been informed of the Commission’s objections in a satisfactory manner and that they have been given the opportunity to be heard; b) will request neither further access to the file nor an oral hearing; c) request to receive the SO and the final decision of the Commission in one of the official EU languages. 32 “[. . .] The Commission may also decide to discontinue settlement discussions if the parties to the proceedings coordinate to distort or destroy any evidence relevant to the establishment of the infringement or any part thereof or to the calculation of the applicable fine. Distortion or destruction of evidence relevant to the establishment of the infringement or any part thereof may also constitute an aggravating circumstance within the meaning of point 28 of the Commission Guidelines on the method of setting fines imposed pursuant to Article 23(2)(a) of Regulation (EC) No 1/2003 (the Guidelines on fines), and may be regarded as lack of cooperation within the meaning of points (12) and (27) of the Leniency Notice [. . .].” (footnote omitted)

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Until their submission, parties are not committed to settle. By lodging a settlement submission, a party formally exercises the choice for the settlement procedure and commits to settle, provided that the Commission follows up. This idea can be found in recitals 21 and 22 of the Settlements Notice.33 If the SO raises objections additional to or different from the ones acknowledged by a party, or if the Commission intends to impose a fine exceeding the maximum amount submitted, the party concerned is no longer bound by its submission, and the acknowledgements provided cannot be used in evidence against any of the parties to the proceedings.

IV.3.6. Settlement Procedure up to the Final Decision If the settlement submissions duly reflect the understanding reached during the settlement discussions, then shortly after receiving them the Commission will normally adopt a streamlined SO endorsing them, i.e. reflecting their content.34 Issuing a Statement of Objections is mandatory in settlement cases, pursuant to Article 10(1) of Regulation 773/2004. In the context of settlements, the SO should contain information enabling the parties to confirm that it accurately reflects their settlement submissions. In that scenario, parties are expected to reply to the SO by simply confirming that it reflects their submission, if that is objectively the case.35 The rest of the procedure may be considerably simplified because, following the parties’ confirmation, procedural steps such as further access to the file or an oral hearing become redundant, and a streamlined decision can be drafted. New

33 Recital 21 of the Settlements Notice reads: “The acknowledgments and confirmations provided by the parties in view of settlement constitute the expression of their commitment to cooperate in the expeditious handling of the case following the settlement procedure. However, those acknowledgments and confirmations are conditional upon the Commission meeting their settlement request, including the anticipated maximum amount of the fine.” Recital 22 states: “Settlement requests cannot be revoked unilaterally by the parties which have provided them unless the Commission does not meet the settlement requests by reflecting the settlement submissions first in a statement of objections and ultimately, in a final decision [. . .].” 34 Recital 22 of the Settlements Notice ends with: “[. . .] The statement of objections would be deemed to have endorsed the settlement submissions if it reflects their contents on the issues mentioned in point (a). Additionally, for a final decision to be deemed to have reflected the settlement submissions, it should also impose a fine which does not exceed the maximum amount indicated therein.” 35 Recital 26 of the Settlements Notice states: “Should the statement of objections reflect the parties’ settlement submissions, the parties concerned should within a time-limit of at least two weeks set by the Commission in accordance with Articles 10a(3) and 17(3) of Regulation (EC) No 773/2004, reply to it by simply confirming (in unequivocal terms) that the statement of objections corresponds to the contents of their settlement submissions and that they therefore remain committed to follow the settlement procedure. In the absence of such a reply, the Commission will take note of the party’s breach of its commitment and may also disregard the party’s request to follow the settlement procedure.”

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EU Settlement Procedure: Public Enforcement Policy Perspective 413 Articles 12(2)36 and 15(1a)37 of Regulation 773/2004 apply to make the simplification possible. The draft decision will be submitted to the Advisory Committee of representatives of the Member States for their Opinion, and the Hearing Officer will make a report, as in any other antitrust procedure.38 The final decision, which is adopted on the basis of the SO (and which thus reflects the settlement submissions), can then be adopted swiftly, with the Commission imposing a fine not exceeding the maximum level of the fine submitted by the party. The settlement reduction will be deducted from the fine that a company would normally have to pay according to the provisions of the current Fining Guidelines. All parties settling a case with the Commission will benefit from a fine reduction of the same percentage. The notion of accepting settlements only after the SO, or of accepting them after the SO as well as before (which could discourage the more efficient pre-SO option) would jeopardize the efficiencies sought with the settlement procedure. In such a scenario, the SO would have to be drafted as if an adversarial procedure was expected, without any economy or impact on timing. It is difficult to see any enforcement advantages which would justify the enforcement costs of a settlement reduction.

IV.4. Parties’ incentives to settle By introducing a phase for discussions in view of settlement, companies have a unique opportunity to be informed of the likely range of fines prior to the adoption of the final decision, and they can be informed earlier of potential objections and of the evidence supporting them. On the basis of these facts and documents, the parties have the opportunity to express their views to the 36 “However, when introducing their settlement submissions the parties shall confirm to the Commission that they would only require having the opportunity to develop their arguments at an oral hearing, if the statement of objections does not reflect the contents of their settlement submissions.” 37 “After the initiation of proceedings pursuant to Article 11(6) of Regulation (EC) No 1/2003 and in order to enable the parties willing to introduce settlement submissions to do so, the Commission shall disclose to them the evidence and documents described in Article 10a(2) upon request and subject to the conditions established in the relevant subparagraphs. In view thereof, when introducing their settlement submissions, the parties shall confirm to the Commission that they will only require access to the file after the receipt of the statement of objections, if the statement of objections does not reflect the contents of their settlement submissions.” 38 New Article 10a (3) of Regulation 773/2004 reads: “When the statement of objections notified to the parties reflects the contents of their settlement submissions, the written reply to the statement of objections by the parties concerned shall, within a time-limit set by the Commission, confirm that the statement of objections addressed to them reflects the contents of their settlement submissions. The Commission may then proceed to the adoption of a decision pursuant to Article 7 and Article 23 of Regulation (EC) No 1/2003 after consultation of the Advisory Committee on Restrictive Practices and Dominant Positions pursuant to Article 14 of Regulation (EC) No 1/2003.”

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Commission. Full access to file remains available after the SO for those who do not settle, as is the case today, and the parties may decide at any moment to stop the settlement discussions, or not to send a settlement submission. By reaching a settlement, companies can put the procedure behind them, reduce the damage to their reputation and obtain a reduction of the fine. —10% rebate for settlement:39 The settlement reduction established in the Notice is 10% of the fine that would otherwise have been imposed. This percentage is the same for all parties settling with the Commission because they all contribute to procedural efficiencies in a similar manner, and because the Commission retains the right to decide the order in which it enters settlement discussions with the different companies. Introducing different percentages would take that possibility away, since in that case, the Commission could be accused of discriminating against one company in favour of another one (leniency discounts can be different because, among other reasons, the initiative rests exclusively on the parties and the discount depends on timing and on additional value relative to what other parties have already submitted). The 10% reduction applies at the end of the calculation of the fine, on top of the leniency reduction (where applicable). This provision ensures that companies that have reached the cap foreseen in Article 23(4) of Regulation 1/200340 will have an incentive to settle because the settlement reduction, like the leniency reduction, applies to the fine capped. The percentage of settlement reduction has been chosen carefully: • The settlement reduction should not exceed 20%, in order not to interfere with the incentives to cooperate with the investigation by providing evidence under the Leniency Notice. Leniency is a formidable tool in the fight against secret cartels, and the incentives for companies to come forward and race for it should remain untouched so that no company entertains the doubt of whether it would be better to wait for settlements if the case is convincing, rather than helping the Commission to prove the case in the first place. • The settlement reduction should be modest to preserve the deterrent effect of fines, taking into account, in particular, that it is added to any leniency reductions. 39 Recital 32 of the Settlements Notice provides: “Should the Commission decide to reward a party for settlement in the framework of this Notice, it will reduce by 10% the amount of the fine to be imposed after the 10% cap has been applied having regard to the Guidelines on the method of setting fines imposed pursuant to Article 23(2)(a) of Regulation (EC) No 1/2003. Any specific increase for deterrence used in their regard will not exceed a multiplication by two.” (footnotes omitted) 40 “The financial liability of each undertaking in respect of the payment of the fine shall not exceed 10% of its total turnover in the preceding business year.”

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EU Settlement Procedure: Public Enforcement Policy Perspective 415 • The settlement reduction should be modest to reflect the fact that the Commission does not intend to “negotiate” or bargain away evidence or objections to accommodate the fine. On the contrary, the Commission only intends to explore settlements once it has conducted the investigation and is persuaded of having a compelling case and ready to pursue it with or without settlements. In that scenario, settling is a “one-way option” for companies. • The settlement reduction should be modest to dispel any idea that the settlement reduction could induce companies to admit to objections that, in their view, are not sufficiently proven by the evidence in the file. • The settlement reduction should be no less than 10% because in the past the Commission has already granted 10% for non-contestation of the facts, which is less than what we will require in the future (although the fact that they acknowledge liability will render their appeals less likely). —Safeguards While it is possible for the Commission to adopt a final position deviating from the settlement submission or the Statement of Objections (to the extent that the Commission position is only final in the decision adopted by the College at the end of the procedure), the Notice foresees some safeguards to protect the contents of the settlement submissions (in particular the acknowledgements).41 This is unlikely to happen, both for policy reasons (the credibility of the procedure is to be preserved for other cases), but also due to some features inherent in the internal operation of the Commission’s decision-making process: —The SO reflecting the contents of the settlement submissions is an act of the Commission, adopted (through an empowerment) by the same Commissioner for competition who has authorized the relevant officials to embark on settlement talks after ordinary internal consultations. —The final decision adopted by the College cannot include objections additional to the ones included in the SO and on which the parties have been heard, because according to the relevant case law,42 “the rights of the defence are infringed as a result of a discrepancy between the statement of objections and the final decision only where an objection stated in the decision was not set out in the statement of objections in a manner sufficient to enable the addressees to defend their interests”. If the Commission were to 41 If a settlement is not successfully concluded, the acknowledgements provided by the parties in the settlement submissions would be deemed to have been withdrawn and could not be used against any of the parties to the proceedings. The case would revert to the ordinary procedure. 42 See Case T-44/00 Mannesmannröhren-Werke v Commission [2004] ECR II-2223, paras. 98 to 100; Case T-15/02, BASF AG v Commission [2006] ECR II-497, para. 95.

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add new objections, it would be bound to issue a supplementary Statement of Objections and to allow a new defence following the general rules of procedure. Moreover, paragraph 29 of the Settlements Notice 43 extends this requirement to the situation where the Commission intends to impose a higher fine than the one specified in the settlement submission. In optimal settlement cases (where all parties settle), there is, by definition, no access to the file after the issuing of the SO. This implies that none of the parties will have access to the settlement submissions introduced by the others. However, in hybrid procedures, parties who do not settle are entitled to have access to the file, including settlement submissions, for the sole purpose of defending themselves in judicial or administrative proceedings for the application of Article 81. In any event, in order to comfort those who have settled and dispel concerns regarding possible discovery orders in other jurisdictions, the Settlements Notice protects settlement submissions in recitals 35 to 39 to the same extent that corporate statements submitted in the framework of the Leniency Notice are protected. This implies that settlement submissions will only be accessible to parties (not to complainants or other third persons) at the Commission’s premises, for the purpose of the application of Community competition law provisions,44 and that parties cannot make any copy thereof by mechanical or electronic means.45 Settlement submissions 43 “The Commission retains the right to adopt a final position which departs from its preliminary position expressed in a statement of objections endorsing the parties’ settlement submissions, either in view of the opinion provided by the Advisory Committee or for other appropriate considerations in view of the ultimate decisional autonomy of the Commission to this effect. However, should the Commission opt to follow that course, it will inform the parties and notify to them a new statement of objections in order to allow for the exercise of their rights of defence in accordance with the applicable general rules of procedure. It follows that the parties would then be entitled to have access to the file, to request an oral hearing and to reply to the statement of objections. The acknowledgments provided by the parties in the settlement submissions would be deemed to have been withdrawn and could not be used in evidence against any of the parties to the proceedings.” 44 Recital 36 of the Settlements Notice adds: “The use of such information for a different purpose during the proceeding may be regarded as lack of cooperation within the meaning of points (12) and (27) of the Leniency Notice. Moreover, if any such use is made after the Commission has already adopted a prohibition decision in the proceedings, the Commission may, in any legal proceedings before the Community Courts, ask the Court to increase the fine in respect of the responsible undertaking. Should the information be used for a different purpose, at any point in time, with the involvement of an outside counsel, the Commission may report the incident to the bar of that counsel, with a view to disciplinary action.” 45 Recital 35 of the Settlements Notice reads: “Access to settlement submissions is only granted to those addressees of a statement of objections who have not requested settlement, provided that they commit—together with the legal counsels getting access on their behalf—not to make any copy by mechanical or electronic means of any information in the settlement submissions to which access is being granted and to ensure that the information to be obtained from the settlement submission will solely be used for the purposes of judicial or administrative proceedings for the application of the Community competition rules at issue in the related proceedings. Other parties such as complainants will not be granted access to settlement submissions.”

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EU Settlement Procedure: Public Enforcement Policy Perspective 417 can be provided orally 46 when parties are concerned about the possibility of discovery. Transmission of settlement submissions to the competition authorities of the Member States (pursuant to Article 12 of Regulation 1/2003) is subject to the same constraints that apply to the transmission of corporate statements provided in the framework of the Leniency Notice.47 Finally, the Settlements Notice guarantees that the Commission will only transmit settlement submissions to national courts with the prior consent of the relevant applicants.48

V. The rights of defence are respected under the settlement procedure The Commission has gone a long way to ensure that the settlements package respects the rights of defence, enabling parties to make a fully informed choice of procedure and drawing inspiration on the principles established by the relevant case law. The statement contained in recital 4 of the Notice is not a mere formality, but the backbone of the project and a guiding conviction of the legislator when aiming at the objective of procedural expediency: “Effective enforcement of Community competition law is compatible with full respect of the parties’ rights of defence, which constitutes a fundamental principle of Community law to be respected in all circumstances, and in particular in antitrust procedures which may give rise to penalties. It follows that the rules established to conduct the Commission proceedings to enforce Article 81 of the EC Treaty should ensure that the undertakings and associations of undertakings concerned are afforded the opportunity effectively to make known their views on 46 Recital 38 of the Settlements Notice reads: “Upon the applicant’s request, the Commission may accept that settlement submissions be provided orally. Oral settlement submissions will be recorded and transcribed at the Commission’s premises. In accordance with Article 19 of Regulation (EC) No 1/2003 and Articles 3(3) and 17(3) of Regulation (EC) No 773/2004 undertakings making oral settlement submissions will be granted the opportunity to check the technical accuracy of the recording, which will be available at the Commission’s premises and to correct the substance of their oral settlement submissions and the accuracy of the transcript without delay.” 47 Recital 37 of the Settlements Notice reads: “Settlement submissions made under this Notice will only be transmitted to the competition authorities of the Member States pursuant to Article 12 of Regulation No 1/2003, provided that the conditions set out in the Network Notice are met and provided that the level of protection against disclosure awarded by the receiving competition authority is equivalent to the one conferred by the Commission.” (footnote omitted) 48 Recital 39 of the Settlements Notice reads: “The Commission will not transmit settlement submissions to national courts without the consent of the relevant applicants, in line with the provisions in the Commission Notice on the co-operation between the Commission and the courts of the EU Member States in the application of Articles 81 and 82 EC.”

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the truth and relevance of the facts, objections and circumstances put forward by the Commission, throughout the administrative procedure.”49

In settlement cases, parties’ rights of defence under the settlement procedure remain the same as in the ordinary procedure. They are simply exercised to the parties’ satisfaction in the framework of bilateral discussions, both orally and by means of a submission, in anticipation of the formal notification of objections. As in any other procedure, the Commission must base its decisions only on objections on which the parties concerned have been able to comment and, to this end, they shall be entitled to have access to the Commission’s file, subject to the legitimate interest of undertakings in the protection of their business secrets.50 Parties have no duty to participate in settlement discussions or to settle. If parties are not satisfied with the scope or level of exercise or their rights available in the settlement procedure, they can simply turn to the ordinary procedure. As already mentioned, the flexibility introduced in the settlement procedure is due to the fact that its application requires the explicit request of the parties concerned; the ordinary procedure remains both the fallback procedure and the procedure by default. Parties are neither obliged to engage in settlement discussions nor compelled to submit a settlement submission. They have the ultimate choice between: —directly contesting the Commission case upon notification of the formal SO and requesting full access to the file and/or an oral hearing (i.e., the ordinary procedure); or —presenting a settlement submission if they are convinced of the Commission’s case, having seen all the evidence in the file that the Commission intends to use as a basis for the objections, and accepting the likely consequences thereof. In order for the parties to be heard effectively, the Commission must give the parties the opportunity to state their views on the objections and on the evidence, and it must take them into account in its own analysis, if necessary by changing its preliminary conclusions.51 The Settlements Notice recalls the 49 See Case 85/76 Hoffmann-La Roche v Commission [1979] ECR 461, paras. 9 and 11; Case T-11/89 Shell v Commission [1992] ECR II-757, para. 39; Joined cases T-10/92, T-11/92, T-12/92 and T-15/92 [1992] ECR II-2667, Cimenteries CBR, para. 39; Joined Cases T-191/98, T 212/98 to T-214/98 Atlantic Container Line and Others v Commission [2003] ECR II-3275, para. 138; Case C-176/99 P, ARBED SA v Commission, para. 19; Case T-15/02, BASF AG v Commission [2006] ECR II-497, at para. 44; Case T-329/01, Archer Daniels Midland Co. v Commission (sodium gluconate) [2006] ECR II-3255, at para. 358. 50 See Joined Cases T-39/92 and T-40/92, CB and Europay v Commission [1994] ECR II-49, para. 47; Joined Cases T-191/98, T-212/98 to T-214/98 Atlantic Container Line and Others v Commission [2003] ECR II-3275, para. 138. 51 See Case 41/69 ACF Chemiefarma v Commission [1970] ECR 661, at paras. 47, 91 and 92; Joined Cases 40/73 to 48/73, 50/73, 54/73 to 56/73, 111/73, 113/73 and 114/73 Suiker Unie and Others v Commission [1975] ECR 1663, at paras. 80, 437 and 438; Joined Cases 209/78 to 215/78 and 218/78 Van Landewyck and Others v Commission [1980] ECR 3125,

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EU Settlement Procedure: Public Enforcement Policy Perspective 419 Commission’s commitment to respect the rights of defence once more in recital 24, where it is explained that: “for the parties’ rights of defence to be exercised effectively, the Commission should hear their views on the objections against them and supporting evidence before adopting a final decision and take them into account by amending its preliminary analysis, where appropriate.52 The Commission must be able not only to accept or reject the parties’ relevant arguments expressed during the administrative procedure, but also to make its own analysis of the matters put forward by them in order to either abandon such objections because they have been shown to be unfounded or to supplement and reassess its arguments both in fact and in law, in support of the objections which it maintains.”

It is difficult to imagine the Commission hearing the parties in any more effective way53 than by adopting, at the end of the discussions, an SO and a decision that actually draws on the contents of the settlement submissions and does not impose a fine exceeding the maximum amount contemplated in that submission. One should not overlook the fact that the settlement procedure strictly operates on rights and safeguards guaranteed under Regulation 1/2003 upon parties’ request or following parties’ explicit choice. Thus, with the settlement procedure parties can legitimately exercise a different option, for which implementing legislation legally foresees alternative variants and modalities to be exercised. These include the right to have full access to the file (except for non-accessible documents and data: the Commission’s internal documents, business secrets of other companies and other confidential information) or the right to participate in an oral hearing (a modality of exercise of the right to be heard, in addition to the written reply to the SO) or receiving the text of a Commission act in an official language of their choice. If companies fail to request or explicitly renounce the exercise of these rights, or if they exercise them to a limited extent (access to some documents, partial presence in the hearing, etc.) this cannot invalidate the subsequent decision. Finally, parties have the right, but not the duty, not to incriminate themselves; and the Commission bears the burden of proof as a corollary of the presumption of innocence. The modalities of exercise integrating the settlement procedure are expressly requested by the parties in their settlement submission. para. 68; Case T-44/00, Mannesmannröhren-Werke v Commission [2004] ECR II-2223, paras. 98 to 100; Case T-15/02, BASF AG v Commission [2006] ECR II-497, at paras. 93 and 95. 52 “In line with settled case-law, the Commission shall base its decisions only on objections on which the parties concerned have been able to comment and, to this end, they shall be entitled to have access to the Commission’s file, subject to the legitimate interest of undertakings in the protection of their business secrets.” 53 See Case 100/80, Musique diffusion française and Others v Commission [1983] ECR 1825, at para. 21; Case 322/81 Michelin v Commission [1983] ECR 3461, at para. 19; Case T-16/99, Lögstör Rör v Commission [2002] ECR II-1633, at para. 200; and Case T-15/02, BASF AG v Commission [2006] ECR II-497, at para. 62.

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By way of contrast, the exercise of other rights could not have been the object of adjustment or accommodation and, accordingly, they are not modified by the settlement procedure: —If the Commission does not give access to a company to the evidence used to support objections against it, the decision will be null and void; however, if the Commission fails to give access to other documents of the file requested by a party (e.g., because the Commission considers them nonaccessible and the Community Courts disagree with this view), the decision will only be annulled if the party can show that the decision would have been different if the parties had had access to those documents. —Likewise, an infringement decision would be null and void if the Commission adopts it against a company without having notified to it: a) the formal initiation of proceedings; or b) the objections retained against it.54 —An infringement decision would be null and void if the Commission adopts it against a company without having given it the opportunity to argue its case. —Any eventual commitment not to appeal a Commission decision would be unenforceable and void.

VI. Evaluation and concluding considerations It is useful to evaluate the enforcement costs and benefits of the new alternative procedure. While currently the ordinary procedure leading to cartel decision has become somewhat shorter than before, procedural economies have the potential to significantly reduce the length of proceedings. In examining the enforcement costs associated with the possibility to adopt enforcement decisions punctually, there are two distinct costs to bear in mind. Firstly, any settlement reduction applied to the fine obviously implies reduced deterrence, which in turn could only be reinstated if the procedural 54 As stated by the CFI in Case T-15/02, BASF AG v Commission [2006] ECR II-497, para. 58: “[. . .] however much an undertaking cooperates, the function of the statement of objections is still to give undertakings and associations of undertakings all the information necessary to enable them to defend themselves properly, before the Commission adopts a final decision (Ahlström Osakeyhtiöand Others v Commission, [. . .], paragraph 42, and Case C-283/98 P Mo och Domsjö v Commission, [. . .], paragraph 63). From that point of view, the fact that the applicant cooperated with the Commission, acknowledging that it had committed unlawful acts and describing those acts, did not mean that it no longer had any right or interest in obtaining a document from the Commission setting out precisely all the objections that the Commission raised against it, including those that might be based on statements or evidence supplied by other undertakings involved [. . .]”.

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EU Settlement Procedure: Public Enforcement Policy Perspective 421 economies permit redeployment of the freed resources to adopt additional enforcement decisions within any given time period. There are good reasons to believe that deterrence depends not only on the level of the fine, but that it is also related to the probability of being detected and successfully and timely prosecuted. Indeed, the literature on optimal fines suggests that, as the probability of detection and successful prosecution rises, the appropriate fine need not increase. Thus, a modest settlement reduction represents an enforcement cost that is well within the bounds of the additional number of cases that can be conducted with the resources that efficiencies make possible. From the experience of the impact on deterrence of the leniency program, it is important not to over-emphasize as enforcement costs the reductions in fines that successful leniency applicants may have received. Deterrence is far more a function of timely and successful prosecution. A second element of enforcement costs arises if cases do not fall to be handled either as settlement cases or under ordinary procedure but where the Commission finds itself faced with having to apply in the same case both procedures either simultaneously (a hybrid case) or sequentially because settlements fail to take place and there is a reversion to the ordinary procedure. These costs from the enforcement perspective would in fact be quite significant. It is therefore important, in the settlements package, for the Commission to be able to select cases, to proceed in measured steps, and to reserve the right to renounce the final stages of the settlement procedure if procedural efficiencies are non-existent. Notwithstanding these elements, the probability of being faced in sequential procedures is non-zero given that the incentives to settle are not uniform for all parties. Accordingly, this constitutes an important enforcement cost. A major source of misalignment of incentives to settle among parties arises from the fact that the reduction for settlement would be uniform for all parties but those qualifying for leniency have the reduction cumulated with the leniency reduction. With a modest reduction for settlement, the strategy for settling for all parties is a dominant strategy only if the Commission’s case is compelling and settling offers a one-way option to secure a fine reduction. Variable settlement reductions would be discriminatory because the desired procedural efficiencies are imputable equally to all parties, and in any case recourse to such an option would simply open up an unwelcome strategic game for some parties to seek the hold-up potential that reverts to those last to settle. These considerations further support the assessment that the settlement procedure is likely to be applicable in certain categories of cartel cases where settling is the option of choice for all parties because of the strength of Commission’s case. Acknowledgement of this by the Commission, as well as by the parties concerned, should dispel any misconception that parties would be under pressure to opt for the settlement procedure.

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LESSONS TO BE DRAWN PANEL VI PART ONE: Policy consequences for public enforcement PART TWO: Part two: Policy consequences for private enforcement PART THREE: Overall conclusions

1 PANEL DISCUSSION

C HAIR : Massimo Motta P ARTICIPANTS : Rafael Allendesalazar Albrecht Bach Simon Bishop Onno Brouwer John Cooke Lorenzo Coppi Kris Dekeyser Claus-Dieter Ehlermann John Fingleton Ian Forrester

Bill Kovacic Lynda Martin Alegi Kirti Mehta Ann O’Brien Jorge Padilla Emil Paulis Dan Rubinfeld Jim Venit Stephen Wilks

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Panel VI, part one: Policy consequences for public enforcement MASSIMO MOTTA: Let’s get back to work, now. The focus of the following speakers will be the lessons to be drawn, from our reflections and discussions, as regards public enforcement. Kirta Mehta and Simon Bishop will be talking about settlements in cartel cases, and then Ian Forrester and Jorge Padilla will address Article 9 commitment cases.

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KIRTI MEHTA: Thank you. The discussion yesterday showed that we all have different motivations for adopting a settlement procedure at the level of the EU. We need to bear in mind that this procedure is part of a broader program of a fight against cartels. We are developing a good record on that score, but it is not a very old record. So we still have to be concerned about establishing and maintaining the credibility of the program, and we have to reinforce its deterrent effects. In our paper,1 you will see that we have confined this procedure to cartel cases, and within that context we suggest that the impact we can have in some cases will be stronger than in others. A company has neither the obligation nor the right to settle, although in the draft Notice2 there is a discussion of some of the factors that will affect whether it is advisable or not to settle in a given case. We have proposed doing this in the time interval between a full investigation and the preparation of an SO. Normally, in a cartel case that is triggered by a leniency application, after a maximum of a year we have a very good idea about the nature of the cartel: the identity and role of the parties, the products, the geographic scope, the conduct, and so on. From that point on, the procedure is quite heavy. Much of what we do, during and after the investigation is screening for confidentiality and business secrets. We have documents, prices, microeconomics, information exchange, discussions, all of that goes in the file. But then much of this is claimed to be confidential between the parties. And the screening has to be done not just once, it may have to be done a few times because once the parties receive our requests for information, they see where the investigation is going and they review a document that they submitted previously and they’ll claim that other documents should also be confidential, and they’ll take something out and so on. All of that is part of the normal preparation of the file. If we then had to fully prepare an SO before going forward with a settlement, we would not save very much time or

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1 Kirtikumar Mehta and María Luisa Tierno Centella, “EU Settlement Procedure: Public Enforcement Policy Perspective”, this Volume, p. 391. 2 Draft Commission Notice on the conduct of settlement proceedings, 2007 OJ C255/51. The final version of the Notice was adopted as 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, 2008 OJ C167/1.

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resources in the procedure, even if we would likely have a more solid case in the event of an appeal. A second point relates to “hybrid” cases. The draft Notice doesn’t really exclude the possibility of settling with some parties but not others. But as I said yesterday, in that case the settlement would not result in the savings we are looking for. Already today we often have cases where some of the parties waive some of their rights, such as the right to an oral hearing. The only way for us to have a sufficient mass of savings is if there is a settlement across the board. We would also like to obtain these procedural economies, and a reduction in the length of procedure, while maintaining the full effectiveness of our leniency program. Leniency now is in its third version. It is now in a state in which it works extremely well. We don’t want to do anything that would reduce the incentives for parties to come forward and seek leniency. Often parties come to us the day after the inspection and they want to settle. “Just tell me what the fine is, I want to settle.” That is certainly a premature moment for us to think about settling. Before we do that we need to have done a sufficiently thorough investigation. And the parties need time too. They need to do due diligence, and then both sides, after developing an adequate understanding of the case, can have a fruitful discussion. On the use of the word “discussion”, I don’t think this is just semantics. We’re really not having negotiations. In a first phase, the Commission will have to assess whether all the parties might settle. If you see already at that stage that there are different opinions, and different level of contestation, then we should simply follow the normal procedure. It might take a year longer, but at least it’s on its way. In other more appropriate cases, we will request permission from our Commissioner to go ahead and explore the possibility of settlement. In that case we can talk about things such as our understanding of the infringement, the product and geographic scope, the nature of the cartel and so on. We would also discuss leniency with a party and we would discuss where they are in the band and what we think their contribution of the evidence has been. The other item to discuss would be the fine range. Some people have said that the Fining Guidelines3 are not so transparent, and that it’s not easy to carry out the calculation and get a number. What has changed is that now you have to look at the affected direct or indirect sales of each party. And already today in this context there is always a discussion. The party says, “These sales are not covered by this infringement,” or “The parties did not discuss this in the meeting that you have evidence of,” and so on. But none of this is a negotiation. We share with the parties what we think is at stake, and they try to persuade us that we are right or wrong about certain points. 3 Commission, Guidelines on the method of setting fines imposed pursuant to Article 23(2)(a) of Regulation 1/2003, 2006 OJ C210/2.

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Panel VI—part one: policy consequences for public enforcement 607 In the second part of the Fining Guidelines, once you have the affected sale, then you also have the issue of the percentage that will be applied. As people have found out, the Commission has not simply applied 30% in all instances. Instead, we have looked at each case and applied a percentage that we find proportionate under the circumstances. So we have things that we can discuss, and then the parties will be in a position to take an informed decision about whether they want to make a settlement submission, or whether they want to walk away. Of course, if they walk away at a late stage, that’s quite a problem for us. We would like to be sure that we don’t end up with a double procedure. Then there is the question of how much of a discount the Commission should offer, and Massimo has suggested 15%. This is something that has to be decided. We also have to consider the impact on leniency, because number two is already in the band of 30 to 50 percent. The settlement discount will be added on top of that. We also have to bear in mind that we are proposing a uniform reduction. It will not vary according to when you come in. In some systems it varies: it’s higher in the beginning and lower later on. In our system the leniency program will reward basically up to three applicants, but not much more. All of that suggests that the discount for a settlement will be quite small. Our assessment is that parties will settle cases if they know that the options are: either you settle, or there will be a decision anyway. Finally, as to the impact on private litigation. There I think there may potentially be some acceleration or private suits, but those are precisely the cases where the parties have already decided to take care of their private litigation. And from this you can see that there is a linkage between the fines and the leniency policy. Leniency doesn’t work if the fines are very low, and we’ve known that for a long time. You also have a linkage between leniency and private litigation. Parties will not come in as a leniency applicant if doing so will expose them to costly private litigation. 䉴 SIMON BISHOP: I’m supposed to talk about things I ought to know, but after this morning’s discussion I realize that I’m going to be talking about things I clearly don’t know. And I’ll make four points from a position of ignorance. The first is that the settlement process is part of a wider effort to maximize deterrence. So that should be our principal question: what is the impact of a settlement procedure on the deterrence of cartels? Now I’ll make two vague, bold statements, and then I’ll raise a question. The first vague, bold statement is: the leniency program will be much more effective in deterring cartels than the settlement procedure. Why? Because the leniency program goes directly to destabilizing cartels. So we should make sure that anything that we do with settlements doesn’t undermine the deterrence effect of leniency. The second vague, bold statement is that settlements don’t necessarily free up resources. When I read this proposal, and when I read about bilateral negotiations, I don’t imagine that these bilateral

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negotiations will be a half-hour and that’s it. For a number of participants they’re going to be drawn out over time. The question is: what has been the impact on deterrence? We’ve got the leniency program, and we’ve had increased fines. What has been the impact? Are we actually just seeing more discovery of old cartels, or are we—more importantly—deterring the emergence of new cartels? More research on that would be an important area of work. The second point is another question. When should authorities use a settlement procedure? Should they use it when they have a weak case or a strong case? If they’ve got a weak case, then a settlement is just a cop-out. But in that case, why would a firm ever accept that? On the other hand, if the authority has a very strong case, why would you ever let these firms off easy? Why not follow through to the end of the case and maximize the penalty in order to improve deterrence? Let me make an alternative suggestion which is based on two heretical points in the cartel area. Just as we know that traffic offences have different outcomes, we also know that different cartels have different impact on consumer welfare. Yes, all cartels are per se illegal, but not all cartels have a significant adverse impact on welfare. Some only have a minor impact, and some have none at all. We know that from the economic theory on the stability of cartels. And although the courts have said that the very act of concluding a collusive agreement must have an adverse effect on competition, that’s not correct from an economic perspective. If we accept that there are bad cartels and then really bad cartels, where only the really bad cartels have an adverse effect on competition, why don’t we think about using that as a filter for evaluating when to consider settling a case? As with any proposal, there are benefits and costs. The benefits of an effects-based system would be that you only settle with those cartels that have not had significant negative effects on consumer welfare. Yesterday Dan Rubinfeld pointed out that people might not settle if they fear private actions. If the authority only settled with cartels that haven’t had a significant impact on competition, you won’t eliminate private litigation, but you will put a ring fence around it and provide firms with stronger incentives to settle. What are the costs? Typically, the Commission and other authorities have quite rightly steered well away from trying to prove effects in cartel cases. It’s difficult, it’s time-consuming, the Commission doesn’t have the time or the data, and it would run contrary to the whole idea of freeing up some resources. But what if the onus were placed on the firms? What if they could come forward with evidence of the effects of the cartel? Then it would be up to the Commission to make a judgment as to whether that evidence is sufficiently robust to make the case appropriate for settlement rather than litigation. My third point is yet another question. What’s the rush? Does it really matter if decisions take an average of three years instead of an average of two years? Once a cartel has been uncovered, then typically the behaviour in

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Panel VI—part one: policy consequences for public enforcement 609 question ceases. So what is the rush to invite these people to settle? Do we need more and more resources because we believe that cartels are being formed on a daily basis, in which case we’d better hurry up and catch all of them? Or is leniency actually having a genuine effect on deterring the formation of new cartels? The final point is: we need to be careful about what we do with the resources that we save by way of settlements, assuming that they are freed up in the first place. It is important not to engage in fishing expeditions. And if there are expeditions, it’s important to ensure that those are quickly closed down. The example that I’ll give here is the mobile roaming case.4 There the companies were raided on suspicion of cartel behaviour, but so far as I’m aware no documentary evidence was found. It was translated into a collective dominance case, and then a single dominance case, at which point it was finally closed. 䉴 MASSIMO MOTTA: Thank you very much. Now we will hear about Article 9 commitment cases from Ian and Jorge.

IAN FORRESTER: I’m going to make a few remarks from the point of view of a practitioner and an occasional teacher. As always, it’s useful to begin with history. I’d suggest that European competition law has always been characterized by an element of private negotiation between the public authority and the private party, a certain confessional closeness between the official and the company. These negotiations in some cases may be exasperating, hostile, maybe bad-tempered, quite lengthy, with a lot of horse trading and concessions made back and forth, and finally, if all goes well, a successful conclusion. That was how it was with notifications. Exemptions were rare, occasional grants of legal stability in exchange for heavy commercial concessions. And the exemption decisions made new law. So in theory, the new law advanced by the decisions of the Commission was produced by a bargaining process initiated by a request by the company for a stamp of approval. Exemptions were the vehicle for advancing new legal principles. The next point is that there is very much to be said for made-to-measure negotiations between the party and the public authority, rather than the notion of block exemptions. However, I suspect that the new decisions will become as block exemptions: new standards for behaviour in the marketplace. So a decision with respect to how much information is supplied by car companies to independent repair shops is going to set a standard followed, in effect, by all car companies if they’re wise. A consequence of that is that the new Article 9 principles are likely to become a kind of mandatory practice, in reality if not in theory. This is perhaps a far-fetched analogy, but I’m

䉴

4 See Press Releases IP/04/994 of 26 July 2004; IP/05/161 of 10 February 2005; IP/07/1113 of 18 July 2007.

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reminded of the precautionary principle used in scientific regulation: if there’s doubt, if there’s controversy, then it’s appropriate for the public authority to prohibit the behaviour or the product temporarily so that it has time to think about it. The precautionary principle has a vice, and that is that it assumes that society is better off if the behaviour or product is prohibited. But that’s not necessarily the case; we simply don’t know whether it’s good or bad. I fear that there may be a certain ratchet effect of Article 9 commitment decisions which gradually impose a set of burdens on enterprise, though just yet we can’t be sure. The danger, of course, is to end up with a marketplace which is regulated by competition law enforcers acting in the best possible good faith. Let’s look at the question from the point of view of the company, particularly in Article 82 cases, which is the current intellectual wild west. There are many, many reasons why a company would prefer to settle rather than digging in and fighting out a battle. Indeed, in the context of discounts, it’s likely that a company like British Airways will be able to do a better deal with the Commission in private negotiation compared to what the outcome would be if the case were litigated in Luxembourg.5 When we have light judicial review in Luxembourg, particularly in fact-rich cases, this means that a company which is condemned has a much worse chance of prevailing on appeal as to the legality of its business model than a company that settles a case by offering commitments. So everyone agrees—I even quoted Abraham Lincoln in my paper—everyone agrees that settlements are better than litigation. You have bargained-for remedies, you have speed, and you avoid litigation with its uncertainties and its delays. For the institution there is the possibility to advance the law, and for the company there is stability as to its business model. My prediction is that respect will be given somehow to the Commission’s Article 9 decisions, although it’s clear from this morning’s discussion that we’re not sure exactly how that’s going to work constitutionally. A word on the selection of cases. Here again it’s no surprise that the cases which have thus far been taken under Article 9—which are listed in my paper, and in Heike’s paper too—are cases about foreclosure, where the competition authority changed how the marketplace worked. In the context of energy, the companies had to give very substantial commitments as to their future behaviour, commitments which aren’t obvious just from looking at Articles 81 and 82.6 And the car companies had to give, on very precise terms—how many euros per hour, how many hours per week—detailed information, secret 5 To imagine what such an outcome might look like, see Case T-219/99, British Airways v Commission [2003] ECR II-5917, upheld: Case C-95/04 P, [2007] ECR I-2331. 6 Commission Decision of 26 November 2008, Cases COMP/39.388—Germany Electricity Wholesale Market and COMP/39.389—Germany Electricity Balancing Market, http://ec.europa.eu/competition/antitrust/cases/decisions/39389/en.pdf; RWE, Commission Decision of 18 March 2009, Case COMP/39.402—RWE Gas Foreclosure, http://ec.europa. eu/competition/antitrust/cases/decisions/39402/en.pdf.

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Panel VI—part one: policy consequences for public enforcement 611 information, to independent car repairers.7 Those concessions clearly went beyond what was called for by the Block Exemption Regulation.8 That’s not necessarily a bad thing, but it’s clear in that case that, judging from what the companies committed themselves to, there was an extension of what’s required by the jurisprudence and what’s required by the Regulation. So we can imagine the creation of new law, in a very interesting and stimulating way, via commitment decisions. Now I would invite us all to go back a few years and imagine what would have happened if we had the commitment procedure say, in 1990. Imagine if Oscar Bronner 9 had been the subject of a commitment decision. Suppose Mr Bronner had come to the Commission saying: “There are generally two methods of distributing of newspapers; first, there’s the conventional method (newspaper stands and kiosks, vending machines and so on) and then there’s home delivery throughout the country. I want to use the much more efficient nation-wide home-delivery model.” Suppose the Commission had taken that up. Well, we would have missed the splendid Opinion of Advocate General Jacobs and the interesting judgment of the Court of Justice about private property. Imagine that Volvo/Veng 10 had been settled, or Tiercé Ladbroke,11 the case about horse race footage in betting shops. Or the essential facilities cases.12 On that last point, perhaps the law today would be where the law is. But if any of the other cases had been settled, I think we would be looking at law today that would be significantly different. Might be good, might be bad, but it would certainly be different. I make those points to suggest that settling cases via Article 9 has a huge attraction, but that—if we project forward five years—their impact on the law is likely to be enormous. Their constitutional status is unsure, but that will be tidied up in due course. I offer a couple of conclusions. It’s part of the genius—if that’s the word, it probably is—of this continent to prefer that which is settled to that which is litigated in court. It’s part of our history, and it’s part of how competition law is advanced in Europe. And that isn’t to be criticized. The risk that we should be concerned about is that Article 9 will be used to advance the law too far, and imprudently, in new areas that escape judicial review. 7 Commission Decisions of 13 September2007, Case COMP/39.140—DaimlerChrysler, 2007 OJ L317/76; Case COMP/39.141—Fiat, 2007 OJ L332/77; Case COMP/39.142— Toyota, 2007 OJ L329/52; Case COMP/39.143—Opel, 2007 OJ L330/44. 8 Commission Regulation (EC) No 1400/2002 of 31 July 2002 on the application of Article 81(3) of the Treaty to categories of vertical agreements and concerted practices in the motor vehicle sector, 2002 OJ L203/30. In particular, see Article 4(2) of the Regulation. 9 Case C-7/97, Oscar Bronner [1998] ECR I-7791. 10 Case 238/87, Volvo/Veng [1988] ECR 6211. 11 Case T-504/93, Tiercé Ladbroke SA v Commission [1997] ECR II-923. 12 Joined Cases C-241/91 P and C-242/91 P, Radio Telefis Eireann (RTE) and Independent Television Publications Ltd (ITP) v Commission [1995] ECR I-743; Case C-418/01, IMS Health [2004] ECR I-5039.

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My final word is about the procedure of the Commission today in taking decisions. At the moment, those procedures simply are not adequate. Politicians who don’t know the case should not decide the case. Hearings should be proper hearings. And there is an intoxication with fines which is embarrassing. Those weaknesses, and others, make settlements via commitment decisions all the more attractive for the private company. Faced with a choice between a possible condemnation and the chances of ultimately winning in several years’ time, on the one hand, and an unattractive but potable settlement commitment on the other, almost any company would say, “I’ll take the settlement, thank you.” Therein lies the danger. And the opportunity. So those features which make commitments attractive to the company do not exempt the Commission from considering further reforms to its own procedures. And I hope it does. 䉴 JORGE PADILLA: First of all, thanks to Claus, Mel and the three chairpersons for a super event. Before being invited to participate, all that I knew about Article 9 were five things. First, a client of mine had tried to settle an Article 82 case, but the Commission wanted to use the case to clarify the law and establish a precedent. Second, two other Article 82 clients considered whether to offer commitments, but they declined because they argued that the Commission, thinking that it had a strong case, would refuse to enter into negotiations. To be frank, it was not clear to me that the clients really wanted to try to negotiate. Third, IBM settled with the Commission in 1984.13 There was no formal decision, but there was a settlement. I thought that was interesting, in particular because of the parallels between that case and the Microsoft case, including the fact that they both involved interoperability and bundling.14 Fourth, Coca-Cola also settled.15 I was not involved in that case, but I read the commitments and they seemed to be quite harsh for the company. I couldn’t tell whether that implied bad negotiations, or whether the negotiations were simply taking place in the shadow of bad case law.16 Fifth, a group of Article 81 clients were convinced that, unless they followed the “suggestions” of the Commission’s case team, they would not be able to settle the case. This was not because of the net effects of the conduct on competition and consumer welfare, but because of wider—much wider—

13 See Bulletin of the European Communities, 10-1984 (point 3.4.1); Commission, XIVth Report on Competition Policy, 1984, points 94–95. See also Commission Press Release IP/88/814 of 15 December 1988 14 For discussion of these parallels, see John Vickers, “A Tale of Two EC Cases: IBM and Microsoft”, 4(1) Competition Policy International 2 (2008). 15 Commission Decision of 22 June 2005, Case COMP/39.116—Coca-Cola, available (in French) at http://ec.europa.eu/competition/antitrust/cases/decisions/39116/commitments_ en.pdf. 16 For a walk through that shadowy place, see Robert O’Donoghue and Jorge Padilla, The Law and Economics of Article 82 EC, Hart Publishing, 2006, pp. 381 et seq.

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Panel VI—part one: policy consequences for public enforcement 613 regulatory and industrial policy concerns. Whether they were right or not, I don’t know. These five observations raise a number of questions. The first is: what are the public interests and the private interests in reaching a settlement? Are the incentives of the enforcer and the firms likely to diverge, and if so, why? Second, from a social perspective, and taking into account ex ante deterrent effects but also future implications, will there be too many settlements? Too few? Second, what can be done to mitigate any adverse effects that settlements might have on social welfare? How can potential negative effects, in terms of deterrence, be mitigated? Are there complementary measures that can be adopted together with a settlement policy to ameliorate potential problems that might result from settlements? These are the questions that I tried to answer in the paper I wrote for this Workshop with Kirsten Edwards.17 The paper benefits from the work of Wouter Wils,18 and some would say that the paper explains, in Greek letters, what Wouter has already explained in plain English. The paper is still a work in progress, but let me tell you about our preliminary conclusions. Some are not surprising. Others are a little bit surprising, and I hope you will see there the added value of the Greek letters. The first point is that the private incentives to settle are greater when—this is no surprise—they are greater when litigations costs are large, when the expected fine is large, when there is a significant probability of an adverse decision that will be upheld by the courts, and when (in particular in Article 82 cases where there might be Article 9 negotiations) the additional profits that the defendant can achieve by continuing with its anticompetitive strategy during and after the litigation period are small. That’s when a defendant will be willing to settle. And note the last point about extra profits. Those extra profits, i.e., the profits the defendant make by delaying and continue litigating and appealing may be particularly large in industries where, due to consumer switching costs, consumer inertia or network effects, tomorrow’s profitability is positively affected by today’s actions. The second result is that the incentive of a competition authority to settle is greater when, first of all (and this is the mirror image of the last effect I just mentioned), the sacrifice in consumer welfare resulting from continued or unsuccessful litigation is large. Second, and this is more standard, the authority’s incentive to settle are greater when litigation costs saved by the settlement exceed the costs of the settlement, both in terms of lost fines and, more importantly, in terms of diminished deterrence. Third, when the preferences of the competition authority in terms of consumer welfare and deterrence faithfully reflect those of society, then we 17 Edwards and Padilla, Antitrust Settlements in the EU: Private Incentives and Enforcement Policy, this Volume, p. 661. 18 See Wils, “Settlements of EU Antitrust Investigations: Commitment Decisions under Article 9 of Regulation No. 1/2003”, 29 World Competition 345 (2006).

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prove that there may be too few settlements, but never too many. In those cases, it may be optimal to adopt measures such as, for example, cost-shifting provisions that increase the incentive of the defendants to settle so as to minimize the negative impact of delay on consumer welfare and efficiency. Fourth, when the preferences of the authority are biased towards deterrence—and there are reasons to believe that they may be, due to things such as career concerns—if there is such a bias, then we may see an insufficient number of settlements. Conversely, if the preferences of the authority are biased towards short-term consumer welfare due to, for example, populistic preferences, and if the authority undervalues the long-term effects of its decisions on deterrence, then you may have too many settlements, and diminished deterrence. The next result is that defendants are less likely to offer commitments precisely in those cases where commitments are more valuable from a social perspective. That is more likely to happen, ceteris paribus, in industries where today’s actions have an impact on tomorrow’s profitability, which is to say industries characterized by consumer inertia, switching costs and network effects. Competition authorities, as I said, may settle too often or too seldom, when there are biases in their preferences with respect to the preferences of society. Those agency problems have to be taken into account dealt with. To do that, there are several possibilities, both organizational and institutional. For example, one factor is that level at which the decision whether or not to settle, since a more senior decision-maker may be less influenced by career concerns. As for institutional factors, judicial review, for example, might alleviate those agency problems. There may also be agency problems on the side of the defendant. The preferences of those who represent the defendant may not be perfectly with the preferences of the defendant’s shareholders. That may happen because managers have diverging interests, or it may happen because some people earn fees out of long processes. The next result is that, as Massimo and Wouter both noted yesterday, the option to settle may also have perverse effects on deterrence. To counter those effects, there is a need for complementary measures. When a settlement procedure is introduced, more money and human resources need to be devoted to the task of detecting infringements. Otherwise, if settlements ramp up without an increase in the likelihood of detection, deterrence may be undermined. Finally, the impact of private enforcement on defendants’ incentive to settle is likely to be positive. Here there is a positive complementarity between private enforcement and settlement policy. Remember, one of the key reasons why a defendant may not want to settle is because it thinks that by drawing out the litigation, in the end perhaps there may be no finding of infringement. This can affect future profits, since today’s actions can affect the structure of the market in the future. To the extent that, through private litigation, those extra profits can be taken away, the incentive to settle will be aligned with

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Panel VI—part one: policy consequences for public enforcement 615 those of the competition authority and society, and the bias towards too few settlements may be corrected. We need to do several other things to complete the paper. Among other things, we’d like to examine the implications of a repeated game in which my decision to settle today may signal what kind of individual I am and what kind of exposure I have to the competition authority. And in the end we’d like to be able to rationalize why, in the two cases I mentioned earlier about interoperability and bundling, one was settled and the other was not. What were the reasons for that, and what were the implications for social welfare of these two different outcomes. That’s a very difficult task, and I’m not sure that our Greek letters, as they are, help us much. 䉴 MASSIMO MOTTA: Thank you, Jorge. Now we can proceed with discussions of how the settlement procedures we’ve been talking about might affect private litigation in Europe.

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Panel VI, part two:

Policy consequences for private enforcement

KRIS DEKEYSER: I’ll be talking about the interaction between public and private enforcement, and about the effects which cartel settlements and Article 9 commitments may have on private enforcement, but I think our discussions from yesterday and today show that we are still facing a learning curve. It is not so obvious to predict how all of these relatively new initiatives would or should interact. As John Fingleton said yesterday, the European system is far from being mature, and both public and private enforcement are still evolving. So I will follow the advice of an English law professor, who told his students a couple of years ago to treat the questions in the bar exam the way they treat the Ten Commandments: under no circumstances should you attempt more than five. So I will limit my intervention to five points. First, I will review some of the principles underlying the White Paper,19 because I think there are still some important misunderstandings. Second, I will touch upon the effects of public enforcement on private enforcement on a general level. Then I will look at the impact of cartel settlements and Article 9 commitments on private damages actions from three perspectives: that of an enforcer, that of victims and that of infringers. Beginning with the White Paper, if we recall certain underlying principles, this may explain why some policy options were preferred over others. The first principle is compensation. This distinguishes the White Paper from the US model of private enforcement. There, for historic reasons, private enforcement was seen as a means of achieving deterrence. In Europe, our aim is to ensure that victims are compensated. This is the reason why in Europe, for example, we do not envisage multiple damages. The principle is single damages for losses sustained—not only actual losses but also lost profits, plus interest. So this is a European approach, and you will see a European approach if you look at the proposals on access to evidence,20 for example, or collective redress.21 You will see that we have built-in filters to avoid excessive litigation. But another important principle underlying the White Paper is that we want to preserve strong public enforcement of Articles 81 and 82 by the Commission and by the European Competition Network as a whole. So we want to optimize the relationship between public and private enforcement so that they can mutually strengthen each other. This means that measures that 䉴

19 White Paper on Damages actions for breach of the EC antitrust rules, COM(2008) 165 final of 2 April 2008. 20 Ibid., point 2.2, pp. 7–8; Staff Working Paper, SEC(2008) 404 of 2 April 2008, chapter 3. 21 White Paper, point 2.1, p. 4; Staff Working Paper, chapter 2. See also European Parliament resolution of 26 March 2009 on the White Paper on damages actions for breach of the EC antitrust rules, 2008/2154(INI). The corresponding Report of Rapporteur KlausHeiner Lehne of 9 March 2009 is available at http://www.europarl.europa.eu/sides/getDoc. do?pubRef=-//EP//NONSGML+REPORT+A6-2009-0123+0+DOC+PDF+V0//EN.

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Panel VI—part two: policy consequences for private enforcement 617 are put forward to facilitate private enforcement should not jeopardize our public enforcement. There are a number of consequences flowing from those principles for the general regime of damages actions. A clear example is the so-called “investigative privilege”, which is also put forward in the White Paper.22 We must avoid any undue requests for disclosures in ongoing antitrust investigations when they are still in a phase in which they are rather critical. That’s why we have proposed a rule according to which courts hearing actions for damages should temporarily refrain from adopting a disclosure order if it would jeopardize an ongoing antitrust investigation. The same need to preserve the effectiveness of public enforcement implies absolute protection of corporate statements. As we all know, leniency is critical for detecting cartels, and it is therefore also essential for follow-on actions. For that reason we insist on absolute protection for corporate statements submitted to any enforcer within the ECN, regardless of whether the application for leniency has been accepted or rejected, and regardless of whether it was submitted before or after the decision. Even voluntary disclosure by leniency applicants should be prohibited, at least until after the SO is issued; otherwise, such disclosure might jeopardize our investigation. The same logic applies for settlement submissions. Another mechanism often discussed in order to protect leniency programs is the preclusion of joint liability of the successful immunity and/or leniency applicants. On this point our ideas are less crystallized. What we have put forward in the White Paper is more typical of a Green Paper; it’s certainly not a fully-fledged recommendation, so there we’d like to have extensive feedback. The possibility that we raise there is to limit the liability of successful immunity applicants to claims made by their own direct and indirect contractual partners. So successful immunity applicants would remain liable on the civil side, but the scope of damages to be paid would be more limited and more predictable. Before reaching clear conclusions on this we need to consider how that fits in with the principle of compensation, and how it would impact other leniency applicants, in particular the highest-ranked leniency applicants. Coming to the specific effects of commitment decisions on private enforcement, in conferences you often hear the question: “If the Commission wants to promote more damages actions, does that it mean it will be more reluctant to take commitment decisions?” The answer, of course, is clearly no. The Commission acts in the public interest, and not necessarily in the interest of private plaintiffs. We have already heard this morning that, unlike Article 7 decisions, an Article 9 decision does not contain any finding of an infringement. Therefore a private plaintiff in a case concerning the same facts would have to establish the illegality of the agreement or practice, as a first step toward obtaining damages. One could argue that an Article 9 decision would nevertheless 22

See Staff Working Paper, cited supra note 20, point 119.

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be helpful because, in the White Paper, we suggest that national courts should be able to order the disclosure of certain categories of evidence provided that the claim is plausible and provided that the disclosure request is proportionate.23 An Article 9 decision could help plaintiffs meet the plausibility test, depending on the weight the national court gives to the decision. What about cartel settlements? These are Article 7 decisions, which means they are binding on national courts as regards the existence of an infringement. It is true that a decision adopted following a cartel settlement procedure will be less rich in facts than a normal Article 7 decision, but victims can rely on such a decision before a national judge in order to meet the threshold for inter partes evidence disclosure. In any event, it is clear that victims will need much more than just the establishment of an infringement. Obtaining an evidence disclosure will be crucial to establishing a causal link between the infringement and the plaintiff’s damages, and to quantify those damages. Finally, settlements in cartel cases would facilitate a better management of enforcement resources. This will lead to more decisions, and to that extent it will generally contribute to more private enforcement. From the perspective of infringing parties, a cartel settlement is only an option where there is a common understanding on the part of both the enforcer and the company on the main parameters of the case, i.e., the object of the cartel, the duration and the main facts. So the real issue will be the amount of the fines, and the level of detail in the decision. As Kirti said, some people argue that defendants will be less likely to settle if they think there will be immediate follow-on actions. I would respond that this is by no means certain, for a couple of reasons. First, if one day an effective system of private enforcement emerges, we would expect that those private actions will be brought anyway. So the incentive to settle would be entirely preserved. Second, opting for a delay rather than settling may not be the most intelligent strategy. If follow-on actions are brought three or four years later, the infringer will have to pay interest at the legal rate, which can amount to a significant sum of money. Finally, today companies are increasingly developing a multi-jurisdictional leniency and settlement strategy. They put all the parameters on the white board: exposure to civil, criminal and administrative penalties, both for companies and employees, and jurisdiction by jurisdiction but also on a cumulative basis. This may result in an overall strategy by the firm to cover itself as much as possible on the public side, and to turn the page as quickly as possible to get back to normal business. If this is the business strategy which has been adopted worldwide, the European settlement scenario may very well fit in that strategy. I don’t think I need to cover the effects of Article 9 decision on private enforcement, as we discussed that extensively this morning. Let me just 23 White Paper, cited supra note 19, p. 5; Staff Working Paper, cited supra note 20, paras. 98–109.

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Panel VI—part two: policy consequences for private enforcement 619 conclude by saying that I would call public enforcement through settlements and commitments and private enforcement faux ennemis. It is true that some safeguards must be put in place, such as investigation privilege and so on. It is also true that the choice as to the type of procedures can have implications for victims claiming damages. But if you have effective and efficient public enforcement, that should only present advantages for plaintiffs who have suffered harm. LORENZO COPPI: Like Kris I’ll be addressing the interaction between settlements and private litigation. I’ll begin with a series of remarks and I’ll finish with some policy considerations. The first observation is that there are two effects which are consistently referred to in the context of settlements and their impact on private litigation. Settlements bring forward the time at which private damages must be paid; and they may affect the amount of information available to plaintiffs. On this last point, there does not seem to be a consensus on how it affects the information available. There may be more or less information, or it may have no effect, and all of that is relevant for the award of damages, but we don’t know yet how it will play out in practice. What can we say about that from the perspective of economics? When a firm deliberates on whether to settle, it will weigh the pros and cons of settling rather than appealing. On the one hand, appealing may allow a firm to delay payment. Kris has just made the point that this factor may not be particularly important, and for some firms that is true. Firms in a good financial position which would expect to pay high interest charges in the future won’t have a strong incentive to delay payment. By contrast, other firms may have an interesting in delaying payment if their CEO has a low horizon, or if they have a cash flow problem (e.g., a company like General Motors, borrowing at 12 percent interest). On the other hand, there is also an incentive to close the book. This is related to financial factors, but it can also be related to the personal preferences of the CEO, the CFO or other key managers. Corporate governance can be another factor. What would incline a firm to appeal? The objective, of course, is to obtain a reduction in fines. Massimo has told us that a purely risk-neutral firm should expect about a 25 percent reduction just from looking at past court decisions. Now, a firm will discount that figure if it is risk-averse, and so it may prefer a certain 15 or 20 percent reduction of the fine to an uncertain 25 percent reduction. On the other hand, by settling a firm avoids legal costs, including the internal resources used by the company in litigating. Those costs may be significant, and their relative importance will depend on course on how high the fines are. Now these are the pros and cons of appealing, and in principle the competition authority does not have any effect on these, they are independent of the authority’s policies. However, a settlement policy, and the way it is designed, can have some effect. In particular, this relates to the possibility that more or

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less information in a decision will lead to higher or lower expected damages. The final instrument that the authorities have in influencing a firm’s decision of whether or not to settle is obviously the settlement discount. How do we weigh all of these factors and evaluate a firm’s incentives? Quantitative values can be assigned to the expected costs and the expected benefits of settling a case, and for those of you who like formulas, equations and Greek letters, we have included a few of those in our paper.24 A firm that is in a good financial position and derives no benefit from delaying and litigating will require a relatively low discount to be persuaded to settle. The main tradeoff is the loss of the right to appeal, which has some value due to an expected fine reduction, and we discount that value on the assumption that the firm will to some extent be risk-averse. In the other scenarios I mentioned, where a firm has a cash flow problem, or it’s borrowing at 12 percent, or the CEO is at the end of his tenure and prefers to let the next CEO deal with the case, in these types of situations the required discount may increase dramatically. We have to consider another factor as well, because the Commission can decide how much information is included in the settlement decision. This may have an effect on the expected amount of private damages. If a settlement decision contains all of the information found in a normal decision, which is the OFT approach, then this effect will be neutral. On the other hand, if the Commission issues a settlement decision that is streamlined in such a way as to result in lower damages, then we would expect that the discount offered to a settling firm could be lower. My final two policy considerations are the following. First, we have carried out our analysis under what is called an “indifference” condition. That is to say the firm, when carrying out this cost-benefit analysis is indifferent between settling and appealing. The Commission should not necessarily be concerned about offering a high discount from the fine because a high discount does not necessarily result in underdeterrence. If the Commission also considers the effects of private litigation, it can offer a higher discount while still maintaining a level of deterrence. Second, as I said, the Commission can decide on the fine discount and it can control the amount of information in the settlement decision. In the rarefied world of economic theory and policy, one could argue that the Commission should offer a relatively high discount and put a lot of information in its decision. This would maintain a strong deterrent effect; it would promote compensation to plaintiffs, which is a stated objective of the Commission; and it would induce firms to settle, resulting in the procedural efficiencies that the Commission is hoping for. However, in real life, as my five-year old likes to say, I can see why the Commission might not want to do that. This is because 24 Lorenzo Coppi and Robert Levinson, “The Interaction between Settlements and Private Litigation—An Economist’s Perspective”, p. 687.

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Panel VI—part two: policy consequences for private enforcement 621 overall deterrence would remain constant, but the onus of deterrence would be shifted from public enforcement to private enforcement. The Commission would effectively be subcontracting deterrence to private claimants. So I can see why that would not be the Commission’s preferred approach. MASSIMO MOTTA: Thank you, Lorenzo. Now we open the debate, and I have a long list of people waiting to intervene. First is John Fingleton. 䉴

䉴 JOHN FINGLETON: I have four quick points. I like Simon Bishop’s attentiveness to the degree of consumer harm. But in cartel cases I don’t think we should be moving toward a system where agencies have to prove significant consumer harm. That would have the kind of impact on deterrence that we definitely don’t want. And I certainly don’t think it’s incentive-compatible to have companies measuring the harm for us—that creates all kinds of incentive problems. So I don’t think that’s going to be the answer, and it’s a difficult question. Coming to the question of “what’s the rush”, apart from the fact that there is huge pressure on agencies to deliver results, it’s important to underline that the cartel immunity tool provides no deterrence in and of itself; it is an investigative tool. It’s the sanctions that provide deterrence, and there are lots of examples of countries that have well-defined immunity tools and procedures, but they don’t have any immunity applicants, and that’s because they have no sanctions. But countries with strong sanctions have lots of applicants. And if the sanction comes earlier, then the deterrent effect will be felt earlier too. Waiting three or four years for a decision would make a difference. Third, heads of agencies have the difficult job of incentivizing staff to deliver results on time, and that will create pressure for settlements, and at the same time there is also the task of ensuring consistency and quality, and making sure consumer welfare is taken into account. One of the things that might be nice to bring out in Jorge’s paper 25 is the internal structure of the agency. At the OFT, Ali Nikpay and our Chief Economist, Amelia Fletcher, both have to be happy with the overall framework of a decision. Tensions might arise in some instances between the case team’s rush to get things done or to settle a case and the other objectives, in performance management terms, that we have on the policy side. And you might see similar tensions within the Commission, whether it’s internally within DG Comp, or between DG Comp and the Legal Service. So I think that the internal structure of the agencies can be a terribly important safeguard and it helps to sustain the balance between the need to deliver and the need to do what is in the public interest in the long term.

25 Kirsten Edwards and Jorge Padilla, “Antitrust Settlements in the EU: Private Incentives and Enforcement Policy”, this Volume, p. 661.

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I can introduce the fourth point with the famous story about an economics professor looking for his car keys under the light of a car park at the university, and a student comes and says “Can I help?” He explains that he’s looking for his car keys. She says, “Where did you drop them?” and he points to the dark part of the car park and says, “I dropped them over there.” And when she asks, “Well, then why are you looking here?”, he says, “I’m looking here because there’s some light here.” So what does that story mean, in our context? Well, there’s a great tendency to focus on firms’ incentives to settle by looking at things like the fine and the legal fees and so on. But in my experience, the incentive to settle has much more to do with the psychology of the individuals, reputational effects and a whole range of other factors. These may be much more subtle to model, but they’re not impossible to model, and they’re certainly not impossible to think about in a conceptual framework. So just because we can’t measure them quantitatively, we shouldn’t leave them out of the models. 䉴 DAN RUBINFELD: I have two points. First, I’m in agreement with most of what Simon Bishop said, but I wanted to raise one concern. Simon had suggested that it might make sense to settle weaker cases and proceed with stronger cases. But once an authority develops a reputation for settling weaker cases, you might have a potential unravelling. The parties will be aware of this strategy, and they may hold back on settling in the hope that the case will fade away and disappear. So it’s not clear that this kind of approach would be successful. More importantly, as some here have suggested, it’s appropriate for the public authorities to think about the precedential effects of their actions. And it’s entirely appropriate and desirable for the authorities to decide which cases really ought to proceed in order to establish good precedents. In the US, we have relatively few legal precedents each year, but if the agencies are careful in influencing the right cases and helping to make sure those cases are resolved with clarity, that can have great social value. The second point is that settlements happen, of course, because parties come to the conclusion that they’re better off settling than contesting the case further. That’s very clear. But it does not follow that settlements lead to less deterrence. It may be true, but there’s nothing automatic about that. Parties settle because by doing so they avoid risks, and one risk that is avoided is that of the substantial cost of embarking on a long adversarial endeavour. And deterrence is not measured just in terms of what the fine is; it also has to take account of the avoided costs of litigation. You can actually get very substantial deterrence in settlement cases, and indeed you can have more deterrence in a settlement case than you would if you held out and went to trial.26 26 See, e.g., A. Mitchell Polinsky and Daniel L. Rubinfeld, “A Note on Optimal Public Enforcement with Settlements and Litigation Costs”, 12 Research in Law and Economics 1 (1991).

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Panel VI—part two: policy consequences for private enforcement 623 RAFAEL ALLENDESALAZAR: On Article 9 cases, I think commitments should be reserved for those cases where a cease-and-desist order would be inefficient. And it is very difficult to design and apply sound remedies in an adversarial setting under Article 7. The authorities should avoid bright ideas, and the version of Windows which the Commission compelled Microsoft to offer is a good example of just how badly remedies can be designed.27 Now compare that with what happened in the Coca-Cola case.28 There the Commission had originally thought about imposing the same idea for drink dispensers as for freezers. So there would have been no exclusivity for dispensers. But then Coca-Cola explained that if someone got sick after drinking from a dispenser, and if it was not clear whether the faulty product was Coca-Cola’s own product or the product of a competitor, this could cause enormous difficulties. In the end, the Commission did not insist on that condition, and this shows how flexibility on remedies under Article 9 can produce workable measures that meet the goal of eliminating restrictive practices with a minimum and proportionate disruption of the defendant’s business.

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ALBRECHT BACH: I’m tempted, like Ian Forrester, to start with history, though I won’t go back to Adam and Eve. But when the proposals for modernizing the European competition enforcement system were discussed, clearly private litigation was seen by the Commission as a sort of substitute for a lessening of enforcement which was foreseen as a corollary of the abolition of the notification and exemption procedure. Are we able, at this stage, to “subcontract” some part of deterrence function to private plaintiffs? Clearly not. The discussion of private enforcement reminds me rather of Loch Ness. We talk a lot about it, and sometimes the head is seen, but it has yet to really make its presence felt, at least in most European countries. I understand that it is in the Commission’s interest to avoid stimulating private actions if there is any risk that this will have a negative effect on its enforcement activities. The question is whether, at this stage, the Commission should block access to any documents created under leniency or even under settlements. Unless the Commission firmly believes that it is capable of convincing the Member States that an inter partes discovery process should be established throughout Europe, the Commission can’t walk away and leave these crucial evidence problems to the unsatisfactory procedural mechanisms that are currently in place. What puzzles me is that, in Europe, the sorts of efforts made in the US to reconcile private action and leniency29 are not even explored. Why isn’t the

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27 See, e.g., Hewitt Pate, “The Thirteenth Chime of the Clock”, 4(1) Competition Policy International 50 (2008). 28 Cited supra note 15. 29 See the DOJ’s contribution to the OECD’s Roundtable Discussion on Private Remedies, DAF/COMP/WP3/WD(2006)34 of 31 May 2006, http://www.ftc.gov/bc/ international/docs/RdtbleOnPrivateRemediesUnitedStates.pdf, points 31 et seq.

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Commission able to ask someone who comes in for immunity to cooperate in the effort to ensure redress for those who have been harmed by the cartel. Whether that takes the form of a full disclosure or whether it is some other means of compensation, as has been proposed in the Netherlands, I simply don’t understand why solutions of that nature couldn’t be explored at the European level. It would come at a very low price, or no price at all, to the Commission. For that matter, why hasn’t the Commission explored the approach of the OFT, as described by Ali Nikpay, where the OFT says they will not settle unless they are sure that no harm is done to the prospects of redress for victims? 䉴 JIM VENIT: If we had been here ten years ago, we would have seen resistance from the Commission to leniency and certainly to private damage actions. I think we need to understand the roles of the different institutions involved in market regulation. The role of the enforcer is to detect, and to some extent, to deter. Detection means a leniency program—that’s been proven to be the most powerful means of detecting cartels. As for deterrence, it’s clear that criminal systems deter much more effectively than non-criminal systems. They also produce settlements faster, because individuals don’t want to go to jail. In terms of compensation for harm, and the redistribution of wealth, I think that is an area that’s best left to private actors litigating before courts. It’s true that there should also be a balance between that legitimate role of private enforcement and the needs of public enforcement. In the US, the DOJ was able to provide an additional strong incentive to leniency applicants by de-trebling private damages.30 But in the EU we don’t have treble damages, so we can’t hold out that carrot. But in addressing these questions, we should always be aware of what is the role of the institution concerned, and of what its proper function is. In the case of the enforcer, it should be detection and deterrence, but not redistribution and not regulation.

ANN O’BRIEN: I would agree with Dan Rubinfeld’s point that settlements can actually increase deterrence, and this is for a very practical reason. We should recall that there is specific deterrence and general deterrence.31 If you look at the speeches of the DOJ, you’ll see that our focus is predominantly on general deterrence. And as a result of the combination of our leniency and settlement programs, we are bringing more cases, and this is how we can 䉴

30 See Antitrust Criminal Penalty Enhancement and Reform Act of 2004, Pub. L. No. 108-237, § 215, 118 Stat. 665, 668 (2004). 31 Specific deterrence refers to particular sanctions and their effects on the incentives and/or capacity of individuals to violate norms; general deterrence refers to the much broader mechanism of social control arising from a system of sanctions. See, e.g., Dan Kahan, “The Secret Ambition of Deterrence”, 113 Harvard Law Review 413 (1999); Gary Kleck, Brion Sever, Spencer Li, Marc Gertz, “The Missing Link in General Deterrence Research”, 43 Criminology 623 (2005).

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Panel VI—part two: policy consequences for private enforcement 625 maximize the deterrent effect of our enforcement policy. Bringing more cases enables us to increase the overall number of convictions, and this enhances general deterrence. To put a finer point on that, our plea agreements are designed to induce cooperation and acceptance of responsibility, and these agreements result in convictions that we might not obtain otherwise. Furthermore, we might uncover one cartel thanks to our leniency program, but then with our Amnesty Plus program and the settlement process it’s not uncommon for a settling party to disclose to us the existence of multiple other cartels that we would otherwise never have detected. And from this progression of disclosures there emerges a “cartel tree” that we use to chart our enforcement actions. As for the question about whether competition authorities merely uncover old cartels as opposed to deterring new cartels, in the US we have the added deterrence of criminal sanctions. So a corporate executive sitting in a meeting between competitors, I think we can pinpoint this as a very effective element of deterrence. I do not say that in order to advocate criminal sanctions in other jurisdictions, but it is something we know very well from our experience. Certainly an executive will not tell you that he or she engages in a cost-benefit analysis before going into a cartel meeting, but corporate legal advisors in the US have told me that executives tell them they will not participate in a cartel in the US, because they don’t want to go to jail. So the criminal regime has very real deterrent effects, and I’d encourage you to talk to members of the bar and to the business community to understand how that calculation is made. BILL KOVACIC: This last round of presentations usefully illustrates three things that can go wrong in settlement or bargaining scenarios. First is the risk that the competition authority will take cheap deals, for one of two reasons. Either it is risk-averse and maybe has doubts about its capacity to execute, or else it just wants to run up the numbers. To the extent that the larger community of competition officials counts numbers as being the measure of performance, you run up the stats by settling lots of cases. The second thing that can go wrong is that you can simply make good faith errors. You either ask for too much, that is to say, more than you might need, especially where the authority insists on conduct or structural undertakings on the civil side; or you ask for too little, for example you establish a short conspiracy period when it should have been longer. The third risk, and Dan Rubinfeld mentioned this a moment ago, the authority can pay too little attention to the creation of binding doctrine. I think settlements over time can become a narcotic, where the agency begins to think, since it’s reaching a lot of settlements, that it’s re-setting the boundaries of law. But of course the only way you can do that is by going before tribunals and securing judgments. If you rely too much on settlements then you’re not promoting the periodic re-conditioning and re-validation of doctrine which is a primary role of the courts.

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From our discussion I also see two kinds of antidotes. One kind consists of things the agency can do itself. It can make a conscious effort to ask questions such as: what savings are we achieving and how will we use these resources? How do settlements relate to a larger framework in which other key variables include liability standards and the quality of punishment, all of which are interrelated. Second, the discussion underscores once again the importance of having an effective evaluation program. The point is to measure actual effects of policy, and to ask basic questions about how things are turning out. Third, we can see the importance of transparency and the importance of explaining to outsiders what’s taking place, at least for the purpose of stimulating a debate. As a second kind of antidote, there are two devices outside the agency. First is a mechanism of robust review by a third party. In the case of plea agreements, as Diane Wood and Ann O’Brien described yesterday, judicial oversight can be important. Then we come to private enforcement, and its links with public enforcement. Here it’s necessary to ask whether it’s useful to have multiple rounds of enforcement, so that, for example, if one actor gets it wrong, then others can fill the gap. That requires careful efforts to decide where and to what extent the intervention of private plaintiffs is welcome. ONNO BROUWER: I have a question about Lorenzo Coppi’s paper, which I found very interesting. Yesterday we said there may not be much information in the file of a competition authority which could be used as a basis to claim damages, and that’s why inter partes discovery can be important. So the authority’s options as to how much useful information it can include in its decision might be limited to some extent. But the question I have is: to what extent does your paper imply that the competition authority has a lot of leeway in terms of what information it disseminates and what information it does not disseminate. I can see that you will not disseminate information which would undermine your investigation (up to the SO), or which would undermine your leniency program, but beyond that I’m not sure that there’s much leeway for a competition authority to withhold objective information that it has, if that would have an impact on private enforcement. 䉴

KIRTI MEHTA: I agree with Dan’s point that settlements do not reduce deterrence. And where there are big cases where the evidence is very good, consumer harm is going to be very, very likely, so you don’t have to scratch your head about that. Many of the cartels we see, when we have a lot of information about them, is that they have very strong mechanisms for organizing the cartel. One has to be careful about calling a case weak or strong on the basis of whether the cartel has a strong impact on consumers. On the subject of private litigation, we should remember that the payoffs for the parties are very different. If you are a leniency applicant and you get a reduction of

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Panel VI—part two: policy consequences for private enforcement 627 50 percent, and then if you get another reduction for coming in and settling, that is a substantial fine reduction. Then the third one is better off not coming in at all because he is better off settling and not disclosing any evidence. But my main point is that the objective of anti-cartel policy is not to adopt more decisions with fines, but we want to see an end to cartel activity. Are we deterring new cartels? Well, anytime we carry out an inspection, that’s an ongoing cartel. But over time the policy is aimed at reducing participation in those cartels. Looking back over the results under the three Leniency Notices that we have adopted, there is a trend going in that direction and this will become very apparent in the future. I also agree that in some cases it’s necessary to go to court. In cartel cases there are lots of issues that have become clearer following litigation. I think that can only help. Furthermore, an important cartel decision that is upheld is a very important source of deterrence. So we should not underestimate that. 䉴 LYNDA MARTIN ALEGI: Like Bill, perhaps, I’ve been reflecting on the importance for an agency of maintaining the credibility of its system by having an adequate record of well-reasoned and robust decisions, some of which have been challenged in court as a background to settlements, which are then effective not only in individual cases but also more broadly from the standpoint of the public interest. It strikes me that when the Commission’s proposed settlements system is implemented, or maybe already, there may be a soft harmonization effect, as so many Commission policies have. But my question is whether the Commission has given further thought to that process of soft harmonization in this instance. It may be that not all national competition authorities have the same record of strong, well-reasoned, robust decisions, against which a settlement regime can be most effective. It seems to me that the Commission might help them to avoid premature addiction to the narcotic of settlements.

STEPHEN WILKS: I’m tempted to reflect on a lot of the discussion we’ve heard. I will resist that temptation, not least because Emil Paulis will be doing that in a little while. But the discussion over the last day and a half has been fascinating. It has answered a lot of questions that I came here with, but then it also generated a lot of questions that hadn’t even occurred to me before I got on the plane for Florence. I have two questions that I would have liked to have heard more discussion on, although Simon Bishop helped to clarify these. One is whether deterrence means detecting old cartels that are just coming out of the woodwork, or whether deterrence is about preventing new cartels from forming. And Kirti, you began to address that as well. It’s almost an impossible question, of course. The second question concerned Simon’s point about bad cartels and very bad cartels. That’s a lovely idea, and you cited consumer welfare as a criterion for distinguishing between the two. But in terms

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of a competition authority’s ability to prioritize and choose the right instrument, I would think these kinds of distinctions could be helpful in that regard. JOHN FINGLETON: On Stephen’s question about late-life cartels, one of the key features of the OFT’s evaluation work on cartels is that we do not measure and take credit for the cartel that existed. We do take credit for ending the cartel, and we try to do an estimate of when we think the cartel would have ended in the absence of enforcement. That’s part of our published methodology. And we provide that information not just to be honest about what we’re doing, but to incentivize staff within the agency to come up with ever-cleverer ways of raising that figure, because it’s a key performance indicator. We have also just introduced an informant reward program,32 because we think that, in addition to an immunity program, rewards are also a very useful tool for destabilizing cartels earlier in their lives. Part of the reason why our staff in the agency were so keen to have that informant reward program in place was because of the way in which we measure the deterrent effect. So the whole thing comes together as a virtuous circle, with different tools complementing each other and helping to enhance the performance of the agency. 䉴

SIMON BISHOP: Dan’s comment demonstrated that I’m not only ignorant but also inarticulate. What I meant by a weak case was a case where the Commission doesn’t have the documentary evidence to support, for example, the whole cartel period in which the cartel was actually operating, while a strong case would mean that the Commission does have strong documentary evidence. I wasn’t suggesting that they should go for weak cases, I was trying to flag which of those kinds of cases the authority should crack down on. My point was really that, if the Commission is settling cases, it should be doing so in cases of bad cartels and not very bad cartels. John made the point that leaving it up to the parties to say whether the cartel was bad or very bad raises incentive compatibility issues. But that’s true of any economic submission, or any evidence in any kind of antitrust case. The parties always want to submit their best arguments. It’s up to the authorities to assess whether that evidence is acceptable or not; no one is compelling them to do that. A final point relates to Ann’s suggestion about the effectiveness of individual sanctions and the positive impact they can have on deterrence. My question is: where is the proof? Is there actually proof that fewer cartels get started in countries where they have established criminal prosecution relative to their experience before criminal sanctions were adopted?

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32 See http://www.oft.gov.uk/advice_and_resources/resource_base/cartels/rewards. For discussion of such programs, see, e.g., William Kovacic, “Private Monitoring and Antitrust Enforcement: Paying Informants to Reveal Cartels”, 69 George Washington Law Review 766 (2001).

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Panel VI—part two: policy consequences for private enforcement 629 䉴 IAN FORRESTER: A few quick comments. Whether we’re talking about Article 7 and cartel settlements or Article 9 commitments cases, I think everyone around the table is happy that these instruments exist, but I think everyone on both sides has the feeling that they require some calibration and fine-tuning. I echo what Kirti Mehta said, and I would suggest to put it in the following way: the proper role of a competition authority shouldn’t be that of chief of police, but maybe that of public health supervisor. It’s not your goal to send people to the electric chair, it’s your goal quietly to eliminate the underlying problem. I don’t agree that companies make a financial analysis about whether to go ahead with cartel-like behaviour on the basis of the bottom line. The person who is the boss is not the person who participates in the cartel. In my experience, the person who is the boss is almost always appalled by the immense reputational damage, the damage to the business model, the unquantifiably huge fines, and the disruption for his enterprise. So I don’t mind doing a financial analysis, but I don’t think it’s realistic to quantify carefully the benefits and drawbacks of a company that discovers that it has been involved in a cartel. With respect to Article 9, I think that workable remedies are plainly achievable far more easily in a bargained-for environment, and not where there is a condemnation. That means the authority has to make sure that the cases are well-chosen. I would suggest, provocatively, that maybe it would be a good idea to look for a couple of illustrious cases under Article 81 or 82 which could help to clarify the law. Under Article 82, why not settle a case involving a discount regime, and then the Article 9 decision could modernize the Commission’s rules on the subject of discounts, and that way the Commission could distance itself from British Airways.33 Under Article 81, why not look for a case where a company has engaged in an imprudent exchange of information in careless good faith, and suppose it’s not really a serious case. Settle that case with commitments under Article 9, and that way you might advance the law. Last observation. We do need more judicial oversight. That would be very wholesome, especially at the interlocutory stage. But as of now, none of those reforms is on the table. I hope that by the end of this decade they will be.

KRIS DEKEYSER: I’ll just respond briefly on the issue of whether the immunity applicant should help private plaintiffs, for example by giving evidence or, as was mentioned yesterday, the notion of making the grant of some compensation a condition for immunity, or reducing fines where there is a commitment to grant compensation. On all of these we have to be extremely careful. We cannot do anything that would create a chilling effect on our leniency program. With respect to the idea of reducing the fine where the defendant agrees 33

Cited supra note 5.

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to provide compensation, the problem is that this would oblige the public authority to identify the harm caused, and to quantify it and so on. In a cartel case, that is not our role. A cartel case is a restriction by object case, so we are not required to examine a cartel’s effects on the market. So that would be an enormous additional task for a public authority, and I think we can leave that to the private sector. 䉴 LORENZO COPPI: John Fingleton made the point that psychological factors are very important when a firm decides whether or not to settle. I wholeheartedly agree, but I would submit that you may not need to model those factors and understand them in detail if you can simply measure them. So empirical research telling us how firms behave may be more important than theoretical analysis that tells us why firms behave in a certain way. Onno Brouwer raised a very good point: do I think that the Commission has any discretion in the amount of information that it can make available to the public? My understanding is that the Commission has been increasingly redacting information in public decisions, and that may be a way of doing it. Perhaps the Commission’s discretion is very limited in single cases, but it does have some discretion ex ante as to how to design its settlement procedure. On the general interaction between settlements and leniency, we might ask whether a company that will have reductions for both leniency and for settling would be deterred from entering into a cartel. I think that even with relatively high reductions there would still be deterrence because of the likelihood of private actions. In the US, an amnesty participant doesn’t pay very much in the way of criminal sanctions or fines, but there is still deterrence due to the prospect of civil liability. Finally, authorities should not be wary of granting a high discount for settlements. A relatively high discount rate will increase a company’s incentive to settle, and it may not affect deterrence. An authority might be concerned about opening the floodgates, and they may want to manage the process so that only a few cases at a time are settled. But that’s a policy decision for the Commission, it shouldn’t be based on the dubious premise that high discounts are bad for deterrence.

䉴 MASSIMO MOTTA: Thank you, Lorenzo. Now Emil has the intimidating task of providing us with his overall conclusions.

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䉴 EMIL PAULIS: I moved on from DG Comp a week ago,34 and already after one week I have forgotten everything. (general laughter) And as I was coming to Florence to participate in the Workshop I realized how difficult it was to focus my mind again on such a complex range of issues. Let me begin with a couple of points. First of all, everyone will have appreciated that this is not just law, this is also policy. And a lot of policy choices will have to be made in relation to the settlement procedure and then, in the longer run, in relation to private enforcement. Everyone also realizes, hopefully, that we are only at the very beginning. We can expect both the law and policy in these areas to evolve. There are certain features about this process that I would like to underline. Above all, the purpose of a settlement procedure in cartel cases is to strengthen public enforcement. The point is to increase deterrence by increasing the number of cases we can bring. The procedure is certainly not intended to weaken deterrence through a reduction in fines, and it does not subcontract public enforcement to private claimants. With respect to this procedure, some have suggested that it is heavily weighted in favour of the Commission. But the comments I hear coming from the plaintiffs’ side and the defendants’ side are mutually quite opposed to each other. These opposite reactions seem to indicate that the Commission is rather in the middle, where it should be. More importantly, even if the procedure conferred substantial advantages on the Commission, do not forget that by launching the private enforcement project we have engaged in a massive enterprise in which we have looked carefully at the rights of victims. That project is aimed precisely at benefiting the consumers victimized by anticompetitive conduct. There is therefore no question of the Commission ignoring or forgetting about plaintiffs in that context. It is my personal conviction that, as the Commission goes forward with settlements it is highly important for the entire process to become more and more transparent. There needs to be greater transparency, and there needs to be more consistency with regard to the fining policy of the Commission. That is absolutely fundamental. It is equally fundamental that whatever the Commission does remains fully under the control of the European judges. If we do not have the control and support of the judges, the settlement system won’t be credible, and it’s not going to fly. So for the purpose of ensuring the legitimacy and fairness of the procedure and its application, we need to have judicial control. Another point that has been made concerns the variety of national systems, and the fact that they are not aligned. If we look at this from a long-term 34 At the time of the Workshop, Mr Paulis had just taken up his new post in DG MARKT as Director of Directorate G, “Financial services policy and financial markets”.

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perspective, just as we have seen with leniency programs, we have had major differences across jurisdictions with respect to leniency programs. In the beginning there were some Member States that had programs, others that didn’t, and those that did had different criteria and characteristics. But in this regard we have benefited from a dynamic which is built in to the European Competition Network. Today, I’m very happy to say, nearly all Member States have a leniency program,35 and we have a Model Leniency Program.36 And I think we can expect exactly the same thing with settlement programs. We will see a dynamic of convergence, and so I’m not worried at this early stage about the differences. There has also been discussion of the reward, that is, of the fine discount that will be granted to settling defendants. Different people will consider different percentages to be the appropriate one. That is something that I think you will just have to leave to the trial and error of the Commission. But it needs to be stressed that this reward is part of a larger system. As Kirti has explained, we don’t have only one rebate. We also have immunity, and we have leniency reductions, and these can combine with the reduction granted for settling. The interplay of those elements remains to be seen, but there are plenty of good incentives in the system to bring people forward, and to encourage them ultimately to settle. Some of you have questioned why, in a settlement submission, it should be necessary for a defendant to recognize liability for an infringement. That is an important issue. It’s not enough to refrain from contesting facts. Think of a crisis cartel.37 What is a crisis cartel? Should that be characterized in the same way that we would qualify a straightforward hard core cartel? This is just to exemplify the fact that many, many issues of qualification can arise in a case, and it’s very important for a settling defendant not only to concede the facts but also to accept legal responsibility where it has infringed the competition rules. In any event, where the Commission settles a case this will take the form of an Article 7 decision, which means that within a few of months of settling there will invariably be a formal finding of infringement. And under Article 35 As of 28 February 2008, 25 of the 27 Member States had adopted a leniency program, all of them except for Malta and Slovenia. See http://ec.europa.eu/competition/ecn/leniency_ programme_nca.pdf. 36 See http://ec.europa.eu/competition/ecn/model_leniency_en.pdf. 37 Historically, see, e.g., Commission, Twelfth Annual Report on Competition Policy (1982), points 38–41 (emphasizing structural overcapacity with no hope of recovery in the medium term); Synthetic Fibres, 1984 OJ L207/17 (Article 81(3) exemption); Stichting Baksteen, 1994 OJ L131/15 (Dutch brick market—Article 81(3) exemption). See also the judgment of the CFI in Case T-148/89, Tréfilunion v Commission [1995] ECR I-1063, para. 117 (describing other Commission decisions where crises in the zinc and flat glass sectors had led to a mitigation of fines). For discussion of the EC practice, see, e.g., Andre Fiebig, “Crisis Cartels and the Triumph of Industrial Policy Over Competition Law in Europe”, 25 Brooklyn Journal of International Law 607, 619 et seq. (1999). Of course, many national jurisdictions (such as Germany and the Netherlands, to cite only two examples) have had experience with crisis cartels.

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16 of the Regulation, national courts and national competition authorities will not be able to call that finding into question. So what’s the difference, then, for the defendants? What about the position of third parties? I agree with Kris Dekeyser that the Commission should be very prudent and should firmly give priority to our public enforcement system. Don’t kill the hen that lays the eggs. We have got to get the ranking of priorities right. For the Commission, there’s no doubt that public enforcement will always have priority, from our perspective, over private enforcement. Public enforcement yields many benefits, including not only deterrence but also benefits for private plaintiffs. Why should we carry the burden of individual plaintiffs? If the needs of individual private plaintiffs would lead to delays or otherwise impair public enforcement, then in fact that would be detrimental to plaintiffs overall, and that is not what we want. It should also not be forgotten that the Commission is under no obligation to reach a finding of infringement.38 We have no obligation to facilitate private enforcement. We only have to act, within the framework of the control of the Community Courts, under very limited, specific circumstances.39 So let’s keep the church in the middle of the village. The Commission will always give priority to its public enforcement priorities, and rightly so. Furthermore, if the Commission settles a case, and if this means that the decision takes advantage of shortcuts, and it doesn’t contain all the information that it would have contained if the investigation had gone on for several years, that does not preclude plaintiffs from going to court on the basis of additional facts establishing that the scope of the cartel was wider. It is true, however, that we have made a policy choice. We will focus on inter partes disclosure of evidence at the cost of the litigating parties, and not at the cost of public enforcement. We also think that, pending the period of inter partes disclosure, if we opened our files this would have a very negative impact on the efficiency of public enforcement. The next point, and I was very glad that John Fingleton insisted on this, is that as enforcers we should not be expected to prove that cartels cause consumer harm, and actual effects on prices. Sorry—that’s not our business! 38 See Case T-24/90, Automec v Commission (“Automec II”) [1992] ECR II-2223, paras. 63–69 and 72–86, especially paras 77 and 83. The ECJ has confirmed that the Commission may set its own priorities, although the Commission has a duty to state reasons sufficiently precise to enable the CFI to review the Commission’s discretion to establish those priorities. See Case C-119/97 P, Ufex v Commission [1999] ECR I-1341, paras. 88–93; Case T-193/02, Piau v Commission [2005] ECR II-209, para. 80, appeal dismissed by Order of the ECJ, Case C-171/05 P. 39 The Commission is only obliged to act in what are now the rare cases where it has exclusive competence. See Automec II, cited previous footnote, para. 75. On the basis of the cited paragraph, this would include the (very uncommon) decision to withdraw the benefit of a block exemption (Article 29(1) of Regulation 1/2003, assuming Article 29(2) does not apply). On the other hand, the same principle is unlikely to apply to Article 10 of the Regulation (famous for never having been used), despite its attribution to the Commission of exclusive powers, as that provision can only be used by the Commission on its own initiative.

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That’s not the business of a public authority. So again, let’s leave those issues to be debated in national courts. One question which has come up several times is about whether companies will have incentives to settle, or whether instead they will contest the case and appeal the Commission’s decision. And it has been suggested that perhaps if the company puts up a fight then it can delay payment, which it might want to do if it has a cash flow problem. Don’t forget that Commission decisions are immediately effective.40 So even if you appeal—and good luck to those who go to court and ask for a suspension of a cartel decision41—during the appeal, the Commission’s decision all the while has binding effects, and it can be used immediately by private plaintiffs in national courts. And a national court would only stay its proceedings if there was a real, fundamental question about the illegality of the Commission’s decision.42 In that regard, it’s worth stressing that in cartel cases where Commission decisions are annulled, they are annulled for purely procedural reasons, or because of the level of the fine. Only rarely are they annulled on grounds relating to the core finding of an infringement. And that is something which I think stands out very conspicuously in the landscape. On Article 9, Ian Forrester suggested that with these decisions the Commission might regulate markets and produce bad law beyond the reach of the Community Courts. I think we should compare Article 9 with what we had prior to Regulation 1/2003. Would you prefer informal settlements? Realistically, there will always be settlements between public enforcers and companies suspected of an infringement. Is it better to have informal settlements than to have a formal procedure, where under Article 27(4) the proposed commitments must be published and there’s at least a public debate with the possibility for third parties to challenge the commitments? I don’t think so. Furthermore, don’t forget that in Europe we are committed to an effectsbased approach. That applies as much to the remedies as it does to the 40 See, e.g., Case T-275/94, CB v Commission [1995] ECR II-2169, paras. 50 and 51; Case T-28/03, Holcim (Deutschland) v Commission [2005] ECR II-1357, para. 121. In practice, when a fine imposed by the Commission is appealed, the Commission itself refrains from collecting the amount in controversy on condition of a bank guarantee sufficient to cover the fine plus interest. See, e.g., Joined Cases T-236/01 et seq., Tokai Carbon and Others v Commission [2004] ECR II-1181, para. 475; Case 86/82 R, Hasselblad v Commission [1982] ECR 1555, paras. 2–3. Securing the guarantee, of course, is not costless for the undertaking concerned. An applicant for annulment may seek an interim order suspending such financial obligations, but such requests are generally denied. See, e.g., Case 392/85 R, Finsider v Commission [1986] ECR 959, paras. 18–19 (suggesting the undertaking concerned was large enough to have no difficulties obtaining a guarantee). 41 To secure a suspension of the obligation to provide a guarantee (see previous footnote) the legality of the Commission’s decision would have to be in “particularly serious” doubt. See Case T-301/94 R, Laakman v Commission [1994] ECR II-1279, para. 30. 42 See Cooperation Notice on the co-operation between and the courts of the EU Member States in the application of Articles 81 and 82 of the EC Treaty, 2004 OJ C101/52, para. 13 (citing Case 314/85, Foto-Frost [1987] ECR 4199, paras. 12–20).

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concept of what constitutes an infringement. And increasingly the Commission is called on to demonstrate not only the likely effects of an infringement, but also to demonstrate the proportionality of particular remedies. What is happening in the field of mergers today will happen tomorrow in the field of antitrust.43 These remedies will be controlled more and more by the Community Courts, and therefore I am less pessimistic than you, Ian, about what will happen under Article 9. On the fines, I completely disagree. If you want to move towards a world where there would no longer be fines imposed in Article 82 cases, which is not exactly what Ian said, then you would transform the ex ante dissuasive effect of Article 82 into an ex post control of behaviour. That would be totally inefficient. But you can indeed question the level of fines under the existing law. The law says that a fine can be imposed only where there is negligence or intention. So there is a spectrum of culpability which can be used by defendants and by the judges in order to assess whether, in a specific case, a fine is justified. But we should not touch the system as such. Now for the very last point and then I’m finished. The Commission will go ahead and fine-tune its proposed settlement procedure, but the Commission will also likely consider whether to develop legislative proposals in the area of private enforcement. As Commissioner Kroes has indicated, if the comments we receive44 are not destabilizing, then it is likely that a proposal will be made. So there’s plenty of interesting work ahead of you. Thank you very much. 䉴 MASSIMO MOTTA: Thank you very much, Emil. That brings this interesting session to a close. Before I pass the floor to Claus, Judge Cooke will make a short announcement.

JOHN COOKE: Thank you, Massimo. As I will be retiring from the CFI in September, I’d like to offer a few words of thanks to the Institute for the way the Workshop has been organized, and particularly to Claus-Dieter for the honour of being here in Fiesole for several editions of the Workshop over the years. For me, this is a unique forum. It’s extraordinary to have 40 people around a relatively small table who represent such a wide range of actors in the competition field. It has always been, for me, one of the most rewarding and informative forums that I’ve ever taken part in during my twelve years in Luxembourg, and I’m very grateful for that. (general applause)

䉴

䉴 CLAUS-DIETER EHLERMANN: Thank you, John. And thanks to everybody for the extremely stimulating discussions we’ve had yesterday and today. This

43

See Case C-13/03 P, Tetra Laval v Commission [2005] ECR I-1113. See http://ec.europa.eu/competition/antitrust/actionsdamages/white_paper_comments. html. 44

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is surprising to Mel and myself because we weren’t sure whether the subject would lend itself to a day and half of discussion. We thought it might be repetitive, or too narrow compared to matters we’ve discussed in earlier years. However, it has been extraordinary and rewarding. But that’s the genius of the group. You’ve said it, John, this is a unique mixture of people, and those sitting around the table certainly know of what they speak. I would like to thank the chairs for efficiently running an event which should be as rich in discussions as in presentations. This is not an academic exercise where people present papers. I would like to thank those who helped to shape the program, and it wasn’t easy. Finally, a word of thanks to our sponsors, without whom we would not have the pleasure of meeting together and learning from each other. And thanks to you all—if the Workshop is a success, it is thanks to you. And have a good trip back!

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I Bruno Lasserre and Fabien Zivy* A Principled Approach to Settlements: A Few Open Issues

1. Introduction The possibility of settling a case with the French Competition Council has already been available to companies for some time, since it dates back to the Law on New Economic Regulations of 15 May 2001. It has thus been applied for seven years, with increasing success. For instance, the Competition Council adopted seven settlement decisions in 2007; this figure amounts to one fourth of all fine decisions taken in that year, and it brings the total number of settlement decisions taken since 2001 to sixteen. The experience accumulated by the Competition Council is certainly not enough to reach a final judgment on the merits of this relatively new enforcement tool. However, it is surely sufficient to draw interim conclusions on the main aspects of its design and operation. The following sections will focus on three core issues that have given rise to different views in the various jurisdictions currently empowered to settle antitrust cases, namely the objectives (2), the scope (3) and the timing (4) of such procedures. Having a principled approach on all three items is a condition precedent to ensuring a successful practice of settlement in antitrust cases and, more broadly, a successful contribution of settlements to competition enforcement.

2. Why settle a case? Objectives of the procedure a. Settling the investigation, the charges and/or the fine The report presented by the Cartel Working Group of the International Competition Network to the Annual Conference organized in Kyoto, Japan, * At the time of writing, Bruno Lasserre was President and Fabien Zivy was Chief of Staff of the French Competition Council. The Council has been transformed and is now the French Competition Authority. Its enforcement powers have been expanded. Lasserre and Zivy continue to serve as President and Chief of Staff.

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in April 2008, indicates that different jurisdictions attach different meanings to the term “settlement”. There are nuances on a number of points, but there are clear differences as to two key issues. One of them is the objective assigned to the settlement procedure. The other, which arises by way of consequence, is the place assigned to settlements within the toolkit of competition enforcers—that is, the portfolio of instruments that ranges from accepting commitments to granting interim relief, adopting commitments, finding an infringement, imposing a remedy and/or imposing a fine. To put things simply, some jurisdictions, starting with the United States, allow firms and competition agencies to bargain on a wide number of items which may include the investigation itself, the ambit and content of the incrimination (nature of the behaviour, affected markets, duration, etc.), the use of procedural rights, possibly including the right of appeal, and, finally, the sum to be paid in exchange for closure of the case. By way of contrast, other jurisdictions, such as France, allow firms to waive their right to debate the Statement of Objections notified by the competition agency, and sometimes to offer additional commitments, in exchange for a reduced fine. The legal concepts are obviously different. An agreement is ultimately reached in both cases between the firm or firms involved and the competition authority. But in one case, this agreement is reached thanks to a fully-fledged negotiation on all or most of the important aspects of the enforcement process, while in the other case, the negotiation is limited to the extent of the fine, and it is only conceivable in exchange for a waiver, on the part of the firm or firms involved, of their right to dispute the existence of the infringement as defined by the authority. Of course, the implementation of the settlement provision in a given jurisdiction may show that the practice is more subtle than this somewhat broad-brush overview, and that the differences between jurisdictions boil down to differences of degree. But the extent to which the legal formats differ is such that any jurisdiction that contemplates enacting a settlement procedure should first have a clear view as to what type of settlement it wants to implement, and why.

b. Settling in order to achieve procedural economy France is among the Member Stats that pioneered the latter type of settlement in Europe. Being a pioneer has its good sides, which include breaking new ground, developing new solutions, etc. But there are also disadvantages: it is often necessary to experiment before stabilizing the decisional practice and, if need be, fine-tuning the law or providing stakeholders with reasoned guidance. Two elements must be underlined at this point. First, the French settlement provision (Article L. 464-2, section II, of the French Code of Commerce)

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was enacted, in contrast to many other jurisdictions, by the French Parliament and not by the competition authority. This legislative status entails a high degree of legitimacy but also greater rigidity than would have been the case if the possibility of settling a case had been provided for by agency guidelines, or developed through its decisional practice. Second, it was enacted at a time—2001—when other alternatives to the standard procedure leading to the finding of an infringement and possibly to a remedy and/or a fine were not formally available. In particular, the commitments avenue, opened initially by Articles 5 and 9 of Regulation 1/20031 and later by Article L. 464-2, section I of the French Code of Commerce, had not yet been paved. This situation resulted in a somewhat hybrid instrument, insofar as the French settlement provision allows the Competition Council to grant a fine reduction when two cumulative conditions are met by the firm wishing to settle. On the one hand, the firm involved must waive, formally and unequivocally, its right to contest the objections (i.e., the charges) notified by the Competition Council. In particular, it must state that it does not challenge the facts, their legal qualification, or its liability for the infringement. On the other hand, it must come forward with commitments aimed at modifying its future behaviour on the market. However, the objectives assigned to settlements and to commitments are different, and they may not always be easily reconciled. They are both intended, first, as an alternative to the standard infringement route, and second, as an alternative that will hopefully enable the agency to achieve efficiency gains. In both cases, these gains should include savings in terms of time and resources. But although procedural economy is a common rationale to commitments and to settlements, it is achieved, in each of these procedures, in very different ways. In the case of commitments, procedural economy is achieved by closing the case prior to any finding of infringement. As for settlement, the case runs to its standard term, but the ambit of the procedure is streamlined and its duration is abridged. It is worth noting that this gain is both direct and indirect. Although the Competition Council is an independent administrative authority, it follows procedures that are akin, in some respects, to those of a court. They notably include two rounds of written exchanges between the Investigation Services and the firms involved—the Statement of Objections gives rise to observations of the parties and is followed by a report of the Case Officer. This in turn occasions further observations of the parties. In addition, the applicable procedures systematically call for an oral hearing. During the hearing, all the parties, including the complainants, can discuss their arguments and those of the Investigation Services in front of the College, which then takes a decision in full independence. In cases where the settlement procedure is implemented, the 1 Regulation (EC) N. 1/2003 of the Council of 16 December 2002 relating to the implementation of the rules on competition laid down in Articles 81 and 82 of the EC Treaty.

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second round of written exchange is eliminated, but the rights of the defence and the benefit of the adversarial procedure are guaranteed in all other respects. The direct gain triggered by the settlement procedure is thus relatively limited. But it is supplemented by an indirect gain: the firms involved have tended not to appeal settlement decisions. This advantage is far from negligible, bearing in mind the fact that the Paris Court of Appeals is entitled to carry out a full review of the decisions taken by the Competition Council—that is, a review extending not only to issues of legality and procedure, but also to the merits of the case, including factual and economic analysis. The significant time and resources normally allocated to these appeals is thus freed for other purposes. These include, for example, addressing other complaints brought to the Competition Council or opening ex officio proceedings. But it also provides more opportunities to for the authority to direct its attention to studies undertaken by its Chief Economist and/or Legal Service, or to prepare opinions given to the Government, to legislative committees, to sector-specific regulatory agencies or to representative associations on existing or proposed legislation, or on general issues of competition, etc. In other words, settlements allow the Competition Council to devote more time and energy not only to cases of greater importance for consumers and for the market, but also to other projects of high added-value for competition enforcement.

c. Settling while achieving sufficient deterrence Since the quest for procedural economy is a common objective of both the commitment procedure and the settlement procedure, what are the objectives that justify having two systems instead of one? Put simply, commitments are aimed, first and foremost, at bringing about a swift market solution in cases where the simple termination of behaviour giving rise to antitrust concerns would not suffice. In other words, they enable the competition agency to dispose of cases on the ground that a fine is not necessarily warranted and that the firm of firms involved have come up with a voluntary, tailor-made, workable and verifiable solution ensuring that competition will be guaranteed or restored in the marketplace. By contrast, settlements are aimed, first and foremost, at bringing about a swift procedural solution in cases where a fine is warranted, where the termination of the conduct at stake is more decisive in itself, and where the crafting of a procompetitive remedy is consequently less of an issue. In a nutshell, commitments are suitable in cases where the main issue—and thus the main driver of the Competition Council’s intervention—is how, and how best, to make competition work in the marketplace, while settlements are welcome in cases where this aspect is more straightforward—and consequently where another objective, that of achieving deterrence, is dominant.

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The single most important factor in setting up an attractive, consistent and workable settlement programme is therefore the fine reduction—or range of fine reductions—available to those who opt to come to terms with the competition authority instead of litigating. The reduction must be high enough to provide firms with an incentive to come forward, but it cannot be so high that it would undermine deterrence or leniency. This need to achieve a subtle balance between deterrence, leniency and the benefits of settlements translates into figures, in the case of the Competition Council, in the following way: (i)

fines: firms that choose to litigate a case run the risk of having to pay a significant fine (the total amount of fines amounted to 754 million euros in 2005, 121 million euros in 2006 and 228 million euros in 2007); (ii) leniency (first-in): firms that expose cartels or adduce sufficient evidence to incriminate them can shield themselves against this risk; (iii) leniency (followers): firms that actively cooperate in the investigation by enhancing the value of the case-file cannot shield themselves from the risk of a fine, but they can alleviate the penalty to a significant extent (obtaining a reduction of up to 50 % of the fine that would have been imposed but for their cooperation); (iv) settlement: firms which cannot cooperate, or do not want to, but which nonetheless decide not to challenge the charges, can mitigate the risk of a fine to a lesser, but not insignificant extent (reduction of between 10% 2 and 25–30%3 of the fine that would have been imposed).

d. Settling while having regard for market conditions Obviously, the last set of figures indicated at point (iv) above is relatively high. The reason is that, as explained previously, firms that decide to waive the charges brought against them by the Competition Council must additionally commit to modify their behaviour on the market. This element has two consequences for the operation of the French settlement programme. First, on the side of a firm wishing to settle, it must put something more in the balance in order to have a chance of success. Second, the Competition Council, for its part, is led to reward this additional input. The final amount of the fine reduction will thus be fixed according to the added value of the commitments. The French Government has recently given the go-ahead to an ambitious draft Law on Economic Modernisation, which contains a wide-ranging package of measures aimed at making the French economy more productive in terms of growth, welfare and employment. One of these measures, provided for 2 See, e.g., High-voltage electric cables, Decision No 07-D-26 of the Competition Council of 26 July 2007. 3 See, e.g., Laundry-cleaning and renting, Decision No 07-D-21 of the Competition Council of 26 June 2007.

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by Article 23 of the draft bill, is the transformation of the Competition Council into a Competition Authority vested with fully-fledged powers, including the power to adjudicate on merger cases in addition to antitrust cases. The new Competition Authority will also benefit from a modernized set of procedures.4 Since the draft law only deals with the outline of the reform and leaves the details to an order of the Government, due to be adopted, at the latest, six months after the enactment of the law itself, it remains to be seen whether or not an amended settlement provision will be included in the package. But as recently explained in a paper taking stock of the current settlement provision and addressing its perspectives,5 the Competition Council is of the view that there is room for further refinement of this provision. The logical evolution would be to sever the current link between settlements proper (that is, the possibility for companies to waive their right to challenge the charges in exchange for a reduced fine) and commitments. The obligation to submit commitments on top of declining to contest the objections would not be abandoned outright, because it has proven very useful in practice, insofar as a number of firms have seen it as an opportunity to amend their past conduct—for instance by setting up a compliance programme—or even of reorienting their future behaviour on the market. However, this obligation would be rendered optional. If a firm decides to make use of it, and if it offers commitments that can be deemed relevant, credible and verifiable from the point of view of the Competition Council, it would be entitled to a fine reduction going further than the one that would have been fixed if it had limited itself to not challenging the charges. Such an evolution would make it clear that the core objective sought by the settlement procedure is to achieve procedural economy and resource savings by disposing swiftly of cases, while achieving sufficient deterrence. It would also indicate that a change of behaviour aimed at restoring or enhancing competition on the market can play a role as an additional objective if, but only if, the case lends itself to it.

4 The draft bill is available on the website of the French National Assembly: http://www.assemblee-nationale.fr/13/dossiers/modernisation_economie.asp. 5 See Bruno Lasserre, “La non contestation des griefs en droit français de la concurrence: bilan et perspective d’un outil pionnier”, General Assembly of the Association française d’étude de la concurrence (AFEC), Paris, 10 April 2008, annexed to the present chapter.

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3. In which cases? Scope of the procedure a. Settling in cartel cases Looking again at the ICN report, the international consensus—but few jurisdictions have a settlement procedure at present, and many others contemplate setting one up—seems to be that settlement is particularly fit for cartel cases. This point is clear-cut and calls only for a few remarks. The case law on cartels is well-settled and the main challenges, for competition enforcers, are, first, to detect them, and, second, to gather sufficient evidence to support a finding of infringement. When these barriers are met, there is little room for further analysis and justification. In addition, fines incurred are among the highest imposed by competition agencies. In such conditions, firms that have participated in such practices may as well go for the best deal they can hope for by asking to settle, thereby reducing their risk. For instance, in the Laundry case,6 a number of companies whose business was the rental and cleaning of industrial linen (uniforms, etc.) waived their right to contest charges according to which they had shared important clients between themselves, thus reducing competition on the market. The companies concerned put forward a number of behavioural commitments aimed at mitigating the risk of further collusion (compliance and whistleblowing) and at enhancing competition (prohibition of commercial meetings between managers in charge of important customers, etc.). A fine was warranted, in light of the harm caused to customers and in order to ensure deterrence; but a settlement was deemed suitable in view of the parties’ cooperation and commitments. As suggested by the Rapporteur Général, the fine reduction granted by the College in exchange for this cooperation amounted to 25% or 30 %, depending on the company involved, and the final amount of the fine was fixed at a total of 19 million euros. These percentages are, to date, the maximum reductions ever granted in a settlement with the Competition Council. The levels are explained by the fact that, in addition to the firms’ cooperation with the authority, the commitments offered were both novel (whistleblowing) and very fruitful for future competition on the market. In more straightforward cases, reductions, although not insignificant given the high fines imposed (in the absence of cooperation), will be of lesser importance in relative terms. In High-voltage electric cables,7 a number of companies active on the market for electric cables had set up fake bids while in reality agreeing to the results of the bidding process. They decided not to challenge the objections and came up with more limited commitments than 6 7

Cited supra note 3. Cited supra note 2.

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those described above—mainly consisting of compliance programmes. Following the Rapporteur Général, the Competition Council granted a 10% fine reduction, the final amount being set at approximately 19 million euros.

b. Settling in cases other than cartel cases The implementation of the settlement provision crafted by the French Parliament in 2001 shows that choices other than that of limiting settlement to cartel cases can be made. No case is a priori excluded from the scope of the procedure, although not all cases will be deemed appropriate for settlement. This approach is both flexible and pragmatic. Firms are always welcome to apply for a settlement, but they are never entitled to one; the decision as to whether to settle is at the sole option of the Competition Council. In other words, the Competition Council pays close attention to the merits of each situation, rather than following a “per se” approach. However, the wide margin of appreciation open to the Competition Council does not amount to a discretionary power—far from it. Another peculiarity of French law is that, although the European Court of Human Rights does not hold that administrative authorities should separate investigation services from decision-making bodies, as would be the case for a court, the French competition authority currently does make such a distinction. Firstly, it allocates to the Investigation Services, headed by the Rapporteur Général, the power to carry out dawn raids, investigate cases and notify companies of the charges against them. It then reserves to the College the power to grant interim relief, to adjudicate on the existence of the infringement and, where appropriate, to make commitments compulsory, to impose an injunction and/or to impose a fine. The Investigation Services and the College are each fully independent of the other in carrying out these tasks. As a consequence, a firm that has opted to settle a case must contact the Rapporteur Général, with whom discussion on the contemplated waiver, the proposed commitments and the possible fine reduction will take place. If the firm reaches agreement with the Rapporteur Général and signs minutes reflecting the terms, the Rapporteur Général requests that the College settle the case along these lines. If no agreement is reached, the firm may appear before the College to challenge the decision of the Rapporteur Général not to ask for a settlement. The College then reviews this decision, insofar as it has a bearing on the amount of the fine imposed on the firm concerned. Likewise, given the very wording of the Code of Commerce and the clear case law of the review courts (i.e., the Court of Appeal of Paris and the Supreme Court), the College is not bound to accept any fine reduction negotiated between the Rapporteur Général and the firms involved. As a matter of practice, however, if the College contemplates a significantly different reduc-

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tion, it tends to remand the case to the Investigation Services. This has only occurred in exceptional cases. In practice, settlements have concerned a variety of cases, including not only cartels and bid-rigging (ten settlements), but also vertical restraints (three cases) and abuses of dominance (three cases). In all these cases, a fine was warranted because the practices at stake had caused serious consumer harm. The policy of not excluding unilateral conduct cases may be questioned in other jurisdictions, but it is rather unproblematic in France. The case law on abuse of dominance has long been, as discussed in other fora,8 “modern” insofar as it rests on an economic, effects-based assessment and allows parties to put forward justifications such as efficiency defences. Therefore, whenever the Competition Council finds an infringement and imposes a fine, it is because this economic approach leads to the conclusion that the practice at stake has actually or potentially had the effect of hurting consumers. As a consequence, there are clear-cut situations where a settlement is not out of reach, notwithstanding the factual complexity of the facts, if it would bring about significant benefits. The France Télécom case 9 provides an example. Here the historic telecoms incumbent agreed not to contest charges according to which it had abused its dominant position on the local loop market by discriminating against its competitors and denigrating services offered by alternative providers in order to favour those of its own subsidiary on the high-speed internet market. It also offered to substantially modify its future conduct on the market by setting up a broad package of compliance and monitoring measures. In view of this situation—which amounted to a “cultural revolution”, given past practices—and in view of the fact that the abuse had taken place on a rather small market compared to all the markets on which the firm was active, the Rapporteur Général asked the College to set the fine at a level not exceeding 60 million euros. The risk faced by the operator was thus significantly reduced. The College actually went further, reducing the fine to 45 million euros, although it later had to increase that amount in light of prior condemnations. In the future, cases involving a similar pattern of facts could be dealt through commitments if the intervention took place early enough and if the firms involved committed themselves to behaving differently.

8 See Bruno Lasserre, “Remedies and sanctions for unlawful unilateral conduct: the French experience”, in Barry Hawk, ed., International Antitrust Law and Policy: Fordham Competition Law 2007, Juris Publishing, 2008, chapter 19, http://www.conseil-concurrence. fr/doc/fordham_2007.pdf; Bruno Lasserre, “Efficiency and consumer welfare: new guiding principles for competition policy?”, 13th International Competition Conference and 14th European Competition Day, Munich, 25–27 March 2007, http://www.conseil-concurrence. fr/doc/intervention_lasserre_2007_03_24_munich.pdf. 9 High-speed internet access (France Télécom), Decision No 07-D-33 of the Competition Council of 15 October 2007.

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4. When? Timing of the procedure An international comparison shows that a precise framing of the time window within which firms can offer to settle is not necessarily a precondition for a successful settlement system. The European Commission, in its settlement proposal, is currently considering limiting that time frame, and has stated that the settlement route can be explored at the latest around the time it sends a Statement of Objections to the firms involved in a given case. This position makes sense in the system contemplated, insofar as the settlement will be reflected in the Statement of Objections. The French legal system is slightly different. As the settlement is understood as a decision not to contest the charges, it is necessary as an initial step to define these charges and send them to the parties. This does not mean that there are no discussions whatsoever with the parties prior to the issuing of the Statement of Objections. Indeed, preliminary discussions with the parties as to what charges would be included in the Statement of Objections can help to build a momentum that will ultimately lead them to decide not to dispute their liability, the facts at stake, or their legal appraisal. Insofar as the settlement procedure may be applied to all types of practices, the sequence just described also contributes to ensuring consistency between the different enforcement tools available to the Competition Council. Leniency is available upfront, before a cartel case has been opened or before the case-file as been built up to a point that would enable the competition authority to launch an investigation or to conclude that an infringement has been committed. Commitments and settlements are available at a latter stage. As stated in the recent guidance made public by the Competition Council on competition commitments,10 commitments will be favoured when the practice at stake gives rise to competition concerns but has not, or not yet, significantly hurt consumer welfare and damaged the economy, and where there is at least one potential way to meet these concerns by agreeing on a solution that will ensure quick restoration of market conditions. As for settlements, they will be favoured where the practice warrants a fine but where the firms involved agree not to dispute the charges in exchange for a reduction of that penalty.

5. Conclusion Settlement procedures provide clear benefits for competition agencies when they are not ill-devised, when their implementation is informed by a clear pol10 Competition Council, Procedural Notice of 3rd April 2008 relating to commitments in competition cases, http://www.conseil-concurrence.fr/doc/cpro_enga_avril08.pdf.

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icy, especially as regards the objectives to be pursed, and when their handling on a case-by-case basis is managed with sufficient care.

Annex: Bruno Lasserre, président du Conseil de la concurrence La non contestation des griefs en droit français de la concurrence: bilan et perspectives d’un outil pionnier Paris, Assemblée générale de l’Association française d’étude de la concurrence, 10 avril 2008

I. Introduction La non contestation des griefs a été introduite en droit français de la concurrence par la loi n° 2001-420 du 15 mai 2001 sur les nouvelles régulations économiques11. Cet outil, d’un genre nouveau à l’époque de sa conception (1), a aujourd’hui trouvé toute sa place dans notre droit (2), qu’il a contribué à rendre plus négocié (3).

A. Un outil novateur La non contestation des griefs a fait irruption dans notre droit de manière relativement originale, et cela pour au moins trois raisons. Tout d’abord, il n’était pas possible à l’époque de tirer les enseignements d’une expérience étrangère vraiment transposable. Premièrement, le droit communautaire de la concurrence n’avait pas encore achevé sa modernisation et Bruxelles pouvait difficilement constituer un point de repère en la matière, dans la mesure où le système communautaire, encore orienté par l’obligation de notification préalable des accords, était plus éloigné du système français qu’il ne l’est aujourd’hui. Deuxièmement, l’homogénéité des politiques et des outils de la régulation de la concurrence en Europe était encore bien moindre que ce qu’elle est devenue aujourd’hui grâce au réseau européen de concurrence (ci-après le « REC »). Troisièmement, l’expérience américaine était et reste caractérisée par une conception très différence du « plea bargaining » et du « plea guilty ». Schématiquement, deux conceptions très différentes de la « transaction » existent de part et d’autre de l’Atlantique : d’un côté, le « settlement » fait office 11

JO 16 mai 2001, p. 7776

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d’outil de détection des pratiques anticoncurrentielles venant en second rang derrière la clémence, et permet de négocier à peu près tout, des poursuites aux infractions, en passant par certains droits de procédure et le droit de recours ; de l’autre, la « non contestation des griefs » sert à accélérer la procédure administrative, et conduit à négocier les sanctions. Ensuite, les consultations publiques, qui permettent d’associer les « utilisateurs » à la mise en place de la norme, en recueillant leur opinion dans le cadre de sa préparation, étaient encore extrêmement rares, à Paris du moins. La conception de la non contestation des griefs n’a donc pas pu bénéficier du dialogue avec les différentes personnes appelées à participer à la mise en œuvre de cette procédure—entreprises ou associations, bien sûr, mais aussi autorités de la concurrence. Or, l’exemple des consultations publiques effectuées depuis lors par le Conseil de la concurrence12 (ci-après le « Conseil ») montre que ce type de démarche permet, d’une part, de mieux comprendre les « incitations »13 des différents acteurs, ce qui est absolument nécessaire si l’on veut que la procédure fonctionne de manière optimale, et, d’autre part, de recueillir des avis très utiles pour préciser les modalités techniques des outils procéduraux prévus par le code de commerce. Enfin, et surtout, l’instauration du mécanisme de non contestation des griefs n’a pas été précédée d’une phase d’expérimentation, qui aurait permis au Conseil de « tester » diverses options et de « théoriser » la bonne approche, comme d’autres autorités nationales de concurrence le font fréquemment et comme nous l’avons fait depuis lors en matière d’engagements : l’adoption de l’ordonnance permettant au Conseil d’accepter des engagements est intervenue en novembre 2004, mais le décret ayant fixé la procédure applicable aux engagements n’a été pris qu’en décembre 2005, le délai écoulé entre ces deux textes ayant été mis à profit pour bien « caler » les modalités de ce nouvel outil avant de les graver dans le marbre. Finalement, l’approche retenue est donc restée assez « française », en ce sens qu’elle a conduit à penser une norme nouvelle et à légiférer avant d’expérimenter, de voir ce qui fonctionne ou ne fonctionne pas, et d’adapter le texte en conséquence.

12 Dont les résultats sont accessibles sur des pages dédiées du site Internet du Conseil : http://www.conseil-concurrence.fr/user/standard.php?id_rub=223 et http://www.conseilconcurrence.fr/user/standard.php?id_rub=259 13 Voir sur ce point Thierry Dahan, rapporteur général du Conseil de la concurrence, « Les procédures négociées : le point de vue de l’autorité », colloque Lamy, « Vingtième anniversaire du Conseil de la concurrence : quel statut et quels moyens pour les autorités de contrôle de la concurrence ? », 15 mars 2007

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B. Un outil attractif Le temps écoulé depuis lors a été marqué par trois périodes. La non contestation des griefs a, dans un premier temps, connu une croissance rapide, d’un point de vue tant quantitatif (2 décisions en 2003 ; deux fois plus en 2004) que qualitatif. Cette période a été marquée, notamment, par des précisions tenant à la définition de la notion de non contestation (englobant à la fois les faits, leur qualification juridique et la responsabilité des auteurs de l’infraction), à l’économie de la procédure et au mode de calcul de la réduction d’amende. Indépendamment de cette décantation des données intrinsèques de la procédure, le Conseil s’est préoccupé d’asseoir sa place dans sa boîte à outils, autrement dit de préciser les mérites et les avantages de la non contestation par rapport à d’autres procédures, telles que la procédure simplifiée et la clémence. A l’occasion, il a également pu faire jouer à la non contestation des griefs un rôle qui n’était pas tout à fait le sien, dans l’attente de la mise en place du programme de clémence14 et de la procédure d’engagements15. A cette enfance heureuse a succédé, comme bien souvent, un « âge ingrat » pendant lequel la non contestation est passée au second plan, dans l’ombre tant de sa sœur jumelle, la clémence (qui a eu le vent en poupe avec la mise à jour des lignes directrices de la Commission européenne, avec la constitution d’un groupe de travail au sein du REC, dans lequel le Conseil s’est beaucoup investi, et avec l’adoption d’un programme modèle), que de sa sœur cadette, la procédure d’engagements (qui a tout de suite trouvé ses marques). C’est pourquoi, il y a un an et demi, beaucoup ne donnaient pas cher de l’avenir de la non contestation, qui n’avait, en tout cas, donné lieu qu’à une seule décision en 2006, alors même qu’elle suscitait un intérêt intellectuel très clair chez les autorités de concurrence étrangères dépourvues d’un tel outil, telles que la NMa néerlandaise ou la Commission de la concurrence suisse, auxquelles le Conseil a rendu visite cette année-là. Mais cette autre histoire des Trois sœurs se termine bien pour la non contestation des griefs, puisque l’année 2007, dont les évolutions notables ont déjà été retracées ailleurs16, témoigne d’un renversement de tendance très clair, et donc d’une troisième étape. La non contestation fait en effet l’objet d’un retour en grâce, auquel l’assemblée générale de l’AFEC d’aujourd’hui contribuera pleinement. Il n’est pas seulement question de faire un bilan de cette procédure, mais aussi d’évoquer ses perspectives, qui s’annoncent sous de bons auspices. 14 Conseil de la concurrence, décision n° 07-D-02 du 23 janvier 2007 relative à des pratiques ayant affecté l’attribution de marchés publics et privés dans le secteur de l’élimination des déchets en Seine-Maritime 15 Conseil de la concurrence, décision n° 04-D-65 du 30 novembre 2004 relative à des pratiques mises en œuvre par La Poste dans le cadre de son contrat commercial 16 Voir sur ce point Fabien Zivy, chef du service du président du Conseil de la concurrence, « La procédure de non contestation des griefs en droit français de la concurrence : chronique d’un retour en force », Revue juridique de l’économie publique, mars 2008

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Ce constat n’est pas seulement quantitatif (7 décisions faisant application de la procédure de non contestation en 2007, et représentant 25 % des décisions de sanction rendues la même année), mais aussi, et peut-être surtout, qualitatif. Le Conseil est entré dans une période de réflexion plus sophistiquée, où la question n’est plus « que fait-on ? » ou « comment fonctionne ce nouvel outil ? », mais « que veut-on en faire ? » ou « comment maximiser sa value ajoutée ? ». Ce questionnement implique de réfléchir à trois éléments : 1) les objectifs assignés à la procédure ; 2) les signaux donnés aux acteurs à cet égard, et 3) les incitations mise en place pour orienter les comportements en ce sens. Les raisons pour lesquelles la non contestation redevient un sujet d’actualité, un « sujet chaud » dont on parle dans les conférences et les colloques qui sont au droit de la concurrence du XXIème siècle ce que les salons étaient à la philosophie du XVIIIème siècle, sont de plusieurs ordres. Deux d’entre elles méritent une mention particulière. En premier lieu, le Conseil a « calé » la procédure et commence désormais à être confronté à des questions de « réglage fin ». On peut penser, par exemple, au point de savoir quels sont les cas dans lesquels il est plus opportun de s’orienter vers la non contestation des griefs : s’agit-il des affaires dans lesquelles le dossier est solide et où le Conseil négocie en position de force, c’est-à-dire celles où il est a priori contre-intuitif d’accorder des réductions d’amende, où de celles dans lesquelles le dossier est plus risqué et où la transaction permet de sécuriser un résultat « de second rang », c’est-à-dire celles dans lesquelles il est a priori contre-intuitif que l’entreprise accepte de s’asseoir à la table des négociations ? Mais d’autres questions de posent, en particulier celle des moyens d’inciter toutes les entreprises à renoncer à contester les griefs, afin de maximiser les gains procéduraux de l’autorité. Et cette source de questions nouvelles ne semble pas devoir se tarir. On voit, derrière ces interrogations, commencer à poindre des problématiques « de troisième génération », c’est-à-dire celles sur lesquelles le code de commerce semblait apporter une réponse ne souffrant pas de discussion, mais qui, à l’usage, méritent qu’on y réfléchisse à deux fois. C’est par exemple le cas de la question, déjà évoquée avec l’AFEC en octobre 2007, du moment se prêtant le mieux à la non contestation des griefs, sur laquelle je reviendrai tout à l’heure. En second lieu, la non contestation bénéficie d’échanges croissants entre autorités de la concurrence. Une table ronde de l’OCDE y a été consacrée à l’automne 200617. Un rapport, qui sera présenté à la conférence annuelle de l’ICN organisée à Kyoto (Japon) la semaine prochaine18, et auquel le Conseil a beaucoup contribué, montre bien l’essaimage des réflexions et des expériences en la matière, mais aussi les perspectives de comparaison, d’enrichissement 17 OCDE, comité de la concurrence, table ronde sur « la transaction en matière de cartels », octobre 2006 18 Réseau international de concurrence (ICN), groupe de travail « Cartels », rapport « Settlement in Cartel Cases », avril 2007

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mutuel et de « benchmarking » qu’ouvre cette diffusion. L’entrée en scène de la Commission européenne19 s’inscrit parfaitement dans cette évolution.

C. Un outil négocié Si la non contestation des griefs fait florès, c’est parce qu’elle constitue une révolution, en ce sens qu’elle fait intervenir une logique de négociation dans un droit jusqu’alors essentiellement prescriptif et unilatéral. Le fait de renoncer à contester les griefs notifiés permet aux entreprises d’obtenir une réduction du montant de l’amende à laquelle elles s’exposeraient en l’absence de non contestation. Il introduit donc une dose de négociation dans un droit qui n’en connaissait pas auparavant. Cette dose de négociation est plus limitée que celle qui caractérise d’autres corpus juridiques : elle concerne uniquement l’étendue de la sanction, là où d’autres droits permettent de discuter de l’existence même de la sanction, de l’infraction ou encore des garanties fondamentales de procédure que sont les droits de la défense ou le droit de recours. Mais elle est étend progressivement son emprise sur notre droit de la concurrence, comme en témoigne l’apparition de nouvelles procédures, par exemple celle permettant aux entreprises de proposer des engagements susceptibles de conduire le Conseil à clore la procédure avant toute notification des griefs, s’ils répondent à ses préoccupations de concurrence. Cette évolution me semble toutefois avoir une limite naturelle. Le droit de la concurrence ne peut pas—et surtout ne doit pas—devenir un droit entièrement négocié ; cela ne serait du reste pas dans l’intérêt des entreprises elles-mêmes. C’est la dialectique de la contradiction qui fonde la richesse et la solidité de nos raisonnements et de nos analyses. En outre, une partie de l’attractivité des procédures alternatives et accessoires s’explique par les mérites propres de ces procédures, mais l’autre tient au caractère répulsif des sanctions infligées par le Conseil, et donc à sa politique de dissuasion. Enfin, certains aspects fondamentaux de notre droit, tels que les droits de la défense, sont intangibles et ne doivent donc pas, de mon point de vue, être « à la carte » dans le cadre de la procédure accusatoire, selon que l’on choisit de contester ou non les griefs notifiés par le Conseil. L’économie de la procédure et sa mise en place ayant fait l’objet d’une étude très complète dans le rapport annuel 2005 du Conseil20, je voudrais seulement revenir aujourd’hui sur deux points : les avancées récentes, d’une part, que l’on peut aborder à partir des enseignements tirés de la mise en pratique des autres outils négociés dont le Conseil dispose aujourd’hui (I), et les 19 L’état actuel des projets de textes et les résultats de la consultation publique lancée par la Commission européenne au sujet de la « transaction directe » sont accessibles sur son site Internet : http://ec.europa.eu/comm/competition/cartels/legislation/settlements.html 20 Rapport annuel 2005 du Conseil de la concurrence (pp. 135 à 143 et 173 à 174)

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gains d’efficacité supplémentaires qui pourraient encore être effectués, que ce soit en modifiant le texte du code de commerce ou à droit constant (II).

I. Les avancées récentes Les avancées récentes concernent à la fois les spécificités propres de la procédure (A) et ses « points de contact » avec les autres outils faisant intervenir une dose de négociation (B).

A. Les spécificités de la non contestation par rapport à la clémence et aux engagements Deux éléments doivent retenir l’attention : le domaine de la non contestation d’abord (1), et son moment ensuite (2).

1. Le domaine de la non contestation des griefs La non contestation des griefs, c’est sa principale spécificité, a un champ d’application très englobant : elle s’applique a priori à tout type de pratique, comme en atteste le bilan quantitatif qu’on peut en dresser depuis sa mise en pratique par le Conseil, en 2003. Elle a en effet concerné neuf ententes horizontales, trois ententes verticales et trois abus de position dominante. a. L’exigence de coopération pousse naturellement à accepter les demandes de non contestation des griefs dans les affaires d’ententes La Commission européenne s’est déclarée prête, dans son projet de « transaction directe », à faire ce choix « au sens strict », en concentrant la mise en œuvre de ce futur outil sur les cartels. Le Conseil, suivant en cela la voie ouverte par le législateur, l’a fait « au sens large », en n’excluant a priori aucun type d’entente du champ de la procédure : « en matière d’entente horizontale, instantanée ou durable, la réduction de sanction est toujours possible », a-t-il rappelé en juin 2007 dans sa décision Linge 21. Mais elle n’est évidemment pas exclue non plus dans les cas de restrictions verticales. Après un temps d’incertitude, la procédure a ainsi été appliquée à des ententes injustifiables, comme dans la décision Câbles 22 de juillet 2007, qui 21 Conseil de la concurrence, décision n° 07-D-21 du 26 juin 2007 relative à des pratiques mises en œuvre dans le secteur de la location-entretien de linge 22 Conseil de la concurrence, décision n° 07-D-26 du 26 juillet 2007 relative à des pratiques mises en œuvre dans le cadre de marchés de fourniture de câbles à haute tension

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concernait un appel d’offres dans le secteur des câbles de haute tension, et dans la décision Linge, où un grief d’entente horizontale visant à répartir les clients et à harmoniser les prix a par exemple été retenu à l’encontre des entreprises mises en cause. Elle a également été appliquée à un cas d’entente ayant par ailleurs donné lieu à des demandes de clémence. La décision Déménageurs23 de décembre 2007 constitue à ce jour le seul cas d’application combinée des deux procédures, le dénonciateur ayant été exonéré tandis que plusieurs autres entreprises mises en cause bénéficiaient d’une réduction d’amende de 10 %. Mais d’autres cas de ce type ne sont pas à exclure à l’avenir. b. L’exigence de négociation pousse de son côté à recourir à la non contestation des griefs dans des affaires d’abus de position dominante lorsque c’est bénéfique au rétablissement de la concurrence Contrairement au point précédent, il s’agit à ce stade d’une spécificité française. Quelles en sont les raisons ? Il faut, je crois, revenir aux incitations à transiger, qui sont cohérentes et qui poussent à cette solution du côté de l’autorité de la concurrence comme du côté des entreprises. La France dispose d’une solide pratique décisionnelle en matière d’abus de position dominante. Il existe donc des précédents solides, qui clarifient le droit applicable dans de nombreux cas de figure, qu’il s’agisse des questions de fond ou de la sanction encourue, et contribuent par conséquent à inciter les entreprises à renoncer à contester les griefs. De son côté, le Conseil est naturellement conduit à faire usage de la non contestation en matière d’abus de position dominante à la fois parce qu’il est a priori facile de se mettre d’accord avec une seule entreprise et parce que la combinaison de l’obligation faite à l’entreprise de renoncer à contester les griefs et de l’obligation de présenter par ailleurs des engagements permet de trouver des solutions concrètes aux problèmes posés par son comportement sur le marché. La décision France Telecom24 fournit une illustration topique de l’intérêt de cette procédure en matière de comportements unilatéraux : l’affaire a débouché sur un ensemble d’engagements destinés à assurer une véritable « révolution culturelle » au sein de l’entreprise en cause, dont l’intérêt est triple : elle garantit tout d’abord un changement de comportement concurrentiel profond et immédiat ; elle contribue ensuite à diffuser en profondeur la « culture de la concurrence » parmi les cadres et les salariés de l’entreprise ; elle a enfin valeur d’exemple pour les tiers. 23 Conseil de la concurrence, décision n° 07-D-48 du 18 décembre 2007 relative à des pratiques mises en œuvre dans le secteur du déménagement national et international 24 Conseil de la concurrence, décision n° 07-D-33 du 15 octobre 2007 relative à des pratiques mises en œuvre par la société France Telecom dans le secteur de l’accès à Internet haut débit

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2. Le moment de la non contestation des griefs Deux éléments, auxquels correspondent deux problématiques différentes, peuvent être distingués : celui du moment chronologique (a) et celui du moment « psychologique » de la procédure (b). a. Le moment chronologique : la non contestation des griefs constitue la dernière stratégie alternative au contentieux Un constat analogue à celui qui vient d’être fait au sujet du domaine de la procédure peut être fait en ce qui concerne son moment : la comparaison avec la clémence et avec les engagements fait ressortir la spécificité de la non contestation des griefs, qui intervient en quelque sorte en « bout de course », pour des raisons qui ne tiennent pas à sa moindre attractivité, mais au contraire à sa valeur ajoutée. La clémence vise à accroître l’efficacité de la répression des pratiques anticoncurrentielles les plus graves, qui sont par essence secrètes, en permettant leur détection—on parle alors de clémence de « premier rang »—ou en consolidant le dossier constitué par le Conseil—il s’agit ici de la clémence de « second rang ». Elle est accessible d’emblée, donc avant toute perquisition. Elle se referme, en premier rang, lorsque le dossier est suffisamment robuste pour permettre à l’autorité de la concurrence de constater l’existence d’une infraction, et, en second rang, lorsqu’il est complet au point qu’il n’est plus possible de lui apporter une valeur ajoutée supplémentaire. Les engagements visent pour leur part à permettre une clôture pré-contentieuse des affaires dans lesquelles un rétablissement volontaire et rapide de la concurrence a du sens. La « fenêtre de tir » est décalée dans le temps par rapport à celle ouverte aux demandeurs de clémence. Elle se situe entre l’ouverture de l’affaire et l’envoi d’une notification des griefs. A la différence de ces procédures, la non contestation des griefs vise à accélérer les affaires dans lesquelles des griefs sont déjà notifiés, mais dont le rapport n’est pas encore établi. Ce n’est pas parce qu’elle intervient postérieurement aux deux autres procédures qu’elle est moins intéressante. Il ne faut en effet pas appréhender les procédures alternatives ou accessoires isolément, mais comme un tout cohérent ou un « continuum » : elles constituent une panoplie non seulement du point de vue du Conseil, mais aussi pour les entreprises, qui ont le choix de leur stratégie et peuvent, par exemple, venir en clémence ou attendre et voir ce que font les autres membres du cartel, avant de transiger s’il le faut ou d’aller au contentieux.

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b. Le moment « psychologique » : la non contestation des griefs est un point de rencontre entre partenaires en situation d’asymétrie d’information Si l’on quitte la stricte logique procédurale pour appréhender le moment de la non contestation des griefs d’un point de vue plus large, on s’aperçoit qu’il peut être perçu différemment par les deux parties en présence. Du point de vue des services d’instruction du Conseil, ce moment est celui où le dossier est parvenu à un degré de solidité factuelle et juridique suffisant pour notifier des griefs. Mais cette spécificité française qu’est la séparation des fonctions d’instruction et de décision joue ici un rôle essentiel. Les entreprises ont souvent insisté sur l’aspect déstabilisateur de ce principe, qui leur convient davantage en procédure purement contentieuse qu’en procédure de non contestation des griefs ou d’engagements. Cette aspect des choses n’est cependant qu’un des deux côtés de la médaille. Les notifications de griefs françaises sont, du fait de cette séparation, moins « bouclées » que les communications de griefs de la Commission européenne en ce sens, non pas qu’elles sont moins solides, mais qu’elles sont moins définitives. Elles ne peuvent constituer le « brouillon » de la décision à venir puisque cette dernière émane d’un auteur différent, le collège, qui se prononce en parfaite indépendance. Il reste donc une part d’aléa non nulle, pour les entreprises comme pour les services d’instruction. Cette situation est intéressante pour les entreprises mises en cause : les services d’instruction connaissent le dossier de l’affaire, mais l’entreprise connaît l’affaire elle-même, et le cas échéant les aspects de l’affaire qui restent encore dans l’ombre. La « fenêtre de tir » de la non contestation des griefs est donc, en quelque sorte, un moment « entre chien et loup », où il ne fait déjà plus tout à fait jour, mais où il ne fait pas encore tout à fait nuit. Dans ces conditions, on peut parfaitement concevoir que les services d’instruction du Conseil et les entreprises mises en cause aient une perception différente du dossier et trouvent tous deux leur compte à la non contestation des griefs, les premiers en « sécurisant » leurs griefs et les secondes en « sécurisant » le champ de leur incrimination.

B. Les points de contact entre la non contestation des griefs, la clémence et les engagements Ils sont très différents en ce qui concerne la clémence (1) et les engagements (2).

1. L’importance de la réduction d’amende Comme la clémence, la non contestation implique une coopération de l’entreprise ou des entreprises mises en cause, qu’il est légitime de récompenser.

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De nombreuses questions peuvent être évoquées à ce sujet, mais la plus intéressante est peut-être celle des « signaux » que le Conseil commence à donner sur ce que les entreprises peuvent retirer de cette coopération. Le point de départ du calcul (l’amende qui serait infligée en l’absence de non contestation) reste incertain, ce qui est nécessaire dans la mesure où une part d’incertitude doit demeurer, de manière à déjouer les calculs économiques que les entreprises pourraient être tentées de faire en comparant les gains et les pertes engendrés par une pratique anticoncurrentielle, et donc en mesurant la rationalité économique de l’infraction. Mais le Conseil commence à dessiner, peut-être pas un « barème », mais une grille de lecture des contributions apportées par les entreprises à l’instruction et des conséquences pouvant y être attachées en termes de réduction d’amende envisageable. Pour s’en tenir à une présentation simplifiée de cette grille d’interprétation, on peut considérer qu’un taux de réduction d’amende de 10 % est envisageable dans les cas de non contestation « pure » ou quasi-pure, dans lesquels les entreprises renoncent à contester la matérialité des faits, la qualification juridique et l’imputation des griefs, d’une part, et ne peuvent pas ou ne veulent pas prendre des engagements allant au delà de l’adoption d’un programme de conformité minimum (engagements de formation et/ou d’information interne), d’autre part. En pareil cas, c’est « essentiellement la contrepartie procédurale », c’est-à-dire le gain de temps et l’allègement de la charge de travail que la procédure procure au Conseil, qui se trouve récompensé, comme cela a été rappelé dans la décision Câbles. Il est cependant concevable de s’élever au-dessus de cet ordre de grandeur, en montant jusqu’à des taux de réduction de l’ordre de 25 à 30 % dans les cas de non contestation « plus », dans lesquels les entreprises s’ingénient à concevoir des engagements allant au-delà des programmes de formation et d’information évoqués à l’instant. Le principe cardinal posé par le Conseil est toutefois que la clémence de second rang, qui peut être récompensée à hauteur de 50 % en fonction de la valeur ajoutée apportée par le demandeur, doit demeurer plus attractive que la non contestation des griefs dans la mesure où elle implique davantage de la part de l’entreprise et apporte davantage à l’autorité de la concurrence, comme l’a rappelé la décision Linge. Cela étant, ce principe pourrait souffrir des exceptions : il existe en effet des cas dans lesquels les demandeurs de clémence ont tant apporté au Conseil qu’il n’est plus sérieusement concevable d’apporter une valeur ajoutée supplémentaire à l’affaire, sauf à fournir des informations permettant de retenir un grief sur un autre marché ou pour d’autres années—mais en pareille hypothèse, l’entreprise obtient en pratique une exonération totale de sanction sur ces aspects de l’infraction. Dans ce cas de figure, il ne serait pas opportun de s’interdire mécaniquement d’inciter les autres entreprises mises en cause à transiger si cela peut être intéressant, notamment en permettant l’accélération de l’affaire. La hiérarchisation retenue entre la clémence et la non contestation des griefs ne doit donc pas s’interpréter comme une règle totalement rigide.

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Peut-on aller encore au-delà, comme le propose l’AFEC, en prévoyant une zone de recouvrement permettant d’accorder une réduction d’amende plus importante dans le cas d’une « bonne non-contestation » que dans celui d’une « moins bonne clémence » ? Sur le principe, cela n’est pas exclu, la question étant plutôt de savoir « quand » et « comment » le Conseil le fera que « s’il » le fera. Mais il est nécessaire, au préalable, de bien différencier les procédures et de bien clarifier les signaux donnés par la grille de lecture évoquée tout à l’heure, afin de ne pas brouiller les messages que l’on souhaite faire passer.

2. La nature des engagements Comme les engagements, la non contestation des griefs implique une négociation avec l’entreprise ou les entreprises mises en cause sur la façon dont elles peuvent, au moins amender leur attitude, et au mieux modifier leur comportement sur le marché. a. L’amendement du comportement : les engagements de « compliance » Il faut prendre garde à ne pas assimiler la mise en place d’un programme de « compliance » ou de conformité au droit de la concurrence à un taux de réduction d’amende automatiquement limité à 10 %. Le Conseil veille évidemment à la cohérence des signaux qu’il envoie, et l’on sait qu’il s’intéresse de très près à la « compliance ». Une étude confiée à un cabinet indépendant, épaulé par un comité de pilotage présidé par un membre du collège du Conseil, Mme Xueref, est en cours de réalisation sur ce thème ; elle devrait conduire à la présentation d’un rapport fin juin / début juillet. Ce document devrait permettre au Conseil de continuer à investir ce domaine, comme il l’a fait tout au long de l’année 2007, mais de façon plus « théorisée », en tout cas plus éclairée. S’il faut établir un rapport entre un taux de réduction de l’ordre de 10 % et un certain type d’engagements de « compliance », c’est donc plutôt aux engagements de formation des cadres et des salariés de l’entreprise, d’une part, et d’information, d’autre part, qu’il faut penser. Le Conseil ne dédaigne pas ces engagements, bien au contraire, pour au moins trois raisons. D’abord, ils ont une valeur pédagogique importante, en particulier dans les affaires où il n’est pas facile de s’engager à faire davantage (cartels) et dans les cas où il faut mettre en place un véritable changement d’habitudes au sein de l’entreprise. Ensuite, ils peuvent servir de vecteur à une véritable diffusion de la culture de la concurrence au sein de l’entreprise et « faire la différence » au quotidien, sur le terrain, s’ils sont adaptés aux données propres à l’entreprise et effectivement mis en œuvre. Enfin, ils peuvent servir à « amorcer » la négociation sur les engagements entre les entreprises et les services d’instruction, et constituer

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le socle sur lequel vont, finalement, se construire des engagements plus substantiels. C’est pourquoi, pour répondre à une question posée par l’AFEC, je ne pense pas que le Conseil considère les engagements de « compliance » comme des engagements « de forme », en tout cas s’il faut entendre par là « de pure forme » ; je suis au contraire tout à fait d’accord avec l’AFEC pour récompenser à leur juste valeur des engagements substantiels de « compliance », dont on peut attendre beaucoup pour le comportement futur de l’entreprise. b. La modification du comportement sur le marché : les engagements comportementaux Or, on peut envisager de nombreux cas où il est possible et attractif de s’engager davantage. La décision Linge en fournit une parfaite illustration. Elle concernait un contexte de marché relativement spécifique, mais bien d’autres secteurs présentent d’autres types de particularités se prêtant à un peu de créativité de la part des entreprises qui y opèrent. Dans cette affaire, les entreprises mises en cause ont présenté des engagements de sensibilisation et de conformité (audit, information, formation, etc.), auxquels se sont ajoutés des engagements innovants visant à mettre en place une procédure d’alerte, et des engagements comportementaux portant notamment sur la gestion des clients partagés entre les entreprises de location de linge. La valeur ajoutée de ce cumul de propositions a conduit à accorder un taux de réduction d’amende de 25 % à 30 %. On voit donc que la pratique décisionnelle du Conseil est tout à fait en phase avec la demande de l’AFEC d’accorder une belle « prime » aux entreprises qui se montrent créatives en matière de programmes de conformité ! Peut-on, la aussi, aller au-delà, en concevant des engagements structurels, comme l’envisage l’AFEC ? Compte tenu du libellé du code de commerce, qui permet au Conseil d’imposer des conditions particulières25 aux entreprises, et du fait qu’il n’y a pas de raison, a priori, de limiter le champ des engagements volontairement proposés par les entreprises, sous réserve du principe de proportionnalité, cette évolution me paraît juridiquement possible. Mais, comme c’est le cas s’agissant des remèdes structurels à Bruxelles ou devant nombre d’autres autorités nationales de concurrence d’Europe, ce type d’engagements devrait rester rare, la préférence devant être donnée aux engagements comportementaux dans tous les cas où ils permettent de mettre fin aux infractions constatées par le Conseil et d’obtenir les évolutions souhaitées. 25 Voir sur ce point Bruno Lasserre, président du Conseil de la concurrence, « Remedies and Sanctions for Unlawful Unilateral Conduct: the French experience », Fordham Competition Law Institute, 34ème conférence sur le droit et la politique internationale de concurrence, 27 et 28 septembre 2007

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Tous ces résultats, toutes ces avancées, toutes ces réflexions, n’impliquent pas qu’il n’existe plus aucune marge de progression.

II. Les avancées envisageables La non contestation des griefs a maintenant trouvé sa place dans la famille des outils de régulation de la concurrence, et progressivement fait l’objet d’un « affinage » destiné à la rendre plus efficace et plus attractive. Il est possible de poursuivre dans cette voie en réfléchissant à une modification des dispositions du code de commerce (1), mais, en définitive, beaucoup de choses peuvent être faites à droit constant (2). Du point de vue du Conseil, qui est évidemment très favorable à un communiqué de procédure sur la non contestation des griefs, il faut commencer par le commencement, en stabilisant d’abord le droit avant de fournir un guide l’analyse ou de lecture—de la « guidance »—aux entreprises.

A. Les avancées législatives envisageables La concertation intervenue avec les avocats du barreau spécialisé en matière de concurrence en 2006 / 2007 a conduit le Conseil à adopter un ensemble d’orientations et de bonnes pratiques procédurales. Ces bonnes pratiques ont été présentées aux avocats lors d’une réunion informelle organisée par le Conseil en septembre 2007. Cela fait à présent six mois qu’elles sont en place, et le premier bilan qui peut être dressé de cette mise en œuvre26 montre qu’un certain nombre d’avancées ont déjà été réalisées. Ce constat vaut en particulier pour la non contestation des griefs, qui a fait l’objet de deux séries de réflexion, concernant l’une les pistes d’évolution législatives et l’autre les avancées possibles sans modification des textes.

1. la principale avancée législative est celle qui consisterait à découpler la non contestation des griefs proprement dite et les engagements Pourquoi cette évolution devient-elle de plus en plus urgente ? Deux raisons, dont la première a déjà été discutée avec l’AFEC et dont la seconde est liée à l’intérêt de la Commission européenne pour la « transaction directe », apparaissent déterminantes. 26 Voir sur ce point Fabien Zivy, « Bonnes pratiques procédurales du Conseil de la concurrence : premier aperçu de six mois de mise en ?uvre », Concurrences, n° 2-2008

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En premier lieu, il existe des cas dans lesquels des engagements, même limités, ne sont pas envisageables, moins parce qu’ils seraient techniquement impossibles—il est a priori toujours possible de s’engager à former ses salariés—que parce qu’ils ne répondraient pas aux exigence posées par le Conseil à propos de leur caractère substantiel, crédible et vérifiable. On peut, par exemple, penser au cas d’une entreprise qui serait mise en cause dans un cartel, après avoir pris des engagements dans une affaire antérieure et n’avoir pas respecté ces engagements. Le Conseil n’a stratégiquement pas de raison de s’interdire a priori de transiger en pareil cas, pour des motifs tels que l’efficacité procédurale, mais ne peut le faire compte tenu du libellé actuel du code de commerce. Cette situation place les entreprises en cause dans une situation inutilement rigide. En second lieu, une « mise en réseau » de la non contestation des griefs se profile avec l’avènement annoncé de la « transaction directe » à Bruxelles et l’émulation que cette innovation ne manquera pas de susciter ailleurs en Europe. Ce n’est donc pas seulement en termes absolus qu’il est dommage d’interdire aux entreprises de renoncer à contester les griefs dans les cas où aucun engagement substantiel, crédible et vérifiable ne peut être envisagé. Ce serait aussi regrettable d’un point de vue relatif ou comparatif, car cela aboutirait à empêcher les entreprises de transiger à Paris dans des cas où elles pourront le faire demain à Bruxelles. Cela nuirait à l’attractivité de notre procédure. Qu’est-ce que cela implique ? A mon sens, il ne faut pas supprimer le recours aux engagements, qui ouvre des perspectives intéressantes. Il est plus opportun de découpler les deux composantes de la procédure actuelle, en continuant d’imposer aux entreprises de renoncer à contester les griefs, mais en rendant la présentation d’engagements facultative et non plus impérative. Evidemment, il faut en conséquence permettre au Conseil de tenir compte du « plus » que constituent les engagements, en accordant une réduction d’amende supplémentaire lorsque les entreprises ne se limitent pas à renoncer à contester les griefs, mais s’engagent également à modifier leur comportement futur sur le marché. En pratique, il faut cependant faire attention à ne pas entrer dans une logique de complexification excessive où les procédures s’entrechoqueraient au lieu de s’articuler harmonieusement. Cela me semble tout à fait réalisable.

2. D’autres modifications législatives pourraient être explorées, mais pas nécessairement d’emblée D’autres évolutions sont envisageables. De mon point de vue, il est cependant préférable de commencer par tirer profit des possibilités d’innovation qui existent en l’état actuel du droit et d’expérimenter au cas par cas, avant de se lier les mains. Il existe en effet de vrais gisements d’efficacité, à condition

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d’être hardi et novateur, et de ne pas hésiter à revoir nos réflexes et nos comportements.

B. Les avancées envisageables à droit constant La première d’entre elles a déjà été amorcée par le Conseil : elle tient à la possibilité donnée aux services d’instruction et aux entreprises de négocier une réduction d’amende en valeur absolue et non plus en taux (1). Mais d’autres pistes, concernant le moment du recours à la procédure et la prévisibilité de son résultat pour les entreprises, s’offrent aussi à nous (2).

1. La possibilité de négocier une fourchette ou un plafond en valeur absolue La possibilité de négocier un plafond de réduction d’amende en valeur absolue, évoquée dans le cadre de la concertation entre le Conseil et les avocats, a été illustrée depuis lors par la décision France Telecom, dans laquelle le rapporteur général et l’entreprise en cause se sont mis d’accord sur un plafond à la fois prévisible et très attractif (60 millions d’euros), compte tenu du chiffre d’affaires mondial de l’entreprise et du plafond légal d’amende (5 milliards d’euros réduits de moitié, soit 2,5 milliards d’euros). Grâce à des engagements constructifs, l’entreprise a finalement obtenu une réduction supplémentaire par rapport à ce plafond (45 millions d’euros), même si l’existence de pratiques anticoncurrentielles antérieures à conduit le Conseil a constater l’existence d’une réitération, dont l’effet a été d’atténuer le gain finalement obtenu. Il n’est pas certain que cette possibilité s’offre au Conseil dans tous les cas. Les circonstances de l’affaire France Telecom étaient assez particulières, compte tenu du cumul de deux éléments : d’une part, l’entreprise mise en cause avait un chiffre d’affaires mondial extrêmement important, de sorte qu’elle était exposée à une amende potentiellement très élevée et que le jeu du plafond légal applicable en matière de transaction ne réduisait que très marginalement l’incertitude ; d’autre part, la pratique unilatérale qui lui était reprochée avait eu lieu sur un marché très étroit par rapport à l’ensemble de son portefeuille d’activités. Pour autant, il ne faut pas voir cette décision du Conseil comme un cas exceptionnel et non reproductible. La pratique décisionnelle future du Conseil nous en dira certainement davantage à ce sujet.

2. Les autres avancées envisageables Le diagnostic du Conseil sur les possibilités d’évolution autres que celle qui vient d’être évoquée est commun avec celui de l’AFEC, mais son pronostic s’en distingue en partie.

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a. Le recours à la procédure pourrait être accéléré en adaptant les notifications de griefs aux données propres à la non contestation Il ne paraît pas inenvisageable, à droit constant et comme le fait la Commission européenne, de se poser la question du sens à donner à la notion de « notification des griefs » dans une procédure de non contestation. Il est techniquement possible de prendre du champ par rapport à nos habitudes, et de rédiger des notifications plus succinctes que celles rédigées dans une perspective contentieuse, puisque le seul fait de ne pas contester les griefs suffit à fonder la décision finale du collège ; cela permettrait d’enclencher la procédure plus rapidement. Deux contraintes interdisent toutefois d’aller trop loin dans cette direction : il faudra en effet que le dossier soit suffisamment solide pour orienter les entreprises vers la non contestation des griefs, et suffisamment précis pour les convaincre qu’elles savent à quoi elles s’engagent en le faisant. Un point d’équilibre envisageable pourrait consister, dans un cadre tel qu’une audition informelle, à aborder la possibilité de ne pas contester les griefs avec l’entreprise avant de finaliser la notification de griefs. La Commission européenne prévoit de « sauter le pas » ; on peut envisager de s’inspirer de cette démarche, tout en continuant à distinguer clairement la non contestation des griefs française et la « transaction directe » communautaire, en particulier en ce qui concerne le respect du contradictoire et des droits de la défense, qui est assuré en non contestation comme il le serait dans un cas contentieux classique. Il faudra voir ce qu’en pense le rapporteur général du Conseil. b. Le résultat de la non contestation des griefs pourrait être rendu plus prévisible par un découplage des deux temps de la procédure Il ne paraît guère conforme à la séparation des fonctions d’instruction et de décision, qui constitue un principe cardinal de l’organisation et du fonctionnement du Conseil lorsque celui-ci agit dans un cadre contentieux, de demander au président de « s’associer » au rapporteur général ou de « faire le lien » entre les services d’instruction et le collège pour sécuriser la non contestation, comme l’explore l’AFEC. La procédure d’engagements échappe à ce principe dans la mesure où elle a lieu avant toute mise en accusation ; la non contestation des griefs ne doit en revanche pas y échapper puisqu’elle prend place après les griefs. Pour autant, le diagnostic à l’origine des réflexions de l’AFEC à ce sujet est un bon diagnostic : la prévisibilité de la procédure de non contestation peut encore être accrue. Alors, quelle solution imaginer ? Il me semble, à titre personnel, qu’on pourrait se poser la question de savoir s’il ne serait pas intéressant de scinder la procédure : l’accord passé par les entreprises avec le rapporteur général serait immédiatement soumis au collège, siégeant par

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exemple en commission permanente, qui le validerait en constatant que les entreprises ont renoncé à contester les griefs et encadrerait le montant de l’amende en conséquence, avant de renvoyer immédiatement l’affaire à l’instruction pour le reste de la discussion. C’est ce qu’envisage de faire la Commission européenne, dont le collège devrait être appelé à valider le principe et le cadre de la « transaction directe », avant de renvoyer l’affaire à la direction générale de la concurrence afin que celle-ci la « mette en musique », l’adoption de la décision finale demeurant bien sûr du ressort exclusif du collège.

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II Eric Morgan de Rivery* The French “Non-Contest Procedure”: a Practitioner’s Point of View

Introduction There is a growing trend to develop alternative procedural tools in order to settle cases involving anticompetitive practices, instead of simply imposing fines. The recent Draft Commission Notice on the conduct of settlement proceedings in cartel cases illustrates this trend.1 National competition authorities have often put forward the lack of tools at their disposal to justify the need for reforms that would enable them to ensure broader and more efficient enforcement of competition rules. Although one cannot deny that some of these tools, such as the commitment procedure, or the simplified procedure, may have somewhat facilitated and improved the enforcement of competition law, others—in particular the socalled “non-contest procedure” (NCP)—raise serious issues. In fact, the NCP is one of the four alternative and/or “negotiated” French antitrust procedures, together with the leniency procedure, the commitment procedure and the simplified procedure.2 The NCP was introduced by the New Economic Regulations Law, which entered into force on 16 May 2001 and was codified as Article L. 464-2-III of the French Commercial code (FCC). * Partner, Jones Day, Paris and Brussels. The author wishes to extend his thanks to Mr Fabien Sanfourche, Ms Sabine Thibault-Liger and Ms Eileen Lagathu, all associates of Jones Day, Paris, for their invaluable assistance in preparing this paper. 1 Draft Commission Notice on the conduct of settlement proceedings in view of the adoption of Decisions pursuant to Article 7 and 23 of Council Regulation (EC) N° 1/2003 in cartel cases. 2 The French leniency procedure is governed by Articles L. 464-2 and R. 464-5 of the French Commercial Code and by the Competition Council’s Procedural Communiqué (“communiqué de procédure”) of 17 April 2007. The French commitments procedure, which derives from Articles 5 and 9 of EC Council Regulation 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty, 2003 OJ L1/1, was incorporated into French law in 2004 (Ordinance 2004-1173 of 4 November 2004 adapting certain provisions of the French Commercial Code to EU competition law) and summed up in the Procedural Communiqué of the Competition Council of 3 April 2008 concerning commitments in competition law. The simplified procedure is governed by Article L. 463-3 of the French Commercial Code.

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Article L. 464-2-III FCC simply provides that, “when a body or a company does not contest the truth of the allegations made against it and undertakes to alter its conduct in the future, the Rapporteur Général may recommend that the Competition Council, which hears the parties and the government representative without a report being drawn up in advance, impose the financial penalty [. . .] and take into account the fact that no challenge was raised. In such cases, the maximum amount of the penalty incurred is reduced by half.” In practice, this means that the undertaking(s) concerned may benefit from a reduction of the fine incurred, provided they (i) do not contest the allegations raised against them in the Statement of Objections,3 and (ii) offer suitable commitments to address the competition concerns raised by the case.4 If those two conditions are fulfilled, the company will benefit from a reduction of the fine incurred.5 The NCP differs from the other three alternative procedures as follows: —the leniency procedure is logically initiated prior to the Statement of Objections, and de facto the companies blowing the whistle admit they are guilty. The benefits in terms of detection and punishment are regarded as justifying total or partial immunity for the whistleblower. As for the NCP, it can also be used by companies that were not among the first ones to blow the whistle. —the simplified procedure applies to simple cases for which the case law is well established. Pursuant to Article L. 463–3 FCC, “the chairman of the Council on Competition or a vice-chairman delegated thereby may, after 3 The non-contest procedure requires the undertaking to refrain from challenging the alleged facts and their qualification, and further requires it to refrain from questioning the attributability of the infringement. See Cathedral of Trégiuer, Decision No 04-D-42 of the Competition Council of 4 August 2004. 4 The commitments are subject to a negotiation between the parties and the Rapporteur Général. The parties agree to give certain commitments regarding their future behavior. The results of the negotiation are then memorialized in minutes issued by the Rapporteur Général. The minutes contain the commitments offered by the parties and the reduction rate proposal of the Rapporteur Général to the Competition Council. The College of the Competition Council further examines the commitments at the oral hearing. The College requires that the commitments be substantial, credible and verifiable. In other words, the commitments proposed must entail a satisfactory alteration of the behaviour of the parties. 5 Pursuant to Article L. 464-2-III FCC, when a company fulfills the conditions of the NCP, “the maximum amount of the penalty incurred is reduced by half.” The Competition Council considers that the maximum amount of the penalty does not refer to the fine imposed on the parties, but rather to the maximum level of the fine provided for in Article L. 464-2-I FCC, according to which “[t]he maximum amount of the penalty for a company is 10% of the highest worldwide turnover, net of tax, achieved in one of the financial years ended after the financial year preceding that in which the practices were implemented.” Thus, the maximum amount of the fine facing a party to the NCP is 5% (or 2.5% if the infringement took place before the entry into force of the New Economic Regulations Law of 2001) of its worldwide turnover. See Port of Marseille, Decision No 03-D-10 of the Competition Council of 20 February 2003, § 51.

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The French “Non-Contest Procedure”: a Practitioner’s Point of View 455 notification of the complaints to the interested parties, decide that the matter shall be decided by the Council without the prior preparation of a report. This decision shall be notified to the parties.” In such a situation, the penalty incurred cannot exceed 750,000 euros (Article L. 464-5 FCC) but the procedure makes it possible to quickly restore competition. —the commitment procedure targets those infringements which are the least harmful to competition (mainly vertical restrictions) and which did not last for a long time, and/or cases for which the case law is not well established; it excludes the most harmful practices, such as cartels and certain abuses of a dominant position.6 In the commitment procedure, the possibility to quickly and completely restore competition through the commitments is regarded as justifying the absence of fines. Given the key role the commitments play in the NCP, the latter procedure is probably the closest to the commitment procedure. However, the NCP applies to all anticompetitive practices, regardless of the harm they may cause to competition; in particular, the NCP applies to cartels and abuse of dominance cases.7 Therefore, the commitment procedure and the NCP might seem to complement one another: the commitment procedure for less harmful infringements, and the NCP for more serious infringements.8 Seventeen decisions have been issued so far under the NCP. As of this writing, two decisions have been adopted in 2008. We will try to demonstrate that the place of the NCP, notwithstanding the above attempt of systematization, is still far from being totally clear, and its implementation raises important issues. We will focus on four of them in particular, and we will suggest possible improvements. First, an improved NCP could require the competition authorities to reassess the priorities (and the corresponding remedies) this procedure is meant to address. Second, an improved NCP could allow the parties to know what is being negotiated (in particular with respect to the fine incurred), and with whom. Third, an improved NCP could probably dispense with a situation in which the asymmetry between the parties is such that it raises fundamental issues concerning the rights of defence. Fourth, an improved NCP could rely upon requirements for the commitments that focus on tackling specific violations of competition law rather than on regulating the market.

6

Procedural Communiqué, cited supra note 2, § 11. To date, the French Competition Council has adopted 11 decisions in horizontal agreement cases, 3 decisions concerning vertical agreements, and 3 decisions regarding abuses of a dominant position. 8 The commitments procedure takes place before the Statement of Objections, the NCP takes place after. Despite offering commitments, the parties still incur a penalty at the end of the proceedings under the NCP, whereas no penalty is imposed under the commitments procedure, which puts an end to the proceedings. 7

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1. The (un)realistic and potentially conflicting objectives of the non-contest procedure Current situation Procedures’ Simplification Restoration Reduction main Detection Deterrence and economy of competitive of fines objectives French of procedure conditions Alternative Procedures

Leniency

✓

Commitment procedure

✓

Simplified procedure

✓

NCP

✓

✓

✓

✓

✓ ✓

✓

If, as previously mentioned, the NCP is one of the four alternative procedures under French antitrust law, its objectives are not as clearly defined as for the three other procedures. Basically, the main objective of the leniency program is to detect and reveal cartels, while allowing immunity from and/or reduction of fines for the whistleblower(s). The main goal of the commitment procedure is to restore the former competitive conditions on a given market as quickly as possible (this entails a real economy of procedure) by accepting commitments without imposing penalties or issuing a formal decision. The main objective of the simplified procedure is the procedural economy provided in simple cases (no report is required), which in turn is rewarded by a reduction of the maximum level of the penalty incurred. Against this background, the NCP appears both over-ambitious and ambiguous, as it tries to combine different procedures and objectives. Indeed, the NCP appears to be a compromise or a “mix” of the simplified procedure (inasmuch as the NCP relieves the Competition Council from preparing a report) and the commitment procedure (inasmuch as—increasingly demanding—commitments are required). In other words, the NCP seeks, simultaneously and in a single procedure, to combine different objectives: restoring competitive conditions on a given market; offering economy of procedure; and imposing adequate sanctions while reducing penalties in a way which however ought not to be too substantial, so as to preserve the deterrence effect and the attractiveness of the leniency program. However, compromise is not always the best solution and does not necessarily guarantee clarity and legal security. As far as the NCP is concerned, this is blatant. A detailed look at some of the main features of the NCP confirms this view.

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The French “Non-Contest Procedure”: a Practitioner’s Point of View 457

1.1 The difficulty of seeking economy/simplification of procedure, deterrence, commitments and adequate sanction at the same time and all in a single procedure Economy of procedure is considered to be a cornerstone of the NCP. Procedural economy is directly derived from the fact the parties do not contest the allegations made against them in the Statement of Objections. Since no contestation is made, no time-consuming report is drafted by the Rapporteur Général. The absence of a report has often been characterized as a substantial simplification and economy of the administrative procedure. However, one can reasonably doubt that the NCP always leads to such simplification. First, it seems that most of the administrative work is done prior to the potential application of the NCP, i.e., during the inquiry (which may last for several years), the investigation of the case (which may also last for several months or even longer), and the drafting of the Statement of Objections itself based on the inquiry and investigation. Therefore, merely being relieved of having to draft the report post-observations in response to the Statement of Objections appears to yield only limited procedural economies. In this respect, the commitment procedure, which does not require any Statement of Objections, seems far more satisfactory than the NCP in terms of efficiency and economy of time. Despite major criticism triggered by the EU proposal for a settlement procedure,9 this procedure seems more consistent than the French NCP as far as procedural efficiencies are concerned. Indeed, the drafting of an a minima Statement of Objections (after possibly carrying out a simplified investigation, thanks to the leniency procedure) is likely to effectively alleviate the burden of the Commission.10 Second, under the NCP, some of the parties concerned may choose not to rely on the NCP. In such a situation, the Rapporteur Général has to issue a report for those companies that did not request the benefit of the NCP.11 Hence, the procedural advantages of this procedure are obviously even more limited. Third, the efficiencies are also limited because they only concern the absence of discussion regarding the existence of the alleged facts, their qualification, 9

See the draft Settlements Notice, cited supra note 1. However, it should be acknowledged that the rights of defence are better protected with the NCP than with the EU settlement procedure considered by the Commission, since the NCP guarantees full access to the file for the undertakings concerned and ensures that the undertakings have full knowledge of the arguments supporting the Statement of Objections, and therefore the charges against them. 11 See, e.g., Heating, sanitation, plumbing, air conditioning, Decision No 06-D-03 of the Competition Council of 9 March 2006, where only one company (and its subsidiaries) out of the 69 companies that took part in the cartel requested the benefit of the NCP. 10

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and their attributability, while the parties are still entitled to contest (and do contest in practice) the considerations taken into account to determine the sanction, such as the gravity of the infringement, the importance of the damage to economy, or the situation of the undertakings concerned.12 With regard to the calculation of fine, there is no certainty as to the reduction that the Competition Council will grant, despite the fact that the companies involved and the Rapporteur Général have agreed on a reduction rate based on the commitments proposed by the companies. Indeed, the Competition Council refuses to have its hands tied by the Rapporteur Général. This situation is partly justified by the alleged belief that the absence of certainty regarding the fine imposed increases deterrence. However, one may reasonably argue that the lack of certainty as to the fine reduction discourages some companies from offering commitments under the NCP, since they have no guarantee that they will benefit from the reduction rate negotiated with the Rapporteur Général. Hence, by focusing on a deterrence allegedly better served by uncertainty as to the final outcome, the objective of reinstating the competitive conditions on a given market as quickly as possible through commitments becomes secondary. The elements just described could undermine the very attractiveness of the NCP. Consequently, it seems appropriate to redefine the objectives of the procedure more clearly.

1.2 The need to clarify the objectives of the NCP It is a generally accepted idea that a penalty, whatever its final amount, does not automatically solve all the issues that have arisen in connection with anticompetitive practices. If the NCP is to continue being considered as an alternative tool to straightforward sanctions, it should be made clearer that the primary objective of the NCP (and other alternative procedures) is to quickly restore the competitive conditions which existed on a given market before the anticompetitive practices were implemented. If some might consider that, for long-lasting cartels which have caused substantial harm, fines, as an instrument of deterrence, should remain a key component of the decision delivered under the NCP, then at least no burdensome commitments should be “imposed” on the concerned undertakings. However, and more importantly, for those—like us—who believe that restoration of competition should be the main goal of the NCP, one should not overlook the fact that offering significant and verifiable commitments is crucial for com12 This also indicates that no real negotiation takes place, or at least that the scope of the “negotiation” is limited, since the parties still have an interest in challenging the sanction.

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The French “Non-Contest Procedure”: a Practitioner’s Point of View 459 petition and is more likely to put a (definitive) end to the cartellization of a given economic sector. Therefore, any penalty imposed under the NCP should not undermine such an objective by diminishing the attractiveness and the instructive value of a “negotiated” settlement procedure. Consequently, the deterrent action of the competition authority—which aims at preventing the undertakings from continuing, repeating or simply initiating anticompetitive behaviour or practices, by fining the undertakings concerned—should be clearly constrained by the other objectives and the very rationale of the NCP, lest this procedure lose all interest for undertakings.

2. The need to know what is being negotiated and with whom, and to redesign the procedure accordingly As explained above, the parties negotiate with the Rapporteur Général and offer commitments in exchange for a fine reduction without knowing the amount of the fine; without any certainty as to whether the commitments proposed will finally be considered as sufficient by the Competition Council;13 and without any certainty as to whether the Competition Council will endorse the reduction rate proposed by the Rapporteur Général. While negotiating with the Rapporteur Général, the parties should have an estimate of both the amount of the fine they will pay if they rely on the NCP and the amount they will pay if they do not benefit from the NCP. This would allow the parties to be completely involved in the negotiations, and it would encourage them to offer significant commitments for the benefit of competition. The parties should also be able to negotiate with someone whose proposals are not at risk of being subsequently set aside. Indeed, the parties should have the certainty that what has been negotiated with the Rapporteur Général will be duly taken into account by the Competition Council in its final decision. Again, such certainty would encourage the parties to offer commitments in accordance with the very rationale of the NCP, the primary purpose of which is to quickly reinstate the competitive conditions on a given market. To this end, we propose the following measures. First, as a preliminary step, the Competition Council should issue guidelines explaining and delineating the method used to set fines (similar to the Fining Guidelines of the European Commission). Such guidelines would: (i) be particularly welcome by undertakings and practitioners since it would substantially and legitimately increase legal certainty concerning the risk at stake; and (ii) help them to decide to 13 This is the case in particular with the “commitment race” phenomenon (see Part 4 below).

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negotiate and propose commitments in a more informed and therefore responsible manner. Second, as regards the fines imposed under the NCP specifically, the “negotiated” aspect of the NCP should require the College of the Competition Council to be bound by what has been negotiated between the parties and the Rapporteur Général. Such a requirement would better secure the efficiency and rapidity of the proceedings because it would remove all the incentives for the parties to appeal against the Competition Council’s decision. It would also provide the parties with increased legal certainty. To make it easier to gain support from the Competition Council, a member of the College could take part in the negotiations along with the Rapporteur Général and the companies involved. If such participation were criticized for allegedly undermining the principle of separation between investigation/instruction and judgment, one could argue that this principle is not applicable here for two reasons. First, the European Court of Human Rights has clearly indicated that Article 6(1) ECHR is not applicable to regulatory measures, which is the case of the commitments taken in the framework of the NCP.14 Second, Article 6(1) ECHR should not be applicable to the negotiation of commitments because: (i) the negotiation does not pertain to the investigation/prosecution, and is by no means an indictment within the meaning of Article 6(1);15 and (ii) penalties are not the primary objective of the NCP. Thus, a truly negotiated procedure could authorize a member of the College to take part in the negotiations with the parties as a way of confirming that this is a preparatory step to the adoption of the decision. Such participation would put an end to the current “disconnect” between the Rapporteur Général and the College, and it would transform the NCP into a truly negotiated procedure favouring the offer of commitments by companies. 14 See OOO Neste St Petersburg v. Russia (App. No 69042/01), judgment of the ECtHR of 3 June 2004; Linda Arcelin, “L’alliance raisonnable entre droit de la concurrence et ECHR”, Revue Lamy de la concurrence 2007 n°11, pp. 100–110. See also Bruno Lasserre, “Propos introductifs”, Clémence et transaction en matière de concurrence—premières expériences et interrogations de la pratique, CCIP, Paris, 19 janvier 2005, http://www.creda. ccip.fr/colloques/2005-clemence-actes.html; Bruno Lasserre, “The French Competition Council within the European Competition Network”, Concurrences, N° 3-2005, pp. 42–51. President Lasserre, referring to the commitment procedure, stated that the stage before a Statement of Objections has been notified is not of an accusatory nature. As a result, Article 6(1) ECHR should not be applicable to the commitment procedure. Consequently, he took the view that the principle of separation between investigation/prosecution and sentencing functions is not applicable, and that members of the College should be allowed to take part in the procedure from the start. On this issue, see also the 2005 Annual Report of the French Competition Council, pp. 145–147; and, confirming the Competition Council’s position: Canal 9 / GIE Les Indépendants, judgment of the Cour d’Appel de Paris of 6 November 2007; Benjamin Cheynel, “La procédure française d’engagements devant la cour d’appel de Paris”, Revue Lamy de la concurrence, No. 14 (2008), pp. 85–89. 15 The non-contestation of the allegation by the parties to the NCP does not amount to an admission of guilt, as confirmed by the Paris Court of Appeal. See Société Le Goff, judgment of the Cour d’Appel de Paris of 29 January 2008.

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The French “Non-Contest Procedure”: a Practitioner’s Point of View 461 Third, and as a consequence of a member of the College taking part in the negotiations, the College should not be entitled to derogate from the range of the reduction rate stated in the minutes by more than 5 or 10%.16 Such limited modulation would offer more legal certainty to the companies and strengthen the attractiveness of the negotiations for the benefit of the market.

3. The need to remove the procedural asymmetry which is neither compatible with the rights of defence nor with due process requirements The NCP is characterized by an asymmetry between the roles assigned to the Competition Council’s Rapporteur Général and College, on the one hand, and the undertakings concerned on the other. This asymmetry derives from the wide discretion that the Competition Council, and in particular the College, is granted under the NCP. Such an asymmetry does not seem compatible with the rights of defence, in particular the equality of arms between the competition authority and the undertaking concerned. Nor is it compatible with requirements of due process.

3.1 The violation of the principle of equality of arms Basically, the companies charged with an alleged violation of competition law negotiate a reduction of the fine—despite the fact that they have no information regarding its amount—with a party that does not have a full mandate to negotiate with them. Conversely, the College enjoys full discretion to determine the basic amount of the fine and the reduction rate to apply to it, and may freely confirm, reject or amend the commitments offered by the parties and accepted by the Rapporteur Général. In other words, the College is not bound by the proposal of the Rapporteur Général, and it retains full discretion to set the final amount of the fine.

16 Modulation should be limited to 5% in situations where the Rapporteur Général/member of the College proposes a range for the reduction rate (i.e. X to Y%), or when the reduction rate is expressed as an absolute maximum threshold (see, e.g., the France Télécom case). The 10% modulation should only be applied in the (rare) cases where the Rapporteur Général/member of the College proposes a fixed reduction rate (i.e. X%). For an example of the latter situation, see High-speed internet access (France Télécom), Decision No 07-D-33 of the Competition Council of 15 October 2007.

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In addition, the College may urge the parties to offer additional or reinforced commitments at the oral hearing, i.e. under great pressure in terms of timing and environment.17 Consequently, after negotiating with the Rapporteur Général, the parties may be compelled to make more burdensome and costly commitments before the College, and/or may be granted a reduction of the fine considerably less attractive than that proposed by the Rapporteur Général.18 Such uncertainty as regards the final amount of the fine adds to the complete opacity regarding the computation and quantum of the basic fine to which the reduction rate is applied. To summarize, during the negotiations with the Rapporteur Général, the parties have no idea of (i) what the amount of the fine will be, since it is computed on the basis of parameters that they are unaware of, and (ii) how much the reduction of the fine actually amounts to. The Competition Council takes the view that deterrence requires such opacity, i.e. that the basic amount of the fine should not be revealed to the undertakings concerned and that the overall methodology applied to set fines should be kept secret from the parties. We consider, on the contrary, that such opacity is frankly not acceptable in a Community based on the rule of law. We thus believe that this wholly unsatisfactory situation should lead the Competition Council to issue guidelines on the computation of the fine. Contrary to the Competition Council’s concerns, such guidelines would in no way enable companies to precisely assess the amount of the fine incurred, nor would they deter the companies from enter-

17 Laundry cleaning and renting, Decision No 07-D-21 of the Competition Council of 26 June 2007, §§ 60, 62; or Procurement practices—school transport in Haut-Corse, Decision No 04-D-30 of the Competition Council of 7 July 2004, § 30. 18 Although the college often follows the proposals of the Rapporteur Général, it has already departed from them in the past. The decision-making body of the Competition Council has even exceptionally reduced a fine by 90%, while the Rapporteur Général had proposed a reduction of the fine between 40% and 50%. See Postal services (La Poste), Decision No 04-D-65 of the Competition Council of 30 November 2004, §§ 72–73. The discretionary power of the College to determine the reduction rate has been confirmed by the Paris Court of Appeal. In the Calculators Case, the Competition Council applied a 20% reduction rate while the Rapporteur Général had proposed a 50% reduction rate. One of the companies involved considered that, “by purposely avoiding any discussion concerning the modification of the reduction rate proposed by the Rapporteur Général, the Council did not comply with the adversarial principle“, thus violating the right to a fair trial. Nonetheless, the Paris Court of Appeal concluded that the company “had been given the opportunity to submit any relevant observations concerning the evidence taken into account to set the fine” and that the adversarial principle had not been violated—even though it was only the second decision taken in application of the NCP. Furthermore, relying on the wording of Article L. 464-2 FCC, the court decided that “one cannot infer that the Competition Council is bound by the fine proposed by the Rapporteur Général [nor that] the undertaking concerned is entitled to such a fine”. Société Dexxon Data Media et autres, judgment of the Court d’Appel de Paris of 21 September 2004. See also Société OGF c. Société Lamotte, judgment of the Cour de cassation of 28 November 2006, confirming that the company “must know that the Council is not bound by the reduction of the fine proposed by the Rapporteur Général and the Government Commissioner”.

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The French “Non-Contest Procedure”: a Practitioner’s Point of View 463 ing into negotiations with the Competition Council on the basis of the NCP. One may certainly emphasize the fact that, having issued its own guidelines, the European Commission does not share such concerns. Rather, a more transparent and foreseeable NCP would increase the incentive for companies to use such a procedure.

3.2 The violation of due process requirements As just mentioned, the College has no duty to state reasons for its decision regarding either the computation of the fine or the reduction rate of the fine, especially when it chooses to depart from the proposal of the Rapporteur Général. Besides the fact that such a situation leads to a violation of the rights of defence deriving from the inequality of arms between the parties and the Competition Council, it also causes legal uncertainty and provides the College with a degree of discretion which is incompatible with due process requirements. Indeed, it is submitted that such discretion is totally at odds with the requirement to state reasons in order to enable the courts to judicially review the decision as required by the general principles (including those deriving from the ECHR) defining the minimum degree of due process required in the EU, in particular in competition law cases. Not only does this make the NCP less attractive, it also leads to potential infringements of the principle of equal treatment. In this regard, the 90% reduction of the fine granted to La Poste in an abuse of dominance case, on the basis of the allegedly substantial and credible character of the commitments offered by La Poste, is certainly questionable on grounds of equal treatment, as it is common knowledge that abuses of dominance, along with cartels, are the most serious infringements of competition rules.19 Similarly, the reduction of the fine, not in terms of reduction rate, but in terms of the maximum amount of the fine to be imposed (as was the case in the High-speed Internet access decision, where the Rapporteur Général proposed to cap France Télécom’s fine at 60 million euros), could also give rise to potential violations of the principle of equal treatment.20 In this respect, one may reasonably submit that the College should be compelled to state the reasons for its decisions, and to base them in particular on published guidelines on the computation of the fine (see above), and/or to state the reasons when the College: (i) rejects the joint proposal of the

19

See La Poste, cited previous footnote, § 73. See high-speed Internet access, cited supra note 16. In this decision, the College decided to grant a 25% reduction of the fine to France Télécom, which resulted in a fine of 45 million euros. 20

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Rapporteur Général and College delegate; and/or (ii) disagrees with the proposed reduction of the fine.21

4. The need to find remedies which address the specific circumstances of the case while remaining compatible with the role and mission of the Competition Council Over the last four years, cartel and abuse of dominance cases appear to have given rise to a genuine “fine race” between the various competition authorities within the EU (i.e., the national authorities and the Commission), leading these various authorities to be increasingly severe and publicly express their desire to eventually reach the maximum fine limit of 10% of an undertaking’s worldwide turnover. This sort of game/emulation between the national competition authorities and the Commission should not draw attention away from the fact that very high fines affect a lot of interests within companies, some of which have nothing to do with the violations of competition law that are punished.22 Indeed, such fines may impair the implementation of investment programs and R&D; they may harm the development of the firm; and they may have adverse consequences for employees and their jobs, and thus for society as a whole. The Competition Council should bear in mind that the purpose of the fines must be to punish those who fall foul of the competition rules. In contrast to the situation in other legal systems, the French competition authorities have not been entrusted with the “disgorgement of illegal profits”. Furthermore, the fine should not address the issue of the compensation of the damage caused to consumers either. Private enforcement is the sole and appropriate means of addressing that issue. All these concerns raised by the “fine race” are, to some extent, mitigated by the NCP, since this procedure leads to a capping of the fine thanks to the reduction granted. However, in NCP cases the “fine race” should not be replaced by a “commitment race”. Indeed, in NCP cases, the commitments required by the Competition Council from the parties wishing to avail themselves fully of the benefit of the 21 At a minimum, the College should be compelled to state reasons with greater precision than a mere formula such as “based upon the general and individual above-mentioned elements”. See, e.g., Pre-recorded video tapes, Decision No 05-D-70 of the Competition Council of 19 December 2005, §§ 291–292. 22 For an example, see Case T-112/05, Akzo Nobel and others v Commission, [2007] ECR II-5049, on appeal: Case C-97/08 P, not yet decided. In Akzo Nobel, a parent company was held responsible for the conduct of its subsidiary on the sole ground that the parent company holds the entire capital of the subsidiary.

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The French “Non-Contest Procedure”: a Practitioner’s Point of View 465 NCP seem to be increasingly demanding.23 For instance, one may wonder whether the obligation on companies to insert a provision in their work 23 For instance, in the High-voltage cables case of 2007, the Competition Council considered that commitments to organize information sessions for staff members in order for them to become familiar with competition law was insufficient, although in previous decisions the same commitments were considered credible, verifiable, and substantial. Highvoltage electric cables, Decision No 07-D-26 of the Competition Council of 26 July 2007, §149: “In the present case, the commitments offered are limited to training the staff and developing the management and employees’ awareness of competition rules. Even though these are typical commitments in horizontal agreement cases, because in such cases it is difficult to think of commitments which could significantly reinstate ex post the level of competition on the market, such commitments, though not devoid of interest, are not inclined to substantially and verifiably improve the degree of competition on the affected markets. Therefore it is the procedural compensation of the negotiated settlement that ought to be taken into account.” Recently, the Competition Council granted a similar 20% reduction rate to both companies, although (i) the commitments and the context (bid-rigging) were close to those of the Laundry cleaning and renting case (supra note 17), where the companies enjoyed a 25% and 30% reduction rate respectively, and although (ii) one of the two companies proposed as an additional commitment that compliance with its commitments be made a condition for the attribution of an ISO norm. Building maintenance, Decision No 08-D-13 of the Competition Council of 11 June 2008. Without listing a complete typology of the commitments proposed and accepted by the Competition Council, the following selected examples illustrate the creativity and the imagination that the parties—and their lawyers—must show. They include the organization of training sessions on competition law, the publication of ethics charters, the setting up of “EU competition law e-learning sessions” on the company’s intranet (Procurement contracts for waste disposal in Seine-Maritime, Decision No 07-D-02 of the Competition Council of 23 January 2007), and even the nomination of an ombudsman within the company appointed to supervise the proper implementation of the competition rules and, if necessary, to alert the company directors, thus instituting a real internal whistleblowing system. The latter commitment was a novelty, as pointed out by the representatives of the Minister of Labour and the Commission Nationale Informatique et Liberté (CNIL), which were heard as experts during the hearing; and it was particularly welcomed by the Competition Council (Laundry cleaning and renting, cited supra note 17). One may note that the commitment race is also spurred by the competition between the NCP and the other French negotiated antitrust procedures, in particular the leniency procedure. The desire to maintain the incentive of the leniency program is evidenced by the current high level of the commitments in terms of quality, in particular in cartel cases, and by the reluctance (until recently) of the Competition Council to apply the NCP to cartels. In Procurement contracts for waste disposal in Seine-Maritime, cited above, the Council did not hesitate to state that this case was not to create a precedent, indicating that the Council would not, as a general rule, accept negotiated settlements in cases of horizontal agreements, which are plainly among the most serious infringements of competition rules. However, recent decisions of the Competition Council clearly indicate that the NCP is indeed applicable to cartels, as illustrated by National and international moving, Decision No 07-D-48 of the Competition Council of 18 December 2007. In this decision, which was the second time the French leniency procedure was applied, the first company to come forward was granted total immunity, while five other undertakings, which requested the benefit of the NCP, were granted a 10% reduction rate. A comparable cumulative application of the leniency procedure and of the NCP, which led to a similar outcome, can be found in the recent Plywood Decision No 08-D-12 of the Competition Council of 21 May 2008. Indeed, in the Plywood case, the first company was granted total immunity, while two other undertakings, under the NCP, obtained a 10% reduction. In comparison to the above-mentioned Waste disposal in Seine Maritime Case, the Competition Council has slightly but significantly changed its position with respect to the application of the NCP to horizontal agreements. Indeed, in Procurement contracts for

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contracts, according to which the failure of an employee to blow the whistle when he or she is aware of an infringement of competition law amounts to gross negligence, is fully compatible with French labour law,24 on the one hand, or the law on privacy and personal data protection, whose enforcement is ensured by the French Data Protection Authority (Commission nationale de l’Informatique et des Libertés, or CNIL), on the other.25 waste management in the Vosges, Decision No 07-D-40 of the Competition Council of 23 November 2007, the Council stated that this decision “should not be considered as a precedent setting a general rule according to which undertakings applying to benefit from Article L .464-2 of the Commercial Code in horizontal restrictive practices cases should be granted the same level of reduction of their fine as that granted in the present case” (§ 64). Therefore, the Council acknowledges that the NCP is applicable to cartels, but it maintains the discretion to grant low penalty reductions in such a case. In order to try to maintain coherence with the leniency procedure, the Council has stated that “the level of reduction of the fine granted under the leniency program to applicants that are not eligible to qualify for immunity from fines must remain more of an incentive than that granted under the negotiated settlement procedure. The contemplated reward ought to be lower in the latter case, so as to ensure that both procedures are consistent and to maintain the incentive to choose the leniency program” (Laundry cleaning and renting, supra note 17, § 130). 24 On the ex ante sanction for taking part in a violation of antitrust law, see Béatrice Mounier-Kuhn and Emmanuel Dieny, “Concurrence: les salariés face aux engagements pris”, Les Echos, 15 May 2008, p. 13. In this context, the question of the legality of the sanction becomes all the more questionable when the alleged fault is not linked to the employee’s participation in the violation but rather to his failure to denounce a violation perpetrated by a third party. 25 See Laundry cleaning and renting, cited supra note 17, §132 which merely mentions the fact that, while the French Data Protection Authority (CNIL) is not opposed in principle to the application of antitrust whistleblowing systems within business organizations, the CNIL requires that the companies concerned apply for an authorization prior to the setting up of such systems. However, the Council’s decision does not specify the conditions to be fulfilled in order to obtain such an authorization. In this case, the companies concerned actually applied to the CNIL for an authorization. The CNIL gave its clearance for the whistleblowing systems set up by Elis and Initial BTB on 22 November 2007 (Initial BTB, Decision No 2007-340 of the CNIL of 22 November 2007 allowing INITIAL BTB to implement an automatic personal data processing system in order to set up a whistleblowing system; GIE ELIS, Decision No 2007-341 of the CNIL of 22 November 2007 allowing the economic interest group ELIS (GIE ELIS) to implement an automatic personal data processing system in order to set up a whistleblowing system). However, the CNIL considered that it was not bound in any way by the Competition Council’s decision, and that it could have found the system contrary to the French rules on data protection. There does not seem to have been any negotiation between the CNIL and the companies in the course of the competition proceedings, although the CNIL does seem to have been consulted by the Council. In practice, the criteria for securing an authorization to implement a whistleblowing system aimed at preventing infringements of competition law should be similar or close to the criteria laid down in a November 2005 decision taken by the CNIL and known as the Single Authorization, i.e.: (i) the use by employees of a whistleblowing system cannot be made compulsory; (ii) the person who reports the infringement of competition law has to disclose its identity, which must be kept confidential by the organization in charge of dealing with the whistleblowing; (iii) the employees concerned by such accusations must be made aware of them so that they can object to data being processed; (iv) general rules relating to data protection must be respected, in particular those relating to the communication of personal information outside of the EU. (For countries which have not been considered by the European Commission as offering a sufficient level of data protection, or for US companies

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The French “Non-Contest Procedure”: a Practitioner’s Point of View 467 Moreover, and as previously mentioned, the College may urge the parties to offer additional or reinforced commitments at the oral hearing,26 which sometimes creates a questionable competition between the different parties, who may fear they will receive a lower reduction rate if they do not stay in the commitment race. Such a commitment race may in turn result in a real temptation for the Competition Council to regulate markets.27 One has to remember that, based in particular on the French Ordinance of 1 December 1986, which established the Competition Council, the sole mission of the Council is to sanction violations of the French and EU competition rules. Ex ante management of the markets does not pertain to its assigned tasks.28 Nonetheless, the Competition Council seems to act as a true regulator when it decides whether or nor to accept the commitments proposed by the parties according to their effects on the market, and when it monitors the correct implementation of the commitments through reports sent directly to it by the parties.29 Such a regulatory risk appears all the more tangible since, in certain cases, the application of the commitment procedure could lead to potential overregulation of certain markets or sectors.30 For example, in various decisions applying the commitment procedure, the Competition Council accepted which do not apply the “Safe Harbor Privacy Principles”, a request must be submitted to the CNIL before any data is processed.) However, the application of these four conditions to competition law whistleblowing systems has yet to be confirmed by the CNIL. In particular, these conditions are absent from the two CNIL decisions mentioned above in relation to the Laundry cleaning and renting case. 26 See Laundry cleaning and renting, cited supra note 17, §§ 60 and 62, or Procurement practices—school transport in Haut-Corse, cited supra note 17, § 30. 27 The regulatory role of the Competition Council is highlighted by the importance that the Council attaches to the effet utile of the commitments proposed to restore the proper functioning of the market: “In the present case, the commitments offered are limited to training the staff and developing the management and employees’ awareness of competition rules. Even though these are typical commitments in horizontal agreement cases, because in such cases it is difficult to think of commitments which could significantly reinstate ex post the level of competition on the market, such commitments, though not devoid of interest, are not inclined to substantially and verifiably improve the degree of competition on the affected markets. Therefore it is the procedural compensation of the negotiated settlement that ought to be taken into account.” High-voltage electric cables, cited supra note 23, §149. Interestingly, some decisions also contain a “revision clause” providing that the commitments are reviewable depending on the evolution of the legislation or of the case law (Funeral services in Val-de-Marne, Decision No 04-D-37 of the Competition Council of 27 July 2004; Pre-recorded video-tapes, cited supra note 21, §§ 278 and 286). 28 See in particular Article L410-2 FCC. 29 See Laundry cleaning and renting, cited supra note 17, § 56. 30 See, among others, Jacques-Philippe Gunther, “Procédure d’engagements devant le Conseil de la concurrence: Un premier commentaire du communiqué de procedure du 3 avril 2008”, §22, in Conference: EC and French antitrust negotiated proceedings—EC procedure: transaction—French procedure: commitments, Revue Concurrences No 2 (2008).

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commitments from Hi-Fi equipment suppliers31 and jewel resellers32 aiming to allow their respective selective distributors to advertise and sell on the Internet. In practice, such commitments led the Competition Council to reach a solution which went beyond the scope of the issues at stake, i.e. selective distribution of luxury and high-end products. Indeed, despite the fact that the Council has no jurisdiction to regulate the market, the solution adopted tends to regulate selective distribution on the Internet in general. Furthermore, in a recent case, the Competition Council appeared to obtain informal commitments from the undertaking concerned at the oral hearing, while the decision of the Competition Council concluded that no infringements to the competition rules had been identified.33 The commitment race should therefore in no way lead to what France underwent back in the regrettable decades after World War II, namely, an “administered economy” guided by civil servants whose priorities changed according to the creeds of the Executive in power. Finally, one may always wonder whether the commitment race leads to the most efficient remedies for the competition concerns raised by the case. This question seems all the more legitimate in an antitrust context where, as one may recall, the Commission itself questioned the usefulness of certain commitments which it had imposed in the field of merger control. Indeed, in its 2005 study, the Commission acknowledged that a sizable proportion of the behavioural remedies imposed on the merging parties were not capable of addressing the potential anticompetitive concerns raised by the mergers under scrutiny. At this stage, we have a priori no reason to believe that what does not work in the merger control field should work better in the realm of antitrust when the reasons for failure are the same, i.e. the highly speculative nature of the future impact of behavioural remedies on ongoing unpredictable variations in the conduct of companies trying to adjust to an overall uncertain environment. Therefore, the commitments: (i) should not go beyond what is necessary and legally possible; (ii) should address the issues at stake, in particular with regard to the type of industrial sector concerned; and (iii) should be supported by a significant reduction of the fine incurred.

31 Hi-fi and home cinema equipment, Decision No 06-D-28 of the Competition Council of 5 December 2006. 32 Watches (Festina France), Decision No 06-D-24 of the Competition Council of 24 July 2006. The regulatory role of the Competition Council is all the more obvious in this case, as the practice under scrutiny (i.e. the absence in Festina’s distribution framework contract of the possibility to sell via the Internet) did not a priori clearly qualify as a restrictive practice. 33 Tourism monographs, Decision No 08-D-08 of the Competition Council of 29 April 2008, §§ 108–110. The Council, however, objects that the commitments were spontaneously offered by the parties without any solicitation on its part.

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Conclusion The unforeseeable character of the penalty reduction that can be granted, the unfavourable and unsatisfactory situation for the rights of the defense, and the apparent race towards a constantly moving target in the form of ever more demanding commitments may explain what appears to be a less frequent use of the NCP in 2008. At any rate, these issues call for some reform. A repositioning of this procedure to be applied to those cases for which a quick restoration of competition is clearly regarded as the prime goal while deterrence, without being neglected, becomes less important (because of the commitments) should help to clarify the role of this procedure. The reform should also take care of the various encroachments of the NCP vis-à-vis the rights of defence and due process requirements. Finally, in a more general context, the reform of the NCP should be part of a broader reform of the competition procedural framework, with a view to making it more predictable and more respectful of certain key legal principles which admittedly should preempt the competition rules because they serve broader interests and are more useful to society as a whole than the alleged interests of a virtual consumer that nobody knows or has defined.

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III Jochen Burrichter* Settlements in Cartel Cases: Practical Experience in Germany

I. Direct settlements in cartel cases In Germany, the termination of cartel proceedings by settlement arrangements has a long tradition and was established already shortly after the entry into force of the German Gesetz gegen Wettbewerbsbeschränkungen (GWB = Law against restraints of competition) in 1958. “Consensual” or “amicable” fine decisions of the Federal Cartel Office (“FCO”) and the cartel authorities of the German Länder are facilitated by certain features of the applicable Ordnungswidrigkeitengesetz (OWiG = Law of administrative offences) (see 1.). These features and the practical experience in administrative fine procedures (see 2.) are described below.

1. Applicable law a) The OWiG With the exception of bid rigging, violations of the GWB are not criminal offences but fined as administrative offences. The fines can also—and according to the system of the GWB and OWiG primarily—be imposed on the acting managers. The fine against a manager usually amounts to the equivalent of one year’s annual income. The fines against a company amount to one million euro and up to 10% of the company’s turnover in the preceding business year. Since 1 July 2005, when an amendment to the GWB entered into force, the guidelines on the setting of fines by the FCO basically follow the same principles set forth in the equivalent Notice of the European Commission. Moreover, the FCO applies leniency rules similar to the EC Leniency Notice.

b) Procedure The FCO (and the cartel authorities of the Länder) are competent for the prosecution of violations of the GWB. Upon conclusion of their investigation, the * Hengeler Mueller, Brussels and Düsseldorf.

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cartel authorities may adopt a decision imposing fines, which can be appealed to the Higher Regional Court within two weeks by means of an “Einspruch”. Immediately after the decision, the parties concerned can waive the right to appeal, but this is not permitted before the decision is served. Fine decisions of the FCO are taken by a three-body decision department which is competent for the whole procedure, including the “discussions” with the parties in cases which qualify for an “amicable” settlement. Consequently, the parties discuss with the same persons who finally decide. If a decision imposing fines is appealed, the decision is deemed to be a bill of indictment. Consequently, the Higher Regional Court is in no way bound by the factual statements or the legal assessment in the decision. Against the judgment of the Higher Regional Court an appeal may be brought, on issues of law only, before the Federal Court of Justice.

c) Special features of the OWiG relevant for direct settlements (1) “Opportunitätsprinzip” (principle of expedience) The cartel authorities are not forced to prosecute every infringement. Instead they can balance the advantages and disadvantages of opening proceedings, taking into account the necessary efforts and the prospective fines. They may also decide to concentrate the investigation on the major infringements and to refrain from prosecuting minor violations. Moreover, they may decide to prosecute only violations for which clear evidence is available, and to desist from further investigations. Furthermore, they may choose not to prosecute violations where, in light of relevant precedents, the legal situation is unclear. These principles allow for considerable flexibility. (2) Interim procedure after appeal In cases of appeal against a decision by which the cartel authority imposes fines, the case does not immediately go to the competent Higher Regional Court. Instead, the cartel authority has the possibility, in an interim procedure (§ 69 OWiG), to decide to withdraw the decision completely or to investigate the case further and to issue a new decision. This makes it possible to withdraw a “consensual” decision if the parties settle but then unexpectedly appeal. If the cartel authority decides not to withdraw the decision, it has to submit the case to the public prosecutor, who then becomes competent for the further proceedings and normally submits the authority’s files to the Higher Regional Court.

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Settlements in Cartel Cases: Practical Experience in Germany 473 (3) Right to be heard Before issuing a decision imposing fines, the cartel authorities have to inform the parties concerned about the subject of the accusation. There are no formal requirements for this information. In particular, there is no requirement to issue a formal Statement of Objections. However, in ordinary cases, the cartel authorities do send formal SOs (“Beschuldigungsschreiben”).

2. Practical experience In Germany, the procedure in “consensual” settlement cases is not the subject of any guidelines or published rules. There are even differences in the proceedings practiced by the (actual) eleven decision departments of the FCO. The experience described below, therefore, may slightly vary between the decision departments competent for different branches.

a) Violations qualifying for “consensual” settlements The FCO has not limited the scope of violations of the GWB qualifying for “consensual” settlements. Therefore, settlements are possible in horizontal cases as well as in vertical cases and in cases of abuse of dominance. Further settlement discussions are open in leniency cases and non-leniency cases at all stages of the procedure.

b) Point of time for starting discussions The FCO has accepted discussions about “consensual” settlements in very early stages of a case, e.g. immediately after a dawn raid, if the evidence available is clear and if the violation is not disputed. It was therefore possible, in a particular hard core cartel scenario, to reach a settlement and close the case with a decision imposing fines within roughly three months after the dawn raid. In addition, there is no formal final deadline for settlement discussions. However, it is evident that the later the discussion starts, the less likely the prospects of success.

c) Access to basic evidence In appropriate cases, the parties during the settlement discussions have been given access, where necessary, to key evidence documents. Complete access to the files is normally waived, especially in cases where no formal SO is issued.

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d) No Statement of Objections In many settlement cases, no SO was issued. Instead, the right to be heard before the decision is taken was granted by submitting a draft decision in the final stage of the discussions.

e) Limitation of accusations (1) Settlement discussions normally also concern the legal assessment of offences. In one case, it was possible to limit the scope of the infringement by characterizing the conduct as a vertical restraint rather than as an abuse of a dominant position, despite the fact that the FCO in a previous merger case had concluded that the leading operators in the market held a collective dominant position. (2) Settlement discussions in many cases also concentrate on the duration of the violation. This is so especially in cases where the duration is not completely clear from the evidence. Since the amendment of the GWB in 2005, which changed the fining system so that it is no longer calculated on the basis of the excess proceeds but rather is equivalent to the EU rules, the FCO has been willing to limit the calculation of the fine to the period of time after the entry into force of the new law in order to avoid complicated calculations of the excess proceeds. (3) In appropriate cases, it has also been possible to discuss whether an infringement was committed negligently or intentionally. This has a substantial influence on the amount of the fine, which in case of negligent infringements is half of the fine of intentional infringements.

f) Content of the fining decision In a couple of cases it has been possible to discuss the contents of the fining decision and to limit the reasoning of fining decisions to the legal minimum contents required in § 66 OWiG. According to this provision, it may be sufficient to describe the nature of the infringement without going into the underlying facts. It cannot be doubted that this impedes private enforcement to a certain extent, as the decision does not deliver facts which may be useful for the plaintiff’s calculation of damages. Already since 1 July 2005, the GWB provides that the statements about infringements of the law in final and binding decisions of the German cartel authorities, the EU Commission and even of the cartel authorities of the other Member States, are binding for the civil courts in proceedings for the restitution of damages. However, the binding effect is limited to the infringement as such and—according to the prevailing interpretation of the law—does not extend to factual statements in the relevant decisions of the competition authorities.

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g) No fine against managers In appropriate cases, the settlement discussions successfully aim at refraining from fining the managers of the companies responsible for the infringements. However, this depends on the individual circumstances, e.g. the role of the manager concerned in the cartel and other circumstances. As a general tendency, it has to be noted, however, that in recent cases the FCO has insisted on imposing a personal fine on at least one responsible manager. There remains the possibility to discuss the amount of the fine.

h) Cooperation rebate There is no fixed percentage for a “cooperation rebate” on the fine in settlement cases. The “rebate” depends on the status of the case and the efforts which already had to be invested in the investigation and on the point of time when settlement discussions were started. In many cases, no “formal” rebate is granted on a fine calculated in accordance with the guidelines on the setting of fines. Instead, the “cooperation” has had an influence on the calculation of the basic amount, which may be up to 30% of the turnover achieved during the infringement. In some cases, a “rebate” of 15% has been granted on the fine which had been calculated in accordance with the guidelines, this “rebate” being granted in addition to the reduction of the fine under the leniency notice. After the Commission adopted the final version of its Notice on the conduct of settlement procedures (2008 OJ C167/1), the rebate was reduced to 10%.

i) Return of pieces of evidence after a binding decision imposing fines In some cases the settlement discussions concerned, inter alia, the return of basic pieces of evidence collected in a dawn raid to the parties immediately after the fining decision has become binding.

j) Access to the file by third parties In its leniency notice, the FCO has indicated that it will use its discretionary powers, within statutory limits, to refuse applications by private third parties for file inspections or the supply of information, insofar as the leniency application and the evidence provided by the applicant are concerned. In some settlement cases, it has been accepted that this practice should also be extended to these cases. It is not yet clear whether the courts will accept this practice.

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k) No secrecy obligation for the parties concerned The FCO normally does not require the parties involved in settlement discussions to keep these discussions confidential vis-à-vis third parties or other cartel members. It depends on the discretion of the lawyers involved as to whether such contacts are useful and appropriate. In some cases, these contacts have facilitated the discussions with other cartel members and thereby contributed to achieve a settlement solution for a bigger group of cartel members. It has to be noted, however, that under the leniency notice, the parties are obliged to keep the application confidential unless the FCO waives this confidentiality requirement.

l) Admission of infringement The decisive condition for settlement decisions is the admission of the infringement by the companies and persons concerned. For the parties it is therefore necessary to submit corporate and personal statements similar to those required in leniency cases. In addition to such statements, the FCO in appropriate cases carries out formal interrogations of the managers concerned. The minutes of such interrogations have to be signed. Where strong evidence is required against parties which have not settled, the FCO has considered requiring the managers to submit the admission to a judge. The admission of the infringement can also be used in civil actions for damages, although it does not have effects going beyond the binding effect of the fining decision itself.

m) Publicity In most settlement cases, publicity is also the subject of discussions. It is normally possible to discuss the main features of the final press release of the cartel authorities, but there is no approval procedure before publication of the press release. This is also due to the fact that the publicity activities of the FCO are reserved to its President. The decision departments which are the discussion partners have only limited influence on the contents of a press release issued by the President. However, it is normally possible to agree the point of time when the press release will be issued, thereby allowing the parties concerned to timely comment on the press release.

n) Equal treatment It has also been possible to discuss settlements in cases where not all cartel members were willing to settle. In these cases, the problem of equal treatment

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Settlements in Cartel Cases: Practical Experience in Germany 477 becomes even more important than in cases where all cartel members are ready to settle. In order to grant equal treatment, the decision departments normally develop a “matrix” which allows them to apply the same criteria to all companies concerned. This “matrix” is normally at least orally communicated to the parties concerned. In cases where more than one cartel member is involved in the settlement discussions, the aspect of equal treatment also plays an important role. Although the fine which the FCO intends to impose on other cartel members is not disclosed to the other parties involved, it is normally possible to obtain an indication of whether other cartel members will be subject to a higher or lower fine compared to that of the company in question.

o) Instalments Also discussed very often when settlements are explored is the possibility to pay the fine in instalments without paying interest and without submitting a security for the outstanding amounts.

p) Credibility of counsel Experience shows that settlement discussions are only accepted in cases where the parties and the counsel involved are regarded as having sufficient credibility for successful discussions. In particular, settlements can only be discussed successfully if the parties concerned and their counsel show complete openness, fairness and behaviour avoiding any “tricks”.

3. Settlements in court If a decision of the cartel authorities imposing fines has been appealed, settlements are still possible in the proceedings before the Higher Regional Court, which in appropriate cases is also open for settlement discussions. However, at this stage of the proceedings the FCO is no longer able to withdraw a decision without the consent of the public prosecutor and the court itself. The parties concerned have the possibility to withdraw an appeal without the consent of the public prosecutor and the court before the oral hearing has started. The settlement procedure was recently the subject of an amendment to the German Code of Criminal procedure (the “Gesetz zur Regelung der Verständigung im Strafverfahren” of 19 June 2009).

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II. Commitment Decisions 1. Relevant German Legislation The GWB, as amended on 1 July 2005, stipulates in § 32b: “§ 32b Commitments (1) Where, in the course of proceedings under § 32, undertakings offer to enter into commitments which are capable of dispelling the concerns communicated to them by the cartel authority upon preliminary assessment, the cartel authority may by way of a decision declare those commitments to be binding on the undertakings. The decision shall state that subject to the provisions of paragraph 2 the cartel authority will not make use of its powers under §§ 32 and 32a.1 It may be limited in time. (2) The cartel authority may rescind the decision pursuant to paragraph 1 and reopen the proceedings where: 1. the factual circumstances have subsequently changed in an aspect that is material for the decision; 2. the undertakings concerned do not meet their commitments; or 3. the decision was based on incomplete, incorrect or misleading information provided by the parties.”

2. Procedural aspects The wording of § 32b GWB is almost identical to that of Article 9 of Regulation 1/2003. Accordingly, the applicable procedure is similar to the procedure under Article 9: —The FCO informs the undertakings of the major concerns and the alleged infringement, but it does not have to issue a formal Statement of Objections. —The decision only concerns the termination of the proceeding, and leaves open the question of whether the companies infringed the competition laws. —Due to the lack of a finding on the substance, the decision has no binding effect for civil courts, and follow-on damage claims cannot be based on the reasons of the decision. 1 Section 32 GWB empowers the FCO to oblige the undertakings concerned to bring to an end an infringement of a provision of the GWB or of Articles 81 or 82 EC. Section 32a GWB empowers the FCO to order interim measures.

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Settlements in Cartel Cases: Practical Experience in Germany 479 —Fines can be imposed on the parties if they contravene the (binding) commitments. The legal base for the fines is the breach of the agreed commitments, but not an infringement of Article 81 or 82 EC. —The decision of the FCO declaring the commitments binding is theoretically appealable if the claimant can allege the decision would negatively affect their legitimate interest. However, given the consensual character of the settlement, the parties concerned will rarely be in a position to claim a negative impact. As the decision is in the discretion of the FCO and contains no finding as to substance, third parties cannot claim to be negatively affected by it.

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IV Pieter Kalbfleisch* The Dutch Experience with Plea Bargaining/Direct Settlements

Introduction In recent times, plea bargaining or direct settlements have received increasing attention, in particular since the European Commission tabled proposals for regulating the terms and conditions for plea bargaining/direct settlements at the European level. Those proposals were adopted by the Commission in the summer of 2008.1 In this contribution, I will focus on the experience of the Netherlands Competition Authority (the NMa) with plea bargaining/direct settlements, in particular by discussing the pros and cons from the point of view of a National Competition Authority (NCA).

The Dutch legal framework From the outset it should be noted that Dutch law does not contain a provision for plea bargaining/direct settlements in the strictest sense of the word. In terms of terminology, “plea bargaining” in the Netherlands is a more or less informal communication, or even negotiation, between undertaking(s) and the NCA which results in a decision of the authority without timeconsuming procedures. Part of this process involves a quid pro quo, namely, a negotiated decision (mostly a reduced sanction) in exchange for an admission of factual findings or procedural cooperation. The reason for demanding only an admission of factual findings is that the NMa applies plea bargaining/ direct settlements only in hard core cartels, which means that admitting the facts essentially results in an admission of guilt. The procedures of the Dutch Competition Act are embedded in the general framework of Dutch administrative law. As a result, the NMa has ample powers and a great margin of both appreciation and of discretion to decide * Chairman, Netherlands Competition Authority (NMa). 1 See Commission Press Release IP/08/1056 of 30 June 2008. For the proposal and the Commission Notice, see http://ec.europa.eu/comm/competition/cartels/legislation/ settlements.html.

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how to deal with its cases, ranging from the setting of priorities, through the organization of the hearings and enquiries, to the way the NMa does or does not impose a fine. However, for the NMa the “bottom lines” for the use of plea bargaining/direct settlements are: (a) respect for the rights (of defence) resulting from the European Convention on Human Rights and relevant jurisprudence; and (b) the general principles of good-government management.

The NMa’s early experience It should be noted that “plea bargaining” and “direct settlement” originated differently—and indeed earlier—in the Netherlands compared to the EC. Even before the Commission started working on what is now called “the Regulation Proposal” and “the Draft Notice” (to introduce settlement procedures in cartel cases), the NMa had developed its own system of “alternative enforcement”. The main reasons were: (a) an increasing case load (of all kind of cases); (b) the need for budget cuts (20% in the next 4 years) and efficient staff allocation; (c) prevention of (period of) uncertainty for both the authority and undertakings; (d) elimination of risk of court procedures; and (e) the possibility for monitoring the undertaking post-investigation. However, in view of the principles of legality and equal treatment, the NMa formulated and published the criteria for the application of the “alternative enforcement track” in its Annual Report 2004. In this way, the NMa created transparency and endowed the criteria with legal effect. The “alternative enforcement track” criteria are: (a) (b) (c) (d) (e) (f)

immediate termination of the alleged infringement; direct benefit to the consumer; no harm to third-party interests; no risk of recidivism; structural changes are preferred over behavioural changes; in principle, not applied in hard core cartel cases.

The decision to enter into an “alternative enforcement track” was and is at the sole discretion of the NMa. In other words, there was and is no right for undertakings to get on the “alternative enforcement track”. Alternative enforcement has been applied to abuse of dominance cases and, notwithstanding criterion (f) above, it also been applied, in special cir-

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The Dutch Experience 483 cumstances, to some “small” hard core cartels. Where this procedure is used, the case is closed without a formal investigation. Consequently, no Statement of Objections issued, and no fine is imposed. Instead, a (mostly very serious) remedy must be put in place. The MOJO and Interpay cases serve as examples to illustrate this point.

A) The MOJO case In 2006 the NMa had started investigations against three ticket agencies which were active in the ticketing-branches of concerts, sport-venues and dance-events, because they were using exclusivity clauses in their contracts, thus preventing other companies from entering the market. The NMa considered that this constituted a possible infringement of Article 24 of the Dutch Competition Act (which is equivalent to Article 82 EC). To address the NMa’s concerns the targeted companies removed the exclusivity clauses, gave NMa the possibility to monitor their future behaviour and structure, and allowed other companies to enter the markets for ticketing.2

B) The Interpay case In April 2004, the NMa imposed fines for infringements of Articles 6 and 24 of the Dutch Competition Act (equivalents of Articles 81 and 82, respectively) on the eight banks which had set up Interpay. The banks had set up Interpay as a central sales office. As a result, Interpay was the only supplier of network services for PIN payments. By doing so, the banks eliminated competition amongst themselves on this market. The infringement of the prohibition on cartels was confirmed in the administrative appeal, but the fines were reduced slightly, as the banks had, for instance, created an innovation fund of 10 million euros. The aim of this fund was to make a significant contribution to (more) efficient payment systems in the Netherlands. The NMa also decided not to impose a fine on Interpay for abusing its dominant position by charging excessive PIN tariffs. In the case against Interpay, the NMa reached the conclusion that a further investigation was necessary to prove that the tariffs were excessive. Taking all the circumstances into account, the NMa did not carry out a further investigation. Apart from the fact that such an investigation would be time-consuming and very difficult 2 See press release 06-25 of 20 July 2006 (“More room for entry in concert and ticket branch”), http://www.nmanet.nl/engels/home/News_and_Publications/News_and_press_ releases/News_2006/06-25_NMa_more_room_for_entry_in_concert_and_ticket_ branch.asp.

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to carry out, resulting in legal uncertainty for the parties involved and other interested parties for a lengthy period, the action taken by the NMa reflected a number of new circumstances. In particular, Interpay underwent structural changes which resulted in a different decision-making and supervisory system. Moreover, representatives of retailers who offer consumers the possibility of PIN payments and the banks involved reached agreement on a compensation scheme on 17 November 2005. In the “Payment Services Covenant 2005” (Convenant Betalingsverkeer 2005) it was agreed that each undertaking which offers PIN transactions as a means of payment will receive a discount of at least 1 eurocent per transaction on the PIN tariff negotiated individually between the bank and the undertaking (on average 5 eurocents per transaction), with retrospective effect from 1 January 2005. Undertakings which offer PIN payments after 1 January 2005 will also receive the minimum discount. In addition, recent research by the NMa shows that the market for network services for PIN payments has improved. Since March of this year it is no longer Interpay but the separate banks which offer retailers PIN services in competition with each other. As a result, the average PIN tariffs have fallen substantially. Since these developments (supported by the NMa) have the same effect as the imposition of a fine on Interpay, the NMa decided not to conduct a further investigation.3

The pros and cons of plea bargaining/direct settlements The use of alternative settlement instruments by the NMa has been criticized by both the Ministry of Economic Affairs as well as the Dutch Court of Audit. The Ministry of Economic Affairs argued that, as a newly established authority, the NMa should not use plea bargaining/direct settlements as an instrument too soon. The Ministry of Economic Affairs was concerned that, by using plea bargaining/direct settlements, the tough enforcement image of the NMa would be undermined. In my opinion, however, achieving maximum compliance is better than focusing on maximum enforcement, in particular because maximum compliance works faster and changes the mindset of the business community. The Dutch Court of Audit criticized the fact that there was and is no right to the “alternative enforcement track”. It also criticized the NMa for a lack 3 See press release 04-10 of 29 April 2004 (“NMa Fines Interpay and Banks for Infringement of Competition Act”), http://www.nmanet.nl/engels/home/News_and_ publications/News_and_press_releases/2004/04_10.asp; NMa press release 05-46 of 22 December 2005 (“NMa Reviews Fines Imposed on Banks and Interpay”), http://www.nmanet.nl/engels/home/News_and_Publications/News_and_press_releases/ 2005/NMa.

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The Dutch Experience 485 of transparency with respect to when or if there should be a possibility to enter the “alternative enforcement track” at all, thus arguably creating some legal uncertainty. However, before the NMa was able to issue an official “dissenting opinion”, new legislation came into force (on 1 October 2007). Nonetheless, the NMa emphasizes that “alternative enforcement” is too case-specific to be more explicit. Indeed, the question already arises as to what is a hard core cartel. Furthermore, the NMa needs a certain margin of discretion regarding its enforcement policy. In any case, this new legislation provides the NMa with the power to adopt “commitment decisions”, which enables the NMa to negotiate agreements with companies under investigation. Contrary to the “alternative enforcement track”, this commitment procedure culminates with a formal decision of the NMa. Although the commitment decision itself (still) does not involve an assessment of whether or not there has been a violation of the Competition Act, there must be clear indications from the point of view of the NMa that competition law infringements took place. Moreover, a commitment decision creates immunity against fines—including for acts in the past—but only insofar as it covers the same acts for which the commitment decision has been granted. Finally, with regard to the effects of such a decision, an infringement of the commitments binding the company concerned can be enforced by the NMa on its own merits. Apart from the discussions with the Dutch Court of Audit, we considered it essential to deal effectively with certain risks concerning the “alternative enforcement track”, in particular bearing in mind that the NMa was a newly established and needed to build up credibility. The NMa considered that the following risks needed to be contained: • risk of an image of a “deal-making” authority and • risk of the reduction of deterrence. Accordingly, it was necessary to: • ensure equal treatment and consistency; and • prevent regulatory capture.

The NMa’s fast-track procedure In 2004 another dimension was added to the “plea bargaining” chapter in the Netherlands. After a whistleblower had revealed the existence of shadow accounting in the Dutch construction sector, the NMa received a huge number (344) of leniency applications regarding construction-sector cartels. This resulted in an even greater number of targeted companies (nearly 1300, including the leniency applicants). Evidently, the NMa had to find new ways

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to deal with this situation. Another reason for the need to deal with these cases with great energy and drive was the general (and also political) desire for the construction sector to be able to make “a fresh start”. Accordingly, the NMa developed the so-called “fast-track procedure”. After receiving a Statement of Objections in which the infringement was stated, the company concerned could make a choice between the regular procedure (in conformity with the Competition Act, which is very much the same as the EC procedure) or the fast track procedure. A company opting for the fast-track procedure obtained (i) access to a very brief formal procedure, and (ii) a 15% fine reduction in exchange for reduced rights of defence. In particular: (a) the targeted company had to relinquish the following: (i) its right to individual access to the file; (ii) its right to provide an individual response to the Statement of Objections as far as the essential facts were concerned, which boils down to an admission of the facts; and (iii) its right to an individual hearing by the authority. (b) the targeted companies had to empower one and the same representative. This representative had the right to provide a common response to the Statements of Objections and had the right to be heard on the general issues of the case (rough and global hearing). In this context, it should be emphasized that the NMa’s fast track procedure differs clearly from the EC procedure in that the NMa does not require an explicit admission of guilt, whereas the EC procedure does. As mentioned above, the NMa does not apply the fast-track procedure in hard core cartel cases. Consequently, admission of facts in hard core cases de facto means admission of guilt. This fast-track procedure turned out to be very successful (about 90% of the targeted companies opted for it); not only because the quid pro quo was reasonable and transparent, but also due to following circumstances: (a) the transparency of the leniency guidelines were especially re-written/ re-formulated for the construction-sector cartels; (b) the transparency of the fining guidelines; (c) the procedure provided predictability and speed. All these circumstances enabled each individual company to calculate with quite some precision the level of the fine that was to be imposed. But to be honest: an important factor contributing to the success of the fast-track procedure was the serious threat of the Dutch Government that those companies involved in the construction sector cartel which did not come forward to the NMa before 1 May 2004 would in future be excluded from public tenders. Although a fast track procedure (ending in a direct settlement) was never used after the construction cartel cases, the NMa is not unwilling to consider this procedure in other less onerous cases. However, some “health warnings” must be made.

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The Dutch Experience 487 First, as I stated previously, the fast-track procedure will most likely not be used anymore, now that the law explicitly provides the NMa with the instrument of commitment decisions, which in turn provides for more legal certainty and uniformity. Second, there is the risk of reduced deterrence. The NMa’s experience with both “alternative enforcement” and the termination of the cartel cases shows that too much use of these instruments will be considered as too soft by politicians, sister authorities and journalists, who in turn influence the public and politicians. The perceived influence of the Global Competition Review—not on the NMa, but on those who work with the NMa or those who are politically responsible for the NMa—is just one example. For these reasons, the NMa believes that plea bargaining should be limited to the final phases of the investigation, or at least should not be used too soon. This is because of (i) the time needed by the authority to do enough research in order to avoid entering a direct settlement prematurely on insufficient grounds, and (ii) to give targeted companies some time to consider their possible lines of defence. Third, plea bargaining should not be used in cases involving cartel infringements “by object”, and certainly not in cases of recidivism.

The implications of plea bargaining for leniency and private enforcement Moreover, it is important to keep in mind the possible implications of plea bargaining for the leniency programme and private enforcement. As regards the leniency programme, the NMa considers that a reduction of the fine should be limited to 15% at most. The NMa determined, on the basis of game theoretic analysis carried out by its Office of Chief Economist that the maximum reduction should be set at 15%. Otherwise, plea bargaining could become too attractive, and companies might prefer plea bargaining to leniency. In fact, after our construction cartel cases, we noticed a sharp decline of leniency applications for some time. For the sake of clarity: plea bargaining is not to be taken into account, at least not easily, in the leniency track itself. As far as leniency is concerned, the undertaking will have to produce relevant evidence/proof and will have to demonstrate full cooperation during the whole procedure. Taking that into account, there is only a rationale for a further deduction of the sanction (i.e. accumulation of the discounts) by way of plea bargaining when the company involved does something more than admitting facts or guilt and cooperating with the investigation—for example, when it waives rights of defence, as mentioned before.

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In addition, contrary to the proposals of the Commission, I do not oppose contact amongst the targeted companies. In a leniency procedure, the rationale for the prohibition of contact between the leniency applicant and the other cartel members is to preserve the secrecy of the ongoing investigation. However, that is not relevant concern in plea bargaining or direct settlement cases. Indeed, in the NMa’s experience with the fast track procedure, communication between the companies concerned turned out to be helpful because they convinced each other to choose the fast-track procedure. Finally, it is important to launch an adequate public relations campaign in order to explain the direct settlement decision, since the policy behind direct settlements is not always properly understood. As regards private enforcement, it is important to take into account the possible implications of plea bargaining for follow-on suits in the private enforcement context. These implications are at least two-fold: (a) since plea bargaining will always involve a quid pro quo, in the sense that it uncovers proof of the infringement or at least induces cooperation to make the evidence-gathering easier, a targeted company is more vulnerable to private claims by third parties that have allegedly suffered damages. (b) on the other hand, direct settlement decisions will turn out to be less amply motivated; consequently, the usefulness of the reasoning in these decisions for private plaintiffs may be limited. In order to tackle the problem of possible reluctance to enter into a direct settlement due to the increased risk of facing civil damage claims, the NMa formulated, as another incentive for direct settlement, a voluntary paid compensation to those who suffered from the infringements. This fits nicely into the theory of “restorative justice” as developed by Stephen Wilks.4 However, it should also be mentioned that the Office of the Public Prosecutor has been highly critical towards the NMa’s voluntary compensation initiative, as this system apparently resembles similar incentives applied in criminal law procedures. Suffice it to state that the NMa considers itself independent enough to follow its own course and apply the instruments it considers most effective for executing its task to the maximum benefits of those who have suffered from competition law infringements.

4

See his contribution to this Volume, p. 93.

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V Onno W. Brouwer* Antitrust Settlements in the Netherlands: A Useful Source of Inspiration?

Introduction The paper contributed to this Workshop by Pieter Kalbfleisch1 illustrates that the experience in the Netherlands with antitrust settlements is an interesting one. It covers almost the entire spectrum of the notion of “settlement” as described by Wouter Wils in his paper, i.e. “the disposal by a competition authority of a case of suspected antitrust infringement through a specific procedure, or in application of a policy, under which some benefit is granted to the defendant in recognition of the defendant’s admission or noncontestation of the infringement and/or offer or acceptance of remedies and/or penalties”.2 My contribution builds on the paper of Mr Kalbfleisch. The comments below take account of the Commission’s proposal for settlements as published/known on the date of the Workshop, i.e. 6–7 June 2008.

The fast-track procedure in the construction cartel cases The most interesting experience, and in some aspects the one most comparable to the settlement procedure proposed by the Commission, is the fast-track procedure in the construction cartel cases. This procedure was adopted in 2005 and was specifically designed to handle the very large volume of cartel cases that was generated in 2004 following a specific call for leniency applications in this sector (more than 473 companies reported their involvement in cartel activities to the NMa in 2004). The reduction in the fine from having opted for the settlement/fast-track procedure came on top of any reduction under the NMa’s leniency programme. After receiving a full Statement of Objections (SO), all addressees of * Freshfields Bruckhaus Deringer LLP, Amsterdam and Brussels. 1 See p. 481. 2 Page 29.

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the SO were offered (at the initiative of the NMa) the choice to opt for the fast-track procedure or the regular procedure. A company that opted for the fast-track procedure obtained a 15% reduction of its fine, but it had to waive (i) its right of access to the NMa’s file, and (ii) its right to totally or partially challenge the (essence of the) legal assessment and the facts contained in the SO. Moreover, the companies opting for the fast-track procedure had to waive the right to individual representation and were obliged to appoint a common “authorized representative” who could submit “generally applicable arguments” on behalf of the companies in a brief written submission and at a hearing. The key characteristics of this settlement procedure were that: —the fast-track procedure was offered after a full investigation by the NMa and after the sending of a full SO which set out the alleged infringements and the underlying evidence relied on by the NMa; —a non-confidential version of the SO (designated a “report”) was published on the website of the NMa, together with the decision imposing fines; —the fining guidelines were clear and transparent and the reduction offered (15%) was sufficiently attractive and identical for all parties that opted for settlement; —the settlement was offered in a transparent fashion to all addressees of the SO; —the addressees of the SO were not prevented from communicating with each other about their intention to settle; —companies did not have to admit guilt. It was sufficient for them “not to contest the essence of the legal assessment and the facts set out in the SO”; —the decision imposing fines followed relatively quickly after settlement was agreed. However, it is certainly not these characteristics (alone) which made the fast-track procedure so successful. Firstly, one should be aware that this procedure went hand in hand with a fundamental derogation from the fining guidelines that are usually applicable in cartel cases. In addition to the 15% reduction of the fine offered to settling parties that opted for the fast-track procedure, the NMa adopted sector-specific fining guidelines that led to much lower fines than would otherwise have been imposed on hardcore cartel infringements under the generally applicable fining guidelines. This special fine regime had its reasons, but it has been criticized. It has been alleged that the tailor-made fining guidelines for the sector violated the principle of equality and the principle of good administration (as much higher fines in accordance with the normally applicable general fining guidelines had indeed been imposed in the same sector and in other sectors on companies that had committed similar or identical offences). Secondly, many if not most of the leniency applications were initially made because the Dutch Government had set 1 May 2004 as a deadline for

➢ Full investigation by the NMa. ➢ Statement of Objections and accompanying letter setting out option to choose between the fast-track and regular procedures are sent to the parties. ➢ Parties sign and submit declaration of participation in fast-track procedure to the NMa. By signing this declaration, parties (i) authorize a common representative for oral and written representation and (ii) waive the right to have access to the file and waive the right to totally or partially challenge the legal assessment and facts established in the Statement of Objections and the right to be heard individually. ➢ Submission of generic reply by “authorised representative” on behalf of parties. ➢ Oral hearing (where only the common “authorized representative” puts forward “generically applicable arguments” on behalf of the parties). ➢ Simplified decision with fine reduction of 15% (which can be accumulated with a reduction for leniency). ➢ Administrative objection before the NMa only as regards the fine, and not the finding of infringement or its duration. ➢ Appeal before the District Court of Rotterdam.

Fast-Track Procedure

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➢ Appeal before the District Court of Rotterdam.

➢ Administrative objection before the NMa.

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➢ Submission of individual replies to the Statement of Objections. ➢ Oral hearing (with all parties and their individual representatives).

➢ Access to the file.

➢ Full investigation by the NMa. ➢ Statement of Objections is sent to parties.

Regular Procedure

ANTITRUST PROCEEDINGS BEFORE THE DUTCH COMPETITION AUTHORITY (NMA)

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construction companies to apply for leniency. Construction companies found guilty of cartel infringements after this date without having applied for leniency would in principle have been excluded from public procurement tenders in the future. This was another real “stick and carrot” for many companies to report to the NMa and/or apply for leniency (and subsequently to opt for the fast-track procedure). Some of the specific elements of the fast-track procedure described above have also been criticized. Such criticism has been aimed, for instance, at the obligation for the settling companies to be represented by one and the same representative (who could only submit generic arguments applying to all parties). This requirement meant that there was little or no scope for the NMa to take into account the individual circumstances of companies (e.g., a shorter or interrupted participation in the infringement). This could result in a miscarriage of justice, as companies could thus be condemned for infringements alleged in the SO that they had not committed, although it should also be observed that participation in the fast-track procedure was voluntary. Another peculiar element was that an additional 1% reduction of the fine was offered if the company allowed the NMa to make its file concerning the infringement by that company available to the Dutch tax authority. Some have argued that the fast-track procedure adopted in the construction cases posed a risk for the NMa’s leniency programme. I am not sure that there is a clear causal link. The Dutch construction sector settlements offer, moreover, an illustration of how “hybrid” cases might be handled. In most of these cartel proceedings, a majority of addressees opted for the fast-track procedure, whereas a minority decided to defend themselves under the regular procedure. Such hybrid situations raise the question of how the regular procedure that follows the fast-track settlement decision imposing (reduced) fines can ever be conducted in an impartial fashion. An authority that has adopted a (settlement) decision imposing (reduced) fines will not easily change its view as to the existence, scope and/or duration of the infringement (which it has already alleged in the SO) as a result of evidence brought forward by companies that have opted not to settle. It seems that only where there are particular and individual circumstances justifying a reduced fine and/or a more limited finding of infringement (relevant to civil liability for damages) would it be worthwhile for a party to opt for the regular procedure (unless the earlier settlement decision imposing reduced fines is based on a manifest misrepresentation of facts in the SO which are not challenged). It goes without saying that the NMa was aware of this dilemma, and it did not refer to its earlier fast-track decisions in the final decisions that were adopted after the regular procedure. The NMa instead referred to the facts gathered in the framework of the numerous leniency applications. Another element of the Dutch experience which may be of interest to note, also in view of the current debate on private enforcement, is the additional

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fine reduction which the NMa accorded to companies that reached agreement with the Dutch Government (which was the victim of the bid-rigging of public tenders) on compensation for civil claims. It is interesting to see how the NMa structured the incentive to pay compensation. The NMa offered to deduct 10% of the amount paid as compensation from the amount of the fine, provided that the reduction could not exceed 10% of the fine that would otherwise have been imposed. Moreover, in order to qualify for this reduction of the fine, the payment of compensation had to take place before the NMa adopted its (fast-track) decision imposing fines.

The Commission’s proposal for settlement in light of the Dutch experience The settlement procedure designed by the NMa to deal with the (many) construction cartel cases in the Netherlands has proved to be a notable success. It allowed the NMa to impose fines on more than 1400 companies in a period of less than four years. Approximately 90% of the companies involved in the cartel investigation opted for the fast-track procedure. Although this settlement procedure had a specific political, sectoral and economic context, it is an interesting model. In comparing this settlement model with the cartel settlement procedure proposed by the European Commission, one will inevitably note a number of crucial differences and fundamental questions.

(a) moment/timing of settlement: before or after the SO? There are a number of reasons why it is more appropriate to offer and negotiate settlement after a full SO has been adopted, setting out the (alleged) key facts, the (alleged) evidence and the legal assessment thereof made by the authority. If parties that wish to avail themselves of a settlement procedure are obliged to waive their right of full access to the authority’s file (not an uncontroversial issue in itself), they should at least have access to the outcome of the authority’s investigation and the SO which contains the essence of the “criminal charge”. The problem remains that the SO refers to the evidence but the evidence itself is contained in the documents which are contained in the file of the authority. As a result, one can certainly argue that even the sending of a full SO is not sufficient, and that parties should have access to the file in order not to be forced de facto into a settlement without having had access to the concrete evidence underlying the allegations of the authority. In

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particular, if an admission of guilt is required in the context of a settlement, it would seem unacceptable if a party did not have a sufficient possibility to exercise its rights of defence. However, a party that has participated in a cartel would (or should) normally have internal knowledge of the extent of its participation in the (alleged) cartel.

(b) “admission of guilt” or “not contesting the essence of the legal assessment and facts”? In its proposal, the Commission states that it will require a settling party to make an unconditional admission of guilt and liability with respect to the (as yet unproven) facts as set out by the Commission. This requirement will inevitably make settlement less attractive for companies and their managers. Whilst such an admission may be welcome in view of enhancing private enforcement (and for making more efficient use of the Commission’s resources), it constitutes a significant hurdle if it would mean that companies or managers are in fact forced to admit to facts or allegations which they can only partially agree with. This is particularly so if the result of the admission is an increased risk of civil claims, individual administrative sanctions or even criminal sanctions (particularly in cases where companies who want to settle have not applied for leniency). One can question whether it is right or opportune for the authority to obtain, via the settlement route, the admission of guilt which it was unable to obtain via the leniency route from companies that have not applied for leniency. The efficiencies and economies of procedure which are the essential benefits of a settlement for the authority can be achieved via the less stringent means of obtaining agreement from the parties that they will not contest the essence of the facts or of the legal assessment set out by the authority (i.e., the requirement applied in the Dutch model by the NMa) and will accept and not challenge any fine or other remedial action imposed by the authority.

(c) what flexibility should there be to challenge the findings (scope and/or duration) of an alleged infringement? A clear drawback of the fast-track procedure applied in the Dutch construction cartel cases was the absence of the possibility for the companies involved to bring forward, in any meaningful fashion, circumstances specific to them that would have justified them being treated differently from other companies, e.g. in relation to their participation (passive or coerced involvement, or

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involvement for only a limited duration), their financial ability to pay a fine, or prior cooperation outside of the leniency regime. It is important to build into a settlement regime guarantees and flexibilities to allow for the parties to make representations as to the scope, nature and duration of their alleged participation in the infringement, and as to other factors relevant to their liability and factors relevant to any punishment to be imposed on them. This will be all the more important if an admission of guilt and liability is a condition for settlement, given the wider implications of such an admission. As indicated, there must be a possibility to properly exercise one’s rights of defence.

(d) there must be clarity as to the fines which the authority intends to impose One of the key factors driving the success of the Dutch construction cartel settlements has no doubt been the clarity with regard to the fines which the authority intended to impose. Admittedly, this was in large part achieved by “tailor-made” sector-specific fining guidelines which the NMa had adopted, and by the lower fining levels contained therein. The Commission’s settlement proposal seems highly problematic in this regard. The Commission indicates that it will not give any (let alone a sufficiently clear) indication of the fines that it intends to impose on a settling party (either in the settlement or, in the absence thereof, in any final decision finding an infringement). It looks as if the settling party must make its own calculation under the fining guidelines (of the fine that would ultimately be imposed in a final decision) and then tell the Commission the maximum fine that it would accept to settle a case. This is no basis for a negotiation.

(e) settling parties must be able to communicate with each other It is the experience in the Netherlands that allowing communication between settling parties with regard to their willingness to settle greatly enhances their preparedness to settle. The Commission wishes to prohibit parties from communicating with each other during settlement discussions. The question is why? To improve its bargaining position (by effectively increasing the “prisoner’s dilemma”)? Defendants in cartel proceedings can coordinate their defence. Why can’t they do so in a settlement procedure? Furthermore, such an embargo was not imposed by the Commission in important settlement discussions such as the settlements in the Eurozone

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valuta3 and Norwegian Gas cases.4 The fact that defending parties could communicate amongst each other enhanced the settlement.

(f) Should parties insist on receiving a written settlement submission? One can fully understand that an authority wishes to have a solid confirmation from a company that it will settle, or that it will opt for a proposed settlement. However, an over-formalized written procedure seems impractical and may give rise to discovery issues and access under Regulation 1049/2001 (the “Transparency Regulation”).5 It is interesting in this regard to compare the “model statement of participation/non-participation in the accelerated procedure” designed by the Dutch authority (see the Annex to this chapter) with the written settlement submission proposed by the European Commission. The Commission notes in paragraph 35 of its draft Settlement Notice that it considers “that normally public disclosure of documents in written or recorded statements received in the context of this notice would undermine certain public or private interests, e.g. the protection of the purpose of inspections and investigations, within the meaning of article 4 of Regulation (EC) No. 1049/2001 [. . .], even after the decision has been taken”. There are two issues: (i) written statements made by companies are in their possession and may therefore be discoverable in the US (and in other jurisdictions); and (ii) Regulation 1049/2001 applies to the internal documents of the Community institutions, and it is far from certain that one can maintain the view that correspondence and documents exchanged in the context of the settlement procedure could not be obtained under Regulation 1049/2001 after the Commission has adopted a decision imposing fines. (I am of course aware that Regulation 1049/2001 is currently under review, but it may be in the interest of democracy and transparency not to fill a revised Regulation 1049/2001 with specific “opt-outs”).

3 Bank charges for euro zone currency exchange, Cases COMP/37.791 and 37.787, Commission Press Releases IP/01/1159 of 31 July 2001; IP/01/690 of 14 May 2001; IP/01/650 of 7 May 2001; IP/01/554 of 11 April 2001. See also XXXIst Report on Competition Policy, 2001, p. 20. 4 GFU, Case COMP/36.072, XXXIInd Report on Competition Policy, 2002, point 85 and pp. 207–208. 5 Regulation (EC) No 1049/2001 of the European Parliament and the Council of 30 May 2001 regarding public access to the European parliament, Council and Commission documents, 2001 OJ L145/43.

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(h) level of the reduction of fine The debate on whether the reduction of a fine in case of settlement should be 15 or 20% may be interesting, but it seems more appropriate and fruitful to take a holistic view on sanctions and enforcement, and to have a broader debate on the appropriate and proportionate sanctions and the levels of fines.

Annex: Model Statement of participation/non-participation in the accelerated procedure for the Installation sector [Name of individual who is legally authorised to represent the company in a procedure with the NMa] hereby declares on behalf of [name and registered office of the company], known to the NMa under case number [your case number is listed on the first page of the offer letter under ‘Our reference’6], that it will/will not7 participate in the accelerated procedure for the Installation sector. ONLY FOR PARTICIPATION IN THE ACCELERATE PROCEDURE: Model Authorisation [Name of individual who is legally authorised to represent the company in a procedure with the NMa] hereby authorises, on behalf of [name and registered office of the company], known to the NMa under case number [your case number is stated on the first page of the offer letter under ‘Our reference’8], Mr J.C. Blankert, drs., and as co-authorised representative mr. A.G. Blok (joint correspondence address: P O Box 125, 2700 AC , Zoetermeer), to represent [name of company] in writing and verbally in the accelerated procedure described in the letter from the DG NMa dated 25 April 2005, which the DG NMa has opened for the purposes of handling the Report in the Cartel Behaviour in the Installation Sector (no. 3150), pursuant to Section 59 of the Dutch Competition Act (Mededingingswet, hereinafter: Mw), in which [name of company] chooses to participate by means of the following statement. [Name of company] has taken cognizance of the fact that choosing the accelerated procedure in the interests of a rapid and effective handling of the matter, entails that it waives (1) the right to individual inspection of the documents and (2) the right to submit individual opinions that concern the 6 A case number has been assigned per company. This case number applies to the entire group, including any operating companies and/or (sub)holdings. 7 Strike through what is not applicable. 8 A case number has been assigned per company. This case number applies to the entire group, including any operating companies and/or (sub)holdings.

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essence of the Report, in other words, total or partial challenging of the facts established in the Report and their assessment, as indicated in the letter described above. Name: Position: Signature: Town/city: Date: During this abridged procedure, [name of company] appoints [name of individual] as its contact person, who, as the case arises, will be replaced by [name]. These individuals can be reached at the following (e-mail) address and telephone number(s): [enter address, telephone and fax numbers, and e-mail address].

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VI Ali Nikpay and Deirdre Waters* The Emerging Settlements Regime in the UK: The Use of “Settlements” in Competition Act Cases

A. Introduction This chapter considers the use of “settlements” in UK competition cases and endeavours to draw some emerging principles and lessons from the OFT’s developing practice in this area. For the purposes of this paper the term “settlement” is defined as the process through which the OFT imposes a reduced penalty on the parties in response to an admission of liability and co-operation. Since 2006, the OFT has entered into such agreements in four CA98 infringement cases: Independent Schools (exchange of information regarding future fee levels), Airline Passenger Fuel Surcharges (price fixing), Dairy (alleged exchange of commercially sensitive pricing information), and Tobacco (alleged unlawful practices in relation to retail prices).1 As discussed below, resolving, or partially resolving, cases in this way benefits both the OFT and the parties. In particular, by leading to a more effective and efficient use of resources, settlements can enable the OFT to undertake more high-impact projects and increase deterrence. However, resolving cases in this way is not cost or risk free. In particular, it is vital that settlement policies are designed and properly implemented in order to avoid harm to the OFT’s leniency programme, deterrence and the effectiveness of the competition regime overall. That said, while a certain level of caution in approaching settlements is warranted, the OFT has shown (through its practice so far and its work to develop and explore the principles underpinning settlements) that it views settlements in an increasingly favourable light and regards them as a valuable addition to its enforcement toolkit. The potential for using settlements has

* The authors are officials at the Office of Fair Trading, London. The views expressed are personal and should not be taken as reflecting those of the Office of Fair Trading. The authors would like to thank Sarah Northam, Sonya Branch and in particular Marc Braithwaite for their assistance in preparing this paper. 1 The agreements reached in these cases have been described variously as “settlements”, “early resolution agreements” or “direct settlements”. In our view, the term “settlements” best fits the OFT’s practice, and we therefore use it throughout this chapter.

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also been recognised by the Commission at European-level2 and by other national authorities, such as the Dutch competition authority.3

B. Historical perspective The first UK case resolved through a settlement (as defined above) was Independent Schools in 2006. No cases were resolved in this way prior to 2006. However, the general notion of resolving cases through some form of compromise is, in itself, not new. Competition authorities have been doing so for decades. For example, under Regulation 17/62, the European Commission (Commission) was able to approve notified agreements by way of individual exemption or comfort letter and to impose conditions or obligations if necessary. Similarly, in the UK, under the Restrictive Trade Practices Act 1976 (the pre-Competition Act 1998 (CA98) competition regime) cases were often resolved when the parties agreed to abandon offending agreements or to remove offending restrictions. The acceptance of commitments by parties to resolve competition concerns is now formally available under section 31A of CA98. The key point to note however is that in these cases the relevant authority resolved the competition concerns without reaching an infringement decision. Substantively and procedurally, such cases raise different issues and challenges to those in which the authority takes an infringement decision in which a reduced penalty is applied in return for an admission of liability and cooperation. This paper considers some of the challenges posed by this latter approach to early resolution of cases in the context of the UK regime. In doing so it draws on the UK’s experience to suggest possible solutions.

C. The benefits and costs of settlements The attractiveness of settlements stems primarily from the significant benefits they bring in terms of resource savings achieved through efficiencies in the administrative procedure and a reduction in the likelihood/burden of appeal. 2 In June 2008 the European Commission published its settlement procedure for cartel cases, including a Commission Notice and a Regulation amending Regulation 773/2004. 3 The Netherlands Competition Authority has used an accelerated sanction procedure in relation to cartels in the construction sector. See the written contribution of Pieter Kalbfleisch, this Volume, p. 481.

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The Emerging Settlements Regime in the UK 501 Where a party agrees to admit liability and co-operate with the investigation, the administrative procedure can be streamlined to a considerable degree. For example, highly resource-intensive file reviews, oral hearings, and extensive submissions can be avoided, thereby significantly shortening a process that might otherwise take many months or even years. In addition, the parties to a settlement agreement are less likely to appeal the infringement decision. This is a major resource saving in the UK, given the full-merits jurisdiction of the Competition Appeal Tribunal (CAT) (see point E below). These resource savings are highly beneficial both to the OFT and to the parties involved. For the parties, the costs in terms of both time and resources associated with participating in the full investigation procedure can be significantly reduced. For the OFT, resources that would previously have had to be expended on various steps in the procedure can be freed-up and the investigation procedure itself can be concluded more quickly. Through the judicious use of settlements, the OFT can gain a greater ability to undertake high-impact cases and projects to increase overall deterrence. Settlements also have the potential to impact positively on deterrence more indirectly through their interrelation with private actions: damages awarded in private actions increase the incentives of businesses to comply with competition law and are thus are an important complement to the public enforcement regime. As noted in the previous paragraph, settlements should increase the ability of competition authorities to raise their decisional speed. This in turn should increase the through-flow of cases in which follow-on actions can be brought. In addition, settlements can make it easier to bring follow-on damages actions in the UK when compared to the commitments process. This is because the parties to a settlement agreement must make an admission of liability following which an infringement decision is made4 against those parties. Settlements are, of course, not cost-free. By definition the penalties imposed in settled cases will be below the optimal level5 for deterrence. Similarly, settlement discounts, if significant, could reduce the incentives for companies to come forward for leniency: potential applicants may conclude that it is preferable not to apply for leniency in the expectation that a significant reduction in financial penalty would be available at a later stage in the process (see point E below, under “cumulative or alternative reductions”). Therefore, if used excessively or in an ill-designed way, settlements could have a negative effect on competition regimes. 4 In contrast, the commitments procedure is likely to be used in cases that are not expected to result in the imposition of a penalty. In such non-fining cases, the position at both the UK and EU level is that it may be appropriate for the authority to engage the undertaking(s) concerned in discussions as to whether the competition concerns raised by their conduct could be addressed. See, for example, the Commission’s recent practice in relation to market foreclosure conduct in the energy sector (RWE; E.ON). 5 The OFT sets penalties at a level it considers optimal for deterrence. As such, by definition, any settlement reduction will bring the final penalty below that level.

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Given this it would seem unlikely that settlement will immediately become the predominant method for dealing with serious infringements. Many investigations will continue to be best handled under the usual administrative procedure leading to an infringement decision with a full penalty. However, as authorities develop a better understanding of the impact of settlements on the leniency regime and deterrence, their use may increase. The experience in the UK to date suggests that settlements will indeed become an important element in the enforcement toolkit. The fact that settlements have been used in four CA98 cases in the past two years, including serious highprofile cases, is evidence of their potential. That said, given the factors flagged above, it would be highly risky for parties to see the ability to settle as a “right” or as the new default standard process. Rather, the settlement procedure is likely to be used only when, in view of both the particulars of the case and the OFT’s overall portfolio, the OFT considers that settlement would be appropriate. This of course does not mean that the parties have no role in instigating settlement discussions.6 Indeed the OFT’s first settlement decision (Independent Schools) began with a request from the parties.

D. When will settlements be used? The OFT has not, as yet, adopted guidance in this area. Analysis of its decisional practice however suggests the following factors may be relevant in its selection of cases for early resolution: • Significant resource savings are likely: the OFT’s decisional practice, combined with speeches by senior officials, suggest that the agency considers settlement only to be appropriate if the process is likely to secure significant resource savings. • The type and complexity of the case: To date, all four UK settlements have involved cartel cases (the Independent Schools fee information exchange, price fixing in relation to Air Passenger Fuel Surcharges, the alleged Dairy pricing information exchange, and alleged unlawful pricing practices in Tobacco)7. This suggests that settlements are most likely in cases where the law and facts are relatively clear (e.g., cartels). In addition, cases involving

6 The settlement procedure is, of course, voluntary. Therefore, parties also are free to refuse to enter into and/or step away from any settlement discussions. 7 This does not mean, however, that every cartel case will be suitable for settlement: there will often be very good reasons from a wider deterrence perspective why such cases should be pursued to an infringement decision with a full penalty.

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The Emerging Settlements Regime in the UK 503 a large number of parties may be appropriate for settlement, as this increases the likelihood of significant resource savings.8 • Precedent value/Novelty: Settlements are less likely to be used in cases where the law needs to be clarified, or where the OFT wishes to set a particular precedent. In such cases, the OFT may consider that the resource-saving benefits under settlement would be outweighed by the benefits of a judgment following the full merits review provided for under the UK’s appeal system.9 Equally, where the law and/or facts are complex or disputed, making settlement offers may increase the scope for false positive errors (i.e., over-intervention) as the full rigours of the investigative process are not used. This would suggest, at least in principle, that Chapter II/Article 82 cases are much less likely to be viewed by the OFT as suitable for settlement (as they usually raise complex legal and/or factual issues and give rise to a greater risk of third party appeals).10 However, it is worth noting that the OFT has not definitively ruled out the possibility of using the settlement process in such cases. • Wider strategic considerations: the potential impact of settlement on leniency and overall deterrence are clearly relevant. In summary, these factors suggest that, like the European Commission, the OFT will focus, at least initially, on hardcore cases such as cartels. This is borne out by its decisional practice to date. However, unlike the Commission, the OFT has not ruled out the possibility that settlement may be appropriate in a non-cartel case.

E. What does a “settlement” amount to in any given case? OFT settlements will likely be structured so as to ensure that significant resource savings are generated both in the administrative and litigation stages of the process. To this end, there are a number of key elements that can be expected to be included in most, if not all, settlements that the OFT enters into: 8 Conversely, it should be noted that such cases are more likely to result in “hybrid” settlements where not all parties choose to settle. For example, in the Dairy case, two of the eleven parties continue to dispute the provisional findings in the OFT’s Statement of Objections and thus the investigation is proceeding in full as regards those parties. See OFT Press Release 170/07 of 7 December 2007. 9 The appeal system in the UK is heavily availed of by parties to OFT decisions; the OFT has issued 19 infringement decisions, in 16 of which penalties were imposed, and 10 of those decisions were appealed to the Competition Appeal Tribunal. 10 However, note that the Office of Rail Regulation (ORR) agreed a settlement in relation to Chapter II practices in English Welsh and Scottish Railways Ltd (EWS). ORR Decision of 17 November 2006

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• Admission: Full admissions of liability for a breach of the law have been required in each of the OFT’s settlement cases so far; an admission of the facts is not sufficient. The parties must make an admission as to the scope and duration of the infringement, as alleged by the OFT in the statement of objections or otherwise, and their part in it. • Streamlined procedure: the parties must agree to a streamlined procedure. This will usually take the form of the parties agreeing not to exercise their rights to conduct full file reviews (for example, to limit their review to documents on which the OFT relies in its Statement of Objections), not to submit extensive written representations and/or not to request oral hearings.11 This is similar, but not identical to European-level settlements, where the Commission requires parties to give up their rights to an oral hearing, to make written representations on the Statement of Objections and to access to the file. The Commission does not envisage parties submitting substantive written representations in response to the Statement of Objections since settling parties will have had an opportunity to make their representations known before the Statement of Objections was issued. • Limited representations: the OFT is very unlikely to enter into prolonged discussions with the parties as to the level of penalties (see point F below, under “nature of discussions”). In particular, given that one key benefit of settlements is a streamlined and shortened procedure, engaging in detailed and potentially lengthy negotiations as to the level of penalty would be somewhat counterproductive. In general, the OFT is likely to be willing only to accept representations from the parties that go to alleged manifest errors in the OFT’s Statement of Objections; it is unlikely that the OFT will enter into detailed, drawn out discussions on points of interpretation of fact or law, including those that go to the level of penalty. • Administrative cooperation: the parties must agree to co-operate with the OFT throughout the administrative process. What is required in terms of co-operation will vary depending on the circumstances of the case. In many cases, the parties will likely not be required to provide further evidence of the infringement, as normally an admission of liability and agreement to a streamlined procedure will be sufficient for the purposes of settlement. Nonetheless, there may be case-specific circumstances in which substantive co-operation in the nature of information provision is required during the settlement process. • Appeal cooperation: the settling parties can be expected to agree that, if they appeal the OFT’s decision, the OFT will reserve the right to make an application to increase the penalty imposed on the party. This was part of the settlement agreement in the Independent Schools case, for example. The 11 For example, this could involve parties limiting their rights to make representations on the Statement of Objections to a concise memorandum indicating any material factual inaccuracies, as in Independent Schools (OFT decision of 20 November 2006 (Case CE/2890-03)), Dairy (supra note 8) and Tobacco (OFT Press Release 82/08 of 11 July 2008).

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The Emerging Settlements Regime in the UK 505 Commission’s approach to settlements, however, does not explicitly reserve for itself the right to make applications upon appeal. The difference in the intensity of appeal at EU level and at UK level may explain this divergence. In comparison to the European system, the UK has a highly resourceintensive, full merits review appeal system. The settling parties may also be required to agree that, in the event of an appeal, they will co-operate in relation to any action taken by the OFT in proceedings before the CAT. In return for these concessions from the parties, the OFT will reduce the amount of the penalty. The level of reduction in penalty is likely to be a key element of any settlement, for both the parties12 and the OFT. As regards the OFT, the main consideration will be the need to set the penalty reduction at a level that encourages settlement but does not undermine the effectiveness of the leniency programme or overall deterrence. The main factors in terms of the impact on overall deterrence are the size of the reduction and the level of the fine overall (in both absolute and relative terms). Protecting the incentives for parties to apply for leniency will be paramount: leniency is the OFT’s key detection and information-gathering tool in cartel cases.13 A key factor in this regard is whether any discount given is applied cumulatively with any leniency reduction.

Cumulative or alternative reductions? In principle, leniency and settlement penalty reductions should be made available on a cumulative, rather than an alternative, basis. Offering cumulative reductions ensures that parties are not incentivized to “wait and see” how the OFT’s case develops rather than apply for Type C leniency14 in the expectation of obtaining a significant penalty reduction under settlement arrangements. The importance of maintaining incentives to apply for Type C leniency results from the different underlying aims of leniency and settlement: leniency (including Type C) is intended primarily to operate as an investigative and information-gathering tool, whereas settlement is focused on achieving resource-efficient resolution of cases once the investigative stage is substantially complete. Applying leniency and settlement on a cumulative 12 Other key issues from the perspective of the parties are likely to be the earlier certain resolution of a case and a potentially greater (or at least earlier) ability to assess/manage the reputational impact of the OFT’s investigation. Reputational issues may also be particularly key for “consumer-facing” undertakings. 13 Type A applicants approach the OFT before it has initiated an investigation and bring the infringement to the OFT’s attention. Type B immunity applicants are first to approach the OFT after commencement of the investigation and provide significant added value to the investigation. 14 That is, where the applicant is not the first to come forward following commencement of the investigation. Penalty reductions of up to 50% are available in such cases.

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basis should ensure that an undertaking will seek to obtain discounts under both leniency and settlement. This is also the approach taken by the Commission. However, offering cumulative settlement and Type C leniency reductions creates the possibility of parties receiving substantial aggregate reductions which may impact negatively on Type A or Type B immunity. Thus, the level of settlement reduction will be pegged at a level that avoids the gap between cumulative “Type C leniency plus settlement” reductions and the 100 per cent reduction available under Type A (or where relevant, Type B) immunity becoming so narrow that the incentives to apply for immunity are undermined.15

Ensuring the process is voluntary An important consideration for any authority is the need to ensure that a party’s decision to settle is truly voluntary. If the penalty reduction significantly outweighs the potential benefit of bringing and winning an appeal (taking into account costs and the likelihood of success), the offer could arguably amount to “coercion” to settle. However, provided that the level of discount offered is not too high, the simple fact that settlement leads to a reduction greater than would have been available in the absence of settlement should not render a settlement involuntary.16

F. How does the process of coming to a “settlement” work? There are a number of key procedural considerations that come into play when contemplating a settlement. These concern the outcome of the process, the stage at which a settlement is likely to be considered and the treatment of cases in which only some parties wish to settle (“hybrid” cases).

15 In any event, the advantages attached to Type A guaranteed immunity and, where applicable, Type B immunity (such as 100% immunity from fines and the guaranteed availability of no-action letters) may go some way towards ensuring that parties still have sufficient incentive to apply for them. 16 In this regard, see the jurisprudence of the European Court of Human Rights regarding constraint/coercion in the interaction of settlements and court proceedings (for example, Deweer v. Belgium, (1980) 2 E.H.R.R. 439 and Borghi v. Italy (App. 54767/00), judgment of 20 June 2002).

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The outcome—the infringement decision Every settlement case will result in a fully reasoned infringement decision. There are three reasons for this. First, the OFT cannot, as a matter of law, impose or accept a penalty in the absence of such a decision.17 Second, infringement decisions are, by definition, necessary for follow-on actions. Encouraging such actions to be brought is an important objective for the OFT.18 Third, whilst an important benefit of settling cases is a reduction in the risk of appeal, the OFT must ensure that the appeal process is not undermined. The full merits-based review, which is a feature of the UK system, is likely to require OFT decisions to be properly and fully reasoned.

Stage at which settlement discussions commence Settlement discussions are appropriate only once an authority has come to the provisional view that it has sufficient certainty that the undertakings under investigation have committed a breach of the law. For the OFT, this means that it must consider that it has strong and compelling evidence of an infringement. Commencing settlement discussions before this point would be premature and could lead to the risk of “false positives” and/or potential exposure to allegations of procedural irregularity. Conversely, not commencing settlement discussions until the parties have made full submissions in response to an authority’s provisional view would severely reduce the administrative efficiencies to be gained from settlement. In a typical case, therefore, settlement discussions are likely to commence when the OFT is at the stage of issuing its statement of objections: in the majority of cases this is the first point at which the OFT’s fully articulated case can be tested rigorously internally to ensure that it meets, based on the available evidence, the strong and compelling standard. For example, settlement discussions in the Independent Schools, Dairy and Tobacco cases all commenced when the OFT issued its statement of objections to the parties. The OFT decisional practice however suggests that the agency has not excluded the option of settling cases earlier if it is able to reach the requisite view on the evidence sooner. This appears to have occurred in Airline Passenger Fuel Surcharges case.

17

Section 36 of the Competition Act 1998. See OFT Recommendation, “Private actions in competition law: effective redress for consumers and business”, OFT916rsp, November 2007. 18

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Nature of discussions Whilst more flexible than in certain jurisdictions, the OFT approach is not entirely elastic. As noted at point E above, other than representations on alleged manifest errors, the OFT will not enter into detailed, drawn out discussions on substantive issues (such as the seriousness of the infringement or market definition) that may lead to more protracted discussions. Similarly the OFT will set out a strict timetable for its settlement discussions to ensure that the investigation is not delayed disproportionately in the event that resolution does not prove possible. On the other hand, the OFT experience to date also suggests that too rigid an approach may not be optimal either. For example in the Independent Schools case the parties and the OFT entered into relatively lengthy and detailed discussions over a number of weeks to agree the settlement. This was driven by the nature of the infringements, the status of the parties as charitable organizations and the need to consider an innovative solution in light of the exceptional circumstances of the case. In taking this flexible approach the OFT will however need to ensure that the overriding principles of fairness, transparency and consistency are taken into account within and across cases.

Hybrid cases The fact that cartel cases involve multiple parties and often multiple infringements creates the prospect of “hybrid” settlements where (a) some, but not all, parties are willing to settle; and/or (b) parties are willing to settle in relation to some infringements, but not all. European Commission officials have in speeches indicated coolness towards the settlement of such cases. This is likely to be driven by its institutional set-up: a large proportion of resource saving for the Commission comes from avoiding the burden of providing access to the file and oral hearings, particularly given the multiplicity of parties and languages involved and the jurisdictional issues they raise. The situation in the UK is somewhat different: while it will be important for the OFT to secure resource savings through reduced administrative burdens during the investigative process, its largest saving comes from reducing appeal costs. This is because of the highly resource-intensive, full-merits nature of the appeal system in the UK. In comparison, in other systems such as at European-level where the appeal system is less intensive, administrative resource savings are likely to be paramount. This means that hybrid settlements are perhaps more likely to be reached in the UK than in some other jurisdictions. That said it should be borne in

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The Emerging Settlements Regime in the UK 509 mind that resource savings in such cases are likely to be less significant than when a comprehensive settlement covering all parties and/or all infringements is reached. This will inevitably be a factor which the OFT will take into account in deciding the appropriateness of the settlements process in such cases.

G. Concluding remarks The OFT has a developing body of policy and practice in this area. Despite the need to deal with each case on its own merits, this paper has identified a number of broad principles for how this new tool will be applied. In concluding the following four points would seem worth stressing in particular: • First, it is clear that settlements will only be pursued where they will result in significant resource savings for the OFT, whether in the administrative procedure and/or in relation to potential appeals. • Second, the use of settlements must not undermine deterrence or the efficacy of the leniency programme. • Third, settlements must not harm the prospects of redress, which means that the process must result in a full and reasoned decision and must be subject to overall principles of fairness, transparency and consistency. • Finally, the application of the settlement process, including the selection of cases suitable for settlement and the timing of the decision to engage in settlement discussions, will be designed to minimize the risks of false positives in the OFT’s enforcement practice.

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VII Lynda Martin Alegi and Grant Murray* Settling an Appropriate Policy: Reflections on OFT Work in Progress

Background Policy initiatives of the European Commission and Office of Fair Trading have resembled each other closely in recent years, with each regulator showing a fondness for steeper fines while jealously guarding their leniency programmes as the key tool for unearthing cartels. In parallel, both regulators have cleared similar paths through the entanglement of complicated and otherwise long-running competition cases—by resolving them with informal assurances or by extracting binding commitments from the parties. The latest evolutionary step—to “settle” cases—is logical in that it fills the gap where companies are prepared to acknowledge wrongdoing—but where a fine is unavoidable from both a legal and policy perspective.1 Despite each regulator having developed its thinking regarding settlements at the same time, the enforcement paths of the Commission and OFT now appear to be diverging. For the OFT, flexibility is key. This is reflected by the differing characteristics of the seven cases settled so far in the UK2 (including a non-cartel case); the stage in the process at which they can be settled; and how many companies need to sign up. Even the name of the process is flexible—with the OFT having referred to the process as “direct settlements”; “fast-track resolutions”, and most recently as “early resolution” (which it appears to have settled on). * Lynda Martin Alegi is a partner and Grant Murray is an associate of Baker & McKenzie. 1 In contrast to commitments, for example, which are not appropriate where the Commission intends to impose a fine—see Recital 13 of Regulation 1/2003. 2 In addition to the five cases where the OFT reached formal settlements (Independent fee-paying schools, OFT decision of 20 November 2006 (Case CE/2890-03); Air Passenger Fuel Surcharges, http://www.oft.gov.uk/news/press/2007/113-07; Dairy, http://www.oft. gov.uk/news/press/2007/170-07; Construction, http://www.oft.gov.uk/news/press/2007/ 49-07; and Tobacco, http://www.oft.gov.uk/news/press/2008/82-08), the OFT granted a 40 percent reduction to Umbro for admitting its involvement in the cartel in Replica Kit (OFT decision of 1 August 2003 (Case CP/0871/01)), on the basis that this constituted a mitigating factor. In addition, the Office of the Rail regulator has settled an Article 82/ Chapter II case, English, Welsh and Scottish Railway (ORR decision of 17 November 2006).

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A preference for flexibility may also underpin the OFT’s slowness to produce guidelines on the approach taken so far, the OFT wishing instead to develop its thinking with each case taken on. It is tempting to regard the OFT approach as more defendant-friendly than that of the Commission since it offers a greater percentage discount to a wider range of infringers in more cases. But, in its own way, the Commission’s approach is more radical—albeit controversial—promising a shorter Statement of Objections and final decision (in contrast to the OFT). EC settlements3 may also be more cut and dried than in the UK where the OFT may well require a settling company to cooperate in any subsequent appeal (presumably by supporting the OFT with evidence etc). A key issue for companies wishing to settle cases is the ability to draw a line under the infringing conduct and move on. The OFT is no doubt anxious about the resources that would be needed to defend a full merits appeal by non-settling parties in the Competition Appeal Tribunal (“CAT”)—but it appears that a settling company may find that its involvement in the process does not end when it signs a deal with the OFT. In any event, the key balance to be struck is between flexibility (for the parties and the OFT) and certainty. This paper considers the OFT’s emerging practice and suggests how that balance might be improved.

Case selection The type and complexity of a case is the most important factor for the OFT in determining whether it is appropriate for settlement. Whether the case raises a novel issue or has a precedential value is also relevant.

Type of case Cartel cases are good candidates for settlement because they generally do not involve complicated questions of fact or law—and often involve numerous parties, promising a regulator considerable resource savings. This is an area where the OFT’s flexible approach is hugely advantageous. Cases settled so far show that the OFT does not restrict settlements to circumstances where all or even the overwhelming majority of companies have

3 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, 2008 OJ C167/1.

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agreed to settle.4 This must be a temptation. Despite the neutrality of the Commission Notice on the issue, the Commission seems disinclined to settle cases unless all parties settle—no doubt because the procedural savings are eroded by having to carry out the investigation as normal. But there is also the more vexing legal question of what is the impact of a subsequent successful appeal brought by a non-settling party. Nor has the OFT actually restricted settlement to cartels. It recognizes that resale price maintenance cases may also be suitable for settling—and the same should apply to cases involving other hard core vertical restraints where the factual and evidentiary issues are relatively straight forward. The Office of the Rail Regulator has even settled an Article 82/Chapter II case—although the OFT seems reluctant to treat this as the beginning of a trend—perhaps because there is a greater risk of third party appeals in dominance cases.

Complexity The OFT has said that the complexity of a case will be a factor in determining whether a settlement is possible. The implication is that complicated cases are not conducive to settlement. It is difficult to share the OFT’s concerns. Complicated cases (such as Independent Schools where the number of parties must have compounded the administrative burden) are even more suited to settlement in light of the procedural savings to be made. Even where there is a genuinely complicated legal argument, it is difficult to understand the OFT’s tentativeness since a fully formulated Statement of Objections will already exist before the OFT proposes settlement so it will already have resolved the complexities to its own satisfaction (and the parties will only settle if they are keen to do so).

Novel issues Perhaps a more reasonable concern is that a “novel” infringement may not be easy to settle without numerous meetings with numerous sets of lawyers all demanding different interpretations of what would ultimately be shown to be an “arguable” point. This of course would diminish the prospect of procedural savings. But to close off the possibility of a settlement at this stage would be to miss an opportunity. Those discussions about the novel issue will still need to take place—even in the context of a “normal” long-form procedure. 4 See, e.g., Tobacco where, at the time of writing, only 6 out of the 12 companies being investigated by the OFT had settled. http://www.oft.gov.uk/news/press/2008/82-08.

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There is therefore nothing to be lost in holding (multilateral) discussions at least to hear the arguments. The OFT is also uncharacteristically rigid by opposing the suggestion that it should be possible to settle some but not all of the discrete infringements alleged in an SO. Significant procedural advantages must surely flow from this type of “hybrid” settlement.

Precedential value The OFT has said publicly that settlements may be less likely where a case has precedent value. The OFT’s reasoning is however difficult to follow. It cannot be their concern that a decision in a settled case will have less legal import—since the OFT has promised that the decision will contain as much information and analysis as a decision reached in the normal process. Nor can the OFT trigger an appeal where the companies want to settle a novel allegation—it would never be possible to force an appeal to secure the CAT’s blessing. If the OFT’s concern is that a settlement may prevent a robust settlement precedent from being created because the issues will not have been subject to the full rigours of the investigative process, the flexibility of the OFT’s approach would allow it to address this, for example by allowing responses to the documents on the file—as was done in the Construction case.5

Deterrence A preoccupation shared by the Commission and the OFT is that settling cartel cases gives the wrong signal to companies who might be less deterred when contemplating a cartel. This concern is of course closely related to the desire to preserve the effectiveness of leniency programmes which continue to unearth otherwise secret and unwritten infringements. Clearly the OFT is keen to protect both Type A and Type C leniency.6 An accumulation of rewards where Type A benefits exceed Type C plus settlement benefits is the appropriate way to achieve this.7 5

http://www.oft.gov.uk/news/press/2007/49-07. In the UK, Type A immunity refers to a situation where an undertaking is granted automatic civil immunity and all of its current and former employees and directors are granted automatic criminal immunity for cartel activity, in circumstances where the undertaking was the first to apply and there was no pre-existing civil and/or criminal investigation into such activity. Type C leniency refers to a situation where an undertaking is granted a reduction of up to 50 percent of the level of financial penalty imposed in circumstances where the undertaking was not the first to apply and there was already a pre-existing civil and/or criminal investigation into the relevant cartel activity. 7 This assumes that a leniency applicant would likely want to settle. It almost always will but there could be exceptions—for example where the OFT relies on facts admitted to 6

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As regards Type C leniency independently, if such an applicant had provided little value and, unusually, did not agree to settle, then the fact that their reward may be less than that of those parties who settle is unlikely to change the dynamics of leniency in any way. In any event, such a strict mathematical analysis may betray over-reliance on the belief that a CEO undertakes a cost-benefit analysis before fixing prices or deciding to apply for leniency. The threat of long-lasting reputational damage (and possibly criminal sanctions) feature more strongly in the minds of business people than the OFT may be aware. Finally, the vagueness of fining guidance, combined with regular policy initiatives to boost fines—and reissue guidance—make for a very cloudy crystal ball. Despite the recurring references to the theoretical impact on deterrence, the OFT has been robust in relation to the level of discount in cases settled so far. The Commission appears nervous of “coercing” companies into settlement with significant discounts (albeit beneath leniency reductions) and has chosen to address its nervousness by capping the reduction at 10 percent. Taking a less linear approach, the OFT offers more than this (perhaps in the belief that cartelists, advised by major law firms, will generally not be seeking to rely on speculative human rights arguments when offered a material financial advantage commensurate with the giving up of important procedural rights).

The OFT’s portfolio Curiously, the OFT has said that settlement is used at its discretion in view of the particulars of a case and the OFT’s “overall portfolio”. Again, given that decisions reached in settled cases will have the same appearance and effect, it is difficult to see how the OFT’s portfolio could ever militate against settling. Even in a resource-rich period, the savings from settling a case would surely enable resources to be effectively used elsewhere. On balance, therefore, we think the OFT is overcautious—even pessimistic—in stating that the nature and complexity of cases means that settlements will never become the predominant method of dealing with cases, in particular cartels.

demonstrate evidence of leadership or some other aggravating factor which is then contested by the applicant. On a related point, a leniency applicant’s commitment to continuous and complete cooperation should not be interpreted as a commitment to settle, for fear of unconscionable pressure.

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Timing In the majority of cases, the OFT is only likely to hold settlement discussions once it is able to issue a Statement of Objections.8 This ensures greater credibility and therefore a higher likelihood of settlement—especially in more complicated cases. This approach may also enable the OFT to avoid any accusation that reductions offered before the OFT has formed a complete view on the case would give rise to the application of undue pressure. This approach should also enable the OFT to be fully transparent on the level of fines since, by the stage of the SO, the OFT will have a good idea of the level of leniency discounts to be awarded (subject to ongoing cooperation).

Negotiation The OFT is realistic in accepting that settlement discussions—which, after all imply a company surrendering important legal rights—will be iterative, as opposed to a “take it or leave it” offer. The OFT does draw a distinction between discussions on manifest errors (which it is prepared to discuss) and interpretations of fact and law (on which it will not enter into discussions). But it is important to acknowledge that these categories of objection can often be blurred. Indeed, an incorrect interpretation of facts may be a manifest error. It is therefore important that the OFT listens to parties carefully before simply pigeon-holing an argument as one of interpretation. There is also a strategic issue for parties here. Equal treatment of companies is likely to mean a ripple effect where any positive outcome of discussions must be extended to others. But there is still an advantage in holding discussions with the OFT first—otherwise a company may find that the OFT is not receptive to an argument because it has already heard a less coherent version of it from a third party. In other words, although companies coming to the negotiating table later will benefit from the successful argument of companies coming before them, they may also suffer the consequences of a badly argued case. The negotiation—a word which the OFT does not avoid—will cover the level of the fine (and not just a percentage discount). A sensible approach may be to discuss each of the first four steps set out in the OFT guidance on 8 Of course, Airline Passenger Fuel Surcharges and Construction both show that the OFT is flexible on timing and may advance the start of settlement discussions, particularly where the facts are clear.

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penalty9—i.e., the starting point based on turnover and the seriousness of the infringement; its duration; deterrence; and aggravating/mitigating factors. The OFT must avoid the temptation to increase gross fines, either in settlement cases or generally, in order to provide the headroom for significant settlement discounts. If the OFT were to take this approach, this would reduce the settlement offer and the value of the settlement initiative in real terms. It also risks being improperly coercive. The suitability of a single, continuous infringement charge may also be an issue over which the OFT and a defendant (otherwise willing to admit the facts and settle) may differ and may usefully discuss.

Procedural rights The OFT seeks resource savings at the administrative but also in the event of any subsequent “judicial” phase. • Administrative phase: Settling companies will need to agree to a streamlined procedure: not exercising their right to conduct a full file review (for example, to limit their review to documents on which the OFT relies in its statement of objections), not to submit extensive written representations and/or not to request oral hearings. While a simplified procedural path is a major element of the incentive for the OFT to settle, the position of individual parties should be taken into account. For example, a defendant without independent access to the records or employees involved (e.g., having purchased the business, or sold it) may in principle be willing to settle but need access to the file in order for the Board to take a responsible, lawful decision to settle and to decide what level of fine is a proper sum to agree. Access to file should be allowed in such cases. • Judicial stage: It appears that the OFT is not satisfied with the prospect of reduced administrative costs and the reduced risk of an appeal. It may also wish to protect itself from the costs of an appeal. This translates into a potential requirement for companies, as part of a settlement, to support the OFT in the context of any appeal proceedings. Depending on the extent of such cooperation (and the time period for which it is required) this could be a major inconvenience for companies that believed an admission of liability would be a bitter pill—but the only pill—to swallow. The OFT should not take advantage of its position by extracting these “ ‘ancillary promises”. The appropriateness of cooperation in appeal proceedings should be left to the court and the general procedural rules. 9 See OFT guidance on calculating penalties, available at http://www.OFT.gov.uk/ shared_OFT/business_leaflets/ca98_guidelines/oft423.pdf.

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Coercion/undue pressure Competition authorities must be sensitive to the pressure being brought to bear on companies by the settlement process. While the percentage discount will need to be material to encourage companies to settle, there are a number of other aspects to the process which must be managed carefully so as to avoid undue pressure being applied. In many cases, companies will not be in the same position. One company may be prepared to admit liability in respect of facts of which it is not aware (and/or which it could never verify), e.g., because it has recently acquired/sold the business in question and lacks records/information/involved employees or because it is protected by warranties or because the case is of a relatively small value/significance to it in light of its overall business or its overall relations with the OFT. Where the first settling company does so for “non-substantive” reasons such as these, there is a risk that undue pressure would build up against other implicated companies. This coercive “domino effect” is made all the more likely by the OFT’s policy of publicizing a settlement with one or more parties while the case proceeds against other defendants. It is difficult to see why the OFT feels the need to do this—other than to garner support from the media. The OFT’s recent experience with Morrison’s10 will not doubt guarantee that press releases are anodyne but, in our view, the business of informing the public/market should be left to the companies themselves—including by operation of the Listing Rules.11 Settlements should therefore be kept confidential until the entire case is disposed of.12 Pressure to settle may also be increased if higher reductions are awarded by the OFT when there is no immunity/leniency applicant or when the admission of liability comes relatively early in the OFT’s investigations—factors which, under the OFT’s portfolio-based/resources saved approach, may well justify a greater settlement reduction. Indeed, in EWS, the Office of the Rail Regulator (ORR) indicated that the reduction of 35 percent was less than it would have been had there been a comprehensive admission at the outset.13

10

Morrison Supermarkets, http://www.oft.gov.uk/news/press/2008/54-08. The rules which public companies are required to observe, e.g. on publication of information, when their shares are listed on the London Stock Exchange. 12 This approach can be contrasted with the approach taken in Tobacco where an OFT press release was published when only half of the companies mentioned in its press release had settled. 13 Paragraph D45, English, Welsh and Scottish Railway (ORR decision of 17 November 2006). 11

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Confidentiality and settlement privilege Here there are three related issues: • confidentiality during the process: companies needs absolute certainty that there will be no leaks that settlement discussions are underway. The OFT should therefore provide an assurance that no such information will be disclosed even in response to specific questions.14 Otherwise, the OFT’s flexible procedure and the lack of any policy statement confers such a broad discretion that it might be a major disincentive to be the first company to approach and be open with the OFT (particularly in cases where there is no prior leniency applicant). • confidentiality if the process breaks down: this should apply both externally and also within the OFT. The European Commission may be prepared to use a different investigation team so as not to prejudice a defendant who has frankly but unsuccessfully discussed settlement. The OFT should confirm that the same approach will be adopted in the UK. • privilege for statements made: discussions with the OFT will need to be protected from discovery/disclosure regardless of whether a settlement is redacted.

Communication between defendants/joint defence privilege Debate at EC level appears to have resulted in a text which allows discussions between companies—provided this does not distort the evidence.15 Although not completely clear, the OFT appears to oppose discussions between defendants regarding settlement (or at least any discussions between defendants which are carried out without the OFT’s involvement). This is an interesting view given that, in Independent Schools,16 one organisation represented all the defendants and the OFT cited this as one of the factors justifying particularly lenient treatment. In our view, defendants should be able to talk to each other. Not only might this increase the likelihood that cases are settled, and so increase the 14 This would contrast with the policy of confirming dawn raids/issue of an SO/and EC Article 9 discussions in response to press questions. 15 While not immediately apparent from the wording of the adopted Notice, this might be inferred from the changes to paragraph 7 of the draft Notice. Under the draft Notice, parties to the proceedings were prohibited from making disclosures to “any other undertaking”. Under the adopted Notice, only disclosures to “third parties” are prohibited. 16 OFT decision of 20 November 2006 (Case CE/2890-03).

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value of settlement to the OFT as in Independent Schools, but it is a part of the defendants’ fundamental right to manage their defence.

Overlap with the criminal cartel offence US settlements may carve out certain employees directly involved in the cartel so that these employees can be individually prosecuted. However, US cases are often settled on the basis of a brief general admission by the corporate defendant which would not necessarily undermine the position of the individuals carved out in the way that the full decision envisaged by the OFT is more likely to do. More specifically, it is difficult to imagine how an employer’s admission on the potential criminal liability for the cartel offence might not impact in some way on individuals in the UK. Indeed, the risk that an individual employee may be prosecuted for having acted dishonestly may significantly reduce a corporate defendant’s willingness to settle.17 Independent advice for senior executives will be particularly critical when settlement is considered (and will certainly not simplify the process). The OFT seems inclined to confine noaction letters etc to individuals in connection with leniency applications—to ensure that companies continue to apply for leniency and do not just settle. But, on balance, the general use of no-action/comfort letters in settlement cases would be a simple way to manage the impact of settlements on the criminal cartel offence. Alternatively, the administrative prosecution of cartels could be delayed until after any criminal proceedings but this is unlikely to fit with the major attractions for all of an early settlement. In any event, the OFT needs to give specific consideration as to how to protect the rights of individuals faced with a company’s willingness to settle.

Interaction with private enforcement Although the prospects of a damages claim will always feature in the mind of a settling company, it should be noted that, if the OFT publishes a fully reasoned decision and publishes it earlier for settling companies, the company’s exposure to damages will crystallize much earlier than that of non-settling companies (especially if the time for bringing a claim is “postponed” by an 17 Indeed, the OFT may already have considered these issues in the context of Air Passenger Fuel Surcharges, where criminal charges for four executives in connection with price-fixing are contemplated.

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appeal). This is another reason why the publication of settlements should only take place when the case as a whole is concluded (in addition to the coercion argument mentioned above).

A published policy There are clearly advantages in obtaining some practical experience of settlements before codifying this in an OFT Guideline. However, as the OFT builds up its experience rapidly, written guidance is becoming overdue. The need for a published policy is accentuated by the risk of divergent approaches to settlement by a sectoral regulator. Indeed, there may even be some experience of this in the rail sector where the ORR awarded a very significant reduction of 35 percent in respect of a non-cartel infringement. The decision explains that, having considered the defendants’ representations, the regulator decided not to make a finding on the existence of a board strategy to exclude third parties, nor to make a finding on the amount of damage that might have been caused. In contrast, recent OFT settlements (e.g., dairy) appear to involve unqualified admissions and the press reports even indicated that the OFT may have taken some steps to quantify the extent of damage caused on the market. As sectoral regulators become more active in enforcement, the chance of divergent approaches must be increasing.

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SESSION THREE

COMMITMENT DECISIONS PANEL V Settlements under Article 9 of Regulation 1/2003

1 PANEL DISCUSSION

Chair: Massimo Motta Participants: Rafael Allendesalazar Joachim Bornkamm Jochen Burrichter John Cooke Claus-Dieter Ehlermann Ian Forrester Bill Kovacic

Santiago Martínez Lage Eric Morgan de Rivery Emil Paulis Heike Schweitzer Mario Siragusa Jim Venit Wouter Wils

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Panel V:

Settlements under Article 9 of Regulation 1/2003

MASSIMO MOTTA: Good morning, everybody. Welcome to this Saturday morning session. We will continue to adhere to our strict time limits for presentations, and our first speaker this morning will be Heike Schweitzer.

䉴

HEIKE SCHWEITZER: Thank you. I will go briefly through the main rules relating to the Commission’s commitments procedure, then I’ll review the Alrosa judgment1 and discuss some implications of this judgment for the future of the Commission’s practice. The procedure under Article 9 of Regulation 1/2003 was inspired by the use of consent decrees in the United States.2 According to Article 9(1), “[w]here the Commission intends to adopt a decision requiring that an infringement be brought to an end and the undertakings concerned offer commitments to meet the concerns expressed to them by the Commission in its preliminary assessment, the Commission may by decision make those commitments binding on the undertakings. Such a decision may be adopted for a specified period and shall conclude that there are no longer grounds for action by the Commission.” So when the Commission adopts an Article 9 decision it does not have to fully prove the infringement, and the decision does not formally establish that there was an infringement. Since no infringement is established, the Commission cannot impose fines.3 In comparison to informal settlements, which were rather common prior to the adoption of Regulation 1, Article 9 decisions are advantageous in that they can be directly enforced by the imposition of fines or periodic penalty payments. So in case of non-compliance, the infringement procedure does not have to be re-opened. For the Commission, Article 9 gives it the possibility of closing a case more quickly and economizing on its resources. The attraction for undertakings is that they can avoid long and expensive legal proceedings. And for the reasons I’ve described they can also avoid a formal finding of infringement, a finding which could otherwise facilitate private damages actions in national courts. They might also possibly avoid fines at the national level, although I would argue that this is questionable under the Alrosa judgment. The commitment procedure is not really fully developed in Regulation 1/2003. But it is clear that it is a formal procedure, and it’s clear that a Statement of Objections can be replaced by a “preliminary assessment”, which may be a bit shorter. When the Commission intends to make commitments 䉴

1 Case T-170/06, Alrosa Company Ltd v Commission [2007] ECR II-2601, on appeal: Case C-441/07 P, Commission v Alrosa, not yet decided. 2 See 15 U.S.C. § 16 3 See Recital 13 of Regulation 1/2003, in fine (“Commitment decisions are not appropriate in cases where the Commission intends to impose a fine.”).

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binding under Article 9, it must publish the proposed commitments in the Official Journal of the EC.4 Third parties then have the opportunity to comment, and if these comments are negative, the Commission has the opportunity to renegotiate the commitments. In fact, this is what has happened in the majority of cases. In the beginning, it was unclear how frequently Article 9 would be used, but it has become very popular. Since May of 2004, when Regulation 1/2003 entered into force, there have been eleven commitment decisions,5 and there are five more market test notices in cases which are still pending.6 Then there are some other cases where companies have offered commitments—E.On and RWE are the ones I know of, because I read about these cases in the newspaper.7 And I imagine there might be other cases as well.8 It has been said that around 40 to 50 percent of all Commission decisions under Articles 81 and 82—excluding cartel cases—are by now commitment decisions. Most cases subject to the Article 9 procedure have been Article 81 cases; so far there have been 13 such cases. And in most of these Article 81 cases, the Article 9 procedure is, in a way, a substitute for the old exemption decisions, with obligations and conditions attached, under Regulation 17/62.9 And there seems to be a real need in that respect. We have also seen three cases under Article 82 plus the two pending cases I mentioned, E.On and RWE. So that’s five cases, and considering that Article 82 cases are normally quite rare, that’s a remarkable number. So if we assess the practice so far, there seems to be a need, both on the side of the Commission and the side of the undertakings, for a speedy and less rigid procedure. But at the same time, as some of the participants here mentioned yesterday, there are also concerns. One concern is the effects of the 4 See Article 27(4) of the Regulation. Publications in the Official Journal are available at http://eur-lex.europa.eu/JOIndex.do. 5 For details, see the annex to the written contribution of Professor Schweitzer, this Volume, pp. 578–579. 6 See OJ C245/46 of 19 October 2007 (SkyTeam); OJ C128/12 of 9 June 2007 (CISAC); OJ C233/18 of 22 September 2005 (Austrian Airlines/SAS); OJ C200/11 of 17 August 2005 (BUMA); C200/11 of 17 August (SABAM). On 16 July 2008, the Commission adopted a prohibition decision in the CISAC case (available at http://ec.europa.eu/competition/ antitrust/cases/decisions/38698/en.pdf). The decision has been appealed before the CFI. See Case T-442/08, CISAC v Commission, not yet decided. 7 See E.On, Commission Decision of 26 November 2008, Cases COMP/39.388— Germany Electricity Wholesale Market and COMP/39.389—Germany Electricity Balancing Market, http://ec.europa.eu/competition/antitrust/cases/decisions/39389/en.pdf; RWE, Commission Decision of 18 March 2009, Case COMP/39.402—RWE Gas Foreclosure, http://ec.europa.eu/competition/antitrust/cases/decisions/39402/en.pdf. 8 At the time of the Workshop, no other market tests had been launched. Since then, the Commission has published market test Notices in the following cases: Case COMP/39.416, OJ C131/20 of 10 June 2009 (IACS—Ship classification); Case COMP/38.636, OJ C133/16 of 12 June 2009 (Rambus); Case COMP/39.316, OJ C156/25 of 9 July 2009 (GDF—Gas market foreclosure). 9 See Articles 4, 5 and 9 of Regulation 17/62 (repealed by Article 43 of Regulation 1/2003).

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Panel V—Settlements under Article 9 of Regulation 1/2003 527 Article 9 procedure on the evolution of Community competition law. There is a fear that use of the procedure will divert law enforcement away from needed clarification of the law, for example under Article 82. There is a fear that a “parallel” competition policy might develop outside the scope of judicial review. And very much related to that, there seem to be few safeguards in the commitment decision procedure against an abuse. The Commission might therefore be tempted to impose remedies under this procedure which it could not impose under Article 7. These Article 9 remedies could, for example, have a more regulatory character. These are the types of fears that were expressed here yesterday.10 These concerns have been all the more relevant because of a wide range of open questions regarding Article 9. These include, for example: the function and form of the Commission’s preliminary assessment; how seriously must the Commission investigate potential infringements before it can settle a case; how seriously must it assess the proportionality of the proposed remedies; can it trade off a fine against a desired remedy. There are also questions regarding the procedural rights of the undertakings concerned but also of third parties. Then there are questions of the effects of commitment decisions on national courts and national competition authorities, and the question of whether the undertakings concerned whose proposed commitments have been made binding can still appeal the Commission’s decision before the CFI. The Alrosa judgment11 has addressed many of these questions. Most of you will be familiar with the case, but it’s still an interesting illustration of how third parties can be affected by commitment decisions. Let me go briefly through the facts. De Beers and Alrosa are the number one and number two producers and suppliers of rough diamonds worldwide. They wanted to formalize their long-standing commercial relationship and to conclude a fiveyear agreement according to which Alrosa would sell almost its entire production of rough diamonds intended for export through De Beers. This agreement was notified to the Commission under the old regime of Regulation 17/62 in order to obtain a negative clearance or an individual exemption, but the Commission denied both requests and instead sent a Statement of Objections to Alrosa and De Beers claiming an infringement of Article 81. The Commission also sent a separate Statement of Objections to De Beers for a possible abuse of a dominant position under Article 82. Then, following the introduction of Regulation 1/2003 and the possibility of commitment decisions, the two parties offered commitments in the form of a progressive reduction and sales of rough diamonds to about a third of what they had originally envisaged. The Commission appeared to be satisfied with that at first, and published the proposed commitments in the Official Journal.12 10 11 12

See in particular the intervention of Mario Siragusa, p. 118. Cited supra note 1. See OJ C136/32 of 3 June 2005.

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But when the Commission received negative comments from third parties, it asked De Beers and Alrosa for new joint commitments, and in particular it demanded a complete cessation of their commercial relationship beginning in 2009. Alrosa was not ready to make that offer, but De Beers was. De Beers offered these commitments, and they were made binding on De Beers, under the Article 82 procedure.13 The Article 81 procedure was then closed. Alrosa then applied to the CFI for an annulment of the Commission’s Article 9 decision, and indeed the decision was annulled for an infringement of the principle of proportionality and for an infringement of the right to be heard.14 I will only discuss the CFI’s findings in relation to proportionality. What the court found was that the principle of proportionality applies to Article 9 decisions in exactly the same way that it does to Article 7 decisions. The Commission must carry out a full proportionality analysis before it can make commitments binding, notwithstanding the fact that commitments have been offered voluntarily. In essence that means that proportionality cannot be negotiated. Secondly, Article 9 does not relieve the Commission of the need to establish an analytical framework that is sufficient to allow effective judicial review of the proportionality of the decision. This means that there has to be a serious investigation, and the facts cannot be negotiated. So Article 9 decisions and Article 7 decisions are essentially identical in nature. Both aim to put an infringement to an end, and it’s not only about enforcement priorities. The only distinctive feature of the commitment procedure is that the Commission does not have to fully prove the infringement. Otherwise, the Commission is under the same duties and under the same type of judicial control. What are the implications of the Alrosa judgment? The first and most important implication to my mind is that, as perceived by the CFI, commitment decisions are not settlements. They are not voluntary agreements based on a bargain between the defendant and the Commission, and the Commission does not enjoy a broad margin of discretion in striking any type of bargain. It is fully bound by the substantive competition rules, and by the general principles that apply to all exercises of public authority under EU law. That refers in particular to the principle of proportionality and to essential procedural guarantees. In my view there is a question, then, about whether the Commission can really trade off a potentially high fine against a commitment to implement a structural remedy that the Commission would prefer to have, such as, in the E.On and RWE cases, a divestment of the energy network. It is not sure that this would be upheld by the courts. To my mind, that would be a doubtful use of the Article 9 procedure under the Alrosa standard. 13 See Commission Decision 2006/520/EC of 22 February 2006, Case COMP/B-2/38.381— De Beers, 2006 OJ L205/24. 14 See Alrosa, cited supra note 1, paras. 156 and 203.

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Panel V—Settlements under Article 9 of Regulation 1/2003 529 A couple of other more specific implications can also be drawn from Alrosa. One is that the preliminary assessment must substantiate the Commission’s concerns, even though it can be shorter than an SO. And it must provide a sound basis for assessing the adequacy and proportionality of the commitments. As regards the right of the undertaking concerned to appeal an Article 9 decision, Alrosa doesn’t say anything about that, but I would read the CFI’s judgment to say, “Yes there is a such a right”. But an appeal would probably only be successful if the applicant could show that it was arbitrarily forced by the Commission to propose certain commitments; this is the standard applied in the context of merger control.15 With respect to the effects of an Article 9 decision on national courts and national competition authorities, I read Alrosa as obliging the Commission to choose commitments that are adequate to put an infringement to an end. This means that national courts and national competition authorities can no longer grant injunctive relief or impose additional remedies under Article 16 of Regulation 1/2003,16 despite the fact that there are Recitals to the Regulation that indicate to the contrary.17 All in all, the Alrosa judgment of the CFI implies that commitment decisions are not what the Commission wanted them to be. They are not an equivalent to consent decrees in the US, and the only advantage the Commission really enjoys is that it doesn’t have to fully prove an infringement. On the other hand, the judgment establishes strong safeguards that address the risks and concerns that have been voiced. Considering that, in many other ways under EU law the principles of accountability to which the Commission is subject are weak (for instance, political accountability and other checks), I would argue that this tradeoff, all in all, is a good one. 15 See Case T-282/02, Cementbouw Handel & Industrie BV v Commission [2006] ECR II-319, paras. 314–319. Without addressing this point, the ECJ upheld the judgment of the CFI in Case C-202/06 P, [2007] ECR I-12129. 16 Recital 22 of Regulation 1/2003 states, inter alia, that, “in a system of parallel powers, conflicting decisions must be avoided”. Article 16 (“Uniform application of Community competition law”) then provides, in its first paragraph, that “[w]hen national courts rule on agreements, decisions or practices under Article 81 or Article 82 of the Treaty which are already the subject of a Commission decision, they cannot take decisions running counter to the decision adopted by the Commission. [. . .] This obligation is without prejudice to the rights and obligations [of national courts] under Article 234 of the Treaty [i.e., the rule of uniform application does not affect the option or duty of national courts to seek authoritative interpretations from the ECJ via the preliminary reference procedure]”. The second paragraph of Article 16 applies the rule of uniform application to national competition authorities, who likewise must refrain from taking decisions running counter to an Article 9 decision of the Commission. 17 Recital 13 states that “Commission decisions are without prejudice to the powers of competition authorities and courts of the Member States [to find that there has been or still is an infringement] and decide upon the case”. Recital 22 in fine states that “Commitment decisions adopted by the Commission do not affect the power of the courts and the competition authorities of the Member States to apply Articles 81 and 82 of the Treaty”.

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RAFAEL ALLENDESALAZAR: I will be speaking about Article 9 too, and in this context I’ll be emphasizing some of the procedural issues. As we know, prior to Regulation 1/2003 the Commission was already employing informal settlement procedures. But that system lack transparency because there were no specific provisions that spelled out how it operated. And publicity of these settlements was limited. Regulation 1/2003 codifies the previous administrative practice in Article 9 and Recitals 13 and 22 in fine. So from a procedural point of view, that is certainly an advance compared to the previous practice. We also have to remember that the Commission is still closing some cases in informal procedures left over from the old regime. There was Gazprom,18 or the Philips recordable disc licensing program in 2006.19 We’ve already heard about some of the principles which govern the Article 9 procedure, so I’ll be very brief on this. The commitments must meet the concerns expressed by the Commission in a preliminary assessment. The new procedure is bound to strengthen the enforceability of commitments because commitments are made binding by the Commission’s decision, and the decision may have effects erga omnes, as the Alrosa judgment has confirmed.20 In case of failure to comply with commitments made binding, periodic penalty payments and fines can be immediately imposed without having to re-open the procedure and without having to prove an infringement. Therefore commitment decisions create a standard of legality as regards the application of Article 81 or Article 82. As we’ve heard, in an Article 9 decision the Commission does not conclude whether there has been or is still an infringement, and it is not appropriate for the Commission to use this procedure when it intends to impose fines. And an Article 9 decision does not affect the power of national courts or national competition authorities to apply Article 81 or Article 82, this is in Recital 22.21 On procedural rights, we have to bear in mind the following. We are talking about procedural rights within the context of EU competition law. Procedural guarantees in this setting lag behind administrative procedures at the national level. Let me give you three examples of this. First, there is no functional separation between investigation, prosecution and decisionmaking. Second, there are no specific time limits constraining the Commission, there are only vague references in the case law to an obligation on the Commission to conduct its procedure within a “reasonable time”.22 䉴

18 See Press Releases IP/03/1345 of 6 October 2003 (Gazprom/ENI); IP/05/195 of 17 February 2005 (Gazprom/OMV); IP/05/710 of 10 June 2005 (Gazprom/E.ON Ruhrgas). 19 See Press Release IP/06/139 of 9 February 2006 (FIPCOM/Koninklijke Philips Electronics N.V.) 20 See supra note 1, para. 88. 21 Quoted supra note 16. 22 See, e.g., Case T-38/96, Guérin Automobiles v Commission [1997] ECR II-1223.

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Panel V—Settlements under Article 9 of Regulation 1/2003 531 Nobody knows what that is, even in cases where it has been established that the Commission has gone beyond the reasonable time, the consequence was usually no more than a small reduction of fines. And third, at the EU level there is a narrow interpretation of legal professional privilege.23 We should also compare Article 9 procedures with other similar procedures. As I’ve already said, Article 9 procedures are a step forward compared to the old, informal settlements in terms of the procedural rights of defendants, complainants and third parties. We can also compare Article 9 decisions with normal infringement decisions under Article 7. As the Commission says in its Frequently Asked Questions,24 a commitment decision is a substitute for a prohibition decision, and not for an exemption decision. But I don’t really think we can make a comparison of procedures. Why? First of all, Regulation 1/2003 and Regulation 773/2004 do not define procedural rights according to the type of procedure (i.e., Article 7 versus Article 9). Rather, they define procedural rights according to whether the Commission has issued an SO or not, and according to what the position of the party is vis-à-vis the SO. As for the complainant there is no difference, of course. The Commission is bound under Automec I 25 to make the three-stage initial investigation of the complaint, and that applies in exactly the same way for both Article 7 and Article 9. If the Commission initiates proceedings, this relieves national competition authorities of their competence to apply Article 81 and Article 82.26 Once again, it makes no difference whether the applicable procedure is Article 7 or Article 9. In the Coca-Cola case,27 the Commission asked the Spanish Competition Authority to refrain from adopting a decision in a similar case that was pending before it because it considered that the case was “of particular significance to the Community” under paragraph 50 of the previous Notice on cooperation between the national competition authorities and the Commission.28 It resumed its proceedings, once the Commission had adopted its Article 9 decision, rejecting the complaint and concluding that the commitments made binding by the Commission were sufficient to dispel its own competition concerns as well.29 23 See Case 155/79, AM & S v Commission [1982] ECR 1575; Case T-330/01, Akzo Nobel v Commission [2006] ECR II-3389. 24 See MEMO/04/217 of 17 September 2004. 25 Case 64/89, Automec Srl v Commission [1990] ECR II-367, paras. 45–47. 26 See Article 11(6) of Regulation 1/2003. 27 Commission Decision 2005/670/EC of 22 June 2005, Case COMP/39.116, Coca-Cola, OJ L253/21. 28 For details, see Santiago Martínez Lage and Rafael Allendesalazar, “Commitment Decisions Ex Regulation 1/2003: Procedure and Effects”, this Volume, p. 588, footnote 25. 29 See Decision of the Spanish Competition Authority of 15 July, Case No 2146/00. Similarly, following the Commission’s decision Coca-Cola also settled an investigation before the Belgian Competition Authority. See Decision No 2005-I/O-52 of 30 November 2005, Distri-One S.A./Coca-Cola Enterprises Belgium S.P.R.L, Official Gazette of 22 December 2005, 55.371.

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The obligation of the national competition authorities to refrain from acting lasts until the Commission has adopted a decision. This can have different effects depending on whether we’re talking about an Article 7 decision or an Article 9 decision. What is the difference between a Statement of Objections and a preliminary assessment? If the Commission adopts an SO, this opens up two possibilities. The Commission can go on to adopt a decision under either an Article 7 decision or Article 9. By contrast, the notion of a preliminary assessment is specific to Article 9 proceedings. Although it was initially thought that this preliminary assessment was the same as an SO, it is now clear that the Commission can prepare an adequate preliminary assessment without necessarily generating a statement as thorough as an SO. So the preliminary assessment can be less formal, and is usually less detailed than an SO. The object of an SO is to define the scope of the proceeding, and it may result in the imposition of penalties, whereas a preliminary assessment merely states the “concerns” of the Commission (and the word “concerns” is in fact weaker than the word “objections”) and prepares the ground for a joint resolution of the case. In the Alrosa judgment,30 the CFI said that that in an Article 7 decision, the Commission has to establish the existence of an infringement, which implies a clear definition of the relevant market and, where relevant, of the abuse; whereas, under Article 9 the Commission is not formally required to establish the existence of an infringement but must nonetheless establish the reality of its competition concerns.31 This presupposes an analysis of the market, and of an identification of the infringements envisaged, which is less definite than those required for the application of Article 7. A Statement of Objections can serve as a preliminary assessment, but the reverse is not also true. If a case is initiated with a preliminary assessment, and if the Commission later changes its mind and decides to proceed with a normal Article 7 procedure, then the Commission would have to issue an SO. Although it is true that an SO can be used as a preliminary assessment if the Commission wants to pursue an Article 9 procedure, in an SO the Commission will usually lay out its reasons for imposing a fine. That could be a problem because, as we’ve already seen, commitment decisions are inappropriate in cases where the Commission intends to impose fines. There is no time limit for negotiating Article 9 decisions. Article 9(1) would suggest that the Commission has to express its concerns before negotiations are started. But in practice it doesn’t always work this way. In many cases, the

30

Cited supra note 1. See ibid., para. 100 (Commission must “establish the reality of the competition concerns which justified its envisaging the adoption of a decision under Articles 81 EC and 82 EC and which allow it to require the undertaking concerned to comply with certain commitments”). 31

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Panel V—Settlements under Article 9 of Regulation 1/2003 533 Commission has drafted its preliminary assessment in order to match the commitment. This creates risks because, once the commitments have been made binding, the Commission cannot re-open the procedure even if the commitments are excessive. On the other hand, early negotiation between the Commission and the defendant can have important efficiency benefits for both sides. Heike has already spoken about the substantive issues in the Alrosa case. So we know that the Commission must verify the proportionality of the commitments even though they are voluntary. And it must verify that they do not go further than what would have been possible under Article 7. If proposed commitments go beyond what is necessary, the Commission can only make them binding in part, or to a particular extent. It is important to consider the role of the market test. This is triggered by a Notice published by the Commission pursuant to Article 27(4) of the Regulation. The Notice describes the main contents of the proposed commitments and allows third parties to make their observations. This is an indispensable check on the Commission and the defendant to ensure the appropriateness of the commitments. And it is a pity that this market test procedure applies only to Article 9. I don’t know why it shouldn’t also apply to Article 7 decisions. If a procedure such as this had been established for infringement decisions, this could have avoided or altered past decisions of the Commission in which involuntary remedies have proved useless. In Alrosa, the CFI said that the purpose of the consultation is precisely to allow the Commission to take decision. Very briefly, some words about access to the file and a hearing. This refers to cases where the Commission issues a Statement of Objections, and so not all Article 9 cases will proceed this far. With regard to the effects of an Article 9 decision on national authorities, the Commission’s decision can only constitute preliminary evidence of a past infringement. A national court or a national competition authority can conclude that there has been an infringement, but I would contend that national competition authorities should not impose fines, as doing so would impair the effet utile of the Commission’s decision. And what if a national court or national competition authority finds that there was not an infringement? After Alrosa, are the commitments still valid? As for the future, I do not think that either a national court or a national competition authority could declare that a practice that is covered by the commitments is contrary to Article 81 or Article 82. To do so would undermine the uniform application of Community competition law. And the company would be placed in an impossible position, that is to say it would be subject to opposing legal obligations. 䉴 MASSIMO MOTTA: Thank you very much, Rafael. Now we can open the floor for discussion. We’ll begin with John Cooke.

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JOHN COOKE: One of the things relating to the Article 9 commitment procedure that has always seemed curious to me is how Article 3 interacts with Article 11(6) and Article 16 of the Regulation. Article 11(6) says that the initiation by the Commission of proceedings—including Article 9 proceedings— “shall relieve the competition authorities of the Member States of their competence to apply Articles 81 and 82 of the Treaty”.32 Notice that Article 11(6) doesn’t say that initiation of proceedings merely suspends that competence, it says “shall relieve”. The question arises: how is this to be interpreted? Does it mean that the NCA is relieved permanently of its competence? If this is supposed to be permanent, then even though the Commission in an Article 9 decision only finds that there are “no longer grounds for action by the Commission”, it would nevertheless be impermissible for the NCA to revisit the alleged infringement. On the other hand, Article 16 suggests that national courts may not be in the same position. “When national courts rule on agreements, decision or practices under Article 81 or Article 82 of the Treaty which are already the subject of a Commission decision”, including presumably an Article 9 decision, “they cannot take decisions running counter to the decision adopted by the Commission”. So if the Commission adopts an Article 9 decision saying “no further action is necessary”, can a national court revisit the matter and say, “Yes, we think further action is necessary, and there should be remedies and a fine.” Or is that running counter to a “no further action” decision? 䉴

JOCHEN BURRICHTER: In Germany, since 1 July 2005 we have had a mechanism that is essentially the same as what we see in Article 9 of Regulation 1/2003.33 And this instrument has been quite successful: since the reform we have already had 42 cases in which commitment decisions were taken. Of these decisions, 20 were taken by the cartel authorities of the Lander, and 22 were taken by the Bundeskartellamt. Of these 22 cases, 11 dealt with longterm supply contracts in the electricity and gas sectors. The Bundeskartellamt in those cases was concerned primarily by the exclusivity and duration of the agreements, and originally it had intended to impose fines but in the end it decided to accept commitments under the new procedure.

䉴

JOACHIM BORNKAMM: On the Alrosa case,34 is that not an example of the “hybrid” cases we were discussing yesterday?35 Two parties entered into a contract, and if that contract infringes Article 81, it is in principle void according to Article 81(2). If the contract amounts to an infringement of 䉴

32 33 34 35

To the same effect, see Recital 17 of the Regulation. See Section 32b GWB. Cited supra note 1. See Panel IV.

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Panel V—Settlements under Article 9 of Regulation 1/2003 535 Article 82, it will be found void under national provisions.36 If you have a case like this where one party wants to maintain the contract and the other party negotiates with a competition authority and commits itself to cancel or materially alter the contract, the interests of the other party are very clearly affected. Now is that a case where the authority must either involve both parties in the procedure or none at all? The problem is that you cannot have a commitment decision in a case like this without demonstrating an infringement, because the other party will lose its commercial interest in the contract. Heike, you said that Alrosa shows that in commitment decisions the aim must be to bring an infringement to an end, and that facts cannot be negotiated. In short, you explained that Article 9 decisions do not differ very much from Article 7 decisions. But what would have happened in the Alrosa case if it had been De Beers that appealed the decision, instead of Alrosa? I think that’s quite a different story. I think the Alrosa case has to be seen in that specific context of a hybrid scenario where only one of the parties to a contract is willing to negotiate. 䉴 MARIO SIRAGUSA: My understanding of the Article 9 system is that national competition authorities as well as national judges should be free to determine whether or not there was an infringement, and to award damages. To me that seems absolutely clear, certainly for the past. Technically, there is no finding under Article 81 or 82, and it is only in the case where the Commission reaches a finding of infringement that the principle of preclusion under the Masterfoods judgment applies.37 The most intriguing question is whether, for the future, they could do the same. That would seem to be in contrast with the fact that the Commission has accepted commitments in order to close its case, so there it’s more questionable. But let me recall some history. Do you remember the discussion that we used to have in the 1980s and 1990s as to whether or not Article 81(3) should be construed as incorporating non-competition issues, such as industrial policy, social policy, employment, and so forth?38 And do you remember the meritorious role the Commission had in those days in resisting pressure applied by Member States to broaden the interpretation of Article 81(3)? One of the great virtues of the Commission was to resist this trend, and to defend 36

For details, see European Competition Law Annual 2007, p. lxxvii, footnote 141. Case C-344/98, Masterfoods Ltd v HB Ice Cream [2000] ECR I-11369. For discussion, see, ex multis, Renato Nazzini, Concurrent Proceedings in Competition Law, OUP, 2004, chapter 7; Assimakis Komninos, “Effect of Commission Decisions on Private Antitrust Litigation: Setting the Story Straight”, 44 Common Market Law Review 1387 (2007). 38 See Claus-Dieter Ehlermann and Laraine Laudati, “Introduction”, in Ehlermann and Laudati, eds., European Competition Law Annual 1997: Objectives of Competition Policy, Hart Publishing, 1998, pp. xv–xvi and pp. 480 et seq. For further discussion, see, e.g., Brenda Sufrin, “The Evolution of Article 81(3) of the EC Treaty”, 51 Antitrust Bulletin 915 (2006); Nicolas Petit, “The Guidelines on the Application of Article 81(3) EC: A Critical Review”, IEJE Working Paper No 4/2009, pp. 6–8, with references. 37

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the purity of the competition rules. I think it’s very sad now to see the Commission abandoning this posture. Because it’s clear that national competition authorities are using national procedures equivalent to Article 9 precisely to introduce, in the management and enforcement of competition rules, social policy and industrial policy considerations. And what does the Commission do? Rather than checking, within the European Competition Network, that this does not happen, and rather than reasserting its historical role as defender of the purity of the competition system, the Commission appeals the decision of the CFI in Alrosa—which is the very tool that the judges are giving to the Commission to maintain the integrity of the system— and it fails to assert its control over the network to prevent this subversion of competition policy. This is very sad. 䉴 WOUTER WILS: I agree with Joachim Bornkamm’s analysis of Alrosa. It is indeed a hybrid case, and it’s quite fact-specific. We can’t be sure that the CFI would have made the same statements if it had been an appeal by De Beers. So maybe it’s a bad case leading to bad law. Since the case is on appeal, the Court of Justice will have the possibility to clarify the scope of some of the more general phrases, because the CFI’s judgment has a lot of obiter dicta in it. On Judge Cooke’s questions concerning the interpretation of Articles 11(6) and 16 of the Regulation, the text of Article 11(6) states that when the Commission opens proceedings the authorities are relieved of their competence. And indeed, it is not clear from that statement whether this effect is temporary or permanent. But when Article 11(6) is read together with Recitals 13 and 22,39 it is clear that national competition authorities should be free to take action even after an Article 9 decision.40 So the word “relieves” in Article 11(6) must mean, as you suggested, “suspends” as opposed to “terminates”. National competition authorities can therefore reclaim competence once the Commission adopts its decision. As for Article 16,41 Mario is right to say that Article 16 is a reflection of the Masterfoods judgment. In order to have a conflict in the sense of that judgment you really need a conflict between the operative parts of a national decision and the Commission’s decision, or in the reasoning which is necessary to the conclusions in the operative part of the respective decision. In an Article 9 decision, the operative part will first of all be an order making the proposed commitments binding—that’s Article 1—and then there is Article 2, which states that there are no longer grounds for action by the Commission. At the

39

Quoted supra note 16. See also Wouter Wils, “Settlements of EU Antitrust Investigations: Commitment Decisions under Article 9 of Regulation No. 1/2003”, 29 World Competition 345 (2006), at p. 363, footnote 49. 41 Quoted supra note 16. 40

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Panel V—Settlements under Article 9 of Regulation 1/2003 537 national level, a finding of an infringement is not, as such, in conflict with the Commission’s finding that there are no longer grounds for it to act. The Commission’s reason for finding that there are no longer grounds to act may be that there is no infringement, but it could also be that the Commission thinks that the case is no longer of Community interest.43 So in principle there is no conflict.42 Then it may be necessary to consider whether what the national authority does is in conflict with the binding commitments themselves.44 In some cases yes, in some cases no. If the Commission makes binding commitments offered by Coca-Cola to open up 40 percent of its distribution network, for a national authority later to require Coca-Cola to open up 70 percent of its network, there’s no conflict between opening 40 percent and 70 percent. Coca-Cola can comply with the order of the national authority without breaching its obligations toward the Commission. But one might imagine other cases, though they may be rare, where the decision of the national authority somehow interferes with the binding commitments and thus runs counter to the Commission’s decision. 䉴 ERIC MORGAN DE RIVERY: I would like to express my respectful disagreement with my friend Mario Siragusa on the subject of whether competition law should be given a pure interpretation or whether it is appropriate to integrate other priorities in addition to competition. In the 1980s the law was not fully developed, and competition law was extremely important for the achievement of the common market. But now we have a common body of law that is far more elaborated. And I do not think it is wise for competition law and competition policy to ignore what the rest of the world is doing. Competition law is now more mature, and there is more room to accommodate a plurality of objectives. 42 Cf. Advocate General Cosmas in Masterfoods, para. 16 (the risk of conflicting decisions “only arises when the binding authority which the decision of the national court has or will have conflicts with the grounds and operative part of the Commission’s decision”). A proper interpretation of the operative part of a decision should quite naturally take account of the statement of reasons that lay behind it. See Case T-266/97, Vlaamse Televisie Maatschappij NV v Commission [1999] ECR II-2329, para. 151. Komninos points out that the Commission has long focused on the operative part of its decisions as a basis for determining the existence or absence of a conflict. See Komninos, cited supra note 37, at 1401, footnote 56 (citing the Commission’s Explanatory Memorandum to the draft text of what later became Regulation 1/2003: “[T]he potential for conflict depends on the operative part of the Commission decision and the facts on which it is based.”). 43 See Case T-24/90, Automec Srl v Commission (“Automec II”) [1992] ECR II-2223. 44 See also Commission, Staff Working Paper accompanying the Report on the functioning of Regulation 1/2003, SEC(2009) 574 final of 29 April 2009, pp. 34–35, footnote 128 (Article 16 of the Regulation would apply “where a national competition authority or national court requires an undertaking to carry out actions that conflict with the commitments made binding by the Commission decision, i.e. where the undertaking could not implement the obligations imposed by national authorities without breaching its commitments”).

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䉴 JIM VENIT: I’d like to address a question to Wouter. Are you saying that if a company enters into Article 9 commitments with the Commission, that a national court could later award damages against it for infringing Article 81? And that a national competition authority could adopt a decision against the company and impose a fine against it?

WOUTER WILS: Using these hypothetical numbers again with Coca-Cola, if the Commission has accepted Coca-Cola’s commitment to open up 40 percent of its distribution system, and if a national court then finds, notwithstanding that commitment, that Coca-Cola with the rest of its tied network had caused damage, and if it finds a causal link between the harm and the anticompetitive conduct, then I don’t see a problem with the national court awarding damages. I think the case of a national competition authority is harder. If it wanted to impose a fine then there would have to be some moral element justifying a fine, and that would have to be assessed case by case. In reality I don’t think national competition authorities are keen on taking such cases.

䉴

䉴 JIM VENIT: Well, it’s not going to be just a question of the national competition authorities. What I had in mind was that a company gives a commitment to the Commission, and there’s no finding of infringement but a plaintiff in court points to the decision and says I want damages because this is tantamount to an acknowledgement of an infringement, and then the national court awards damages for the past.

WOUTER WILS: It’s clear that an Article 9 decision does not contain any finding of an infringement. So in order for a plaintiff to recover damages it will have to be established in court that there has been an infringement. That conclusion cannot be reached, by any act of logic, on the basis of an Article 9 decision by the Commission.

䉴

JIM VENIT: I think you’re going to vitiate the effectiveness of Article 9 if you permit any kind of collateral past or future action at any level based on an Article 9 decision. People won’t offer up commitments anymore.

䉴

䉴 JOACHIM BORNKAMM: But certainly you cannot take away the right of a private person to recover damages resulting from an infringement. How could you do that? The Commission hasn’t said, in an Article 9 decision, that there was no infringement. There is no way to keep a national court from granting damages to a plaintiff that has suffered harm. That’s absolutely impossible, I would think. The other question is whether a national competition authority can go ahead and adopt a prohibition decision and impose

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Panel V—Settlements under Article 9 of Regulation 1/2003 539 fines. And of course, that is in Recitals 13 and 22.45 That could be decided differently, perhaps. Bear in mind that, in the national systems we have the same kind of provision. In the German context, where as Jochen pointed out we have an equivalent provision,46 if the Bundeskartellamt adopts the equivalent of a commitment decision, it’s very clear that the Commission is not precluded from later taking the case and following through with an Article 7 decision with fines. Recital 22 of the Regulation suggests that the reverse is equally true. JOHN COOKE: I’m not so sure that the matter is as straightforward as Wouter suggests. When the Commission makes commitments binding in an Article 9 decision, it does not reach a finding of infringement, and it imposes no fine. But Article 16(1) says that, when national courts rule on agreements, decisions or practices under Article 81 or 82 which are already the subject of a Commission decision, they cannot take decisions running counter and so on. In the scenario we’re interested in, the Article 9 decision exists. So the agreement, decision or practice is already the subject of a Commission decision for purposes of Article 16. Suppose that the Commission has accepted a commitment from a dominant firm to open up 40 percent of its distribution network. And suppose that a victim of the dominant firm’s abusive conduct goes to a national court and says that, in the particular geographic area, say one or two Member States, opening up the network 40 percent is not sufficient. Can the national court—which must now rule on the issue—can it rule in favour of the plaintiff and grant more extensive relief, for example by holding that the dominant firm must open still more of its network in the area concerned (whether it’s 50 percent or 60 percent or whatever)? Or if the court does so, will it run counter to the Commission’s decision that the abuse has been rectified by the dominant firm’s original concession opening up only 40 percent of its distribution network to competition? 䉴

䉴 WOUTER WILS: Once again the question turns on whether such a ruling would run counter to the Article 9 decision, and I do not think that it would. The Commission has said, first, these commissions are binding, and second, there is no further reason for me to act. And the national remedy you are envisaging is not incompatible with either of those elements of the Commission’s decision. Furthermore, I do not think this is an absurd system; it does not make Article 9 less effective. I actually think it’s a very good system, and I’ve tried to explain this in an earlier article47 and I tried again in footnote 62 of the 45

Quoted supra note 16. See supra note 33 and accompanying text. 47 Wils, “Settlements of EU Antitrust Investigations”, cited supra note 40, at p. 357. See also ibid., pp. 361–363. 46

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paper I prepared for this Workshop.48 The possibility of further action at the national level is a safety valve. It puts pressure on companies to propose serious commitments, because in these cases the Commission will not have carried out a full investigation as it would have done in an Article 7 case. So there is a risk that companies might offer remedies that are insufficient. There are in fact two safety valves. One is the publication of the proposed commitments in accordance with Article 27 of the Regulation. That permits review and comment by third parties, and it gives the Commission an opportunity to test the robustness of those commitments. And the other safety valve is this: the companies will know that if they propose something inadequate they risk running into problems later with national courts or national competition authorities. 䉴 IAN FORRESTER: I think we’re going back to the good old days of notifications. The Commission is granting what is in effect an exemption. In theory, it is the grant of a right and a privilege; in reality, it’s the extraction of a heavy commercial concession in exchange for stability. Looking back to the days of notifications, then as now we weren’t clear about what the consequences of the procedure were. It seems to me that John Cooke and Wouter Wils have perfectly articulated the fundamental uncertainty. The Commission pronounces; the Commission is primus inter pares, it has great power. And it indicates very strongly: 40 percent is the right number. What does that mean for national enforcement? What does it mean for a national court? I think this is an area of tremendous murkiness. And one of the anxieties we have about Article 9 is that it’s intended to avoid judicial review. Now, avoiding judicial review is good for the company, and it’s good for the Commission; but it means that a great deal of law in very sensitive areas can be made by the Commission by stealth. And that’s not necessarily a bad thing as such, but it is more potent than just saying, well, this is a good way to settle a few problems.

䉴 CLAUS-DIETER EHLERMANN: Like Ian, I am reminded of our discussions regarding the consequences of abandoning the old system of notification, and regarding the effects of exemption decisions. Article 9 was a substitute for those who feared that the Commission might not any longer have been able to impose binding conditions following the abandonment of the old system, and that is one thing. But to go farther now, and to attribute to Article 9 an effect which eliminates the right to claim damages under Article 81 for past harm suffered seems unsustainable. This right has accrued, and it continues to exist. A commitment decision cannot nullify that right.

48 Wils, “The Use of Settlements in Public Antitrust Enforcement: Objectives and Principles”, this Volume, p. 27.

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Panel V—Settlements under Article 9 of Regulation 1/2003 541 䉴 ANDREAS REINDL: If you take seriously what Alrosa says—and personally I think it’s a very strange judgment—if you take it seriously, you would assume that the Commission would not have been able to obtain a commitment for 50 or 60 percent because Alrosa would have said “No, you can’t do that.” That would suggest that you shouldn’t later be able to go to a national authority and solicit a completely different assessment as to what is necessary and proportionate. So to me it appears that there would be a conflict, if you really believe what Alrosa says. Maybe we shouldn’t take it seriously, but for now it is the law.

䉴 MARIO SIRAGUSA: I would make a distinction between the past and the future. The Commission’s decision under Article 9 does not take any position on the existence of an infringement, either for the past or for the future. It simply closes the procedure on the basis of the commitments. So national judges should be absolutely free to determine the existence of a violation, and to award damages. At least under the Italian tort law system, there is absolutely no doubt that national judges will feel free—I can assure you!—that our judges will feel completely free to do that. As for the future, I think we should make another distinction between the finding of a violation and the award of damages. Our judges will find the existence of a violation of an infringement even for the future, because they will interpret Masterfoods as meaning that in order for there to be a conflict the Commission’s act must take a position on the agreement or practice which is the object of the national case. Nevertheless, I think they will be reluctant to award damages because they will not find a subjective element of a wilful or negligent violation.49 If the Commission has approved of the commitments 49 Cf. Wils, “Settlements of EU Antitrust Investigations”, cited supra note 40, p. 362, where, without expressly referring to the absence of subjective culpability, Wils seems to point in the same direction, contemplating only injunctive relief in cases concerning future conduct which respects the binding commitments: “The fact that the Commission has closed its proceedings through a commitment decision does therefore not in any way prevent interested third parties from bringing private actions in national courts seeking injunctive relief on the basis that the conduct of the addressees of the commitment decision, although in full compliance with the commitments, constitutes an infringement of Articles 81 or 82 EC.” By way of comparison, Christopher Cook takes a different view, emphasizing the duty of sincere cooperation under Article 10 EC and the principle of uniform application of Community law: “[T]he fundamental goal of ensuring uniform application of EC competition rules throughout the EU—which, as noted above, the Commission cites [in MEMO/04/217] as the primary qualifier on the power of national authorities to take enforcement actions against companies that have entered commitment decisions—[militates] against the ability of Member State authorities and courts to condemn behaviour consistent with Article 9 commitments under Article 81 or 82 EC.” More controversially, Cook adds that, “[b]y agreeing to commitments that constitute affirmative obligations [. . .], the Commission is effectively determining that such conduct is consistent with EC competition law. It would contradict the Commission’s decision, and thereby undermine the uniform application of EC competition rules, if a national court or authority were to conclude that conduct that is clearly envisaged and permitted by a commitment decision is contrary to EC law (or parallel national legislation).” Christopher Cook, “Commitment Decisions: The

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and closed its file, I think it will be very difficult for a national judge to find such a subjective element that could justify damages. 䉴 JIM VENIT: All I’m going to suggest is that this is a subject that’s worth some further reflection. If you think of the initiative to stimulate private damages actions, you start to realize that it may have implications in other areas that may not have leapt to mind when you set off on that road, since most of the time with private enforcement we tend to think about cartel cases. There are a lot of issues here, and a great deal of uncertainty, and so it may merit some further reflection.

䉴 SANTIAGO MARTI´NEZ LAGE: I wanted to make a point of fact. It’s interesting to see that the Commission’s Article 9 decision in the Coca-Cola case50 was not appealed by either Coca-Cola’s competitors or by Coca-Cola distributors. And as far as we know, in the three years since the Commission adopted its decision in 2005, no one has gone to the national court seeking a different solution.

䉴 EMIL PAULIS: Two things. First, there can’t be any doubt that national judges are free to award damages if they find a past infringement, and even if they find an infringement in the future. Second, the big question that comes out of this debate is: how do we interpret the binding effect of a commitment decision by the Commission?51 As many here have pointed out, in a commitment decision there is no finding of an infringement. But it relates to a competitive concern in relation to which the Commission says there are no longer grounds for it to act if the following commitments are respected. We should

Law and Practice under Article 9”, 29 World Competition 209 (2006), p. 226. See also ibid., footnote 56. For a thorough review of these and other arguments in the literature, see Heike Schweitzer, “Commitment Decisions under Article 9”, this Volume, pp. 562–562 and 573–576. As stressed in her oral remarks in the present discussion, Schweitzer emphasizes the public interest nature of Article 9 decisions, which would imply that a proper disposition of the case by the Commission would obviate competitive concerns prospectively. This, in turn, would mean that future court injunctions or enforcement actions (absent materially changed facts) would run counter to the Commission’s decision for purposes of Article 16 of Regulation 1/2003 and would hence be precluded. 50 Cited supra note 27. 51 Komninos frames the question as a dichotomy between a positive effect and a negative duty: “[I]n principle the Commission’s decisions should not be treated as positively binding. Instead, the supranational nature of the Community legal system requires that national courts should not compromise the supremacy and uniformity of Community law by taking decisions which are incompatible with those adopted by the Commission. This negative duty of abstention means that the courts should always seize the Court of Justice if they intend to contradict the Commission. This also means that Commission decisions retain this indirect-negative binding force over national proceedings, so long as the material factual circumstances have not changed in the meantime.” Komninos, cited supra note 37, at p. 1395.

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Panel V—Settlements under Article 9 of Regulation 1/2003 543 give full effect to that decision when we consider whether a national court’s ruling runs counter to the Commission’s decision. To give the decision full effect means that we have to look not only at the competitive concern that the Commission has identified in its preliminary assessment, but also at the remedy. Although no finding of infringement has been made, there is an infringement aspect to the agreement or practice concerned, and this has to be linked to the remedy. If you take that competitive concern and the remedy together, rather than separating the two, then I think it is no longer possible for a national competition authority to impose—in respect of that particular competitive concern that was identified by the Commission—a stricter remedy than the commitment which was made binding by the Commission. My interpretation depends, of course, on how we interpret the binding effect of a commitment decision. But I insist that this must depend on the combination of the competitive concern and the remedy that the Commission has accepted. 䉴 HEIKE SCHWEITZER: With respect to the binding effect of a commitment decision under Article 9, I would agree almost completely with what you said. For the past, it’s clear that damages can be granted by national courts. I don’t even think that there is any doubt in the literature as far as that is concerned. As for the future, it turns, as you said, on the question of whether the Commission is really free to say, “We’re going to accept commitments and close this case because it is no longer among our enforcement priorities.” The CFI’s Alrosa judgment says clearly that the aim of the decision must be to put a possible infringement to an end, and it’s not only about enforcement priorities. If that is the case then we must assume the decision implies that there is no infringement going forward, and therefore in my view national courts and national competition authorities can no longer act. On the other question raised by Judge Bornkamm concerning the hybrid character of the Alrosa case, first of all if De Beers had appealed the Commission’s Article 9 decision then I agree the judgment would have looked quite different. The voluntary nature of the commitments would have played a role, and applying the merger control standard De Beers could only have prevailed if it had shown that it was de facto forced by the Commission to settle. But if, from the beginning, Alrosa had said that they didn’t want any commitments, and if the Commission had imposed an obligation in the Article 82 case merely to reduce the proportion of sales—without going so far as to require a cessation of the relationship—the question arises whether this might have been found to be proportionate. Here I would think that the Commission may accept any type of remedy that it could impose under Article 7. If the proportionality requirement is satisfied, it could also do that under Article 82 even if the Article 81 case would still be in the air, and of course the contractual rights of the third party would de facto be affected. So long as the impact on those rights were judged not to be disproportionate, then I believe that would be legally possible.

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RAFAEL ALLENDESALAZAR: As for the past, I agree that damages could be granted by a national court despite a pre-existing Article 9 decision. I do not think that a national competition authority could impose fines, even if it found that there had been an infringement. But I wonder how those who are so adamant about this would react if a national court said, “There was no infringement at all,” or “There were no grounds for obtaining commitments.” Second, as for the possibility that the commitments might be inadequate, it is extremely difficult to imagine that after a market test, and after the Commission reacts to the market test by insisting on stricter measures, that somehow the commitments in the end would be too weak to address any legitimate competition concerns. That is exactly the aim of the market test. This makes it all the more inexplicable that no similar market test applies under the Article 7 procedure. As to the future, this is where we disagree. As Heike was saying, the commitment decision must be such as to genuinely eliminate the Commission’s concerns. It is not sufficient for the Commission to say, simply, we’re not interested in the case anymore. Apart from the legal argument, I also appeal to the logical argument. Can a company be fined by a national competition authority, or can it trigger liability for damages when all the company is doing is respecting commitments that have been made binding on it by the Commission? Coca-Cola could provide exclusive rebates in competitive bids only up to 5% of the market. Imagine that I’m a customer and I approach Coca-Cola saying, “I want a discount and I will buy your drinks exclusively if you grant me that discount.” But Coca-Cola has to deny that request, because that would lead to 6% exclusivity. And later before the national competition authority I complain on the ground that the company has discriminated against me in breach of Article 82. Is there really any chance that the competition authority will impose a fine on Coca-Cola for that? Or in the Distrigaz case,52 I believe an issue arose about what might happen if customers made those kinds of requests to Distrigaz, which would have called on the company to go beyond the binding commitments. And the Commission said that, if that later proved to be the case, they could assess this again under Article 9(2). I don’t think that’s what Article 9(2) is for, but so be it. Santiago has pointed out that third parties basically don’t challenge Article 9 decisions. If a claimant has failed to intervene in the procedure and failed to challenge the decision before the Community courts, it can’t go to a national court later seeking relief. Anyone can challenge the proposed commitments during the market test. So if you think the commitments are deficient, intervene in the procedure, and if necessary appeal the Commission’s decision. Finally, you might say, well, damages or fines for the future are acceptable because this will only happen in exceptional cases. May I remind you that

䉴

52 Commission Decision of 11 October 2007, Case COMP/37.966, Distrigaz, available at http://ec.europa.eu/competition/antitrust/cases/decisions/37966/en.pdf.

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Panel V—Settlements under Article 9 of Regulation 1/2003 545 Magill was an exceptional case; IMS Health was an exceptional case; and so on. So how exceptional is it, really, to be exceptional? JOHN COOKE: It might be worth recalling what actually happened in the Ice cream case. In the Ice cream case, or Van den Bergh, as it was finally called in one of its manifestations,53 the Commission originally accepted commitments from HB Ice Cream to modify the conditions on which it provided the freezer cabinets to small shops.54 The national court then heard the Article 82 action and held that there was no infringement. Then, either because of that, or because of the failure of the market test, the Commission re-opened the file and proceeded to decide that the original commitments were inadequate and that there was an abuse of a dominant position.55 䉴

䉴 BILL KOVACIC: For anyone in the room who has done comparative work and counselling in the context of new competition law systems, I’m struck by how often what are often called the “mature” jurisdictions fail in their institutions to specify a hierarchy of decision-making. In the US, settlements taken by the federal enforcers do not trump decisions by state plaintiffs or by private plaintiffs. The discussion we’ve heard this morning in relation to Article 9 commitment decisions highlights a key recommendation that other jurisdictions should follow. If you venture to have some degree of decentralization, you ought to specify in the organic legislation precisely how commitments taken centrally at the national level affect decisions by political subdivisions or by private actors. But we see that the mature jurisdictions themselves are still engaged in a learning process in that respect. That’s a clear lesson for us when we go to other jurisdictions and think about design issues.

䉴 MASSIMO MOTTA: Thank you very much. Now we can have our pausa caffé.

53

See Case T-65/98, Van den Bergh Foods v Commission [2003] ECR II-4653. See Notice pursuant to Article 19 (3) of Council Regulation No 17 concerning Notification No IV/35.436—Van den Bergh Foods, OJ C211/4 of 15 August 1995. See also Press Release IP/95/229 of 8 March 1995. 55 See Commission Decision of 11 March 1998, Van den Bergh Foods, OJ L246/1, upheld, Case T-65/98, cited supra note 53. 54

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I Heike Schweitzer* Commitment Decisions under Article 9 of Regulation 1/2003: The Developing EC Practice and Case Law

I. Introduction Regulation 1/20031 provided the European Commission with a new instrument to enforce the competition rules of the European Community. The so-called “commitment decision” procedure, specified in Article 9 of the Regulation, was meant to introduce a formal settlement procedure that would be roughly analogous to the US consent decree. Article 9(1) reads: “Where the Commission intends to adopt a decision requiring that an infringement be brought to an end and the undertakings concerned offer commitments to meet the concerns expressed to them by the Commission in its preliminary assessment, the Commission may by decision make those commitments binding on the undertakings. Such a decision may be adopted for a specified period and shall conclude that there are no longer grounds for action by the Commission.”

If the Commission opts for a commitment decision—which it is never obliged to do2—it will dispose of the case without formally establishing that there has been an infringement of the Community competition rules.3 At the same time, the Commission is relieved of the need to fully prove an infringement,4 as it would need to do in a regular infringement proceeding under Article 7(1) of Regulation 1/2003. It may therefore be able to resolve the case * Professor of Law, European University Institute and Mannheim University. 1 Council Regulation 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, 2003 OJ L1/1, last amended by Council Regulation No 1419/2006, 2006 OJ L269/1. 2 For the finding that it is always within the discretion of the Commission to decide whether to pursue the Article 7(1) procedure, or whether to accept offers of commitments by the undertakings concerned and to pursue a commitment decision procedure under Article 9, see Case T-170/06, Alrosa Company Ltd v Commission [2007] ECR II-2601, paras. 96 and 130. (On appeal: Case C-441/07 P, Commission v Alrosa, not yet decided.) The Commission is not even obliged to give reasons why commitments are not, in its view, suitable to be made binding. See also Wouter Wils, “The Use of Settlements in Public Antitrust Enforcement: Objectives and Principles”, this Volume, p. 38. According to Wils, the Commission should retain its full discretion in order to be able to balance the costs and benefits of settlement in each individual case. 3 Article 9(1), second sentence, and second sentence of Recital 13: The commitment decision will not conclude “whether or not there has been or still is an infringement”. 4 Alrosa, cited supra note 2, para. 87

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more easily and speedily, economizing on the use of its scarce resources.5 The undertakings concerned, for their part, may be interested in a commitment decision in order to avoid a long, time-consuming and expensive legal controversy over the facts, the economic assessment and the law, and the reputational damages that might accompany such expanded proceedings. Furthermore, the addressees of a commitment decision avoid a formal finding of an infringement which could be used in private damages actions in the courts of the Member States, and which could possibly lead to the imposition of a fine.6 The commitment decision procedure formalizes a long-standing practice of informal settlements under Regulation 17/62.7 Compared to this practice, the procedure under Article 9 facilitates the enforcement of commitments offered by the undertakings concerned. While a breach of commitments accepted under the informal practice could only be sanctioned by reopening the case and ultimately proving an infringement of the competition rules, noncompliance with commitments made binding under Article 9 Regulation 1/2003 is itself a legal offence that can be sanctioned through the imposition of fines or periodic penalty payments (Articles 23(2)(c) and 24(1)(c) of Regulation 1/2003).8 In this regard, commitment decisions share important features in common with the old exemption decisions under Article 81(3) EC with conditions and obligations attached, which the Commission could adopt 5 On the efficiency-based justification for introducing the commitment decision procedure, see Commission, MEMO/04/217 of 17 September 2004; George Stephanov Georgiev, “Contagious Efficiency: The Growing Reliance on U.S.-Style Antitrust Settlements in EU Law”, 4 Utah Law Review 971, 973–974 (2007). For a more complete set of reasons why the Commission may be interested in a commitment procedure, see John Temple Lang, “Commitment Decisions and Settlements with Antitrust Authorities and Private Parties under European Antitrust Law”, in Barry Hawk, ed., International Antitrust Law and Policy: Fordham Corporate Law 2005, Juris Publishing, 2006, chapter 13, at 274–276; Christopher Cook, “Commitment Decisions: The Law and Practice Under Article 9”, 29(2) World Competition 209, 212–213 (2006). 6 For a more complete summary of the reasons companies may have for offering commitments, see Temple Lang, cited previous footnote, at 271–274. See also Cook, previous footnote, at 210–212. 7 See Wouter Wils, “Settlements of Antitrust Investigations: Commitment Decisions under Article 9 of Regulation No. 1/2003”, in Wouter Wils, Efficiency and Justice in European Antitrust Enforcement, Hart Publishing, 2008, p. 25 et seq., at 27–28; Richard Whish, “Commitment Decisions under Article 9 of the EC Modernisation Regulation: Some Unanswered Questions”, in Martin Johansson, Nils Wahl and Ulf Bernitz, eds., Liber Amicorum in Honour of Sven Norberg—A European for All Seasons, Bruylant, 2006, pp. 555 et seq., at 556; Joachim Bornkamm, “Die Verpflichtungszusage nach § 32b GWB”, in Ingo Brinker, Dieter Scheuing and Kurt Stockmann, eds., Recht und Wettbewerb— Festschrift für Rainer Bechthold zum 65 Geburtstag, Verlag C.H. Beck, 2006, pp. 45 et seq., at p. 46. For the older practice of informal settlements, which the Commission frequently made conditional on commitments offered by the undertakings concerned, see Commission, XIVth Report on Competition Policy, 1984, points 94–95. For a list of further examples, see Richard Whish, Competition Law, 5th edition, OUP, 2003, p. 210. See also Lorenzo Pace, European Antitrust Law, Edward Elgar, 2007, p. 237. 8 Temple Lang, cited supra note 5, at 286.

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Commitment Decisions under Article 9 of Regulation 1/2003 549 under Regulation 179 but which are no longer available under the new “legal exception” regime. Commitment decisions under Article 9 of Regulation 1/2003 must be clearly distinguished from the settlement procedure in cartel cases that was introduced under the new Article 10a of Commission Regulation 773/2004 and further explained in the Commission Notice on the conduct of settlement procedures in cartel cases.10 In cartel cases, the Commission will continue to establish an infringement under Article 7 and to impose fines under Article 23 of Regulation 1/2003, but it wants to open the possibility of a simplified and speedier procedure leading up to these decisions, combined with the possibility to grant a reduction of fines. Commitment decisions, by contrast, replace a finding of an infringement under Article 7 with a finding that “there are no longer grounds for action by the Commission without concluding whether there has been or still is an infringement”.11 Based on such a finding, no fines can be imposed—either in the commitment decision itself or in a decision under Article 23 of Regulation 1/2003.12 The Commission has therefore excluded the use of commitment decisions in hardcore cartel cases.13 More generally, “[c]ommitment decisions are not appropriate where the Commission intends to impose a fine” (Recital 13 of Regulation 1/2003). Instead, commitment decisions aim at putting an end to an (alleged) infringement—or, as some argue, at meeting the Commission’s competition concerns to such a degree that the case no longer figures among the Commission’s enforcement priorities.14 For this purpose, commitment

9 See Article 8(1) of Regulation 17/62; and see Article 15(2)(a) for the possibility to impose fines in case of non-respect. But see Whish, cited supra note 7, at 558 (“the Commission will wish to ensure that the Article 9 procedure does not become a surrogate for notification for the old system of individual exemption under Regulation 17/62”). 10 See Commission Regulation No. 622/2008 amending Regulation 773/2004, 2008 OJ L171/3; Commission Notice on the conduct of settlement procedures, 2008 OJ C167/1. See also Wils, this Volume; Maria Luísa Tierno Centella and Eric Cuziat, “La procédure de transaction communautaire”, Concurrences, No 2 (2008), pp. 76 et seq. 11 Recital 13 of Regulation 1/2003. 12 See fourth sentence of Recital 13 in the Preamble to Regulation 1/2003: commitment decisions are “not appropriate in cases where the Commission intends to impose a fine”. See also Wils, this Volume, p. 31; Cook, cited supra note 5, at 213. 13 See Commission MEMO/04/217 of 17 September 2004. According to Wils, commitment decisions are not appropriate in cases of serious, clear-cut infringements, more generally, since in such cases, the main enforcement objectives should be deterrence and public censure, through the finding of an infringement and the imposition of penalties. Wils, this Volume, pp. 37–38. The Commission’s commitment decision practice reveals, however, that at least in some cases, commitment decisions have been used in cases of rather serious infringements. If the E.ON and RWE cases are ultimately dealt with under Article 9, these would be the most obvious examples. 14 Whether the latter would suffice, or whether a commitment decision must pursue the goal of putting an infringement to an end, is a matter of controversy—see infra section IV.5.

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decisions can impose behavioural or structural remedies.15 The commitments may—but need not necessarily16—be limited in time. The rules guiding the commitment decision procedure are only partially developed in Regulation 1/2003. Commitment decision proceedings are formal proceedings, and require a formal initiation of proceedings,17 which may either pre-date or coincide with the issuing of a “preliminary assessment”, referred to in Article 9(1) of Regulation 1/2003. In the preliminary assessment—which may be, and sometimes is, replaced by a more elaborate Statement of Objections—the Commission must specify its concerns about possible infringements of Article 81 or Article 82 EC. The preliminary assessment is conveyed to the undertakings concerned and provides the basis for the negotiations on commitments. Where the Commission in principle takes a positive view of the commitments offered and intends to make them binding, it must publish a concise summary of the case and the main content of the commitments in the Official Journal (Article 27(4) of Regulation 1/2003). In addition, it publishes the full text of the commitments in their original language on the internet.18 Interested third parties then have the opportunity to comment within a period of at least one month. If this “market test” reveals weaknesses in the commitments, the Commission can renegotiate them; or it can abandon the commitment procedure altogether and revert to the ordinary procedure.19 All commitment decisions ultimately adopted must be published.20 Compared to the earlier practice of informal settlements under Regulation 17, the commitment decision procedure thus provides for a greater degree of transparency.21 A commitment decision will normally protect its addressees against a reopening of an infringement procedure by the Commission. According to Article 9(2) of Regulation 1/2003, the Commission may, however, upon request or on its own initiative, reopen the proceedings: “a) where there has been a material change in any of the facts on which the decision was based; 15 Commission MEMO/04/217 of 17 September 2004. See also Temple Lang, cited supra note 5, at 294–295. 16 Temple Lang, supra note 5 at 323 provides strong arguments favouring a general practice that would limit commitments to 3–5 years (“Companies should not be asked to tie their hands for longer than that, and officials should not imagine that they can see further into the future than that with confidence. Excessively long commitments will inevitably give rise to the need for formal amendments.”). 17 See Article 2 of the Commission’s Regulation (EC) No. 773/2004 of 7 April 2004 relating to the conduct of proceedings by the Commission pursuant to Articles 81 and 82 of the EC Treaty, 2004 OJ L123/18 (“Implementing Regulation”). 18 Commission, MEMO/04/217 of 17 September 2004. 19 Ibid. For the legal constraints, see Alrosa, cited supra note 2, at paras. 194–195, and see infra section III.2.b. 20 See Article 30 of Regulation 773/2004, cited supra note 17. 21 Commitment decisions must be published in accordance with Article 30(1) of Regulation 1/2003.

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Commitment Decisions under Article 9 of Regulation 1/2003 551 b) where the undertakings concerned act contrary to their commitments; or c) where the decision was based on incomplete, incorrect or misleading information provided by the parties”.

No use has yet been made of Article 9(2). However, in its Distrigaz decision the Commission specified that proceedings may also be reopened under Article 9(2)(a) in order to lift or relax commitments where new facts are presented showing that they have become disproportionate to the underlying competition concerns.22

II. The Commission’s commitment decision practice When the commitment procedure was introduced in Regulation 1/2003, it was unclear what role it would come to play in practice. According to John Temple Lang, the Commission initially believed that commitment decisions would be unusual and rare.23 However, commitment decisions have quickly become a popular and important instrument of competition law enforcement24—sometimes at the initiative of the Commission,25 and sometimes at the initiative of the undertakings concerned26 (see point 1 below). At the same time, important concerns have been voiced (point 2).

22 Commission Decision of 11 October 2007 (Case COMP/37.966—Distrigaz), 2008 OJ C9/8, paras. 36–37. 23 Temple Lang, cited supra note 5, at 270. 24 See Georgiev, cited supra note 5, at 1005. According to the Commission’s own assessment, commitment decisions have become “an effective means of addressing competition problems”. Commission, Annual Report on Competition Policy, 2006, pp. 12–13. But see Whish, supra note 5, at 564. Whish cautions that the Article 9 procedures may have been “used to some extent as a way of clearing the backlog of difficult ‘legacy’ cases from the days of Regulation 17/62”. 25 In the Bundesliga case, for instance, the Commission seems to have envisioned a commitment decision from the start: instead of a Statement of Objections, it published a preliminary assessment. The same happened in the Fiat, Toyota, DaimlerChrysler and General Motors cases. 26 In CISAC, for instance, the Commission initially issued a Statement of Objections, not merely preliminary findings—which appears to indicate that the Commission at least contemplated an Article 7 proceeding. Similarly, the proceedings in Distrigaz and in SkyTeam were opened with the adoption of an SO. Furthermore, in E.ON and, more recently, RWE, the initiative for the proposal of the divestiture commitments appears to have come from E.ON and RWE themselves, driven by their interest in avoiding a high fine.

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1. The developing commitment decision practice Between the entry into force of Regulation 1/2003 in May 2004 and June 2008, eleven commitment decisions have been issued27 (see list in the Annex to this chapter). In five additional cases, “market test” Notices have been published under Article 27(4) of the Regulation.28 Four of these five cases are undecided as of this writing; in the other case, following negative third party comments, the Commission abandoned the commitment decision procedure and issued a prohibition decision.29 In at least one more case, the undertaking concerned has offered commitments to settle an ongoing antitrust investigation.30 Commitment decisions have been used to settle both Article 81 cases31 and Article 82 cases.32 Within the field of Article 81, commitment decisions seem to be perceived as a useful instrument in particular in those cases where the 27 Commission Decision 2005/396/EC of 19 January 2005 (Case COMP/37.214— Bundesliga), 2005 OJ L134/46; Commission Decision 2005/670/EC of 22 June 2005 (Case COMP/39.116—Coca-Cola), 2005 OJ L253/21; Commission Decision 2006/520/EC of 22 February 2006 (Case COMP/38.381—De Beers), 2006 OJ L205/24, annulled: Case T-170/06, Alrosa Company Ltd v Commission [2007] ECR II-2601, on appeal: Case C-441/07 P, Commission v Alrosa, not yet decided; Commission Decision of 22 March 2006 (Case COMP/38.173—Premier League), 2008 OJ C7/18; Commission Decision 2006/446/EC of 12 April 2006 (Case COMP/38.348—Repsol CPP), 2006 OJ L176/104; Commission Decision 2007/735/EC of 4 October 2006 (Case COMP/38.681—The Cannes Extension Agreement), 2007 OJ L296/27; Commission Decision of 13 September 2007 (Case COMP/39.140—DaimlerChrysler), 2007 OJ L317/76; Commission Decision of 13 September 2007 (Case COMP/39.142—Toyota), 2007 OJ L329/52; Commission Decision of 13 September 2007 (Case COMP/39.143—Opel), 2007 OJ L330/44; Commission Decision of 13 September 2007 (Case COMP/39.141—Fiat), 2007 OJ L332/77; Distrigaz, cited supra note 22. 28 Notice published pursuant to Article 27(4) of Council Regulation (EC) No 1/2003 in Cases COMP/39.152, BUMA and COMP/C2/39.151, SABAM (Santiago Agreement— COMP/38.126), 2005 OJ C200/11; Notice published pursuant to Article 27(4) of Regulation (EC) No 1/2003 in Case COMP/37.749, Austrian Airlines/SAS cooperation agreement, 2005 OJ C233/18; Notice published pursuant to Article 27(4) of Council Regulation No 1/2003 in Case COMP/38.698, CISAC; Notice published pursuant to Article 27(4) of Council Regulation (EC) No 1/2003 in Case COMP/37.984, SkyTeam, 2007 OJ C245/46; Notice published pursuant to Article 27(4) of Council Regulation (EC) No 1/2003 in Cases COMP/39.388 and COMP/39.389, E.ON. 29 COMP/38.698—CISAC. See Commission Press Release IP/08/1165 and MEMO/08/511 of 16 July 2008. 30 See Commission MEMO/08/346 of 28 May 2008, together with Commission MEMO/07/186 of 11 May 2007 (negotiations between the Commission and RWE on possible commitments whereby RWE would divest its gas transport network in North RhineWestphalia in order to settle an Article 82 case in which RWE is suspected of anticompetitive market foreclosure). 31 COMP/37.214—Bundesliga; COMP/38.173—Premier League; COMP/38.348— Repsol; COMP/38.681—Cannes Agreement; COMP/38.140-143—DaimlerChrysler; Toyota; General Motor/Opel; Fiat; COMP/39.152—BUMA (pending); COMP/39.151—SABAM (pending); COMP/37.749—Austrian Airlines/SAS (pending); COMP/38.698—CISAC (pending); COMP/37.984—SkyTeam (pending). 32 COMP/39.116—Coca-Cola; COMP/38.381—De Beers (annulled); COMP/37.966— Distrigaz.

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Commitment Decisions under Article 9 of Regulation 1/2003 553 pro-competitive effects of an agreement that also restricts competition are uncontroversial but the Commission wants to ensure that the restriction of competition does not go beyond what is necessary to achieve the procompetitive effects. The four commitment proceedings concerning different agreements concluded between European collecting societies fall into this group,33 as do two commitment decisions on the joint selling of media rights for football matches by football leagues,34 and the two proceedings against airline alliances.35 In all these cases there appears to be a real need, perceived 33 COMP/38.681—Cannes Extension Agreement (4 October 2006); COMP/39.152— BUMA (pending); COMP/39.151—SABAM (pending); COMP/38.698—CISAC (commitment decision procedure aborted; prohibition decision issued on 16 July 2008). BUMA and SABAM concern the so-called “Santiago Agreement”—an agreement concluded between all collecting societies in the EEA relating to the licensing of public performance rights for musical works on the Internet, and implementing the principle of a “one-stop shop” for commercial users for all relevant countries. The Commission objected to the rule that such rights had to be obtained in the country in which the user was economically resident. SABAM and BUMA offered to abandon this requirement. The CISAC proceeding was based on similar concerns. CISAC, the international association of authors’ collecting societies, had drafted a standard model contract regarding cooperation in the management of public performance rights between collecting societies. The Commission objected to two clauses. First there was a membership clause, according to which no collecting society should accept as a member any member of one of the other collecting societies having the nationality of one of the countries in which the other societies operated. Second, there was a territoriality clause according to which commercial users could only obtain a licence from the local collecting society. The collecting societies offered to remove these clauses. Negative third party comments during the market test of these commitments led the Commission to end the commitment decision procedure and issue a prohibition decision instead. See Commission Decision of 16 July 2008 (Case COMP/38.698—CISAC), 2008 C323/12. The Cannes Extension Agreement decision related to two clauses in the Cannes Extension Agreement concluded between the major publishers and 13 European collecting societies regarding the relations between the two groups in the administration and licensing of mechanical copyright of musical works for the reproduction of sound recordings on physical carriers, like CDs and tapes. In the mid-1980s, the parties had introduced a Central Licensing Agreement, according to which a record company could conclude a single licensing agreement with a single collecting society covering the whole of the EEA territory. According to the Commission, one clause of the agreement de facto restricted the possibility of collecting societies to compete for the signing up of record companies by granting rebates. Another clause restricted potential competition between collecting societies and publishers. The parties offered to amend or delete these clauses. See Commission Decision 2007/735/EC, cited supra note 27. 34 COMP/37.214—Bundesliga and COMP/38.173—Premier League. In both cases, the Commission was concerned that the central marketing or joint selling of media rights to League matches by the Leagues would restrict competition between the clubs and thus restrict the output of media rights and raise prices. According to the Commission, new media such as broadband internet providers and mobile operators would be restricted in their access to premium football content. The commitments made binding require that the rights for live TV broadcast be sold in several packages by an open, non-discriminatory procedure for a maximum of three seasons. Each single club is free to sell rights to deferred broadcasts to free TV and radio, and to sell the coverage of its home games on mobile phone networks. 35 COMP/37.749—Austrian Airlines/SAS (pending) and COMP/37.984—SkyTeam (pending). Both cases concern cooperation agreements between airlines, including cooperation in the planning of schedules, coordination of pricing policies, and a joint Frequent

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both by the Commission and the undertakings concerned, for a flexible procedural framework outside the normal infringement proceeding to negotiate conditions and obligations fine-tuned to the requirements of Article 81(3). Commitment decisions here serve as a substitute for Article 81(3) exemption decisions with conditions and obligations attached under Article 8(1) of Regulation 17/62.36 Compared to the latter procedure, commitment decisions have, from the perspective of the undertakings concerned, the significant disadvantage that the commitments they offer will be much more difficult to appeal before the Community Courts.37 Among the Article 81 proceedings, the commitment decisions issued against four major vehicle manufacturers38 are of a slightly different kind: they address the failure of four car manufacturers to provide brand-specific repair information to independent repairers. According to the Commission, independent repairers are important to maintain competition in the market because they are the only ones able to exert competitive pressure on the car manufacturers’ own authorized repair networks. The Motor Vehicle Block Exemption Regulation (Regulation 1400/2002)39 therefore provides, in Article 4(2), that full and non-discriminatory access to technical information must be given to independent repairers in a manner proportionate to their needs. Fiat, Toyota, DaimlerChrysler and General Motors had not complied with these rules. In a preliminary assessment, the Commission found a possible violation of Article 81(1). The commitments proposed and ultimately Flyer Program. The commitments offered include, inter alia, the promise to make take-off and landing slots available to a new entrant (Austrian Airlines/SAS) or to competitors (SkyTeam), to enter into an interlining agreement with a new entrant, and to participate in a new entrant’s frequent flyer program on request. According to Whish, supra note 7 at 564, these cases may be paradigmatic of situations where the Article 9 procedure is particularly useful because these are transactions which in many ways are like mergers but which nevertheless are analyzed under Article 81 and may require complex remedies. 36 For the potential functional equivalence between commitment decisions and conditions imposed in formal Article 81(3) decisions under the old regime, see Bornkamm, cited supra note 7, at 46; Temple Lang, supra note 5, at 268 and 291. Temple Lang sees a need for a substitute for exemption decisions particularly in the case of joint ventures and patent pool cases. A significant number of cases in which commitment decisions have been issued so far do belong to such categories, and they were in fact opened under the old regime following notifications and an application for negative clearance or individual exemption. See, e.g., COMP/37.214—Bundesliga; COMP/38.173—Premier League; COMP/38.348—Repsol; COMP/38.381—De Beers-Alrosa; COMP/39.152—BUMA (pending); COMP/39.151— SABAM (pending); COMP/37.749—Austrian Airlines/SAS (pending). 37 See Denis Waelbroeck, “Le développement en droit européen de la concurrence des solutions negociées (engagements, non-contestations des faits et transactions): que va-t-il rester aux juges?”, GCLC Working Paper 1/08, p. 7 (“On ne peut d’ailleurs s’empêcher de penser que c’est particulièrement cet attrait du système qui a amené la Commission à remplacer le mécanisme des décisions conditionnelles antérieures par un système de décisions d’engagements”). 38 Namely, DaimlerChrysler, Fiat, Toyota and General Motors/Opel. 39 Commission Regulation No. 1400/2002 of 31 July 2002 on the application of Article 81(3) of the Treaty to categories of vertical agreements and concerted practices in the motor vehicle sector, 2002 OJ L203/30.

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Commitment Decisions under Article 9 of Regulation 1/2003 555 made binding essentially amount to a specification of the requirements under Article 4(2) of Regulation 1400/2002, i.e. a specification of the principles of equal treatment in terms of the scope of technical information to be made available to independent repairers, a specification of the scope of any possible exceptions by virtue of which technical information may be legitimately withheld, and a specification of the principle of proportionality with regard to access to technical information.40 Another commitment decision, concerning non-compete clauses in distribution agreements for motor fuel between Repsol and service station operators which allegedly had a foreclosure effect on the Spanish retail market,41 was appealed by service station operators. However, the case was dismissed by the Court of First Instance.42 The three Article 82 commitment decisions which have so far been issued43 concern very different types of infringements. The Coca-Cola decision44 followed long investigations by the Commission and by some national competition authorities45 into various business practices by Coca-Cola and its three major bottlers, in particular exclusivity agreements, target and growth rebates, tying arrangements and certain restrictions on the installation of technical sales equipment such as beverage coolers, fountain dispensers and vending machines. The Commission’s main concern was that Coca-Cola and its bottlers were leveraging their collective market power between various product categories. The commitments ultimately made binding for a period of 5 years (inter alia, commitments: not to impose exclusivity provisions; not to offer growth or target rebates; not to tie the supply of coca-cola to other beverages; and to allow outlets to use 20% of a cooler provided by Coca-Cola for other companies’ products where no other chilled drink capacity is available in the outlet) had apparently been negotiated between the Commission 40 For elaboration, see John Clark and Anna Nykiel-Mateo, “Four decisions bind DaimlerChrysler, Fiat, Toyota and General Motors to commitments to give independent repairers proper access to repair information”, Competition Policy Newsletter No 3—2007, pp. 50 et seq. 41 The commitments made binding included the introduction of a right to terminate the distribution agreements, the imposition of a maximum 5-year duration for new agreements, and the commitment not to buy any stations not supplied exclusively by Repsol. 42 See Case T-45/08 Transportes Evaristo Molina v. Commission, Order of 14 November 2008. The claim was that the commitments made binding went beyond the aim of Article 9 of Regulation 1/2003, in that they were not based on a correct interpretation of the competition rules, and that they violated the proportionality principle. Another appeal against the Repsol commitment decision was ruled inadmissible—see Case T-274/06 Estaser El Mareny v Commission [2007] ECR II-143. 43 Case COMP/A.39.116/B2—Coca-Cola (Commission decision of 22 June 2005); Case COMP/B-2/38.381 (Commission Decision of 22 February 2006)—De Beers; Case COMP/B-1/37.966 (Commission Decision of 11 October 2007)—Distrigaz. 44 Case COMP/A.39.116/B2—Coca-Cola (Commission decision of 22 June 2005). For a summary and comment see also Philipp Gasparon and Blazˇ Visˇnar, “Coca-Cola: Europewide remedies in fizzy drinks”, Competition Policy Newsletter No 3—2005, pp. 60 et seq. 45 See, in particular for the investigation of the Spanish Competition Authority, Oriol Armengol and Alvaro Pascual, “Some Reflections on Article 9 Commitment Decisions in the Light of the Coca-Cola Case”, 27 European Competition Law Review 124 (2006).

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and Coca-Cola before the Commission officially opened its proceeding on 29 September 2004. The Commission published its preliminary assessment on 15 October 2004. Coca-Cola and its bottlers submitted their commitments only four days later, on 19 October 2004. Interestingly, the commitments offered by Coca-Cola are not limited to the Member States in which anticompetitive practices had mainly been investigated;46 they extend essentially to the whole of the EU:47 Coca-Cola is required to use its best efforts to ensure that all EU bottlers of Coca-Cola carbonated soft drinks, including independent companies in territories that had not been part of the Commission’s investigation, will abide by the terms of the commitment decision.48 The Distrigaz decision49 addressed concerns that certain long-term gas supply contracts concluded between the dominant incumbent Distrigaz and industrial gas users in Belgium had the effect of foreclosing the market to alternative suppliers and therefore hindered the development of competition following liberalization in the gas sector. The commitments, which were made binding for a period of four years, include an assurance by Distrigaz that each calendar year a minimum of 65% of the gas volumes it supplies will be open for alternative suppliers to make competing offers. Furthermore, Distrigaz’s existing customers will enjoy unilateral termination rights after five years. The De Beers decision, which was reviewed by the CFI in Alrosa, will be discussed in more detail below (see section III). Important commitment decisions in the realm of Article 82 were also adopted in the E.ON and RWE cases. The Commission’s investigation in the E.ON case concerned alleged abuses of a dominant position on the German electricity wholesale market (mainly the withdrawal of available generation capacity in order to raise electricity prices) and on the market for secondary balancing energy in E.ON’s network area (inter alia, steps taken to prevent foreign power producers from exporting balancing energy into the E.ON balancing market). In its decision of 26 November 2008, the Commission made binding the following commitments offered by E.ON: (1) the divestiture of about 5000 MW of E.ON’s generation capacity, in order to remove E.ON’s ability and incentive to withdraw

46 The Commission had undertaken dawn raids on Coca-Cola premises in Austria, Belgium, Denmark, Germany and the UK. According to Gasparon and Visˇnar, supra note 44, the Commission had, however, also gathered evidence against Coca-Cola in all other Member States. 47 The commitments apply in all EU Member States in which Coca-Cola’s carbonated soft drinks account for more than 40% of sales and for more than twice the share of the nearest competitor. 48 See Cook, cited supra note 5, at 212–213 and footnote 6. The CFI clarified in Alrosa (supra note 2) that in such a case, where a commitment decision directly affects third parties, those third parties must, with regard to their procedural rights, be treated like “undertakings concerned”. They therefore have a right to be heard, and they must have access to the file. 49 Distrigaz, cited supra note 22.

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Commitment Decisions under Article 9 of Regulation 1/2003 557 generation capacity profitablity and to guarantee potential competitors access to new plants; and (2) the divestiture of E.ON’s extra-high voltage transmission system business.50 In a commitment decision of 18 March 2009, the Commission has moreover rendered binding commitments offered by RWE to divest its entire Western German high-pressure gas transmission network. The commitments were offered in response to the Commission’s concern that RWE had abused its dominant position on the gas transmission network (1) by restricting its competitors’ access to the network, in particular by refusing to supply capacity management services to other companies, and (2) by setting its transmission tariffs at an artificially high level in order to squeeze its competitors’ margins.51 Considering the relatively low number of Article 82 proceedings traditionally brought by the Commission, the number of three Article 82 commitment decisions plus some ongoing commitment decision procedures is remarkable. It has been observed that the uncertain state of the Article 82 case law may be an important reason why commitment decisions have a particular attraction for the Commission, and possibly also for undertakings, in this field.52 The criteria the Commission uses to decide that a commitment decision would be appropriate to resolve a case, or to decide instead to pursue infringement proceedings under Article 7(1) of Regulation 1/2003, is not publicly known. Frequently, the choice between a commitment decision under Article 9(1) and an infringement decision under Article 7(1) of Regulation 1/2003 is left open for some time.53 Some proceedings which have ended in a commitment decision have started with the publication of a Statement of Objections, which is normally only required for infringement proceedings under Article 7(1). Sometimes a preliminary assessment is published, which implies that the Commission has decided to pursue a commitment procedure under Article 9(1) of Regulation 1/2003. It appears that the Coca-Cola practice of publishing the preliminary assessment only after the commitments have already been agreed54 remains the exception.55 In most cases, the time lag between the publication of the preliminary assessment and the offer of commitments suggests that negotiations have taken place in between.56 The market test under Article 50 See Summary of Commission Decision of 26 November 2008 relating to Cases COMP/39.388—German Electricity Wholesale Market and COMP/39.389—German Electricity Balancing Market, 2009 OJ C36/8. 51 See Commission Decision of 18 March 2009 relating to Case COMP/39.402—RWE Gas Foreclosure, and the Commission’s Press Release IP/09/410 of 18 March 2009. 52 Temple Lang, cited supra note 5, at 274 and 321. See also Georgiev, supra note 5, at 1028 (critical of the fact that the Commission used a commitment decision to address the controversial issue of fidelity rebates in Coca-Cola). 53 See, e.g., the E.ON and RWE cases. 54 See Coca-Cola, cited supra note 27. See also Cook, supra note 5, at 215–216. 55 A practice similar to what occurred in Coca-Cola can be observed in Case COMP/38.348—Repsol. 56 This proceeding would also seem to be required by the CFI’s Alrosa judgment (supra note 2), according to which the preliminary assessment has a function equivalent to the

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27(4) of Regulation 1/2003 has frequently resulted in an adjustment or finetuning of the commitments. As noted earlier, in rare cases the Commission has broken off the commitment procedure in response to negative third party comments and has instead issued a prohibition decision.57 So far, two commitment decisions have been challenged by third parties before the CFI. Alrosa’s appeal against the De Beers decision resulted in its annulment, following which the Commission appealed to the ECJ. Thirdparty actions against the Repsol decision were dismissed. In no case to date have the undertakings that offered the commitments tried to challenge these commitments before the Community Courts.58

2. Concerns and open questions The Commission’s developing commitment decision practice has confirmed the practical need for a procedure that allows for a speedier resolution of competition cases.59 At the same time, commentators have raised important concerns regarding the commitment procedure’s potentially problematic effects on European competition policy and the absence of safeguards to prevent its abuse.60 In the name of administrative efficiency, the Article 9 procedure—understood as a flexible settlement procedure—appeared to largely liberate the Commission from judicial control61 and from the constraints inherent in its Statement of Objections in an Article 7 proceeding, and is meant to be a significant check on the Commission when it discusses possible commitments. In order to serve this function, the preliminary assessment must precede the negotiation on commitments. 57 See in particular the CISAC case, supra notes 27 and 33. In reaction to negative comments by interested parties, according to which the proposed commitments would continue to make it difficult for commercial users to obtain pan-European licences, the Commission, as indicated earlier (note 33), terminated the commitment decision procedure and issued a prohibition decision. 58 See below the discussion on the possibility of such an action. 59 For the overall positive reaction to the introduction of the commitment procedure into Community competition law, see, e.g., Cook, cited supra note 5, at 228 (commitment decision a “valuable addition” to the range of possible solutions to Article 81 and 82 cases; in principle, settlement is a cheaper and faster way of addressing the harmful effects of anticompetitive conduct, the primary goal of enforcement policy). See also Bornkamm, supra note 7, at 58; Temple Lang, supra note 5, at 265; Geogiev, supra note 5, at 1024 (pointing out that the length of regular infringement proceedings is out of step with the fact that, in dynamic sectors, the competitive landscape may change rapidly). 60 See, e.g., Ernst-Joachim Mestmäcker, “The EC Commission’s Modernization of Competition Policy: a Challenge to the Community’s Constitutional Order”, 1 European Business Organization Law Review 401, 441 (2000); Temple Lang, cited supra note 5, at 316–321; Waelbroeck, supra note 37; Whish, supra note 7; Geogiev, supra note 5. 61 Highly critical in this regard is Waelbroeck, cited supra note 37, p. 3, (risk of Commission using the commitment procedure “pour développer ainsi une politique parallèle de concurrence qui échappe entièrement au contrôle du juge et aux garanties minimales auxquelles notre Etat de droit reste attaché”).

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Commitment Decisions under Article 9 of Regulation 1/2003 559 mandate to enforce the competition rules. The Commission’s broad discretion in the use and design of commitment procedures seemingly diluted the otherwise direct and indispensable link between an alleged infringement of competition rules and the remedies imposed, and appeared to enable the Commission to suggest commitments that it could not have imposed as remedies under Article 7 of Regulation 1/2003. However, severing this link, or even just weakening it, and reducing the intensity of judicial control would raise serious risks: the Commission could be tempted to use the commitment procedure to deal with cases where the law is unclear, and thus shape its own competition policy outside the control of the Community Courts. The Commission’s self-interest in expanding the scope of its powers would then come to conflict with the public interest in public censure, deterrence and, most importantly, the development of legal doctrine based on clear precedents that only infringement proceedings can bring.62 Also, the Commission could be induced to use its bargaining power in commitment procedures to reach beyond the goal of remedying a given infringement and to pursue more ambitious strategies, attempting to restructure markets according to its own vision63 or to implement non-competition goals.64 Commitment decisions could thus become a powerful instrument for regulating markets. The requirement that the undertakings concerned must consent to the commitments is not necessarily a sufficient safeguard against these risks:65 The threat of long and costly legal proceedings, with possibly damaging effects on the companies’ reputation, may lead companies to offer commitments even in cases which they believe to be without merit.66 In cases of more clear-cut infringements, the threat of high fines may induce companies to offer more far-reaching remedies than those the Commission might have been able to impose.67 In some cases, the Commission’s regulatory interests and the defendant’s economic interests may become aligned in the course of a commitment procedure, which may result in collusion to the detriment of third parties.68 Alrosa may illustrate the practical relevance of this risk.69 62

Wils, cited supra note 7, at 31; Georgiev, supra note 5, at 876 and 1023. Georgiev, cited supra note 5, at 1031–1032 (suggesting that “EU commitment decisions reflect regulatory policy, rather than antitrust law”). 64 Mestmäcker, cited supra note 60, at 441. For similar concerns regarding the use of consent decrees in the US, see Douglas Melamed, “Anti-trust: The New Regulation”, 10 Antitrust 13, 14 (1995) (“[A]ntitrust law is coming to the point [where] what matters is not what the law requires, but rather what the present government wants.”). 65 See Waelbroeck, cited supra note 37, at 3 (“La négociation avec une autorité n’est en effet en rien une négociation à ‘armes égales’ . . . Il s’agit au contraire d’une négociation avec une autorité qui dispose—en tout cas en droit de la concurrence—d’un pouvoir de sanction.”). 66 Cook, cited supra note 5, at 212–213. 67 For this risk, see Temple Lang, cited supra note 5, at 275 and 316–317. This may be a concern in the E.ON and RWE cases. 68 See in particular Pace, cited supra note 7 at 237, who sees the risk of regulatory capture. 69 For the serious and direct economic effects imposed by both commitment decisions upon third parties who were not a party to the proceeding, see Georgiev, supra note 5 at 1021. 63

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These concerns were all the more acute because the rules governing commitment proceedings were (and are) in many respects incomplete. Important questions remained relating to: the legal constraints which the Commission must respect when employing the commitment procedure (see a below); the procedural rights of the undertakings concerned and of third parties (b); and the legal effects of commitment decisions vis-à-vis national courts and competition authorities (c). (a) Before the CFI handed down the Alrosa judgment, the legal limits to which the Commission was subject when deciding to make commitments binding—and whether there were any such limits at all—was completely unclear. How seriously must the Commission investigate competition infringements, and how precisely must it define its competition concerns, before entering into commitment negotiations? What information must be contained in the preliminary assessment, as compared to the full Statement of Objections that is required in an infringement proceeding under Article 7(1) of Regulation 1/2003?70 Can the Commission accept, and make binding, any commitments that the undertakings concerned voluntarily offer, or does it have to inquire into the proportionality of the commitments? If so, how intense does this analysis have to be? Can the Commission make binding commitments in geographic or product markets that did not form part of its investigation—as apparently happened in the Coca-Cola case?71 Can the Commission trade off a fine it would normally impose for an infringement of the kind at issue against a farreaching remedy that it cannot be sure the Community Courts would accept?72 Not entirely surprisingly, the Commission was of the view that it should be able to use the commitment procedure as flexibly as possible. On this view, burdening the procedure with legal obligations would undermine its very purpose of promoting more expedient administration. The fact that all commitments are offered voluntarily should generally be a sufficient safeguard. Any judicial review should be limited to a control for manifest errors in a complex economic assessment carried out to determine whether the commitments meet the competitive concerns expressed by the Commission.73 70 There is agreement that the “preliminary assessment” can be shorter and less formal than a Statement of Objections—but Regulation 773/2004 (supra note 17) does not contain any more specific rules. 71 Cited supra note 27. See Cook, supra note 5 at 212–213. Cook points out that the Commission’s investigation had covered only four Member States. However, as indicated earlier (supra note 47), the negotiated commitments applied in all EU Member States in which Coca-Cola’s carbonated soft drinks accounted for more than 40% of sales and for more than twice the share of the nearest competitor. In addition, Coca-Cola was required to use its best efforts to ensure that all of its EU bottlers—including those that were not part of the Commission’s investigation—agreed to abide by the commitments. 72 This question is arguably raised by the E.ON and RWE cases. 73 See Alrosa, cited supra note 2, paras. 80–81.

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Commitment Decisions under Article 9 of Regulation 1/2003 561 (b) Another set of questions relates to procedural rights in the context of the commitment procedure. Do the undertakings concerned, as well as third parties, enjoy essentially the same rights in an Article 9 procedure that they do in an infringement proceeding under Article 7, in particular as regards the right to be heard and the right to access to the file? Or can these rights be curtailed for reasons of procedural efficiency?74 Can a commitment decision be challenged before the Community Courts by the undertakings that have offered the commitments, or does the voluntary nature of commitments effectively preclude an appeal?75 (c) Finally, the legal effects of commitment decisions on national courts and competition authorities remain an open question. According to Recital 13 of Regulation 1/2003, commitment decisions do not conclude “whether or not there [. . .] still is an infringement”, and they are “without prejudice to the powers of competition authorities and courts of the Member States to make such a finding and decide upon the case”.76 In fact, there is broad agreement that commitment decisions can in no way prevent private parties from bringing or continuing private actions in national courts to obtain damages on the basis that the past conduct of the addressees of the commitment decision (before the commitments were complied with) constituted an infringement of Article 81 or 82.77 Neither a finding by a national court that there has been no infringement nor a finding that there has been an infringement (which would, however, remain to be proven78) would in any way run counter to the Commission’s commitment decision within the meaning of Article 16(1) of Regulation 1/2003 or violate Article 10 EC. Similarly, a national 74 For discussion, see Whish, cited supra note 7, at 564–566; Temple Lang, supra note 5, at 277–278. 75 In favour of a right to appeal commitment decisions, see, e.g., Wils, cited supra note 7, at 44 (pointing out that the preconditions of Article 230 EC for the admissibility of an appeal are at least formally fulfilled: the undertakings concerned are addressees of the commitment decision, which adversely affects their legal position in that it makes the commitments binding on them); Waelbroeck, supra note 37, at 23–24. Against a right to appeal commitment decisions are Cook, supra note 5, at 222–223, and Temple Lang, supra note 5, at 296. More cautious is Whish, supra note 7, at 570 (“Given that the Article 9 procedure is voluntary on the part of the parties that offer commitments, they will presumably not appeal against an Article 9 commitment decision . . .”). 76 Recital 13, third sentence. Similarly, the third sentence of Recital 22 states: “Commitment decisions adopted by the Commission do not affect the power of the courts and the competition authorities of the Member States to apply Articles 81 and 82 of the Treaty.” 77 See, e.g., Whish, cited supra note 7, at 567; Armengol and Pascual, supra note 45, at 125; Wils, supra note 7, at 41–42. 78 In their proposed commitments, the undertakings typically take great care to avoid any admission of a violation of Article 81 or Article 82. Also, the commitment decision itself does not establish an infringement. As pointed out by Wils, supra note 7 at 42, although the existence of the infringement indeed remains to be proven, national courts may take into account in their assessment that the Commission, when opening the commitment decision proceedings, must have had serious doubts as to the compatibility of the undertakings’ past conduct with Article 81 or 82. Similarly, see Temple Lang, supra note 5, at 287.

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Session Three: Commitment Decisions competition authority could—although this is unlikely to happen in practice79—continue to investigate the past conduct of the addressees of the commitment decision and find an infringement of Article 81 or 82, possibly even imposing fines, without undermining the full effect of the commitment decision’s operative part (within the meaning of Article 16(2) of Regulation 1/2003). It is more controversial whether national courts and competition authorities could find that there continues to be an infringement of Article 81 or 82, despite the commitments imposed, and then grant injunctive relief 80 or impose further remedies.81

Many of these controversial issues were addressed, directly or implicitly, by the CFI in the Alrosa judgment.

III. The CFI’s Alrosa judgment Alrosa is the first case in which the CFI has been asked to review a commitment decision under Article 9 of Regulation 1/2003.82 The CFI has seized the opportunity to clarify the nature and function of commitment decisions, the duties of the Commission within the framework of the commitment decision procedure, and some fundamental due process requirements. In doing so, it redefines the rules governing the commitment procedure, and creates important safeguards against some of the risks inherent in this instrument. Alrosa would certainly be a landmark ruling if it were confirmed on appeal.83

79 See Whish, cited supra note 7, at 567–568. According to Article 14 of Regulation 1/2003, the Advisory Committee must be consulted before a commitment decision is issued. The Advisory Committee is composed of representatives of the competition authorities of the Member States. The Coca-Cola case (cited supra note 27) provides an example of how the coordination between the Commission and the national competition authorities works in practice. The Spanish Competition Authority, which had investigated Coca-Cola alongside the Commission for a significant period of time, closed the case after the Commission issued its commitment decision, without making any explicit statement as to the existence or absence of an infringement of Article 81 or Article 82. See Armengol and Pascual, supra note 45. 80 In the case where private parties have brought an action before a national court. 81 In the case where national competition authorities are acting. 82 A second case, whereby a third party seeks annulment by the CFI of the Commission’s Repsol decision, was dismissed. See Transportes Evaristo Molina, cited supra note 42. Another appeal against the Repsol decision was held inadmissible. See Estaser El Mareny, supra note 42. 83 But see the Opinion of Advocate General Kokott of 17 September 2009 in Case C-441/07 P, Alrosa v Commission. She proposes that the ECJ should set aside the judgment of the CFI.

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1. The facts of the case De Beers and Alrosa—the No. 1 and No. 2 producer and supplier of rough diamonds in the world—formalized their long-standing commercial relationship by concluding an agreement regulating Alrosa’s supply of rough diamonds to De Beers. Under this five-year agreement, Alrosa would essentially sell the entire production of rough diamonds meant for export outside the Community of Independent States (CIS) to De Beers. In March 2002, Alrosa and De Beers notified the agreement to the Commission under Regulation 17/62, with a view to obtaining a negative clearance or an Article 81(3) exemption decision. Rather than granting either a negative clearance or an exemption, the Commission sent a Statement of Objections to both Alrosa and De Beers in relation to their agreement. It also sent a separate Statement of Objections to De Beers, expressing the opinion that the agreement could also constitute an abuse of a dominant position. In December 2004—by which time Regulation 1/2003 had entered into force—Alrosa and De Beers offered joint commitments to the Commission under Article 9 Regulation 1/2003 in order to settle the case. The commitments provided for a progressive reduction in the sales of rough diamonds from Alrosa to De Beers, the value of which was to diminish from $700 million in 2005 to $275 million in 2010, subsequently to be capped at that level. The Commission—finding that these commitments prima facie met its competitive concerns—submitted them to a market test in accordance with Article 27(4) of the Regulation. Negative comments by third parties induced the Commission to change its initially favourable position and to ask Alrosa and De Beers to submit fresh joint commitments. To allay the Commission’s concerns, any new joint commitments would have had to culminate in a complete cessation of the parties’ trading relationship by 2009. Alrosa was unwilling to comply with this request. De Beers, however, decided to offer individual commitments conforming to the Commission’s request. These individual commitments were forwarded to Alrosa, together with an invitation to submit comments. But only three weeks later, and before Alrosa could fully exercise its right to be heard, the Commission adopted an Article 9 decision addressed to De Beers in which it made De Beers’ proposed commitments binding. Alrosa applied to the CFI for an annulment of that decision.

2. The judgment The CFI begins its judgment by confirming that Alrosa’s action for annulment is admissible: although Alrosa was not the addressee of the Commission’s decision, the decision was of direct and individual concern to

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it (Article 230(4) EC). As explained above, the commitments made binding in the decision were aimed at bringing to an end the trading relationship between Alrosa and De Beers. The decision therefore directly and immediately affected Alrosa’s legal situation and its competitive position on the market (paras. 38–40). Turning to the substance, the CFI accepted Alrosa’s action for annulment on two grounds: first, in adopting the commitment decision the Commission had infringed the principle of proportionality; and second, the Commission had violated Alrosa’s right to be heard.

a) Infringement of the principle of proportionality The CFI’s analysis of the principle of proportionality and its application to commitment decisions is a core part of the judgment, and, if upheld, it will change the way the commitment decision procedure is conceived and employed. Alrosa complained that the Commission had exceeded its legal powers by ordering the complete cessation of the trading relationship and prohibiting any future contracts for the sale or purchase of rough diamonds between Alrosa and De Beers for an indefinite period of time. According to Alrosa, this went beyond what was appropriate and necessary to meet the Commission’s concerns under Article 82. The Commission, on the other hand, argued that it should not be obliged to conduct a full proportionality assessment in the course of a commitment procedure because this would undermine its purpose, i.e. that of allowing for more administrative efficiency. The Commission should be obliged to reject commitments that are manifestly excessive, but since commitments are offered voluntarily, this should rarely be the case. In any event, it was argued, the scope of judicial review should be limited to verifying whether there has been a manifest breach of the principle of proportionality, or more generally a manifest error in the complex economic assessment carried out by the Commission. The CFI flatly rejected the Commission’s arguments, finding that the principle of proportionality—a general principle of Community law—applies to Article 9 decisions in the same way that it applies to infringement decisions under Article 7(1), even though it is not explicitly mentioned in Article 9(1) of Regulation 1/2003 (paras. 92 and 95). The Commission is thus obliged to perform a full proportionality analysis before it makes commitments binding under Article 9(1). The voluntary nature of the commitments does not relieve the Commission of the need to comply with the principle of proportionality (para. 105): it is the Commission’s decision alone which makes the commitments binding and has legal consequences for the undertakings (para. 86). The Commission therefore bears full and sole responsibility for the content of its commitment decisions in essentially the same way that it bears responsibility for the content of infringement decisions under Article 7(1) (see paras. 86–88).

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Commitment Decisions under Article 9 of Regulation 1/2003 565 The CFI refused to accord a contractual character of some sort to commitment decisions. Instead, it emphasizes that a commitment decisions is essentially of the same nature as an infringement decision under Article 7(1): it constitutes “a binding measure which puts an end to an infringement or a potential infringement” (para. 87). In an Article 9 procedure, the Commission “exercises all the prerogatives conferred on it by Articles 81 and 82 EC, with the only distinctive feature being that the submission of offers of commitments by the undertakings concerned means that the Commission is not required to pursue the regulatory procedure laid down under Article 85 EC and, in particular, to prove the infringement” (para. 87). Commitment decisions may indirectly have legal effects erga omnes, which the undertaking concerned would not have been in a position to create on its own (para. 88). The Commission is therefore responsible to ensure that commitments made binding are an adequate and proportionate response to the infringement alleged.84 Both infringement decisions and commitment decisions pursue the aim of ensuring the effective application of the competition rules (para. 95): infringement decisions put an end to a clearly established competition law infringement, while commitment decisions put an end to a clearly established competition concern (para. 100). When deciding to make commitments binding, the Commission must ensure that the measures adopted do not exceed what is appropriate and necessary to achieve this objective (para. 98), namely to re-establish compliance with the rules infringed (para. 102). When there is a choice between several appropriate measures, the Commission must take recourse to the least onerous (para. 98). In order to ensure compliance with these principles in the context of an Article 9 decision, an analysis of the market and an identification of the infringement envisaged are required, and while these assessments may be less definitive than the analysis required for the application of Article 7(1), they should be sufficient to allow a review of the appropriateness of the commitments (para. 100). The CFI emphasizes that Article 9 decisions cannot be used to require undertakings to comply with commitments which would, under Article 7(1), be disproportionate to the infringement (para. 101). As to the judicial review of the proportionality of commitments made binding, the CFI accepts that it is limited to a manifest error assessment where the Commission has in fact engaged in a complex economic assessment. But where such assessment is lacking, a full review of proportionality will be performed by the court (paras. 110–111). 84 See Alrosa, cited supra note 2, para. 88 (Commission “is not obliged in any way to take into account, and, a fortiori, to take into account on a take-it-or-leave-it basis, the offers of commitment which the undertakings concerned submit to it”). See also ibid., para. 105 (voluntary nature of the commitment “does not relieve the Commission of the need to comply with the principle of proportionality, because it is the Commission’s decision which makes those commitments binding. The fact that an undertaking considers, for reasons of its own, that it is appropriate at a particular time to offer certain commitments does not of itself mean that those commitments are necessary.”).

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In applying these principles to the facts of the case, the CFI concluded that a commitment absolutely prohibiting any future trading relations between Alrosa and De Beers for an indefinite period of time was disproportionate to the alleged infringement of Article 82. If the Commission’s concern was that the conclusion of the notified agreement would have prevented Alrosa from operating as an independent supplier on the rough diamond market and would have eliminated a source of supply for potential customers, a prohibition to implement that agreement would have sufficed to put an end to the abuse (paras. 113–114). If the Commission’s concerns related to the existence of long-standing relations between Alrosa and De Beers, the continuation of which the agreement merely ensured, and if the aim pursued by the Commission was therefore to end all practices which prevented Alrosa from establishing itself as an effective competitor on the market, the Commission would have at least been obliged to assess whether the commitments offered jointly by Alrosa and De Beers would have been sufficient to achieve this aim. But the Commission failed to carry out such an assessment. For its part, the Commission argued that “the identification of alternative solutions to the commitments that were made binding would have required a complex economic assessment which Article 9 of Regulation 1/2003 was intended to avoid” (para. 124). The CFI found this to be a manifest error of assessment: “[A]lthough Article 9 does not require the Commission to adduce evidence of the infringement targeted by the proceedings, that does not relieve it of the necessity of establishing an analytical framework which is sufficient to allow an effective judicial review of the proportionality of the measures adopted” (para. 125).

Compliance with the proportionality principle “requires that, when measures that are less onerous than those it proposes to make binding exist, and are known by it, the Commission should examine whether those measures are capable of addressing the concerns which justify its action before it adopts, in the event of their proving unsuitable, the more onerous approach” (para. 131). According to the CFI, absent exceptional circumstances (which were not identified in this case), the Commission could not have lawfully adopted under Article 7(1) a decision requiring De Beers to bring to an end, for an indefinite period, all direct or indirect trading relations with Alrosa. Such a decision, which would have required Alrosa to make significant changes to its commercial structure in order to compete effectively with the dominant company—De Beers—would have violated the principle of proportionality (para. 140). The same is therefore true for a commitment decision under Article 9(1).

b) Infringement of the right to be heard The CFI also found an infringement of the right to be heard, which would in itself justify an annulment of the Commission’s decision.

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Commitment Decisions under Article 9 of Regulation 1/2003 567 The CFI emphasized the fundamental importance of the right to be heard, which is a fundamental principle of Community law (para. 191), and which is also acknowledged in Article 41(2) of the Charter of Fundamental Rights (para. 188). The right to be heard is furthermore an essential part of the rights of defence recognized under Article 27(2) of Regulation 1/2003. The rights of defence also include a right of access to the Commission’s file (para. 189). Under the circumstances of the case, Alrosa should have been granted the full set of rights of defence that are normally granted to a defendant or to an “undertaking concerned” (para. 187). It is true that, technically speaking, De Beers alone was the “undertaking concerned” in the proceedings conducted by the Commission under Article 82. However, Alrosa was De Beers’ contracting partner in the context of a long-lasting bilateral trading relationship which the commitment decision addressed to De Beers would have brought to an end, and it was a party to the parallel proceedings brought against both Alrosa and De Beers based on Article 81. In a competition law case centring around the lawfulness of a contractual relationship which could have been, and in effect was, brought under both Article 81 and Article 82, Alrosa could not be treated as a mere “interested third party” to the proceedings against De Beers for the purposes of Article 27(4) of Regulation 1/2003. In such “hybrid” cases, the Commission’s choice to proceed under Article 82 cannot bypass the procedural rights that the parties would enjoy in an Article 81 proceeding. When the Commission decided, in response to the third-party comments on the joint commitments initially proposed by Alrosa and De Beers, that contrary to its earlier assessment these commitments were not sufficient to address its competition concerns, and that a definitive cessation of relations between the parties was required, the Commission was under a duty to hear Alrosa and De Beers (para. 194). The CFI seized the opportunity to formulate clear and strict rules on how the Commission may react to negative third-party comments received during the market test procedure under Article 27(4) of the Regulation. It acknowledged that the Commission was entitled to take the view, after receipt of observations from third parties, that the commitments proposed by the parties did not address the concerns set out in its preliminary assessment (para. 195). But according to the CFI, “[i]t is clear that the Commission can depart from the assessment made of the joint commitments only if the factual background has changed or if that assessment was undertaken on the basis of incorrect information” (para. 194)—that is, under preconditions similar to those listed in Article 9(2) for reopening proceedings once commitments have been made binding. The CFI thereby implicitly rejected the Commission’s former practice, which had treated the Article 27(4) procedure as a market check for the adequacy of the commitments offered, meant to compensate to some extent for the lack of a full investigation into the case. If the Commission is obliged to perform an investigation “sufficient to allow a review of the appropriateness of the commitment” and to fully assess the appropriateness and proportionality of the commitments offered, as the

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CFI argued in the first part of the Alrosa judgment (para. 100), only additional facts brought forward by third parties should be able to make the Commission change its mind. The undertakings concerned must be informed of such new facts, and they have a right to be heard (para. 196). This procedure addresses concerns that third parties could use the market test procedure strategically in order to induce the Commission to impose a straitjacket upon a competitor. In the present case, Alrosa initially only received a summary of the conclusions which the Commission had drawn from the third-party observations (para. 196); it was not granted full access to the Commission’s file, as would have been required in order to ensure an effective protection of its rights of defence. When Alrosa finally received those observations, it was not granted an opportunity to provide an effective reply and to propose new joint commitments with De Beers (para. 201). The Alrosa judgment has been appealed, and the case is currently pending before the Court of Justice.85

IV. Implications of Alrosa and some remaining questions If the Alrosa judgment is upheld by the ECJ, it will fundamentally reconceptualize the function of commitment decisions and the structure of commitment decision procedures, with likely repercussions for analogous provisions in national competition laws.86 Alrosa does not conceive of commitment decisions as “settlements”, i.e. as essentially voluntary bilateral agreements based on a negotiated bargain by which the defendant accepts certain constraints in return for a withdrawal of the official charges. A negotiated settlement procedure would imply a broad margin of discretion for the authorities in striking a bargain, as the Commission has in fact claimed. In the view of the CFI, by contrast, commitment decisions under Article 9(1) of Regulation 1/2003 are public law enforcement decisions in the same way as infringement decisions under Article 7(1) of the Regulation. Both pursue the aim of putting infringements to an end. In both proceedings, the Commission is fully bound by the substantive rules of competition law, namely Article 81 and Article 82, and by the general principles that apply to any exercise of public authority under European Community law, including the proportionality principle and procedural guarantees. For commitment decisions to be lawful, 85

Case C-441/07 P, Commission v Alrosa. not yet decided. For a brief overview, see Temple Lang, cited supra note 5, at 306–308. For a discussion of § 32b of Germany’s GWB, see Bornkamm, supra note 7. For some remarks on the French, Belgian and Irish systems, see Georgiev, supra note 5, at 994–995. 87 Article 7(1) of Regulation 1/2003 specifies that, when adopting an infringement decision, the Commission may impose “any behavioural or structural remedies which are proportionate to the infringement committed and necessary to bring the infringement 86

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Commitment Decisions under Article 9 of Regulation 1/2003 569 the Commission’s investigation of a case must be sufficiently serious and substantial to clearly identify and circumscribe a competitive concern and to assess the adequacy and the proportionality of the commitments offered.87 The one advantage that the commitment procedure offers for the Commission is that it does not have to prove an infringement of Article 81 or Article 82 in full. It will, however, have to substantiate its case, and it remains subject to all other duties and controls that apply in regular infringement proceedings. Most importantly, commitment decisions remain fully subject to judicial review. In the eyes of the CFI, the commitment procedure introduced by Article 9 is not a sufficient basis for trading off fundamental legal guarantees and controls against administrative efficiency. This is true at least where binding commitments affect the rights of third parties which were not themselves parties to the commitment proceedings, as was the case in Alrosa.88 The Commission must not accept commitments and make them binding if third parties would be negatively affected in a way they would not have been if, instead, an infringement proceeding under Article 7(1) had been pursued. The Commission must not go beyond the pure enforcement of Article 81 or Article 82 (para. 149). In addition to these fundamental principles, the Alrosa judgment provides answers to some of the more concrete questions raised above.

1. Function, form and content of the preliminary assessment The CFI has clarified that the commitment procedure does not relieve the Commission of the obligation to engage in a sufficiently profound and serious analysis of the market and the allegedly illegal practices so as to have a clear picture of the nature, scope and competitive relevance of the alleged infringements and of the types of remedies that are necessary to put them to an end.89 The result of this investigation must be reflected in the preliminary assessment. Although such a preliminary assessment can be (and typically will be) shorter and less detailed than a Statement of Objections, it must fully set out and substantiate the Commission’s competition concerns and provide a sound basis for the assessment of whether the commitments offered are proportionate to the effectively to an end. Structural remedies can only be imposed either where there is no equally effective behavioural remedy or where any equally effective behavioural remedy would be more burdensome for the undertaking concerned than the structural remedy.” 88 See Alrosa, cited supra note 2, para. 88. The CFI stresses that Article 9 decisions “may indirectly have legal effects erga omnes” and cites this as one of the reasons why the Commission has a particular responsibility for commitments made binding—despite the fact that commitments are offered voluntarily by the undertaking concerned. 89 See also Wils, cited supra note 7, at 33. According to Wils, the “preliminary assessment” must follow an investigation of the case which is sufficiently serious to allow the Commission to take a preliminary position about the existence of an infringement and about the likely imposition of fines, and sufficiently detailed to serve as a benchmark against which to evaluate any commitment proposals.

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infringement of the competition rules. This is vital for the full protection of the rights of the undertakings concerned,90 and it is an essential precondition for an effective judicial control meant to ensure that the Commission remains limited to enforcing the substance of the competition rules. Given the function of the preliminary assessment as the CFI has framed it, a course of action like the one apparently chosen in the Coca-Cola case as well as in Repsol, where the preliminary assessment seems to have followed extended negotiations between the Commission and the undertakings concerned, and was arguably written to fit the commitments agreed, would likely not withstand judicial control. If the commitment procedure is perceived as an instrument of public law enforcement, and not as a mechanism for settling a case, due process rules and principles of administrative transparency will require the Commission to clearly define and set out the alleged infringement first before it enters into negotiations on commitments or remedies.91

2. Proportionality and close correspondence between the Commission’s competition concerns and the commitments made binding The core insight from the Alrosa judgment is that, in an action for annulment, commitments made binding will be subject to a full proportionality review by the Community Courts. In substance, the commitments must clearly correspond to the alleged infringement of Article 81 or Article 82 as explicated in the preliminary assessment. Commitments may only be made binding if they could have been imposed in a formal infringement procedure, assuming the facts alleged were fully proved.92 It is therefore doubtful whether a commitment not to engage in certain types of conduct on geographic markets which were not investigated by the Commission—as was done in Coca-Cola— would stand up to the scrutiny of the CFI. Furthermore, the Commission has to carry out a full economic assessment of whether the commitments are necessary, i.e. whether they do not go beyond what would be appropriate and necessary if the infringement had been fully established, or whether other, less onerous commitments would suffice. In the view of the CFI, it is not the purpose of the commitment procedure under Article 9 of Regulation 1/2003 to allow the Commission to save costs and time by skipping or abbreviating this scrutiny. In the light of Alrosa, trading off the imposition of a potentially high fine against a commitment by the defendant to implement a radical structural remedy the proportionality of which is controversial—as is currently envis90

Emphasized by Waelbroeck, cited supra note 37, at 20–21. In a large number of commitment procedures, the Commission initially issued a full Statement of Objections. See, e.g., Distrigaz, cited supra note 27; SkyTeam, supra note 28. 92 Temple Lang, cited supra note 5, at 283; Waelbroeck, supra note 37, at 26. 91

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Commitment Decisions under Article 9 of Regulation 1/2003 571 aged in the E.ON and RWE cases—may be a legally questionable strategy.93 According to Recital 13 of Regulation 1/2003, “[c]ommitment decisions are not appropriate where the Commission intends to impose a fine”. The Commission has apparently chosen to read this recital narrowly so as to exclude commitment decisions only in cases of hard core cartels where the goal of effective deterrence appears to require the imposition of a fine. But effective deterrence may also be important in non-cartel cases. Furthermore, Recital 13 arguably responds to a more general concern. The purpose of the commitment procedure is to alleviate the burden of proof that would otherwise apply if the Commission sought to establish an infringement of the competition rules. It is not to boost the Commission’s power to bargain for far-reaching and possibly legally vulnerable remedies in exchange for a “waiver” of fines. A concrete threat of high fines will almost always raise the spectre that the process of “bargaining” for commitments is inherently skewed.94 The Alrosa judgment, with its emphasis on ensuring the proportionality of commitments vis-à-vis the alleged competition law infringement, underlines the relevance of this concern. In another respect, the Commission has meanwhile reacted to the Alrosa judgment: Distrigaz95—the first commitment decision issued after the Alrosa judgment was published—includes a detailed discussion of the proportionality of the commitments made binding, a specification of the finding on which this assessment is based, and a specification of some of the circumstances under which the Commission would reopen the proceedings under Article 9(2) of Regulation 1/2003 in order to relax the commitments. This is an important evolution of the Commission’s commitment decision practice, and it goes some way towards addressing the concerns of the CFI. Where complex economic assessments are at issue, it will also affect the intensity of the CFI’s judicial review.

3. Procedural safeguards: the right to be heard and the right of access to the file Contrary to some initial concerns,96 the right to be heard and the right of access to the file are fully guaranteed in the context of commitment decisions. The 93 From a policy perspective, see also Whish, cited supra note 7, at 570–571 (“[T]here is much to be said for pursuing serious infringements right through to a formal decision, including the imposition of fines: failure to do so may mean that the full impact of the law is obscured.”); Georgiev, supra note 5, at 1025–1026. 94 According to Waelbroeck, cited supra note 37, at 26, the threat of a fine raises doubts as to the voluntary nature of the commitment offered by the undertakings concerned. Therefore, if there is such a threat, all procedural guarantees should apply, including the right to appeal the decision. 95 Cited supra note 27. 96 See Cook, cited supra note 5, at 219–220; Whish, supra note 7, at 564–566. For further discussion, see Wils, supra note 7, at 34–36.

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procedural rights of the undertakings concerned are equivalent to the rights they enjoy in infringement proceedings under Article 7(1) of Regulation 1/2003.97 The right of full access to the file (including access to third parties’ observations where a market test convinces the Commission that proposed commitments must be amended) is essential to enable the undertakings concerned to assess the legal situation and make an informed judgment as to which commitments (or amended commitments) to offer, if any.98 Full access to the file is an important part of the rights of defence,99 but it is also an additional safeguard helping to ensure that no disproportionate commitments will be imposed.100 On the other hand, the rights of third parties during an Article 9 procedure remain, after Alrosa, an open question. Alrosa’s full right of access to the file was justified by the fact that it was to be treated like an undertaking concerned. In other situations, it is not clear whether third parties have a right to receive a non-confidential version of the preliminary assessment, analogous to the right of third parties to receive a non-confidential version of the Statement of Objections in Article 7 procedures.101 However, the parallel treatment of Article 7 procedures and Article 9 procedures which the CFI advocates suggests that such a right does exist.102 If the Article 9 procedure is construed as an instrument of public competition law enforcement, similar to the enforcement procedure under Article 7, there appears to be no justification for putting third parties in a significantly worse position.103 This is true in particular if the Commission’s commitment decisions in effect also bind national courts and competition authorities: in this case, the Commission must ensure that the rights of third parties are fully protected in the Article 9 procedure.104

4. The right of the undertakings concerned to appeal a commitment decision While Alrosa does not explicitly address the controversial question of whether undertakings whose commitments have been made binding might have a 97 See Commission, Notice on the rules for access to the Commission file in cases pursuant to Articles 81 and 82 of the EC Treaty, 2005 OJ C325/7. The Notice does not refer explicitly to the Article 9 procedure, but it follows from the CFI’s judgment in Alrosa (supra note 2) that the same principles will apply. See also Temple Lang, cited supra note 5, at 277. 98 See Whish, cited supra note 7, at 566. 99 Ibid. 100 For this additional dimension, see Wils, cited supra note 7, at 36. 101 For this right, see Article 6 of Regulation 773/2004, cited supra note 17. 102 See also Temple Lang, cited supra note 5, at 280. 103 Similarly, see Whish, cited supra note 7, at 565. See also Temple Lang, supra note 5, at 319, for the concern that the commitment procedure may not adequately protect the interests of third parties. 104 But see Waelbroeck, cited supra note 37, at 18–19 (rights of third parties sufficiently protected, at least after Alrosa).

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Commitment Decisions under Article 9 of Regulation 1/2003 573 right to appeal the decision before the Community Courts,105 the CFI’s reasoning makes it likely that, in principle, such an action would be admissible.106 This follows from the CFI’s emphasis on the fact that commitment decisions constitute public law enforcement, and that the Commission ultimately bears full and sole responsibility for the commitments made binding, and for their proportionality. The CFI explicitly refers to the parallel case law on commitments offered in merger control proceedings, which—even if they have been offered voluntarily by the merging parties—can be appealed on the basis of Article 230 EC107 (paras. 106–107). Even if the appeal is admissible under Article 230, the fact that commitments have been offered voluntarily to achieve a desired result may affect the intensity of judicial review. In the field of merger control, parties will be successful in appealing remedies only if they can show that they have been “arbitrarily forced” by the Commission to propose these measures.108 Similar principles might apply in the context of the commitment procedure. Concerns that the Commission will lose interest in the commitment procedure if the addressees of commitment decisions retain their right to appeal are therefore likely unfounded, all the more since appeals against commitments will be much less frequent than appeals by the addressees of decisions under Article 7 of Regulation 1/2003.109

5. Binding effect on national courts and national competition authorities It is not clear what, if anything, follows from Alrosa with regard to the important question of whether and to what extent commitment decisions bind national competition authorities and courts in the assessment of future conduct which is in compliance with the commitments made binding. Can national courts find that the commitments made binding by the Commission do not suffice to put the infringement of Article 81 or Article 82 to an end and grant injunctive relief against conduct that the Commission has analyzed 105

See supra note 75. Similarly, see Waelbroeck, cited supra note 37, at 24. 107 See Joined Cases C-89/85 etc., Ahlström Osakeyhtiöand others v Commission (“Wood Pulp II”) [1993] ECR I-1307, para. 181. In this case, the Court rejected the Commission’s argument that, because an undertaking constituted a unilateral act, the companies who had offered the undertaking were not entitled to appeal. As the Court stated: “The obligations imposed on the applicants by the undertaking must be regarded in the same way as orders requiring an infringement to be brought to an end, as provided for by Article 3 of Regulation No. 17 . . . In giving that undertaking, the applicants thus merely assented, for their own reasons, to a decision which the Commission was empowered to adopt unilaterally.” 108 See Case T-282/02, Cementbouw Handel and Industrie BV v Commission [2006] ECR II-319, upheld: Case C-202/06 P, [2007] ECR I-12129. 109 To the same effect, see Waelbroeck, cited supra note 37, at 24. 106

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within the framework of the commitment procedure but ultimately not prohibited?110 Can national competition authorities, for the same reason, impose farther-reaching remedies?111 These questions have been highly controversial. Based on the clear wording of Recitals 13 and 22 of Regulation 1/2003, Wouter Wils and others have argued that commitment decisions will not prevent private actions in national courts for injunctive relief or the imposition of further remedies by national competition authorities unless the injunction or the additional remedies would make it impossible for the undertaking concerned to comply (also) with the commitments made binding by the Commission’s decision.112 Only then would the national measure “run counter” to the Commission’s decision within the meaning of Article 16(1) or Article 16(2) of Regulation 1/ 2003 and violate Article 10 EC.113 The main argument in favour of a continued decentralized enforcement of competition rules is the understanding that commitment decisions—contrary to infringement decisions under Article 7(1)—are not necessarily meant to bring infringements to an end, but are merely a statement that the case no longer represents an enforcement priority from the Commission’s point of view.114 Others have contested this understanding. According to Denis Waelbroeck, maintaining decentralized enforcement in this context would be irreconcilable with the ECJ’s Masterfoods judgment and with the objective of Article 16 of the Regulation to ensure a “one-stop shop” system.115 Statements by DG Competition officials in the context of the Coca-Cola decision116 have contributed to the doubts about whether DG Comp would accept a continued pursuit of competition law infringements by NCAs. In a summary of the case, Philipp Gasparon and Blazˇ Visˇnar emphasized that “Member States would not be allowed to run counter to the effet utile of the Commission’s commitment decisions”.117 For Coca-Cola, the prospect of ending all proceedings, including those before certain NCAs, was certainly one of the attractions of the commitment procedure under Article 9. In fact, after the Commission issued its commitment decision, all the NCAs that had been investigating Coca-Cola’s business practices closed their files. 110

In the case where private parties have brought an action before a national court. In the case where national competition authorities are acting. 112 Wils, cited supra note 7, at 42–43; Whish, supra note 7, at 569. Similarly, see Armengol and Pascual, supra note 45, at 125–126. 113 Wils, cited supra note 7, at 43. For a good discussion, see also Temple Lang, supra note 5, at 301–304. 114 The Commission is generally free to act on its priorities. See Case T-24/90, Automec v Commission (“Automec II”) [1992] ECR II 2223. 115 Waelbroeck, cited supra note 37, at 12–13. See also Pace, supra note 7, at 242 (“When faced with a commitment decision, national authorities and national courts must close the file on all cases covered by the decision in respect of the period after the decision has been taken.”). For a summary of the arguments on both sides, see Temple Lang, supra note 5, at 287–290. 116 Coca-Cola, cited supra note 27. 117 See Gasparon and Vis ˇ nar, cited supra note 44, at 64 (citing Article 16 of Regulation 1/2003). 111

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Commitment Decisions under Article 9 of Regulation 1/2003 575 The Alrosa judgment does not deal directly with the effect of commitment decisions on national competition authorities and courts. However, as noted here several times, the CFI emphasizes that the aim of a commitment decision—like that of an Article 7 decision—is to put an infringement of the competition rules to an end (para. 87). It also emphasizes the parallels between Article 7 procedures and Article 9 procedures and the fact that the Commission is fully bound by substantive competition law when it decides to proceed under Article 9. If this is so, the Commission is arguably obliged, once it opens proceedings under Article 9 and thereby relieves the NCAs of their competence to apply Article 81 and Article 82 for the duration of the proceedings (Article 11(6) of Regulation 1/2003), to address the alleged infringement of the competition rules in full.118 If the commitment decision is not a settlement procedure proper but part of public competition law enforcement along the same lines as infringement proceedings under Article 7, the Commission should be required to take full account of the public interest in the protection of competition, and should no longer be free to deal with the infringements set out in the preliminary assessment only in part, according to its own enforcement priorities.119 As a necessary corollary of this interpretation, Article 16, according to which national courts and competition authorities have to respect (and possibly enforce120) the commitments made binding under Article 9, would bar national courts from granting injunctive relief and NCAs from imposing additional remedies with a view to the infringements addressed by the commitment decision—despite the text of Recitals 13 and 22 of the Regulation.121 To acknowledge this re-centralization effect of commitment decisions122 is only to acknowledge the effects that the Commission’s commitment decisions actually have in practice: national competition authorities and national courts almost inevitably take them as a signal that there is 118 For a similar interpretation of the CFI’s judgment in Alrosa, see Waelbroeck, cited supra note 37, at 12. 119 Temple Lang, cited supra note 5, at 289, has rightly pointed out that this will make it more difficult for the Commission to adopt commitment decisions, and to some extent compromises the goal of the commitment decision procedure, i.e., that of enabling the Commission to handle cases more efficiently. However, it is in line with the CFI’s finding in Alrosa that the commitment decision procedure cannot be used to avoid an investigation of the case that is sufficiently serious to have a clear and substantiated view of the relevant infringements. 120 This is the position of the Commission. See MEMO/04/217 of 17 September 2004 (“national courts must enforce the commitments by any means provided for by national law, including the adoption of interim measures”). Similarly, see Temple Lang, cited supra note 5, at 290. For discussion, see John Davies and Manish Das, “Private Enforcement of Commission Commitment Decisions: A Steep Climb, Not a Gentle Stroll”, in Barry Hawk, ed., International Antitrust Law and Policy: Fordham Corporate Law 2005, Juris Publishing, 2006, chapter 10; Whish, supra note 7, at 569–570 (if national competition authorities and national courts are not bound by an Article 9 decision, “how can they, nevertheless, be bound by a duty to enforce the same decision?”). 121 National courts and NCAs would, of course, still be competent to act outside the scope of the competitive concerns addressed by the commitment decision. 122 Georgiev, cited supra note 5, at 1030.

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no longer a need to act.123 The decentralized application of competition rules has not been an effective instrument to address any remaining concerns. If the Commission uses (and, contrary to the opinion defended here, if it is allowed to use) commitment decisions merely to state that the case is no longer an enforcement priority, it should at least be required to make that very clear in the text of the commitment decision,124 so as to avoid sending misleading signals to national competition authorities and courts.125 Such a requirement, however, would compromise the value of a commitment decision for the undertakings concerned.

6. Conclusions When the Commission proposed to introduce commitment decisions, it perceived them to be a form of negotiated settlement, modelled in part along the lines of a US consent decree.126 According to this perception, the conditions for the use of this new “settlement” procedure should be flexible, and the Commission should be able to agree to a settlement where its interest in an efficient use of its limited resources and its enforcement priorities justified this choice.127 In Alrosa, the CFI refused to conceive of and interpret commitment decisions along those lines.128 The court’s reasoning has a firm basis in the principles of European Community law. In the context of competition law, the Commission’s mandate is set out in Article 85 EC. It is to “ensure the application of the principles laid down in Articles 81 and 82”, and if the Commission finds that there has been an infringement, it must “propose appropriate measures to bring it to an end”. In both its content and limits, this clear mandate is the basis for guaranteeing the effectiveness of Community competition law. Ensuring that 123

This is emphasized by Waelbroeck, cited supra note 37, at 13. For this position, see Temple Lang, cited supra note 5, at 290 (“The better interpretation seems to be that the Commission may take its enforcement priorities into account, but that it should make the firmest statement it can about the unlikelihood of any infringement occurring if the commitment is fully carried out.”). 125 Waelbroeck, cited supra note 37, at 13–14, argues that this will not suffice: national courts and competition authorities will nonetheless refuse to act. 126 Wils, this Volume, p. 31. See also Whish, cited supra note 7, at 557. For the relevance of consent decrees in US antitrust law and a description and discussion of the system, see Georgiev, supra note 5. 127 Commission MEMO/04/217 of 17 September 2004. 128 For the thesis that the US system of consent decrees cannot simply be transferred to the EU, with its different institutional framework, see Georgiev, cited supra note 5, at 1007–1008. One important difference between the European system of commitment decisions and the US system of consent decrees is that, in the US, under the Tunney Act of 1974, all consent decrees by the DOJ are reviewed by a federal district court, and the court must consider whether the consent decree is in the public interest. The European system does not provide for a similar type of judicial control. 124

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Commitment Decisions under Article 9 of Regulation 1/2003 577 the Commission remains closely tied to the substance of the competition rules, and ensuring effective judicial review, are essential prerequisites for protecting the balance of powers and the rule of law. In light of these principles, the CFI has re-established four fundamental safeguards against possible abuses of the commitment procedure: the Commission’s duty to investigate and clearly formulate the charges against the undertaking concerned; full judicial review of the proportionality of the commitments; full protection of the procedural rights of the undertakings concerned, namely the right of access to the file and the right to be heard; and protection of the right of the undertakings concerned to appeal to the Community Courts. These judicial safeguards have been developed in a special setting, namely in the context of a “hybrid” Article 81/Article 82 case, but their relevance extends to all commitment proceedings—despite the fact that in “non-hybrid” cases violations will be harder to bring before the courts. If Alrosa is upheld by the ECJ, the commitment procedure may lose some of its attraction for the Commission.129 Based on the Alrosa principles, it will not be able to use the commitment decision the way it had intended. On the other hand, the legal constraints on the Commission’s freedom of action may be read as a judicial acknowledgement that the incentives of the Commission and the undertakings to settle, and the public interest in effective protection of competition, may diverge. The Commission may be biased in favour of administrative flexibility, and it may underestimate the value of binding precedent and the evolution of legal doctrine. It may sometimes pursue regulatory goals, reaching beyond the important limits of competition law, and it may have incentives to avoid judicial control which, in the longer run, is essential for its legitimacy. With a view to this potential divergence of public and administrative interests, the CFI’s refusal to rely on the Commission’s exercise of self-restraint alone130 may have been wise: in the EU, the law and judicial review provide the strongest—and frequently the only meaningful— mechanisms for ensuring the accountability of public action. In this perspective, the somewhat narrower scope for administrative cost savings may be an acceptable price to pay.

129 See Wils, cited supra note 7, at 32. Wils regards the avoidance of the cost and delay of judicial review as precisely one of the benefits justifying the use of commitment decisions. 130 As suggested, for instance, by Wils, ibid., at 32–33.

COMP/39.116

COMP/38.381

COMP/38.173

COMP/38.348

COMP/38.681

2

3

4

5

6 DaimlerChrysler Toyota

Cannes Agreement

Football Association Premier League Joint selling of media rights Repsol

Art.81

Art.81

Art.81

Art.81

23.05.2006 [2006] OJ C122/2 22.03.2007 [2007] OJ C66/18;

30.04.2004 (Art. 19(3) of Regulation 17/62) [2004] OJ C 115/3 20.10.2004 [2004] OJ C258/7

Decision (14.09.2007)

Decision (12.04.2006) Appeal dismissed by the CFI (T-45/08) Decision (04.10.2006)

Decision (22.02.2006) Decision annulled by the CFI (11 July 2007, T-170/06) Appealed to ECJ (C-441/07 P) Decision (22.03.2006)

Decision (22.06.2005)

Decision (19.01.2005)

Outcome

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14.09.2004 [2004] OJ C229/13 26.11.2004 [2004] OJ C289/10 Art.82 / Article81 03.06.2005 [2005] OJ C136/32

DFB—Deutsche Bundesliga Art.81 Joint selling of media rights Coca-Cola Art.82

Market test Notice (Art. 27(4))

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COMP/37.214

1

Type of competition concern

578

Case

Annex: List of Article 9 commitment procedures before the EU Commission

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COMP/38.698

COMP/37.984

COMP/B-1/39.388; E.ON COMP/B-1/39.389 COMP/39.402 RWE Gas COMP/39.416 Ship classification

COMP/C-3/38.363

COMP/B-1/39.316

COMP/B-1/39.351

COMP/C-3/39.530

14

15

14

18

19

20

21

Microsoft (Tying)

Swedish Interconnectors

Gaz de France (gas market foreclosure)

Art. 82

Art. 82

Art. 82

Art. 82

Art. 82 Art. 81

Art. 82

Art.81

Art.81

6.10.2009 [2009] OJ C 239/9 9.10.2009 [2009] OJ C 242/20

19.10.2007 [2007] OJ C245/46 12.6.2008 [2008] OJ C146/34 — 10.6.2009 [2009] OJ C 131/20 12.6.2009 [2009] OJ C133/16 9.7.2009 [2009] OJ C156/25

Pending

Pending

Pending

Pending

Decision (18.3.2009) Pending

Decision (26.11.2008)

Prohibition Decision (16.07.2008) (IP/08/1165; and MEMO/08/511) Pending

Pending

Pending

Decision (11.10.2007)

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Rambus

SkyTeam

CISAC

Art.81

Art.81

Art.82

C66/21; C66/24; C66/27 05.04.2007 [2007] OJ C77/48 03.08.2005 [2005] OJ C200/11 22.09.2005 [2005] OJ C233/18 09.06.2007 [2007] OJ C128/12

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16 17

13

COMP/39.152; COMP/39.153 COMP/37.749

12

BUMA / SABAM— Santiago Agreement Austrian Airlines & SAS

COMP/37.966

11

GM Fiat Distrigaz

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II Santiago Martínez Lage and Rafael Allendesalazar* Commitment Decisions ex Regulation 1/2003: Procedure and Effects

1. Introduction Regulation 17/621 did not provide for the possibility of formally settling proceedings applying Article 81 or 82 EC. Nevertheless, the European Commission established an administrative practice of informal settlements by accepting, in a number of cases,2 commitments offered by the companies. In its XXIVth Report on Competition Policy (1994), the Commission openly acknowledged its willingness to accept undertakings in Article 82 cases, and seemed to confine formal decisions to only those cases where: fines were justified; the parties contested the Commission’s findings; or a novel point of wider interest was involved.3 Article 9 of Regulation 1/20034 formally introduced the possibility of closing proceedings with a commitment decision, codifying the Commission’s previous administrative practice. Article 9 is based on the following three principles. —Commitments are accepted without an explicit declaration that the company has infringed Article 81 or 82; —Decisions accepting commitment are incompatible with the imposition of fines;

* Santiago Martínez Lage is the Managing Partner, and Rafael Allendesalazar is a Partner, of Howrey Martínez Lage. 1 Council Regulation 17/62, 1962 JO 13/204, Eng. Spec. Ed. 1959–1962, at 87. 2 See, e.g., IBM undertaking, XIVth Report on Competition Policy, 1984, points 94–95; Coca-Cola, Press Release IP/90/7 of 9 January 1990; Microsoft, Press Release IP/94/653 of 17 July 1994; A.C. Nielsen, IP/96/1117 of 4 December 1996; Digital, IP/97/868 of 10 October 1997. 3 See XXIVth Report on Competition Policy, 1994, point 211: “The Commission’s main aim is to ensure efficiently functioning markets. It is therefore prepared to accept undertakings from dominant companies to achieve this end. In the interest of good administration, it will normally issue final decisions only where fines are justified, where the parties contest the Commission’s findings or where a novel point is involved of wider interest.” 4 Regulation (EC) No 1/2003 of the Council of 16 December 2002 relating to the implementation of the rules on competition laid down in Articles 81 and 82 of the EC Treaty, 2003 OJ L1/1.

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—Failure to comply with commitments made binding by the Commission’s decision may give rise to the imposition of fines, and this does not require (as was the case for informal undertakings prior to Regulation 1/2003) a reopening of the proceedings in order to establish the existence of an infringement of Article 81 or 82. The first two principles were already implicitly applicable in the Commission’s administrative practice on informal settlements under Regulation 17/62, but they have been enhanced by being explicitly incorporated in Article 9 of Regulation 1/2003, or at least in its Recital 13. The third principle did not exist in the Commission’s administrative practice under Regulation 17/62. This new principle reinforces significantly the effectiveness of commitment decisions by aligning the effects—i.e. the penalties—of failing to comply with a decision adopted under Article 7 (finding of infringement of Article 81 or 82), Article 8 (interim measures) or Article 9 (binding commitments) of Regulation 1/2003.5 This alignment is particularly noticeable since penalties will only be imposed on the basis of Article 7 or Article 8 once the Commission has formally declared an infringement of Article 81 or 82 EC. For interim measures, only a prima facie finding is necessary;6 by contrast, a breach of a commitment decision will result in the imposition of the same penalties, even though the Commission will not have previously found a violation of Article 81 or 82.

2. Practical importance and advantages of commitment decisions The sheer number of formal commitment decisions adopted to date by the Commission shows how useful this procedure can be. In four years of application of Regulation 1/2003, the Commission has formally initiated 16 commitment proceedings that we are aware of.7 This outnumbers all other proceedings formally initiated by the Commission, except for Article 7 decisions related to cartels.

5 The Commission may impose the same periodic penalties up to 5% of the daily turnover (see paragraphs (a), (b) and (c) of Article 24(1) of Regulation 1/2003) and the same fines of up to 10% of the annual turnover of the undertaking (paragraphs (a), (b) and (c) of Article 23(2) of Regulation 1/2003). 6 Article 8(1) of Regulation 1/2003. 7 The cases are: German Bundesliga; Coca-Cola; Repsol; De Beers; BUMA/SABAM; Austrian Airlines; Premier League; The Cannes Extension Agreement; Daimler/Chrysler; Fiat; Toyota; General Motors/Opel; Distrigaz; CISAC Agreement; E.On; and RWE. See the table included in the Annex to this chapter.

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Commitment Decisions ex Regulation 1/2003 583 Article 9 decisions have thus become an essential—if not the essential— guiding instrument to discern the Commission’s point of view on the legality of certain conduct in areas where the interpretation of Article 81 or 82 is far from clear.8 In this respect, since the Commission seems reluctant to adopt Article 10 decisions (“finding of inapplicability”)9 or to issue guidance letters10 (as far as we know, neither of these two types of acts have been used), commitment decisions remain to date the sole public decisions under Regulation 1/2003 expressing its “positive” assessment of certain conduct under Article 81 and 82. When considering the advantages of the present system of commitment decisions,11 we believe the comparison should be carried out at two different levels. On the one hand, Article 9 decisions should be compared with informal settlements under previous Regulation 17/62. On the other hand, commitment decisions should be compared to other types of decisions under Regulation 1/2003, in particular to Article 7 decisions. By formalizing the procedure that the Commission has to follow in order to accept formal commitments, the new regime certainly provides better protection for procedural rights of the parties than the previous administrative practice of informal settlements. This is particularly true for third parties, whose procedural rights under the previous regime were far from clear. The new procedure is more transparent and clear, particularly with regard to both the Commission’s “preliminary assessment” of the case and the reasons why the Commission considers that the proposed commitments remove those concerns. Regulations 1/2003 and 773/200412 ensure that complainants will have access to the document in which the Commission expresses its concerns about the practices of the accused undertakings,13 and that all 8 For instance, this is the case for joint selling of media rights for sporting events (Bundesliga and Premier League); rebates schemes and other distribution practices for strong-brand consumer goods (Coca-Cola); international licensing of copyright (BUMA/ SABAM, Cannes Extension Agreement and CISAC); licensing of technical information by car manufacturers (Daimler/Chrysler; Fiat; Toyota; General Motors/Opel); long-term supply agreements for service stations (Repsol) and for natural gas (Distrigaz); cooperation agreements between airlines (Austrian Airlines); competition in the electricity sector (E.On); and the unbundling of utilities (RWE). 9 See Article 10 of Regulation 1/2003. 10 See Notice on informal guidance relating to novel questions concerning Articles 81 and 82 of the EC Treaty that arise in individual cases (guidance letters), 2004 OJ C101/06. 11 For a general review of the possible advantages of the new commitment decisions for accused companies and for the Commission, see Christopher Cook, “Commitment Decisions: The Law and Practice under Article 9”, 29(2) World Competition 209 (2006); John Temple Lang, “Commitment Decisions and Settlements with Antitrust Authorities and Private Parties under European Antitrust Law”, in Barry Hawk, ed., International Antitrust Law and Policy: Fordham Corporate Law 2005, Juris Publishing, 2006, chapter 13. 12 Commission Regulation No 773/2004 of 7 April 2004 on the conduct of proceedings by the Commission pursuant to Articles 81 and 82 of the EC Treaty, 2004 OJ L123/18. 13 We will later refer to the fact that the Commission may express its initial concerns either in a “preliminary assessment” or in a Statement of Objections. If the Commission issues a Statement of Objections, Article 6 of Regulation 773/2004 expressly provides that

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interested third parties will have the right to express their position on the proposed commitments before the Commission finally decides that the commitments meet those concerns and makes them binding.14 Furthermore, if directly and individually affected by the Commission’s decision, third parties will have standing to seek its annulment before the Community Courts, for instance on the ground that the commitments do not adequately meet the Commission’s initial concerns.15 Compared with the previous informal settlements, commitment decisions also have an important advantage for the Commission: they can be enforced more swiftly than the previous informal settlements. If an undertaking acts contrary to its commitments, the Commission can impose penalties without having to reopen the proceedings or to demonstrate that either the previous practices or the new conduct are contrary to Article 81 or 82. Accused companies have clear incentives to offer commitments instead of risking an adverse decision following the ordinary procedure under Article 7: —They avoid a formal finding of infringement. This is important, not only because the Commission will not impose fines, but also because an infringement decision would significantly facilitate claims for damages, as it could be considered irrefutable proof that the addressee of the decision has infringed Article 81 or 82.16 On the contrary, commitment decisions remain silent as to the existence of an infringement; thus, a party seeking private enforcement in national courts will still need to prove the illegality of the defendant’s behaviour to obtain compensation for damages. Furthermore, some companies may also be particularly sensitive about their public image. From this perspective, it is clear that commitment decisions produce much less negative exposure—if any—than prohibition decisions. —The company will have the possibility of proposing to the Commission remedies which it knows can operate in practice; furthermore, it can fine-tune its the complainant will receive a non-confidential version of it and will have the right to express its views on it. Although Article 6 only refers to the Statement of Objections, in practice it seems that the complainant also gets to know the substance of the concerns contained in a preliminary assessment. 14 In fact, it is common practice for the Commission to require the company to amend its initial commitments to take into account allegations presented by third parties during the market test that the Commission carries out before it can accept commitments. 15 See Case T-170/06, Alrosa Company Ltd v Commission [2007] ECR II-2601, on appeal: Case C-441/07 P, Commission v Alrosa, not yet decided. 16 Article 16(1) of Regulation 1/2003 provides that, “when national courts rule on agreements, decisions or practices under Article 81 or Article 82 of the Treaty which are already the subject of a Commission decision, they cannot take decisions running counter to the decision adopted by the Commission.” The Commission interprets this Article as meaning that “claimants who bring actions for damages before national courts subsequent to a Commission decision, can rely on the Commission’s decision directly as irrebuttable proof that an addressee of the decision infringed Article 81 or 82 EC”. Commission, Staff Working Paper accompanying the White Paper on Damages actions for breach of the EC competition rules, SEC(2008) 404 of 2 April 2008, http://ec.europa.eu/comm/competition/ antitrust/actionsdamages/documents.html, at para. 140.

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Commitment Decisions ex Regulation 1/2003 585 proposals to meets the Commission’s preliminary concerns while disrupting its business practices as little as possible. —In areas where the limits of Article 81 or 82 are unclear, commitment decisions offer the company a relatively safe harbour for future conduct. We will come back to this point when discussing the effects of the commitment decision. The Commission also has good reasons to favour commitment decisions rather than prohibition decisions: —The most obvious advantage for the Commission is that commitment decisions usually allow it to settle proceedings faster and in a less burdensome manner, resulting in expediency and efficient use of resources.17 For instance, in Article 82 cases the Commission can avoid endless discussions on the relevant market, the degree of dominance and the extent of the “special responsibility” of the dominant company.18 This objective is particularly important since one of the main priorities for competition authorities—if not the main one—should be to put an end to infringements and rapidly restore competition. —Since commitment decisions are usually less controversial than infringement decisions, they may allow the Commission to resolve competition concerns that do not correspond to previously defined infringements of Article 81 or 82, with a limited risk of the decision being challenged before the Court of First Instance.19 —The fact that these decisions are usually less contentious also provides the Commission with a unique opportunity to revisit certain prohibitions, the scope of which it may be willing to curb. For instance, when dealing with a case involving potentially exclusionary practices, the Commission could use reasoning on why the commitments remove the preliminary concerns to confirm its willingness to set aside the previous “form based” approaches to Article 82 in favour of an “effects based” analysis, without having to enter into a full-fledged discussion on the compatibility of such an approach with the case law of the Court of Justice and the Court of First Instance.

17 Philip Lowe and Frank Maier-Rigaud, “Quo Vadis, Antirust Remedies?”, in Barry Hawk, ed., International Antitrust Law and Policy: Fordham Competition Law 2007, Juris Publishing, 2008, chapter 20. 18 An example of this situation can be found in the Coca-Cola settlement (Commission Decision 2005/670/EC of 22 June 2005, Case COMP/39.116, 2005 OJ L253/21). If the Commission had not reached a settlement, it probably would have had difficulties imposing specific conditions on certain particular flavours of CSDs (colas and orange), since in previous decisions it had defined the relevant product market as comprising all CSDs. 19 Here again the Coca-Cola decision (cited previous footnote) provides a good example. Some of the commitments made binding by the Commission referred to practices that had not previously been analyzed under Article 82: financing agreements subscribed with the company’s customers; exclusivity linked to sponsoring events; and bids in competitive tenders organized by large private customers.

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Commitment decisions can thus provide the Commission with an excellent opportunity to close the manifest gap between the doctrine on exclusionary practices contained in the Michelin II and British Airways decisions and judgments on the one hand and a “more economic approach” on the other. —Commitment decisions are particularly apt in cases where a cease and desist order does not solve the competition problem and certain remedies are necessary to restore competitive market conditions. In this respect, the interest of the Commission should be aligned with those of the other parties, i.e. to define remedies that can operate in practice and put an end, as swiftly as possible, to the restrictive effects of the practices.20 The Microsoft case illustrates the practical difficulties of imposing remedies unilaterally in the adversarial setting of an infringement decision. One of the remedies imposed—obliging the company to release a version of the Windows operating system without Windows Media Player—was put into practice but has proven to be absolutely useless given the inexistent demand for the so-called N-version of Windows. The effectiveness of the other remedy— disclosing documents to allow full interoperability—has also proven to be a real nightmare, both for Microsoft and for the Commission.

3. Substantive and procedural requirements for the adoption of commitment decisions The requirements for the adoption of a formal commitment decision are essentially defined in Article 9 and in Recital 13 of Regulation 1/2003, although they are also mentioned elsewhere in the Regulation.21 Article 9 provides as follows: “1. Where the Commission intends to adopt a decision requiring that an infringement be brought to an end and the undertakings concerned offer commitments to meet the concerns expressed to them by the Commission in its preliminary assessment, the Commission may by decision make those commitments binding on the undertakings. Such a decision may be adopted for a specified period and shall conclude that there are no longer grounds for action by the Commission. 2. The Commission may, upon request or on its own initiative, reopen the proceedings: 20 One should not assume that it is in the interest of the accused company to jeopardize the effectiveness of the remedies. Our experience is that companies usually value legal certainty, and therefore they prefer to adapt their business practices within well-defined and operative limits, rather than fighting an endless and distressing battle with the competition authority over how to implement ill-defined remedies. 21 See Recital 22 and Articles 5(4), 23(2)(c), 24(1)(c) and 27(4) of Regulation 1/2003.

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Commitment Decisions ex Regulation 1/2003 587 (a) where there has been a material change in any of the facts on which the decision was based; (b) where the undertakings concerned act contrary to their commitments; or (c) where the decision was based on incomplete, incorrect or misleading information provided by the parties.”

Recital 13 elaborates further on the procedure: “Where, in the course of proceedings which might lead to an agreement or practice being prohibited, undertakings offer the Commission commitments such as to meet its concerns, the Commission should be able to adopt decisions which make those commitments binding on the undertakings concerned. Commitment decisions should find that there are no longer grounds for action by the Commission without concluding whether or not there has been or still is an infringement. Commitment decisions are without prejudice to the powers of competition authorities and courts of the Member States to make such a finding and decide upon the case. Commitment decisions are not appropriate in cases where the Commission intends to impose a fine.”

Finally, Recital 22 in fine adds the following: “Commitment decisions adopted by the Commission do not affect the power of the courts and the competition authorities of the Member States to apply Articles 81 and 82 of the Treaty.”

It is worth noting that some of the distinctive procedural and substantive features mentioned in the recitals are not expressly incorporated in Article 9 itself.22 In particular, the later does not indicate: —that a commitment decision does not conclude whether there has been or still is an infringement. —the incompatibility of a commitment decision with the imposition of fines. —the fact that commitment decisions adopted by the Commission are without prejudice to the ability of national courts and national competition authorities (NCA) to apply Articles 81 and 82 to the case.

a) Initiation of proceedings Before adopting a commitment decision under Article 9 of Regulation 1/2003, the Commission must formally initiate proceedings. Article 2 of Regulation 773/2004 states that the Commission can initiate proceedings at 22 Most commentators do not doubt that the contents of Article 9 and Recital 13 must be read together as a whole. However, others consider that, as for the features mentioned only in the Recital and not in Article 9, the Commission may, but need not necessarily, take them into account. See Gunther Hirsch, Frank Montag and Franz-Jürgen Säcker, eds., Competition Law: European Community Practice and Procedure. Article by Article commentary, Sweet & Maxwell, 2007, pp. 1604–1611, para. 4-9-027.

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any point in time, but no later than the date on which it issues a preliminary assessment under Article 9 or a Statement of Objections (SO). The initiation of the proceedings is made public “in any appropriate way” after the Commission has informed the interested parties.23 In practice, however, the fact that the Commission has not initiated proceedings—and thus has not adopted a preliminary assessment or SO—does not prevent the accused company from initiating negotiations with the Commission in order to define acceptable commitments. The chronology of some of the cases decided by the Commission clearly shows that the commitments in these cases were negotiated before the proceedings were formally initiated.24 Reversing the “natural” procedure, the Commission actually initiated the proceedings and adopted its preliminary assessment only after it had obtained from the accused companies commitments that were sufficient to meet its “unknown” concerns. This, of course, raises a problem we will refer to later: the company has to offer commitments without knowing exactly what the concerns of the Commission are—a point which, following the Alrosa judgment, can be crucial for the validity of those commitments. Similarly, the company may be expected to offer commitments without knowing how well founded the Commission’s concerns are. According to Article 11(6) of Regulation 1/2003, the initiation of proceedings relieves the NCAs of their competence to apply Article 81 and 82. But the same provision also specifies that if a NCA is already acting on a case, the Commission may only initiate proceedings after consulting that NCA. In at least one case, the Commission requested an NCA to refrain from adopting a decision in a similar case before it had opened proceedings.25 The Commission based such a demand on the fact that the case was “of particular significance to the Community” within the meaning of paragraph 50 of the 23

Article 2(2) of Regulation 733/2004. For instance, in the Repsol case the proceedings were initiated the same day that the Commission sent its preliminary assessment to the company. Repsol then submitted its commitments less than two weeks later. See Commission Decision 2006/446/EC of 12 April 2006 (Case COMP/38.348—Repsol CPP), 2006 OJ L176/104. Similarly, in the Coca-Cola case (cited supra note 18), after investigating the company’s practices for over four years, the Commission opened proceedings two weeks before sending its preliminary assessment, and commitments were submitted by Coca-Cola four days later. 25 Several months before it formally opened proceedings, the Commission contacted the Spanish Competition Authority, which was conducting a similar investigation with regard to Coca-Cola’s practices in Spain, and requested that it suspend its investigation. In the Spanish case, the competition authority had already tried to settle with the defendant but had failed due to the fact that, according to Article 36 bis of the then-applicable Spanish Competition Act 16/1989, the consent of all parties (including complainants) was required. Fearing a favourable decision that could have negatively affected its position, the Commission formally requested the Spanish competition authority to coordinate both cases so as to avoid any contradictory decision. The Spanish Competition Authority then suspended its proceedings. Immediately following the settlement at EU level, the competition authority closed its case, arguing that the commitments given to the Commission had removed its own concerns. 24

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Commitment Decisions ex Regulation 1/2003 589 then-applicable Notice on cooperation between national competition authorities and the Commission.26

b) Expression of concerns: preliminary assessment or Statement of Objections Article 9(1) of Regulation 1/2003 requires the Commission to inform the company of its concerns by expressing them in a “preliminary assessment”. When Regulation 1/2003 was adopted, it was thought that the preliminary assessment was in fact a Statement of Objections, since neither the new Regulation nor Regulation 17/62 included other formal types of assessment of concerns by the Commission.27 However, the early cases (Bundesliga; Coca-Cola; Repsol) showed that the Commission could make a preliminary assessment without issuing an SO. The existence of two different types of acts was confirmed by Article 2 of Regulation 773/2004, which refers to “a preliminary assessment as referred to in Article 9(1) of [Regulation1/2003] or a statement of objections”. Preliminary assessments can be less formal, and will usually be less detailed, than an SO. Whereas an SO necessarily has to be communicated in writing,28 a preliminary assessment does not require any particular form. Their role is also different. The SO is a crucial step in any proceeding that may result in the imposition of penalties because it defines the scope of the proceeding: the Commission can only use in its final decision, and the defendant only has to respond to, the objections contained in the SO. Preliminary assessments can be less detailed, and they need not include either proof of the facts referred to or a substantial legal analysis of the presumed infringements; its purpose is merely to define the Commission’s “concerns” (a word notably weaker than the word “objections”) and to prepare the ground for a joint solution.29, 30 A parallel can be established between, on the one hand, the content of the SO and of the preliminary assessment, and on the other hand the content of 26 1997 OJ C313/3, superseded by the Notice on cooperation within the Network of Competition Authorities, 2004 OJ C101/43. 27 John Temple Lang, “Commitments decisions under regulation 1/2003: Legal aspects of a new kind of competition decision”, 24 European Competition Law Review 347 (2003). 28 See Article 10(1) of Regulation 773/2004. 29 This purpose is not properly fulfilled when the preliminary assessment is “drafted to correspond to the agreed commitments, rather than the commitments being designed to address the Commission’s concerns as stated in the preliminary assessment”. The quoted passage is from Cook, cited supra note 11, at p. 216. 30 Some authors have pointed to a second purpose of the preliminary assessment: to ensure that the Commission does not negotiate and accept commitments without having sufficiently investigated the case and identified the relevant competition problems. See Eddy De Smijter and Lars Kjølbye, “The enforcement system under Regulation 1/2003”, in Jonathan Faull and Ali Nikpay, eds., The EC Law of Competition, 2nd edition, OUP, 2007, chapter 2, at p. 127.

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the decisions to which each of these acts generally corresponds. In the Alrosa judgment, the CFI said: “In cases to which Article 7(1) of Regulation No 1/2003 applies, the Commission has to establish the existence of an infringement, which implies a clear definition of the relevant market and, where relevant, of the abuse for which the undertaking in question is alleged to be responsible. It is true that, under Article 9(1) of that regulation, the Commission is not required formally to establish the existence of an infringement, as, moreover, recital 13 in the preamble to Regulation No 1/2003 indicates, but it must none the less establish the reality of the competition concerns which justified its envisaging the adoption of a decision under Articles 81 EC and 82 EC and which allow it to require the undertaking concerned to comply with certain commitments. This presupposes an analysis of the market and an identification of the infringement envisaged which are less definitive than those which are required for the application of Article 7(1) of Regulation No 1/2003, although they should be sufficient to allow a review of the appropriateness of the commitment.”31

Thus, if the Commission has issued an SO, it can opt either for an Article 7 or an Article 9 decision. By contrast, if it has only reached a preliminary assessment but, instead of proceeding under Article 9 it intends to adopt an infringement decision, it would first have to prepare and serve to the defendant a formal SO. Some authors have considered that the preliminary assessment is comparable to the prima facie element of an interim measures decision.32 We consider that the existence of fumus boni iuris requires a degree of analysis that goes beyond a preliminary assessment. Fumus boni iuris, we believe, is much closer to the standard that applies to an SO.33 In any case, the form in which the Commission expresses its concerns is not an essential procedural requirement of the commitment decision. Although in most cases the Commission expresses its concerns either as a preliminary analysis or by issuing an SO, in the Distrigaz case it first issued a Statement of Objections (2004), followed by a preliminary assessment (2005) and then by a supplementary Statement of Objections (2006). The Commission considered that the three documents were all preliminary assessments within the meaning of Article 9. In another case, the Commission did not issue either a preliminary assessment or an SO; it merely sent a “letter raising serious doubts as to the impact of the agreement on competition”.34 31

Alrosa, cited supra note 15, para. 100. See Lowe and Maier-Rigaud, cited supra note 17. 33 To adopt an Article 8 decision, the Commission would still have to prove the existence of a periculum in mora., i.e. it would have to demonstrate urgency. 34 The SAS case was initiated following a notification filed in 1999, i.e. well before the adoption of Regulation 1/2003. In October of 2000, the Commission issued a “letter raising serious doubts as to the impact of the agreement on competition” and later—at a moment not specified in the market test Notice published in 2005—the parties offered commitments. See Notice published pursuant to Article 27(4) of Regulation (EC) No 1/2003 in Case COMP/37.749, Austrian Airlines/SAS cooperation agreement, 2005 OJ C233/18. 32

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c) Commitments: offer and contents Article 9 does not require companies to offer commitments in any specific form. The initiative rests with the company, which can offer commitments that can be either behavioural or structural.35 It is doubtful whether the preference mentioned in Article 7(1) in favour of behavioral remedies would also apply to commitments. The fact that, notwithstanding this preference, Article 7(1) permits a structural remedy if any “equally effective behavioural remedy would be more burdensome for the undertaking concerned than the structural remedy” makes it difficult to imagine a situation in which the undertaking concerned would offer structural remedies if less burdensome behavioural remedies would suffice to meet the Commission’s concerns. As to the contents of the commitments, Article 9 only requires them to be sufficient to dispel the Commission’s concerns. The Alrosa Judgment has added some important principles regarding the contents and acceptance of commitments. First, the commitments must be proportionate to the concerns expressed by the Commission: “compliance with the principle of proportionality requires that, when measures that are less onerous than those it proposes to make binding exist, and are known by it, the Commission should examine whether those measures are capable of addressing the concerns which justify its action before it adopts, in the event of their proving unsuitable, the more onerous approach.”36

Second, the fact that commitments are offered by the company does not relieve the Commission from verifying whether they comply with the principle of proportionality: “[T]he voluntary nature of the commitments also does not relieve the Commission of the need to comply with the principle of proportionality, because it is the Commission’s decision which makes those commitments binding. The fact that an undertaking considers, for reasons of its own, that it is appropriate at a particular time to offer certain commitments does not of itself mean that those commitments are necessary.” [. . .] “. . . that the fact that an undertaking has offered commitments at a particular time, for reasons of its own, does not mean that those commitments can be assumed to be proportionate and does not relieve the Commission of the obligation to verify their adequacy and their necessity as regards the aim which it is sought to achieve.”37

35 The commitments offered by E.On and RWE seem to include (for the first time under Regulation 1/2003) structural remedies. For example, RWE has reportedly proposed to sell its gas transmission system in Germany to an independent operator. 36 Alrosa, cited supra note 15, para. 131. 37 Ibid., paras. 105 and 143.

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Third, commitments offered under Article 9 cannot go beyond what could have been imposed in an Article 7 decision: “None the less, the Commission cannot lawfully propose to the parties that they should offer it commitments which go further than a decision which it could have adopted under Article 7(1) of Regulation No 1/2003.”38

Fourth, the Commission cannot itself modify the commitments proposed by the undertaking, but nothing prevents it from suggesting that the undertaking should amend them in order to better meet its concerns. The Commission cannot make binding commitments that go above and beyond what is necessary to meet its concerns, but it can make them binding only in part, or to a particular extent: “It is true that the Commission cannot substitute itself for the parties so as to amend the commitments they offer under Article 9 of Regulation No 1/2003 in order that those commitments may address the concerns set out in its preliminary assessment. However, there is nothing to prevent it from making proposed commitments binding only in part or to a particular extent.”39

There is no time limit for offering commitments, but the wording of Article 9 suggests that the Commission should express its concerns first, and then the company should propose the commitments necessary to meet these concerns. However, as a practical matter commitments can be informally offered and negotiated before the Commission has officially expressed its concerns.40 From a legal and logical point of view, this situation is objectionable. The company should negotiate its commitments knowing exactly what the concerns of the Commission are and how well founded they are. Offering commitments without a precise understanding of the Commission’s concerns can be problematic in at least two ways. The first problem is linked to the principle of proportionality. In Alrosa, the CFI explained the crucial role of the preliminary assessment for the application of proportionality to Article 9 decisions. The CFI recognized that the Commission has a margin of discretion as to the choice of procedure to be followed—ex Article 7 or ex Article 9—and as to the decision of making the proposed commitments binding. But it declared that this discretion does not relieve the Commission of its obligation to comply with the principle of proportionality, which requires that it should, in principle, opt for the least onerous commitments capable of addressing its concerns. If the company negotiates its commitments not knowing exactly what the concerns of the Commission are, but bearing in mind that the Commission can abandon the negotiations at any moment and use the “stick” of a possible Article 7

38 39 40

Ibid., para. 140. Ibid., para. 130. See supra note 24.

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Commitment Decisions ex Regulation 1/2003 593 decision,41 it may well be inclined to offer commitments that go beyond what is necessary to overcome the restrictive effects of its previous practices. Second, the risk of the company “overbidding” is aggravated by the fact that, once the commitments have been made binding, they become for that company the “standard of legality” as to the application of Article 81 or 82 to the practices analyzed by the Commission. Infringing the commitments is illegal in itself. Furthermore, even if the company later comes to the conclusion that its initial practices were not illegal, or that the Commission’s concerns could have been addressed in a less onerous way, this would be an insufficient basis for requesting that the Commission reopen the proceedings.42 The company would thus have to continue complying with the commitments to avoid being fined without any need for the Commission to establish an infringement of Article 81 or 82. Notwithstanding these two problems, a company may be willing—and should have the possibility—to negotiate with the Commission even before the latter has officially expressed its concerns. The company can have strong reasons to try to avoid a Statement of Objections. Due to its essential function in the infringement procedure, an SO—which lays out the content and limits of the Commission’s accusations—tends to be over-comprehensive: —The company may believe that, once the Commission has formalized its accusation in an SO, it will be more difficult to reverse its “state of mind”. —It may also reasonably suspect that complainants will become more apt to block a settlement once it has seen the exhaustive accusations of the Commission.43 A far-reaching SO can make it easier for complainants to challenge the commitments before the Community Courts on the ground that they do not completely meet all the concerns expressed in the SO. —The Commission can also find advantages in initiating the negotiation of the commitments before formally issuing its preliminary analysis or an SO. 41 As to the different bargaining positions of the Commission and of the accused company, see Denis Waelbroeck, “Le développement en droit européen de la concurrence des solutions negociées (engagements, non-contestations des faits et transactions): que va-t-il rester aux juges?”, GCLC Working Paper 1/08, p. 3: “La négociation avec une autorité n’est en effet en rien une négociation à ‘armes égales’ comme elle peut avoir lieu dans le quotidien commercial des entreprises. Il s’agit au contraire d’une négociation avec une autorité qui dispose—en tout cas en droit de la concurrence—d’un pouvoir de sanction. Dès lors, il serait aisé pour l’autorité d’imposer ‘sous la contrainte’ des engagements ou transactions qui peuvent en fait se révéler injustifiées, ce qui rend d’autant plus nécessaire que ce pouvoir soit soumis aux contrôles les plus vigilants.” (emphasis in original) 42 In Alrosa, cited supra note 15, the CFI confirmed (at para. 155) that the three cases mentioned in Article 9(2) of Regulation 1/2003 constitute an exhaustive list of scenarios where reopening the proceedings is possible, and that the undertaking concerned “could not request that the proceedings be reopened [. . .] on the basis that the principle of proportionality had been infringed. Furthermore, the Commission would have a discretion to refuse to reopen.” 43 The complainants receive a non-confidential version of the SO. See Article 6 of Regulation 773/2004.

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It can take advantage of the accused undertaking’s eagerness to settle the case without a formal SO. And by drafting its concerns after it has already agreed on the commitments, it can ensure they are proportionate and thus almost impossible to challenge. —Finally, the accused company may suspect that the SO will be used as prima facie evidence of an infringement in a private action for damages caused by its previous practices subject to the undertakings.

d) Intervention of third parties: the market test If the Commission reaches the preliminary conclusion that the proposed commitments dispel its concerns, and it therefore intends to adopt an Article 9 decision, it publishes a concise summary of the case and the main content of the commitments to allow third parties to submit their observations.44 To complete this market test, the Commission may also send specific questionnaires to potentially affected undertakings. Article 27(4) of Regulation 1/2003 has been compared to the Notices that used to be published under Article 19(3) of Regulation 17/62 prior to the adoption of an Article 81(3) exemption decision. But it has been noted that, while the latter were “more or less a formality”, in the context of Article 9 proceedings the Commission may be more sceptical about the effectiveness of the commitments, and the market test may thus constitute an indispensable check on whether they are likely to restore competitive conditions.45 In Alrosa the CFI confirmed this view, stating that “the purpose of the consultation with third parties provided for under Article 27(4) of Regulation No 1/2003 is precisely to allow the Commission to take a decision which will address the competition issues identified in its preliminary assessment”.46 In fact, the precedents show that in the majority of the cases, in light of comments received by the Commission during the market test, the commitments initially proposed by the defendants had to be modified before they were made binding. But if the market test does not change the factual background or does not show that the assessment of the initially proposed commitments was undertaken on the basis of incorrect information, it is unclear whether the Commission may depart from its initial assessment. In Alrosa, the CFI stated: “However, the Court is not convinced by the Commission’s assertion that the comments from the third parties did no more than confirm its initial concerns. If the comments from the third parties added nothing to the Commission’s preliminary assessment, the Commission could, in the circumstances, have made the joint

44 45 46

See Article 27(4) of Regulation 1/2003. See De Smijter and Kjølbye, cited supra note 30, at p. 128. Alrosa, cited supra note 15, para. 195.

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Commitment Decisions ex Regulation 1/2003 595 commitments binding. If, on the contrary, the third parties took the view that the joint commitments were inadequate and if their comments led the Commission to conclude that only a definitive cessation of relations between the parties with effect from 2009 was capable of addressing its initial concerns, the Commission was under a duty to hear the parties on those observations, and on the other factual elements justifying its new conclusion. It is clear that the Commission can depart from the assessment made of the joint commitments only if the factual background has changed or if that assessment was undertaken on the basis of incorrect information.”47

This paragraph seems difficult to reconcile with the almost absolute margin of discretion granted to the Commission in paragraph 130: “It is true that the Commission is never obliged under Article 9(1) of Regulation No 1/2003 to decide to make commitments binding instead of proceeding under Article 7 of that regulation. It is therefore not required to give the reasons for which commitments are not in its view suitable to be made binding, so as to bring the proceedings to an end.”

If, following the market test, the Commission considers that new commitments are necessary, the undertakings concerned must “be informed of the essential factual elements on the basis of which the Commission required new commitments”, and they have the right to “express their views on the matter”.48

e) The decision to make the commitments binding: limitations and legal effect If the Commission finally decides that the commitments meet its initial concerns, it may adopt a formal decision making them binding. In Alrosa, the CFI clearly indicated that Article 9 decisions should not be viewed as the acceptance by the Commission of an undertaking’s proposal, but as a genuine decision, the sole author of which is the Commission: “It is clear from the actual wording of Article 9 of Regulation No 1/2003 that the Commission may, by decision, make commitments offered by the undertakings concerned binding where those commitments satisfy the concerns expressed in its preliminary assessment. Since offers made by undertakings are themselves without binding legal effect, it is the decision of the Commission taken under Article 9 of Regulation No 1/2003, and that decision alone, which has legal consequences for the undertakings.” “Because the effect of that decision is to bring to an end the proceedings to establish and penalise an infringement of the competition rules, it cannot be considered as being a mere acceptance on the Commission’s part of a proposal that has been freely put forward by a negotiating partner, but constitutes a binding measure which puts 47 48

Ibid., para. 194 (emphasis added). Ibid., para. 196.

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an end to an infringement or a potential infringement, as regards which the Commission exercises all the prerogatives conferred on it by Articles 81 EC and 82 EC, with the only distinctive feature being that the submission of offers of commitments by the undertakings concerned means that the Commission is not required to pursue the regulatory procedure laid down under Article 85 EC and, in particular, to prove the infringement.” “By making a particular type of conduct of an operator in relation to third parties binding, a decision adopted under Article 9 of Regulation No 1/2003 may indirectly have legal effects erga omnes, which the undertaking concerned would not have been in a position to create on its own; the Commission is thus their sole author from the time at which it makes binding the commitments offered by the undertaking concerned and accordingly assumes sole responsibility for them. It is not obliged in any way to take into account and, a fortiori, to take into account on a take-it-or-leave-it basis, the offers of commitment which the undertakings concerned submit to it.”49

As noted earlier, Recital 13 of Regulation 1/2003 indicates that “commitment decisions are not appropriate in cases where the Commission intends to impose a fine”. This of course implies that an Article 9 decision cannot impose fines, regardless of the fact that the Commission may have initially intended to adopt an Article 7 decision, or that fines have been imposed in relatively similar previous cases.50 But what if it’s the other way round? Can the Commission impose fines if it has initiated an “Article 9 proceeding”51 but at the end opts for a prohibition decision? The answer is not straightforward. On the one hand, the fact that the CFI has recognized that the Commission has a margin of discretion to decide at any time whether to conclude a case with an Article 7 decision or with an Article 9 decision could indicate that, if the Commission finally opts for a prohibition decision, it would still have the power to impose a fine under Articles 7 and 23 of Regulation 1/2003. On the other hand, the statement in Recital 13 has generally been interpreted as precluding the adoption of commitment decisions in cases of clear per se prohibitions, such as cartel cases.52 That being so, is the contrary also true? Are certain cases particularly suitable for commitment decisions, and should they accordingly be treated, at least prima facie, as being exempt from heavy fines? We believe this question should be answered in the affirmative. At the beginning of this chapter we indicated that we believed that the Article 9 procedure 49

Ibid., paras. 86–88 (emphasis added in each paragraph). Some authors have pointed to the fact that some of the discount schemes described by the Commission in the Coca-Cola case were similar to discounts applied in other cases where fines were imposed. 51 If the Commission opens the proceedings with a Statement of Objections and has not made public an initial assessment or published a market test Notice, then the character of the proceedings—ex Article 7 or ex Article 9—would not yet seem to be defined (unless it is clear from the SO that the Commission intends to impose fines). 52 This is corroborated by the fact that the Commission proposal on settlements in cartel cases does not mention Article 9 of Regulation 1/2003. 50

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Commitment Decisions ex Regulation 1/2003 597 was particularly apt in cases where the case law is unclear, or where the case law is subject to increasing criticism as to its soundness. If the Commission formally initiates an Article 9 proceeding and receives commitments that prima facie dispel its concerns, but then after the market test finally opts for an Article 7 decision, this should not lead to the imposition of significant fines. If the Commission has formally indicated that a case could be settled with commitments—i.e., if it has implicitly indicated that it does not intend to impose fines—then if it should later conclude that on balance a prohibition would be a superior solution, it would not seem appropriate (absent unusual circumstances) to suddenly add a monetary penalty to the cease and desist order. Support for this position can be found in a statement by the CFI in Alrosa. According to the CFI, the Commission can only depart from its initial assessment “if the factual background has changed or if that assessment was undertaken on the basis of incorrect information”.53 It seems logical to expect that the same would apply to the Commission’s initial view that fines were inappropriate. If, according to the CFI, the absolute discretion that the Commission has to opt for an Article 7 or an Article 9 procedure is limited once it has carried out a preliminary assessment, a fortiori the same limitation should apply to its discretion—also very broad, but not unlimited—to impose fines. Under those circumstances, fines should only be imposed if the factual background on the initial assessment was based has changed, or if it is revealed that the undertaking submitted incorrect information. Apart from the non-imposition of fines, Recital 13 contains another limitation to the content of Article 9 decisions: “Commitment decisions should find that there are no longer grounds for action by the Commission without concluding whether or not there has been or still is an infringement. Commitment decisions are without prejudice to the powers of competition authorities and courts of the Member States to make such a finding and decide upon the case.”

The idea underlying this last sentence appears again in Recital 22 in fine: “Commitment decisions adopted by the Commission do not affect the power of the courts and the competition authorities of the Member States to apply Articles 81 and 82 of the Treaty.”

The fact that commitment decisions cannot conclude whether there has been or still is an infringement is essential to the success of this type of decision. Proposing commitments is not an admission of having broken the law; and indeed if it were regarded as such, companies would be unwilling to resolve the case under Article 9.54 If Recital 13 is strictly observed, i.e. if decisions under Article 9 are clearly distinguished from findings of infringement, then accused companies will have a strong incentive to propose commitments 53 54

Alrosa, cited supra note 15, para. 194. Cook, cited supra note 11, at p. 219.

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that rapidly eliminate the anticompetitive effects of their conduct. This will also be advantageous for the Commission, as it will be able to achieve that pro-competitive goal after a summary analysis of the conduct and of the commitments without having to generate the detailed proof and legal arguments required for an Article 7 decision. Even the complainant will benefit from the expedited procedure, assuming that the main goal of the complaint is to eliminate anticompetitive restrictions. Turning to the consequences of an Article 9 decision for NCA and national courts, these can be different for past practices and for future practices. “Past” and “future” in this context refer to whether the conduct took place before or after the relevant commitments were made binding. First of all, a commitment decision does not preclude NCAs or national courts from deciding that the past conduct did not amount to an infringement of Article 81 or 82.55 Nor can a private complainant directly rely on an Article 9 decision to claim damages in a national court.56 It may, however, try to use the preliminary assessment, the Statement of Objections and a fortiori the decision itself as preliminary evidence of a past infringement.57 Since this would only be preliminary evidence, the reality of the practice and of its illegality would still have to be established to the requisite legal standard. In the context of an investigation by an NCA, just as the Commission can close a case in which it has previously issued an SO if the investigation finally leads it to conclude that the practices in question were not contrary to Article 81 or 82, national authorities may also reach the same conclusion after an in-depth investigation of the practices that gave rise to the Commission’s preliminary concerns. Secondly, it is clear that an Article 9 decision does not preclude national courts or NCAs from reaching the conclusion that an infringement was indeed committed in the past. But we would suggest that the consequences of this finding may be different for national courts and for NCAs. On the one hand, 55 A different issue is what effect, if any, such a decision would have. We have already mentioned that the subsequent legality of practices where commitments have been made binding does not allow, as such, for a revision of the commitment decision under Article 9(2) of Regulation 1/2003. We have also seen that, in Alrosa, the CFI stated that the commitments should not go further than a decision adopted under Article 7. It would seem illogical to accept that, where certain practices have ultimately been deemed consistent with Article 81 or 82—possibly even after a preliminary ruling of the ECJ—the company would nevertheless be precluded from applying them. 56 It is interesting to note that Recital 12 of the Commission’s proposal (COM (2000) 582 final) did provide that “the commitments can be relied upon by third parties before national courts”. However, this provision was deliberately deleted from the final text of Regulation 1/2003, leaving this question to be decided by the Community Courts. See De Smijter and Kjølbye, cited supra note 30, at p. 129. 57 This is particularly true when the Commission has issued a very detailed and reasoned Statement of Objections. In its Frequently Asked Questions on commitment decisions (MEMO/04/217 of 17 September 2004), the Commission indicated that, “while the addressee of a commitment decision does not receive a prohibition decision, with the consequent negative publicity, for a violation of the antitrust rules, neither does it get the Commission’s blessing, the commitment decision being a substitute for a prohibition decision and not for an exemption decision”.

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Commitment Decisions ex Regulation 1/2003 599 it is clear that courts can rule on all possible consequences of such an infringement. Thus, they can declare the agreement or practice void, and in appropriate cases they can award damages. The situation would seem to be different in the scenario of an investigation by an NCA. Here the effet utile of the nonimposition of fines by the Commission would appear to be jeopardized if an NCA were to impose a fine for the same practices. The Article 9 decision itself, as noted above, presupposes that the case was not suitable, at least from the Commission’s perspective, for the imposition of monetary penalties. As for the effects of a commitment decision on the legality of future practices, some authors have suggested that an Article 9 decision would be similar to an Automec II 58 decision —i.e. a decision rejecting the complaint when the case does not display a sufficient Community interest.59 On this view, NCAs and national courts would not be precluded from deciding that the (modified) practices, although in full compliance with the commitments, infringe Article 81 or 82.60 We strongly disagree with this interpretation. In an Automec II decision, the Commission rejects the complaint merely for lack of Community interest, without adopting any decision, even preliminarily, as to whether the practice is illegal; the question is left for the national courts or NCAs to decide. However, an Automec II decision is not final, in the sense that it does not preclude the Commission from deciding at a later stage to change its priorities and to adopt a formal decision. By contrast, an Article 9 decision is clearly a final, definitive decision. In an Article 9 decision, the Commission does carry out a preliminary analysis, the result of which is that the past conduct of the undertaking raises competition concerns. The Commission then continues to analyze the case once the undertaking proposes commitments. Before adopting an Article 9 decision, the Commission has to verify that the proposed commitments meet its concerns, and it has to carry out a market test, whose purpose “is precisely to allow the Commission to take a decision which will address the competition issues identified in its preliminary assessment”.61 We believe that, once the Commission has reached the conclusion that the undertakings offered dispel its concerns and adopts a formal decision making these commitments binding, the Commission is effectively determining that the undertaking’s future conduct, provided the commitments are respected, is consistent with Community competition law.62 This decision is final and, except for the limited cases provided for in Article 9(2) Regulation 1/2003, the Commission cannot reopen proceedings and declare that same conduct to be contrary to 58

Case T-24/90, Automec v Commission (“Automec II”) [1992] ECR II-2223. See Oriol Armengol and Alvaro Pascual, “Some Reflections on Article 9 Commitment Decisions in the Light of the Coca-Cola Case”, 27 European Competition Law Review 124 (2006). 60 See also Wouter Wils, “Settlements of EU Antitrust Investigations: Commitment Decisions under Article 9 of Regulation No 1/2003”, 29(3) World Competition 345 (2006). 61 Alrosa, cited supra note 15, para. 195. 62 Cook, cited supra note 11, at p. 226. 59

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Article 81 or 82. If the Commission cannot make this finding, then a fortiori national courts and NCAs are prevented from adopting such a decision. Furthermore, if a national court or an NCA were to conclude that the undertaking’s future conduct was incompatible with Article 81 or 82, it would be contradicting the Commission’s commitment decision and would thereby undermine the uniform application of Community competition law. Such a decision by national authorities would be incompatible with Article 16 of Regulation 1/2003 and with the Masterfoods judgment of the ECJ.63 Furthermore, it is inconceivable that an undertaking could be obliged to fulfil the commitments that have been made binding by the Commission, and yet simultaneously be found liable under Article 81 or 82 by a national court or a NCA when conforming its behavior to the commitments to which it is bound. We therefore believe that the commitment decision establishes the standard of legality for the conduct subject to the commitments. As long as the company abides by these commitments, and provided none of the limited circumstances contemplated in Article 9(2) arises,64 the company should be fully protected against possible challenges to its future conduct before a national court or an NCA. The same protection clearly applies vis-à-vis the Commission by virtue of Article 9(2) itself.

4. Conclusions Commitment decisions under Article 9 of Regulation 1/2003 have become a key instrument of the Commission’s present competition policy. Such decisions provide a flexible instrument to solve, in an efficient and relatively speedy manner, certain complex competition concerns to which the solution would likely have been much more difficult in a more adversarial setting.65 The maintenance of the main characteristics of this new procedure (the non-imposition of fines; the absence of any finding of an infringement; and speedy enforceability) are essential to its success. Finally, by codifying this method of resolving a case, Regulation 1/2003 has clarified the procedural rights of all interested parties. 63

Case C-344/98, Masterfoods Ltd v HB Ice Cream [2000] ECR I-11369. See in particular paragraph (a) or (b) of Article 9(2). Where the undertaking acts contrary to the commitments (subparagraph c), it is clear that it can be immediately fined. But this decision would not affect the legality of the conduct subject to the commitments. 65 The success of these decisions may even have surprised some officials of DG Competition. See Lowe and Maier-Rigaud, cited supra note 17, at p. 609: “Article 9 decisions, in particular, in complex cases, will typically not have substantial procedural advantages despite the fact that they are more consensual and therefore, less likely to be appealed by the committing party. In general, therefore, Article 7 decisions are the preferable procedural choice, as through their more general remedies, they have a higher precedence value and provide a basis for private action.” 64

Austrian Airlines / SAS Media rights FA Premier League The Cannes Extension Agreement Daimler/Chrysler Fiat Toyota General Motors / Opel Distrigaz CISAC agreement E.ON RWE Gas 23/03/2007 23/03/2007 23/03/2007 23/03/2007 29/03/2007 12/06/2007 28/02/2008 31/05/2008

IP/07/409 IP/07/409 IP/07/409 IP/07/409 IP/07/490 IP/07/829 MEMO/08/132 MEMO/08/355

2007 C 66/18 2007 C 66/21 2007 C 66/24 2007 C 66/27 2007 C 77/48 2007 C 128/12

2006 C 122/2

2005 C 233/20

13/09/2007 13/09/2007 13/09/2007 13/09/2007 10/11/2007

22/03/2006

22/06/2005 13/04/2006 22/02/2006

2004 C 289/10 2004 C 258/11 2005 C 136/32

22/09/2005 22/03/2006

19/01/2005

2004 C 229/13

2005 C 200/11

IP/06/356

IP/04/1513 IP/05/664

IP/04/1247

IP/04/1110

17/08/2005

39.140 39.141 39.142 39.143 37.966 38.698 39.388 39.402

19/10/04 20/10/04 20/12/04

39.116 38.348 38.381

23/05/2006

17/09/04

37.214

Date

O.J.

O.J.

IP/07/1487

IP/05/775 IP/06/495 IP/06/204

2007 L 317/76 2007 L 332/77 2007 L 329/52 2007 L 330/44

2008 C 7/18

2006 L 205/24

2005 L 253/21

MEMO/05/16 2005 L 134/46

Press Release

11:03

39.152 39.151 37.749 38.173 38.453 38.681

Date

COMP

Press Release

Commitments Final decision

Case No

7/12/09

BUMA / SABAM (Santiago Agreement)

Media rights German Bundesliga Coca-Cola Repsol De Beers / Alrosa

Company

Annex: Article 9 proceedings

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LESSONS TO BE DRAWN PANEL VI PART ONE: Policy consequences for public enforcement PART TWO: Part two: Policy consequences for private enforcement PART THREE: Overall conclusions

1 PANEL DISCUSSION

C HAIR : Massimo Motta P ARTICIPANTS : Rafael Allendesalazar Albrecht Bach Simon Bishop Onno Brouwer John Cooke Lorenzo Coppi Kris Dekeyser Claus-Dieter Ehlermann John Fingleton Ian Forrester

Bill Kovacic Lynda Martin Alegi Kirti Mehta Ann O’Brien Jorge Padilla Emil Paulis Dan Rubinfeld Jim Venit Stephen Wilks

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Panel VI—part one: policy consequences for public enforcement 605

Panel VI, part one: Policy consequences for public enforcement MASSIMO MOTTA: Let’s get back to work, now. The focus of the following speakers will be the lessons to be drawn, from our reflections and discussions, as regards public enforcement. Kirta Mehta and Simon Bishop will be talking about settlements in cartel cases, and then Ian Forrester and Jorge Padilla will address Article 9 commitment cases.

䉴

KIRTI MEHTA: Thank you. The discussion yesterday showed that we all have different motivations for adopting a settlement procedure at the level of the EU. We need to bear in mind that this procedure is part of a broader program of a fight against cartels. We are developing a good record on that score, but it is not a very old record. So we still have to be concerned about establishing and maintaining the credibility of the program, and we have to reinforce its deterrent effects. In our paper,1 you will see that we have confined this procedure to cartel cases, and within that context we suggest that the impact we can have in some cases will be stronger than in others. A company has neither the obligation nor the right to settle, although in the draft Notice2 there is a discussion of some of the factors that will affect whether it is advisable or not to settle in a given case. We have proposed doing this in the time interval between a full investigation and the preparation of an SO. Normally, in a cartel case that is triggered by a leniency application, after a maximum of a year we have a very good idea about the nature of the cartel: the identity and role of the parties, the products, the geographic scope, the conduct, and so on. From that point on, the procedure is quite heavy. Much of what we do, during and after the investigation is screening for confidentiality and business secrets. We have documents, prices, microeconomics, information exchange, discussions, all of that goes in the file. But then much of this is claimed to be confidential between the parties. And the screening has to be done not just once, it may have to be done a few times because once the parties receive our requests for information, they see where the investigation is going and they review a document that they submitted previously and they’ll claim that other documents should also be confidential, and they’ll take something out and so on. All of that is part of the normal preparation of the file. If we then had to fully prepare an SO before going forward with a settlement, we would not save very much time or

䉴

1 Kirtikumar Mehta and María Luisa Tierno Centella, “EU Settlement Procedure: Public Enforcement Policy Perspective”, this Volume, p. 391. 2 Draft Commission Notice on the conduct of settlement proceedings, 2007 OJ C255/51. The final version of the Notice was adopted as 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, 2008 OJ C167/1.

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resources in the procedure, even if we would likely have a more solid case in the event of an appeal. A second point relates to “hybrid” cases. The draft Notice doesn’t really exclude the possibility of settling with some parties but not others. But as I said yesterday, in that case the settlement would not result in the savings we are looking for. Already today we often have cases where some of the parties waive some of their rights, such as the right to an oral hearing. The only way for us to have a sufficient mass of savings is if there is a settlement across the board. We would also like to obtain these procedural economies, and a reduction in the length of procedure, while maintaining the full effectiveness of our leniency program. Leniency now is in its third version. It is now in a state in which it works extremely well. We don’t want to do anything that would reduce the incentives for parties to come forward and seek leniency. Often parties come to us the day after the inspection and they want to settle. “Just tell me what the fine is, I want to settle.” That is certainly a premature moment for us to think about settling. Before we do that we need to have done a sufficiently thorough investigation. And the parties need time too. They need to do due diligence, and then both sides, after developing an adequate understanding of the case, can have a fruitful discussion. On the use of the word “discussion”, I don’t think this is just semantics. We’re really not having negotiations. In a first phase, the Commission will have to assess whether all the parties might settle. If you see already at that stage that there are different opinions, and different level of contestation, then we should simply follow the normal procedure. It might take a year longer, but at least it’s on its way. In other more appropriate cases, we will request permission from our Commissioner to go ahead and explore the possibility of settlement. In that case we can talk about things such as our understanding of the infringement, the product and geographic scope, the nature of the cartel and so on. We would also discuss leniency with a party and we would discuss where they are in the band and what we think their contribution of the evidence has been. The other item to discuss would be the fine range. Some people have said that the Fining Guidelines3 are not so transparent, and that it’s not easy to carry out the calculation and get a number. What has changed is that now you have to look at the affected direct or indirect sales of each party. And already today in this context there is always a discussion. The party says, “These sales are not covered by this infringement,” or “The parties did not discuss this in the meeting that you have evidence of,” and so on. But none of this is a negotiation. We share with the parties what we think is at stake, and they try to persuade us that we are right or wrong about certain points. 3 Commission, Guidelines on the method of setting fines imposed pursuant to Article 23(2)(a) of Regulation 1/2003, 2006 OJ C210/2.

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Panel VI—part one: policy consequences for public enforcement 607 In the second part of the Fining Guidelines, once you have the affected sale, then you also have the issue of the percentage that will be applied. As people have found out, the Commission has not simply applied 30% in all instances. Instead, we have looked at each case and applied a percentage that we find proportionate under the circumstances. So we have things that we can discuss, and then the parties will be in a position to take an informed decision about whether they want to make a settlement submission, or whether they want to walk away. Of course, if they walk away at a late stage, that’s quite a problem for us. We would like to be sure that we don’t end up with a double procedure. Then there is the question of how much of a discount the Commission should offer, and Massimo has suggested 15%. This is something that has to be decided. We also have to consider the impact on leniency, because number two is already in the band of 30 to 50 percent. The settlement discount will be added on top of that. We also have to bear in mind that we are proposing a uniform reduction. It will not vary according to when you come in. In some systems it varies: it’s higher in the beginning and lower later on. In our system the leniency program will reward basically up to three applicants, but not much more. All of that suggests that the discount for a settlement will be quite small. Our assessment is that parties will settle cases if they know that the options are: either you settle, or there will be a decision anyway. Finally, as to the impact on private litigation. There I think there may potentially be some acceleration or private suits, but those are precisely the cases where the parties have already decided to take care of their private litigation. And from this you can see that there is a linkage between the fines and the leniency policy. Leniency doesn’t work if the fines are very low, and we’ve known that for a long time. You also have a linkage between leniency and private litigation. Parties will not come in as a leniency applicant if doing so will expose them to costly private litigation. 䉴 SIMON BISHOP: I’m supposed to talk about things I ought to know, but after this morning’s discussion I realize that I’m going to be talking about things I clearly don’t know. And I’ll make four points from a position of ignorance. The first is that the settlement process is part of a wider effort to maximize deterrence. So that should be our principal question: what is the impact of a settlement procedure on the deterrence of cartels? Now I’ll make two vague, bold statements, and then I’ll raise a question. The first vague, bold statement is: the leniency program will be much more effective in deterring cartels than the settlement procedure. Why? Because the leniency program goes directly to destabilizing cartels. So we should make sure that anything that we do with settlements doesn’t undermine the deterrence effect of leniency. The second vague, bold statement is that settlements don’t necessarily free up resources. When I read this proposal, and when I read about bilateral negotiations, I don’t imagine that these bilateral

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negotiations will be a half-hour and that’s it. For a number of participants they’re going to be drawn out over time. The question is: what has been the impact on deterrence? We’ve got the leniency program, and we’ve had increased fines. What has been the impact? Are we actually just seeing more discovery of old cartels, or are we—more importantly—deterring the emergence of new cartels? More research on that would be an important area of work. The second point is another question. When should authorities use a settlement procedure? Should they use it when they have a weak case or a strong case? If they’ve got a weak case, then a settlement is just a cop-out. But in that case, why would a firm ever accept that? On the other hand, if the authority has a very strong case, why would you ever let these firms off easy? Why not follow through to the end of the case and maximize the penalty in order to improve deterrence? Let me make an alternative suggestion which is based on two heretical points in the cartel area. Just as we know that traffic offences have different outcomes, we also know that different cartels have different impact on consumer welfare. Yes, all cartels are per se illegal, but not all cartels have a significant adverse impact on welfare. Some only have a minor impact, and some have none at all. We know that from the economic theory on the stability of cartels. And although the courts have said that the very act of concluding a collusive agreement must have an adverse effect on competition, that’s not correct from an economic perspective. If we accept that there are bad cartels and then really bad cartels, where only the really bad cartels have an adverse effect on competition, why don’t we think about using that as a filter for evaluating when to consider settling a case? As with any proposal, there are benefits and costs. The benefits of an effects-based system would be that you only settle with those cartels that have not had significant negative effects on consumer welfare. Yesterday Dan Rubinfeld pointed out that people might not settle if they fear private actions. If the authority only settled with cartels that haven’t had a significant impact on competition, you won’t eliminate private litigation, but you will put a ring fence around it and provide firms with stronger incentives to settle. What are the costs? Typically, the Commission and other authorities have quite rightly steered well away from trying to prove effects in cartel cases. It’s difficult, it’s time-consuming, the Commission doesn’t have the time or the data, and it would run contrary to the whole idea of freeing up some resources. But what if the onus were placed on the firms? What if they could come forward with evidence of the effects of the cartel? Then it would be up to the Commission to make a judgment as to whether that evidence is sufficiently robust to make the case appropriate for settlement rather than litigation. My third point is yet another question. What’s the rush? Does it really matter if decisions take an average of three years instead of an average of two years? Once a cartel has been uncovered, then typically the behaviour in

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Panel VI—part one: policy consequences for public enforcement 609 question ceases. So what is the rush to invite these people to settle? Do we need more and more resources because we believe that cartels are being formed on a daily basis, in which case we’d better hurry up and catch all of them? Or is leniency actually having a genuine effect on deterring the formation of new cartels? The final point is: we need to be careful about what we do with the resources that we save by way of settlements, assuming that they are freed up in the first place. It is important not to engage in fishing expeditions. And if there are expeditions, it’s important to ensure that those are quickly closed down. The example that I’ll give here is the mobile roaming case.4 There the companies were raided on suspicion of cartel behaviour, but so far as I’m aware no documentary evidence was found. It was translated into a collective dominance case, and then a single dominance case, at which point it was finally closed. 䉴 MASSIMO MOTTA: Thank you very much. Now we will hear about Article 9 commitment cases from Ian and Jorge.

IAN FORRESTER: I’m going to make a few remarks from the point of view of a practitioner and an occasional teacher. As always, it’s useful to begin with history. I’d suggest that European competition law has always been characterized by an element of private negotiation between the public authority and the private party, a certain confessional closeness between the official and the company. These negotiations in some cases may be exasperating, hostile, maybe bad-tempered, quite lengthy, with a lot of horse trading and concessions made back and forth, and finally, if all goes well, a successful conclusion. That was how it was with notifications. Exemptions were rare, occasional grants of legal stability in exchange for heavy commercial concessions. And the exemption decisions made new law. So in theory, the new law advanced by the decisions of the Commission was produced by a bargaining process initiated by a request by the company for a stamp of approval. Exemptions were the vehicle for advancing new legal principles. The next point is that there is very much to be said for made-to-measure negotiations between the party and the public authority, rather than the notion of block exemptions. However, I suspect that the new decisions will become as block exemptions: new standards for behaviour in the marketplace. So a decision with respect to how much information is supplied by car companies to independent repair shops is going to set a standard followed, in effect, by all car companies if they’re wise. A consequence of that is that the new Article 9 principles are likely to become a kind of mandatory practice, in reality if not in theory. This is perhaps a far-fetched analogy, but I’m

䉴

4 See Press Releases IP/04/994 of 26 July 2004; IP/05/161 of 10 February 2005; IP/07/1113 of 18 July 2007.

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reminded of the precautionary principle used in scientific regulation: if there’s doubt, if there’s controversy, then it’s appropriate for the public authority to prohibit the behaviour or the product temporarily so that it has time to think about it. The precautionary principle has a vice, and that is that it assumes that society is better off if the behaviour or product is prohibited. But that’s not necessarily the case; we simply don’t know whether it’s good or bad. I fear that there may be a certain ratchet effect of Article 9 commitment decisions which gradually impose a set of burdens on enterprise, though just yet we can’t be sure. The danger, of course, is to end up with a marketplace which is regulated by competition law enforcers acting in the best possible good faith. Let’s look at the question from the point of view of the company, particularly in Article 82 cases, which is the current intellectual wild west. There are many, many reasons why a company would prefer to settle rather than digging in and fighting out a battle. Indeed, in the context of discounts, it’s likely that a company like British Airways will be able to do a better deal with the Commission in private negotiation compared to what the outcome would be if the case were litigated in Luxembourg.5 When we have light judicial review in Luxembourg, particularly in fact-rich cases, this means that a company which is condemned has a much worse chance of prevailing on appeal as to the legality of its business model than a company that settles a case by offering commitments. So everyone agrees—I even quoted Abraham Lincoln in my paper—everyone agrees that settlements are better than litigation. You have bargained-for remedies, you have speed, and you avoid litigation with its uncertainties and its delays. For the institution there is the possibility to advance the law, and for the company there is stability as to its business model. My prediction is that respect will be given somehow to the Commission’s Article 9 decisions, although it’s clear from this morning’s discussion that we’re not sure exactly how that’s going to work constitutionally. A word on the selection of cases. Here again it’s no surprise that the cases which have thus far been taken under Article 9—which are listed in my paper, and in Heike’s paper too—are cases about foreclosure, where the competition authority changed how the marketplace worked. In the context of energy, the companies had to give very substantial commitments as to their future behaviour, commitments which aren’t obvious just from looking at Articles 81 and 82.6 And the car companies had to give, on very precise terms—how many euros per hour, how many hours per week—detailed information, secret 5 To imagine what such an outcome might look like, see Case T-219/99, British Airways v Commission [2003] ECR II-5917, upheld: Case C-95/04 P, [2007] ECR I-2331. 6 Commission Decision of 26 November 2008, Cases COMP/39.388—Germany Electricity Wholesale Market and COMP/39.389—Germany Electricity Balancing Market, http://ec.europa.eu/competition/antitrust/cases/decisions/39389/en.pdf; RWE, Commission Decision of 18 March 2009, Case COMP/39.402—RWE Gas Foreclosure, http://ec.europa. eu/competition/antitrust/cases/decisions/39402/en.pdf.

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Panel VI—part one: policy consequences for public enforcement 611 information, to independent car repairers.7 Those concessions clearly went beyond what was called for by the Block Exemption Regulation.8 That’s not necessarily a bad thing, but it’s clear in that case that, judging from what the companies committed themselves to, there was an extension of what’s required by the jurisprudence and what’s required by the Regulation. So we can imagine the creation of new law, in a very interesting and stimulating way, via commitment decisions. Now I would invite us all to go back a few years and imagine what would have happened if we had the commitment procedure say, in 1990. Imagine if Oscar Bronner 9 had been the subject of a commitment decision. Suppose Mr Bronner had come to the Commission saying: “There are generally two methods of distributing of newspapers; first, there’s the conventional method (newspaper stands and kiosks, vending machines and so on) and then there’s home delivery throughout the country. I want to use the much more efficient nation-wide home-delivery model.” Suppose the Commission had taken that up. Well, we would have missed the splendid Opinion of Advocate General Jacobs and the interesting judgment of the Court of Justice about private property. Imagine that Volvo/Veng 10 had been settled, or Tiercé Ladbroke,11 the case about horse race footage in betting shops. Or the essential facilities cases.12 On that last point, perhaps the law today would be where the law is. But if any of the other cases had been settled, I think we would be looking at law today that would be significantly different. Might be good, might be bad, but it would certainly be different. I make those points to suggest that settling cases via Article 9 has a huge attraction, but that—if we project forward five years—their impact on the law is likely to be enormous. Their constitutional status is unsure, but that will be tidied up in due course. I offer a couple of conclusions. It’s part of the genius—if that’s the word, it probably is—of this continent to prefer that which is settled to that which is litigated in court. It’s part of our history, and it’s part of how competition law is advanced in Europe. And that isn’t to be criticized. The risk that we should be concerned about is that Article 9 will be used to advance the law too far, and imprudently, in new areas that escape judicial review. 7 Commission Decisions of 13 September2007, Case COMP/39.140—DaimlerChrysler, 2007 OJ L317/76; Case COMP/39.141—Fiat, 2007 OJ L332/77; Case COMP/39.142— Toyota, 2007 OJ L329/52; Case COMP/39.143—Opel, 2007 OJ L330/44. 8 Commission Regulation (EC) No 1400/2002 of 31 July 2002 on the application of Article 81(3) of the Treaty to categories of vertical agreements and concerted practices in the motor vehicle sector, 2002 OJ L203/30. In particular, see Article 4(2) of the Regulation. 9 Case C-7/97, Oscar Bronner [1998] ECR I-7791. 10 Case 238/87, Volvo/Veng [1988] ECR 6211. 11 Case T-504/93, Tiercé Ladbroke SA v Commission [1997] ECR II-923. 12 Joined Cases C-241/91 P and C-242/91 P, Radio Telefis Eireann (RTE) and Independent Television Publications Ltd (ITP) v Commission [1995] ECR I-743; Case C-418/01, IMS Health [2004] ECR I-5039.

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My final word is about the procedure of the Commission today in taking decisions. At the moment, those procedures simply are not adequate. Politicians who don’t know the case should not decide the case. Hearings should be proper hearings. And there is an intoxication with fines which is embarrassing. Those weaknesses, and others, make settlements via commitment decisions all the more attractive for the private company. Faced with a choice between a possible condemnation and the chances of ultimately winning in several years’ time, on the one hand, and an unattractive but potable settlement commitment on the other, almost any company would say, “I’ll take the settlement, thank you.” Therein lies the danger. And the opportunity. So those features which make commitments attractive to the company do not exempt the Commission from considering further reforms to its own procedures. And I hope it does. 䉴 JORGE PADILLA: First of all, thanks to Claus, Mel and the three chairpersons for a super event. Before being invited to participate, all that I knew about Article 9 were five things. First, a client of mine had tried to settle an Article 82 case, but the Commission wanted to use the case to clarify the law and establish a precedent. Second, two other Article 82 clients considered whether to offer commitments, but they declined because they argued that the Commission, thinking that it had a strong case, would refuse to enter into negotiations. To be frank, it was not clear to me that the clients really wanted to try to negotiate. Third, IBM settled with the Commission in 1984.13 There was no formal decision, but there was a settlement. I thought that was interesting, in particular because of the parallels between that case and the Microsoft case, including the fact that they both involved interoperability and bundling.14 Fourth, Coca-Cola also settled.15 I was not involved in that case, but I read the commitments and they seemed to be quite harsh for the company. I couldn’t tell whether that implied bad negotiations, or whether the negotiations were simply taking place in the shadow of bad case law.16 Fifth, a group of Article 81 clients were convinced that, unless they followed the “suggestions” of the Commission’s case team, they would not be able to settle the case. This was not because of the net effects of the conduct on competition and consumer welfare, but because of wider—much wider—

13 See Bulletin of the European Communities, 10-1984 (point 3.4.1); Commission, XIVth Report on Competition Policy, 1984, points 94–95. See also Commission Press Release IP/88/814 of 15 December 1988 14 For discussion of these parallels, see John Vickers, “A Tale of Two EC Cases: IBM and Microsoft”, 4(1) Competition Policy International 2 (2008). 15 Commission Decision of 22 June 2005, Case COMP/39.116—Coca-Cola, available (in French) at http://ec.europa.eu/competition/antitrust/cases/decisions/39116/commitments_ en.pdf. 16 For a walk through that shadowy place, see Robert O’Donoghue and Jorge Padilla, The Law and Economics of Article 82 EC, Hart Publishing, 2006, pp. 381 et seq.

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Panel VI—part one: policy consequences for public enforcement 613 regulatory and industrial policy concerns. Whether they were right or not, I don’t know. These five observations raise a number of questions. The first is: what are the public interests and the private interests in reaching a settlement? Are the incentives of the enforcer and the firms likely to diverge, and if so, why? Second, from a social perspective, and taking into account ex ante deterrent effects but also future implications, will there be too many settlements? Too few? Second, what can be done to mitigate any adverse effects that settlements might have on social welfare? How can potential negative effects, in terms of deterrence, be mitigated? Are there complementary measures that can be adopted together with a settlement policy to ameliorate potential problems that might result from settlements? These are the questions that I tried to answer in the paper I wrote for this Workshop with Kirsten Edwards.17 The paper benefits from the work of Wouter Wils,18 and some would say that the paper explains, in Greek letters, what Wouter has already explained in plain English. The paper is still a work in progress, but let me tell you about our preliminary conclusions. Some are not surprising. Others are a little bit surprising, and I hope you will see there the added value of the Greek letters. The first point is that the private incentives to settle are greater when—this is no surprise—they are greater when litigations costs are large, when the expected fine is large, when there is a significant probability of an adverse decision that will be upheld by the courts, and when (in particular in Article 82 cases where there might be Article 9 negotiations) the additional profits that the defendant can achieve by continuing with its anticompetitive strategy during and after the litigation period are small. That’s when a defendant will be willing to settle. And note the last point about extra profits. Those extra profits, i.e., the profits the defendant make by delaying and continue litigating and appealing may be particularly large in industries where, due to consumer switching costs, consumer inertia or network effects, tomorrow’s profitability is positively affected by today’s actions. The second result is that the incentive of a competition authority to settle is greater when, first of all (and this is the mirror image of the last effect I just mentioned), the sacrifice in consumer welfare resulting from continued or unsuccessful litigation is large. Second, and this is more standard, the authority’s incentive to settle are greater when litigation costs saved by the settlement exceed the costs of the settlement, both in terms of lost fines and, more importantly, in terms of diminished deterrence. Third, when the preferences of the competition authority in terms of consumer welfare and deterrence faithfully reflect those of society, then we 17 Edwards and Padilla, Antitrust Settlements in the EU: Private Incentives and Enforcement Policy, this Volume, p. 661. 18 See Wils, “Settlements of EU Antitrust Investigations: Commitment Decisions under Article 9 of Regulation No. 1/2003”, 29 World Competition 345 (2006).

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prove that there may be too few settlements, but never too many. In those cases, it may be optimal to adopt measures such as, for example, cost-shifting provisions that increase the incentive of the defendants to settle so as to minimize the negative impact of delay on consumer welfare and efficiency. Fourth, when the preferences of the authority are biased towards deterrence—and there are reasons to believe that they may be, due to things such as career concerns—if there is such a bias, then we may see an insufficient number of settlements. Conversely, if the preferences of the authority are biased towards short-term consumer welfare due to, for example, populistic preferences, and if the authority undervalues the long-term effects of its decisions on deterrence, then you may have too many settlements, and diminished deterrence. The next result is that defendants are less likely to offer commitments precisely in those cases where commitments are more valuable from a social perspective. That is more likely to happen, ceteris paribus, in industries where today’s actions have an impact on tomorrow’s profitability, which is to say industries characterized by consumer inertia, switching costs and network effects. Competition authorities, as I said, may settle too often or too seldom, when there are biases in their preferences with respect to the preferences of society. Those agency problems have to be taken into account dealt with. To do that, there are several possibilities, both organizational and institutional. For example, one factor is that level at which the decision whether or not to settle, since a more senior decision-maker may be less influenced by career concerns. As for institutional factors, judicial review, for example, might alleviate those agency problems. There may also be agency problems on the side of the defendant. The preferences of those who represent the defendant may not be perfectly with the preferences of the defendant’s shareholders. That may happen because managers have diverging interests, or it may happen because some people earn fees out of long processes. The next result is that, as Massimo and Wouter both noted yesterday, the option to settle may also have perverse effects on deterrence. To counter those effects, there is a need for complementary measures. When a settlement procedure is introduced, more money and human resources need to be devoted to the task of detecting infringements. Otherwise, if settlements ramp up without an increase in the likelihood of detection, deterrence may be undermined. Finally, the impact of private enforcement on defendants’ incentive to settle is likely to be positive. Here there is a positive complementarity between private enforcement and settlement policy. Remember, one of the key reasons why a defendant may not want to settle is because it thinks that by drawing out the litigation, in the end perhaps there may be no finding of infringement. This can affect future profits, since today’s actions can affect the structure of the market in the future. To the extent that, through private litigation, those extra profits can be taken away, the incentive to settle will be aligned with

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Panel VI—part one: policy consequences for public enforcement 615 those of the competition authority and society, and the bias towards too few settlements may be corrected. We need to do several other things to complete the paper. Among other things, we’d like to examine the implications of a repeated game in which my decision to settle today may signal what kind of individual I am and what kind of exposure I have to the competition authority. And in the end we’d like to be able to rationalize why, in the two cases I mentioned earlier about interoperability and bundling, one was settled and the other was not. What were the reasons for that, and what were the implications for social welfare of these two different outcomes. That’s a very difficult task, and I’m not sure that our Greek letters, as they are, help us much. 䉴 MASSIMO MOTTA: Thank you, Jorge. Now we can proceed with discussions of how the settlement procedures we’ve been talking about might affect private litigation in Europe.

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Panel VI, part two:

Policy consequences for private enforcement

KRIS DEKEYSER: I’ll be talking about the interaction between public and private enforcement, and about the effects which cartel settlements and Article 9 commitments may have on private enforcement, but I think our discussions from yesterday and today show that we are still facing a learning curve. It is not so obvious to predict how all of these relatively new initiatives would or should interact. As John Fingleton said yesterday, the European system is far from being mature, and both public and private enforcement are still evolving. So I will follow the advice of an English law professor, who told his students a couple of years ago to treat the questions in the bar exam the way they treat the Ten Commandments: under no circumstances should you attempt more than five. So I will limit my intervention to five points. First, I will review some of the principles underlying the White Paper,19 because I think there are still some important misunderstandings. Second, I will touch upon the effects of public enforcement on private enforcement on a general level. Then I will look at the impact of cartel settlements and Article 9 commitments on private damages actions from three perspectives: that of an enforcer, that of victims and that of infringers. Beginning with the White Paper, if we recall certain underlying principles, this may explain why some policy options were preferred over others. The first principle is compensation. This distinguishes the White Paper from the US model of private enforcement. There, for historic reasons, private enforcement was seen as a means of achieving deterrence. In Europe, our aim is to ensure that victims are compensated. This is the reason why in Europe, for example, we do not envisage multiple damages. The principle is single damages for losses sustained—not only actual losses but also lost profits, plus interest. So this is a European approach, and you will see a European approach if you look at the proposals on access to evidence,20 for example, or collective redress.21 You will see that we have built-in filters to avoid excessive litigation. But another important principle underlying the White Paper is that we want to preserve strong public enforcement of Articles 81 and 82 by the Commission and by the European Competition Network as a whole. So we want to optimize the relationship between public and private enforcement so that they can mutually strengthen each other. This means that measures that 䉴

19 White Paper on Damages actions for breach of the EC antitrust rules, COM(2008) 165 final of 2 April 2008. 20 Ibid., point 2.2, pp. 7–8; Staff Working Paper, SEC(2008) 404 of 2 April 2008, chapter 3. 21 White Paper, point 2.1, p. 4; Staff Working Paper, chapter 2. See also European Parliament resolution of 26 March 2009 on the White Paper on damages actions for breach of the EC antitrust rules, 2008/2154(INI). The corresponding Report of Rapporteur KlausHeiner Lehne of 9 March 2009 is available at http://www.europarl.europa.eu/sides/getDoc. do?pubRef=-//EP//NONSGML+REPORT+A6-2009-0123+0+DOC+PDF+V0//EN.

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Panel VI—part two: policy consequences for private enforcement 617 are put forward to facilitate private enforcement should not jeopardize our public enforcement. There are a number of consequences flowing from those principles for the general regime of damages actions. A clear example is the so-called “investigative privilege”, which is also put forward in the White Paper.22 We must avoid any undue requests for disclosures in ongoing antitrust investigations when they are still in a phase in which they are rather critical. That’s why we have proposed a rule according to which courts hearing actions for damages should temporarily refrain from adopting a disclosure order if it would jeopardize an ongoing antitrust investigation. The same need to preserve the effectiveness of public enforcement implies absolute protection of corporate statements. As we all know, leniency is critical for detecting cartels, and it is therefore also essential for follow-on actions. For that reason we insist on absolute protection for corporate statements submitted to any enforcer within the ECN, regardless of whether the application for leniency has been accepted or rejected, and regardless of whether it was submitted before or after the decision. Even voluntary disclosure by leniency applicants should be prohibited, at least until after the SO is issued; otherwise, such disclosure might jeopardize our investigation. The same logic applies for settlement submissions. Another mechanism often discussed in order to protect leniency programs is the preclusion of joint liability of the successful immunity and/or leniency applicants. On this point our ideas are less crystallized. What we have put forward in the White Paper is more typical of a Green Paper; it’s certainly not a fully-fledged recommendation, so there we’d like to have extensive feedback. The possibility that we raise there is to limit the liability of successful immunity applicants to claims made by their own direct and indirect contractual partners. So successful immunity applicants would remain liable on the civil side, but the scope of damages to be paid would be more limited and more predictable. Before reaching clear conclusions on this we need to consider how that fits in with the principle of compensation, and how it would impact other leniency applicants, in particular the highest-ranked leniency applicants. Coming to the specific effects of commitment decisions on private enforcement, in conferences you often hear the question: “If the Commission wants to promote more damages actions, does that it mean it will be more reluctant to take commitment decisions?” The answer, of course, is clearly no. The Commission acts in the public interest, and not necessarily in the interest of private plaintiffs. We have already heard this morning that, unlike Article 7 decisions, an Article 9 decision does not contain any finding of an infringement. Therefore a private plaintiff in a case concerning the same facts would have to establish the illegality of the agreement or practice, as a first step toward obtaining damages. One could argue that an Article 9 decision would nevertheless 22

See Staff Working Paper, cited supra note 20, point 119.

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be helpful because, in the White Paper, we suggest that national courts should be able to order the disclosure of certain categories of evidence provided that the claim is plausible and provided that the disclosure request is proportionate.23 An Article 9 decision could help plaintiffs meet the plausibility test, depending on the weight the national court gives to the decision. What about cartel settlements? These are Article 7 decisions, which means they are binding on national courts as regards the existence of an infringement. It is true that a decision adopted following a cartel settlement procedure will be less rich in facts than a normal Article 7 decision, but victims can rely on such a decision before a national judge in order to meet the threshold for inter partes evidence disclosure. In any event, it is clear that victims will need much more than just the establishment of an infringement. Obtaining an evidence disclosure will be crucial to establishing a causal link between the infringement and the plaintiff’s damages, and to quantify those damages. Finally, settlements in cartel cases would facilitate a better management of enforcement resources. This will lead to more decisions, and to that extent it will generally contribute to more private enforcement. From the perspective of infringing parties, a cartel settlement is only an option where there is a common understanding on the part of both the enforcer and the company on the main parameters of the case, i.e., the object of the cartel, the duration and the main facts. So the real issue will be the amount of the fines, and the level of detail in the decision. As Kirti said, some people argue that defendants will be less likely to settle if they think there will be immediate follow-on actions. I would respond that this is by no means certain, for a couple of reasons. First, if one day an effective system of private enforcement emerges, we would expect that those private actions will be brought anyway. So the incentive to settle would be entirely preserved. Second, opting for a delay rather than settling may not be the most intelligent strategy. If follow-on actions are brought three or four years later, the infringer will have to pay interest at the legal rate, which can amount to a significant sum of money. Finally, today companies are increasingly developing a multi-jurisdictional leniency and settlement strategy. They put all the parameters on the white board: exposure to civil, criminal and administrative penalties, both for companies and employees, and jurisdiction by jurisdiction but also on a cumulative basis. This may result in an overall strategy by the firm to cover itself as much as possible on the public side, and to turn the page as quickly as possible to get back to normal business. If this is the business strategy which has been adopted worldwide, the European settlement scenario may very well fit in that strategy. I don’t think I need to cover the effects of Article 9 decision on private enforcement, as we discussed that extensively this morning. Let me just 23 White Paper, cited supra note 19, p. 5; Staff Working Paper, cited supra note 20, paras. 98–109.

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Panel VI—part two: policy consequences for private enforcement 619 conclude by saying that I would call public enforcement through settlements and commitments and private enforcement faux ennemis. It is true that some safeguards must be put in place, such as investigation privilege and so on. It is also true that the choice as to the type of procedures can have implications for victims claiming damages. But if you have effective and efficient public enforcement, that should only present advantages for plaintiffs who have suffered harm. LORENZO COPPI: Like Kris I’ll be addressing the interaction between settlements and private litigation. I’ll begin with a series of remarks and I’ll finish with some policy considerations. The first observation is that there are two effects which are consistently referred to in the context of settlements and their impact on private litigation. Settlements bring forward the time at which private damages must be paid; and they may affect the amount of information available to plaintiffs. On this last point, there does not seem to be a consensus on how it affects the information available. There may be more or less information, or it may have no effect, and all of that is relevant for the award of damages, but we don’t know yet how it will play out in practice. What can we say about that from the perspective of economics? When a firm deliberates on whether to settle, it will weigh the pros and cons of settling rather than appealing. On the one hand, appealing may allow a firm to delay payment. Kris has just made the point that this factor may not be particularly important, and for some firms that is true. Firms in a good financial position which would expect to pay high interest charges in the future won’t have a strong incentive to delay payment. By contrast, other firms may have an interesting in delaying payment if their CEO has a low horizon, or if they have a cash flow problem (e.g., a company like General Motors, borrowing at 12 percent interest). On the other hand, there is also an incentive to close the book. This is related to financial factors, but it can also be related to the personal preferences of the CEO, the CFO or other key managers. Corporate governance can be another factor. What would incline a firm to appeal? The objective, of course, is to obtain a reduction in fines. Massimo has told us that a purely risk-neutral firm should expect about a 25 percent reduction just from looking at past court decisions. Now, a firm will discount that figure if it is risk-averse, and so it may prefer a certain 15 or 20 percent reduction of the fine to an uncertain 25 percent reduction. On the other hand, by settling a firm avoids legal costs, including the internal resources used by the company in litigating. Those costs may be significant, and their relative importance will depend on course on how high the fines are. Now these are the pros and cons of appealing, and in principle the competition authority does not have any effect on these, they are independent of the authority’s policies. However, a settlement policy, and the way it is designed, can have some effect. In particular, this relates to the possibility that more or

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less information in a decision will lead to higher or lower expected damages. The final instrument that the authorities have in influencing a firm’s decision of whether or not to settle is obviously the settlement discount. How do we weigh all of these factors and evaluate a firm’s incentives? Quantitative values can be assigned to the expected costs and the expected benefits of settling a case, and for those of you who like formulas, equations and Greek letters, we have included a few of those in our paper.24 A firm that is in a good financial position and derives no benefit from delaying and litigating will require a relatively low discount to be persuaded to settle. The main tradeoff is the loss of the right to appeal, which has some value due to an expected fine reduction, and we discount that value on the assumption that the firm will to some extent be risk-averse. In the other scenarios I mentioned, where a firm has a cash flow problem, or it’s borrowing at 12 percent, or the CEO is at the end of his tenure and prefers to let the next CEO deal with the case, in these types of situations the required discount may increase dramatically. We have to consider another factor as well, because the Commission can decide how much information is included in the settlement decision. This may have an effect on the expected amount of private damages. If a settlement decision contains all of the information found in a normal decision, which is the OFT approach, then this effect will be neutral. On the other hand, if the Commission issues a settlement decision that is streamlined in such a way as to result in lower damages, then we would expect that the discount offered to a settling firm could be lower. My final two policy considerations are the following. First, we have carried out our analysis under what is called an “indifference” condition. That is to say the firm, when carrying out this cost-benefit analysis is indifferent between settling and appealing. The Commission should not necessarily be concerned about offering a high discount from the fine because a high discount does not necessarily result in underdeterrence. If the Commission also considers the effects of private litigation, it can offer a higher discount while still maintaining a level of deterrence. Second, as I said, the Commission can decide on the fine discount and it can control the amount of information in the settlement decision. In the rarefied world of economic theory and policy, one could argue that the Commission should offer a relatively high discount and put a lot of information in its decision. This would maintain a strong deterrent effect; it would promote compensation to plaintiffs, which is a stated objective of the Commission; and it would induce firms to settle, resulting in the procedural efficiencies that the Commission is hoping for. However, in real life, as my five-year old likes to say, I can see why the Commission might not want to do that. This is because 24 Lorenzo Coppi and Robert Levinson, “The Interaction between Settlements and Private Litigation—An Economist’s Perspective”, p. 687.

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Panel VI—part two: policy consequences for private enforcement 621 overall deterrence would remain constant, but the onus of deterrence would be shifted from public enforcement to private enforcement. The Commission would effectively be subcontracting deterrence to private claimants. So I can see why that would not be the Commission’s preferred approach. MASSIMO MOTTA: Thank you, Lorenzo. Now we open the debate, and I have a long list of people waiting to intervene. First is John Fingleton. 䉴

䉴 JOHN FINGLETON: I have four quick points. I like Simon Bishop’s attentiveness to the degree of consumer harm. But in cartel cases I don’t think we should be moving toward a system where agencies have to prove significant consumer harm. That would have the kind of impact on deterrence that we definitely don’t want. And I certainly don’t think it’s incentive-compatible to have companies measuring the harm for us—that creates all kinds of incentive problems. So I don’t think that’s going to be the answer, and it’s a difficult question. Coming to the question of “what’s the rush”, apart from the fact that there is huge pressure on agencies to deliver results, it’s important to underline that the cartel immunity tool provides no deterrence in and of itself; it is an investigative tool. It’s the sanctions that provide deterrence, and there are lots of examples of countries that have well-defined immunity tools and procedures, but they don’t have any immunity applicants, and that’s because they have no sanctions. But countries with strong sanctions have lots of applicants. And if the sanction comes earlier, then the deterrent effect will be felt earlier too. Waiting three or four years for a decision would make a difference. Third, heads of agencies have the difficult job of incentivizing staff to deliver results on time, and that will create pressure for settlements, and at the same time there is also the task of ensuring consistency and quality, and making sure consumer welfare is taken into account. One of the things that might be nice to bring out in Jorge’s paper 25 is the internal structure of the agency. At the OFT, Ali Nikpay and our Chief Economist, Amelia Fletcher, both have to be happy with the overall framework of a decision. Tensions might arise in some instances between the case team’s rush to get things done or to settle a case and the other objectives, in performance management terms, that we have on the policy side. And you might see similar tensions within the Commission, whether it’s internally within DG Comp, or between DG Comp and the Legal Service. So I think that the internal structure of the agencies can be a terribly important safeguard and it helps to sustain the balance between the need to deliver and the need to do what is in the public interest in the long term.

25 Kirsten Edwards and Jorge Padilla, “Antitrust Settlements in the EU: Private Incentives and Enforcement Policy”, this Volume, p. 661.

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I can introduce the fourth point with the famous story about an economics professor looking for his car keys under the light of a car park at the university, and a student comes and says “Can I help?” He explains that he’s looking for his car keys. She says, “Where did you drop them?” and he points to the dark part of the car park and says, “I dropped them over there.” And when she asks, “Well, then why are you looking here?”, he says, “I’m looking here because there’s some light here.” So what does that story mean, in our context? Well, there’s a great tendency to focus on firms’ incentives to settle by looking at things like the fine and the legal fees and so on. But in my experience, the incentive to settle has much more to do with the psychology of the individuals, reputational effects and a whole range of other factors. These may be much more subtle to model, but they’re not impossible to model, and they’re certainly not impossible to think about in a conceptual framework. So just because we can’t measure them quantitatively, we shouldn’t leave them out of the models. 䉴 DAN RUBINFELD: I have two points. First, I’m in agreement with most of what Simon Bishop said, but I wanted to raise one concern. Simon had suggested that it might make sense to settle weaker cases and proceed with stronger cases. But once an authority develops a reputation for settling weaker cases, you might have a potential unravelling. The parties will be aware of this strategy, and they may hold back on settling in the hope that the case will fade away and disappear. So it’s not clear that this kind of approach would be successful. More importantly, as some here have suggested, it’s appropriate for the public authorities to think about the precedential effects of their actions. And it’s entirely appropriate and desirable for the authorities to decide which cases really ought to proceed in order to establish good precedents. In the US, we have relatively few legal precedents each year, but if the agencies are careful in influencing the right cases and helping to make sure those cases are resolved with clarity, that can have great social value. The second point is that settlements happen, of course, because parties come to the conclusion that they’re better off settling than contesting the case further. That’s very clear. But it does not follow that settlements lead to less deterrence. It may be true, but there’s nothing automatic about that. Parties settle because by doing so they avoid risks, and one risk that is avoided is that of the substantial cost of embarking on a long adversarial endeavour. And deterrence is not measured just in terms of what the fine is; it also has to take account of the avoided costs of litigation. You can actually get very substantial deterrence in settlement cases, and indeed you can have more deterrence in a settlement case than you would if you held out and went to trial.26 26 See, e.g., A. Mitchell Polinsky and Daniel L. Rubinfeld, “A Note on Optimal Public Enforcement with Settlements and Litigation Costs”, 12 Research in Law and Economics 1 (1991).

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Panel VI—part two: policy consequences for private enforcement 623 RAFAEL ALLENDESALAZAR: On Article 9 cases, I think commitments should be reserved for those cases where a cease-and-desist order would be inefficient. And it is very difficult to design and apply sound remedies in an adversarial setting under Article 7. The authorities should avoid bright ideas, and the version of Windows which the Commission compelled Microsoft to offer is a good example of just how badly remedies can be designed.27 Now compare that with what happened in the Coca-Cola case.28 There the Commission had originally thought about imposing the same idea for drink dispensers as for freezers. So there would have been no exclusivity for dispensers. But then Coca-Cola explained that if someone got sick after drinking from a dispenser, and if it was not clear whether the faulty product was Coca-Cola’s own product or the product of a competitor, this could cause enormous difficulties. In the end, the Commission did not insist on that condition, and this shows how flexibility on remedies under Article 9 can produce workable measures that meet the goal of eliminating restrictive practices with a minimum and proportionate disruption of the defendant’s business.

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ALBRECHT BACH: I’m tempted, like Ian Forrester, to start with history, though I won’t go back to Adam and Eve. But when the proposals for modernizing the European competition enforcement system were discussed, clearly private litigation was seen by the Commission as a sort of substitute for a lessening of enforcement which was foreseen as a corollary of the abolition of the notification and exemption procedure. Are we able, at this stage, to “subcontract” some part of deterrence function to private plaintiffs? Clearly not. The discussion of private enforcement reminds me rather of Loch Ness. We talk a lot about it, and sometimes the head is seen, but it has yet to really make its presence felt, at least in most European countries. I understand that it is in the Commission’s interest to avoid stimulating private actions if there is any risk that this will have a negative effect on its enforcement activities. The question is whether, at this stage, the Commission should block access to any documents created under leniency or even under settlements. Unless the Commission firmly believes that it is capable of convincing the Member States that an inter partes discovery process should be established throughout Europe, the Commission can’t walk away and leave these crucial evidence problems to the unsatisfactory procedural mechanisms that are currently in place. What puzzles me is that, in Europe, the sorts of efforts made in the US to reconcile private action and leniency29 are not even explored. Why isn’t the

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27 See, e.g., Hewitt Pate, “The Thirteenth Chime of the Clock”, 4(1) Competition Policy International 50 (2008). 28 Cited supra note 15. 29 See the DOJ’s contribution to the OECD’s Roundtable Discussion on Private Remedies, DAF/COMP/WP3/WD(2006)34 of 31 May 2006, http://www.ftc.gov/bc/ international/docs/RdtbleOnPrivateRemediesUnitedStates.pdf, points 31 et seq.

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Commission able to ask someone who comes in for immunity to cooperate in the effort to ensure redress for those who have been harmed by the cartel. Whether that takes the form of a full disclosure or whether it is some other means of compensation, as has been proposed in the Netherlands, I simply don’t understand why solutions of that nature couldn’t be explored at the European level. It would come at a very low price, or no price at all, to the Commission. For that matter, why hasn’t the Commission explored the approach of the OFT, as described by Ali Nikpay, where the OFT says they will not settle unless they are sure that no harm is done to the prospects of redress for victims? 䉴 JIM VENIT: If we had been here ten years ago, we would have seen resistance from the Commission to leniency and certainly to private damage actions. I think we need to understand the roles of the different institutions involved in market regulation. The role of the enforcer is to detect, and to some extent, to deter. Detection means a leniency program—that’s been proven to be the most powerful means of detecting cartels. As for deterrence, it’s clear that criminal systems deter much more effectively than non-criminal systems. They also produce settlements faster, because individuals don’t want to go to jail. In terms of compensation for harm, and the redistribution of wealth, I think that is an area that’s best left to private actors litigating before courts. It’s true that there should also be a balance between that legitimate role of private enforcement and the needs of public enforcement. In the US, the DOJ was able to provide an additional strong incentive to leniency applicants by de-trebling private damages.30 But in the EU we don’t have treble damages, so we can’t hold out that carrot. But in addressing these questions, we should always be aware of what is the role of the institution concerned, and of what its proper function is. In the case of the enforcer, it should be detection and deterrence, but not redistribution and not regulation.

ANN O’BRIEN: I would agree with Dan Rubinfeld’s point that settlements can actually increase deterrence, and this is for a very practical reason. We should recall that there is specific deterrence and general deterrence.31 If you look at the speeches of the DOJ, you’ll see that our focus is predominantly on general deterrence. And as a result of the combination of our leniency and settlement programs, we are bringing more cases, and this is how we can 䉴

30 See Antitrust Criminal Penalty Enhancement and Reform Act of 2004, Pub. L. No. 108-237, § 215, 118 Stat. 665, 668 (2004). 31 Specific deterrence refers to particular sanctions and their effects on the incentives and/or capacity of individuals to violate norms; general deterrence refers to the much broader mechanism of social control arising from a system of sanctions. See, e.g., Dan Kahan, “The Secret Ambition of Deterrence”, 113 Harvard Law Review 413 (1999); Gary Kleck, Brion Sever, Spencer Li, Marc Gertz, “The Missing Link in General Deterrence Research”, 43 Criminology 623 (2005).

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Panel VI—part two: policy consequences for private enforcement 625 maximize the deterrent effect of our enforcement policy. Bringing more cases enables us to increase the overall number of convictions, and this enhances general deterrence. To put a finer point on that, our plea agreements are designed to induce cooperation and acceptance of responsibility, and these agreements result in convictions that we might not obtain otherwise. Furthermore, we might uncover one cartel thanks to our leniency program, but then with our Amnesty Plus program and the settlement process it’s not uncommon for a settling party to disclose to us the existence of multiple other cartels that we would otherwise never have detected. And from this progression of disclosures there emerges a “cartel tree” that we use to chart our enforcement actions. As for the question about whether competition authorities merely uncover old cartels as opposed to deterring new cartels, in the US we have the added deterrence of criminal sanctions. So a corporate executive sitting in a meeting between competitors, I think we can pinpoint this as a very effective element of deterrence. I do not say that in order to advocate criminal sanctions in other jurisdictions, but it is something we know very well from our experience. Certainly an executive will not tell you that he or she engages in a cost-benefit analysis before going into a cartel meeting, but corporate legal advisors in the US have told me that executives tell them they will not participate in a cartel in the US, because they don’t want to go to jail. So the criminal regime has very real deterrent effects, and I’d encourage you to talk to members of the bar and to the business community to understand how that calculation is made. BILL KOVACIC: This last round of presentations usefully illustrates three things that can go wrong in settlement or bargaining scenarios. First is the risk that the competition authority will take cheap deals, for one of two reasons. Either it is risk-averse and maybe has doubts about its capacity to execute, or else it just wants to run up the numbers. To the extent that the larger community of competition officials counts numbers as being the measure of performance, you run up the stats by settling lots of cases. The second thing that can go wrong is that you can simply make good faith errors. You either ask for too much, that is to say, more than you might need, especially where the authority insists on conduct or structural undertakings on the civil side; or you ask for too little, for example you establish a short conspiracy period when it should have been longer. The third risk, and Dan Rubinfeld mentioned this a moment ago, the authority can pay too little attention to the creation of binding doctrine. I think settlements over time can become a narcotic, where the agency begins to think, since it’s reaching a lot of settlements, that it’s re-setting the boundaries of law. But of course the only way you can do that is by going before tribunals and securing judgments. If you rely too much on settlements then you’re not promoting the periodic re-conditioning and re-validation of doctrine which is a primary role of the courts.

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From our discussion I also see two kinds of antidotes. One kind consists of things the agency can do itself. It can make a conscious effort to ask questions such as: what savings are we achieving and how will we use these resources? How do settlements relate to a larger framework in which other key variables include liability standards and the quality of punishment, all of which are interrelated. Second, the discussion underscores once again the importance of having an effective evaluation program. The point is to measure actual effects of policy, and to ask basic questions about how things are turning out. Third, we can see the importance of transparency and the importance of explaining to outsiders what’s taking place, at least for the purpose of stimulating a debate. As a second kind of antidote, there are two devices outside the agency. First is a mechanism of robust review by a third party. In the case of plea agreements, as Diane Wood and Ann O’Brien described yesterday, judicial oversight can be important. Then we come to private enforcement, and its links with public enforcement. Here it’s necessary to ask whether it’s useful to have multiple rounds of enforcement, so that, for example, if one actor gets it wrong, then others can fill the gap. That requires careful efforts to decide where and to what extent the intervention of private plaintiffs is welcome. ONNO BROUWER: I have a question about Lorenzo Coppi’s paper, which I found very interesting. Yesterday we said there may not be much information in the file of a competition authority which could be used as a basis to claim damages, and that’s why inter partes discovery can be important. So the authority’s options as to how much useful information it can include in its decision might be limited to some extent. But the question I have is: to what extent does your paper imply that the competition authority has a lot of leeway in terms of what information it disseminates and what information it does not disseminate. I can see that you will not disseminate information which would undermine your investigation (up to the SO), or which would undermine your leniency program, but beyond that I’m not sure that there’s much leeway for a competition authority to withhold objective information that it has, if that would have an impact on private enforcement. 䉴

KIRTI MEHTA: I agree with Dan’s point that settlements do not reduce deterrence. And where there are big cases where the evidence is very good, consumer harm is going to be very, very likely, so you don’t have to scratch your head about that. Many of the cartels we see, when we have a lot of information about them, is that they have very strong mechanisms for organizing the cartel. One has to be careful about calling a case weak or strong on the basis of whether the cartel has a strong impact on consumers. On the subject of private litigation, we should remember that the payoffs for the parties are very different. If you are a leniency applicant and you get a reduction of

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Panel VI—part two: policy consequences for private enforcement 627 50 percent, and then if you get another reduction for coming in and settling, that is a substantial fine reduction. Then the third one is better off not coming in at all because he is better off settling and not disclosing any evidence. But my main point is that the objective of anti-cartel policy is not to adopt more decisions with fines, but we want to see an end to cartel activity. Are we deterring new cartels? Well, anytime we carry out an inspection, that’s an ongoing cartel. But over time the policy is aimed at reducing participation in those cartels. Looking back over the results under the three Leniency Notices that we have adopted, there is a trend going in that direction and this will become very apparent in the future. I also agree that in some cases it’s necessary to go to court. In cartel cases there are lots of issues that have become clearer following litigation. I think that can only help. Furthermore, an important cartel decision that is upheld is a very important source of deterrence. So we should not underestimate that. 䉴 LYNDA MARTIN ALEGI: Like Bill, perhaps, I’ve been reflecting on the importance for an agency of maintaining the credibility of its system by having an adequate record of well-reasoned and robust decisions, some of which have been challenged in court as a background to settlements, which are then effective not only in individual cases but also more broadly from the standpoint of the public interest. It strikes me that when the Commission’s proposed settlements system is implemented, or maybe already, there may be a soft harmonization effect, as so many Commission policies have. But my question is whether the Commission has given further thought to that process of soft harmonization in this instance. It may be that not all national competition authorities have the same record of strong, well-reasoned, robust decisions, against which a settlement regime can be most effective. It seems to me that the Commission might help them to avoid premature addiction to the narcotic of settlements.

STEPHEN WILKS: I’m tempted to reflect on a lot of the discussion we’ve heard. I will resist that temptation, not least because Emil Paulis will be doing that in a little while. But the discussion over the last day and a half has been fascinating. It has answered a lot of questions that I came here with, but then it also generated a lot of questions that hadn’t even occurred to me before I got on the plane for Florence. I have two questions that I would have liked to have heard more discussion on, although Simon Bishop helped to clarify these. One is whether deterrence means detecting old cartels that are just coming out of the woodwork, or whether deterrence is about preventing new cartels from forming. And Kirti, you began to address that as well. It’s almost an impossible question, of course. The second question concerned Simon’s point about bad cartels and very bad cartels. That’s a lovely idea, and you cited consumer welfare as a criterion for distinguishing between the two. But in terms

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of a competition authority’s ability to prioritize and choose the right instrument, I would think these kinds of distinctions could be helpful in that regard. JOHN FINGLETON: On Stephen’s question about late-life cartels, one of the key features of the OFT’s evaluation work on cartels is that we do not measure and take credit for the cartel that existed. We do take credit for ending the cartel, and we try to do an estimate of when we think the cartel would have ended in the absence of enforcement. That’s part of our published methodology. And we provide that information not just to be honest about what we’re doing, but to incentivize staff within the agency to come up with ever-cleverer ways of raising that figure, because it’s a key performance indicator. We have also just introduced an informant reward program,32 because we think that, in addition to an immunity program, rewards are also a very useful tool for destabilizing cartels earlier in their lives. Part of the reason why our staff in the agency were so keen to have that informant reward program in place was because of the way in which we measure the deterrent effect. So the whole thing comes together as a virtuous circle, with different tools complementing each other and helping to enhance the performance of the agency. 䉴

SIMON BISHOP: Dan’s comment demonstrated that I’m not only ignorant but also inarticulate. What I meant by a weak case was a case where the Commission doesn’t have the documentary evidence to support, for example, the whole cartel period in which the cartel was actually operating, while a strong case would mean that the Commission does have strong documentary evidence. I wasn’t suggesting that they should go for weak cases, I was trying to flag which of those kinds of cases the authority should crack down on. My point was really that, if the Commission is settling cases, it should be doing so in cases of bad cartels and not very bad cartels. John made the point that leaving it up to the parties to say whether the cartel was bad or very bad raises incentive compatibility issues. But that’s true of any economic submission, or any evidence in any kind of antitrust case. The parties always want to submit their best arguments. It’s up to the authorities to assess whether that evidence is acceptable or not; no one is compelling them to do that. A final point relates to Ann’s suggestion about the effectiveness of individual sanctions and the positive impact they can have on deterrence. My question is: where is the proof? Is there actually proof that fewer cartels get started in countries where they have established criminal prosecution relative to their experience before criminal sanctions were adopted?

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32 See http://www.oft.gov.uk/advice_and_resources/resource_base/cartels/rewards. For discussion of such programs, see, e.g., William Kovacic, “Private Monitoring and Antitrust Enforcement: Paying Informants to Reveal Cartels”, 69 George Washington Law Review 766 (2001).

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Panel VI—part two: policy consequences for private enforcement 629 䉴 IAN FORRESTER: A few quick comments. Whether we’re talking about Article 7 and cartel settlements or Article 9 commitments cases, I think everyone around the table is happy that these instruments exist, but I think everyone on both sides has the feeling that they require some calibration and fine-tuning. I echo what Kirti Mehta said, and I would suggest to put it in the following way: the proper role of a competition authority shouldn’t be that of chief of police, but maybe that of public health supervisor. It’s not your goal to send people to the electric chair, it’s your goal quietly to eliminate the underlying problem. I don’t agree that companies make a financial analysis about whether to go ahead with cartel-like behaviour on the basis of the bottom line. The person who is the boss is not the person who participates in the cartel. In my experience, the person who is the boss is almost always appalled by the immense reputational damage, the damage to the business model, the unquantifiably huge fines, and the disruption for his enterprise. So I don’t mind doing a financial analysis, but I don’t think it’s realistic to quantify carefully the benefits and drawbacks of a company that discovers that it has been involved in a cartel. With respect to Article 9, I think that workable remedies are plainly achievable far more easily in a bargained-for environment, and not where there is a condemnation. That means the authority has to make sure that the cases are well-chosen. I would suggest, provocatively, that maybe it would be a good idea to look for a couple of illustrious cases under Article 81 or 82 which could help to clarify the law. Under Article 82, why not settle a case involving a discount regime, and then the Article 9 decision could modernize the Commission’s rules on the subject of discounts, and that way the Commission could distance itself from British Airways.33 Under Article 81, why not look for a case where a company has engaged in an imprudent exchange of information in careless good faith, and suppose it’s not really a serious case. Settle that case with commitments under Article 9, and that way you might advance the law. Last observation. We do need more judicial oversight. That would be very wholesome, especially at the interlocutory stage. But as of now, none of those reforms is on the table. I hope that by the end of this decade they will be.

KRIS DEKEYSER: I’ll just respond briefly on the issue of whether the immunity applicant should help private plaintiffs, for example by giving evidence or, as was mentioned yesterday, the notion of making the grant of some compensation a condition for immunity, or reducing fines where there is a commitment to grant compensation. On all of these we have to be extremely careful. We cannot do anything that would create a chilling effect on our leniency program. With respect to the idea of reducing the fine where the defendant agrees 33

Cited supra note 5.

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to provide compensation, the problem is that this would oblige the public authority to identify the harm caused, and to quantify it and so on. In a cartel case, that is not our role. A cartel case is a restriction by object case, so we are not required to examine a cartel’s effects on the market. So that would be an enormous additional task for a public authority, and I think we can leave that to the private sector. 䉴 LORENZO COPPI: John Fingleton made the point that psychological factors are very important when a firm decides whether or not to settle. I wholeheartedly agree, but I would submit that you may not need to model those factors and understand them in detail if you can simply measure them. So empirical research telling us how firms behave may be more important than theoretical analysis that tells us why firms behave in a certain way. Onno Brouwer raised a very good point: do I think that the Commission has any discretion in the amount of information that it can make available to the public? My understanding is that the Commission has been increasingly redacting information in public decisions, and that may be a way of doing it. Perhaps the Commission’s discretion is very limited in single cases, but it does have some discretion ex ante as to how to design its settlement procedure. On the general interaction between settlements and leniency, we might ask whether a company that will have reductions for both leniency and for settling would be deterred from entering into a cartel. I think that even with relatively high reductions there would still be deterrence because of the likelihood of private actions. In the US, an amnesty participant doesn’t pay very much in the way of criminal sanctions or fines, but there is still deterrence due to the prospect of civil liability. Finally, authorities should not be wary of granting a high discount for settlements. A relatively high discount rate will increase a company’s incentive to settle, and it may not affect deterrence. An authority might be concerned about opening the floodgates, and they may want to manage the process so that only a few cases at a time are settled. But that’s a policy decision for the Commission, it shouldn’t be based on the dubious premise that high discounts are bad for deterrence.

䉴 MASSIMO MOTTA: Thank you, Lorenzo. Now Emil has the intimidating task of providing us with his overall conclusions.

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䉴 EMIL PAULIS: I moved on from DG Comp a week ago,34 and already after one week I have forgotten everything. (general laughter) And as I was coming to Florence to participate in the Workshop I realized how difficult it was to focus my mind again on such a complex range of issues. Let me begin with a couple of points. First of all, everyone will have appreciated that this is not just law, this is also policy. And a lot of policy choices will have to be made in relation to the settlement procedure and then, in the longer run, in relation to private enforcement. Everyone also realizes, hopefully, that we are only at the very beginning. We can expect both the law and policy in these areas to evolve. There are certain features about this process that I would like to underline. Above all, the purpose of a settlement procedure in cartel cases is to strengthen public enforcement. The point is to increase deterrence by increasing the number of cases we can bring. The procedure is certainly not intended to weaken deterrence through a reduction in fines, and it does not subcontract public enforcement to private claimants. With respect to this procedure, some have suggested that it is heavily weighted in favour of the Commission. But the comments I hear coming from the plaintiffs’ side and the defendants’ side are mutually quite opposed to each other. These opposite reactions seem to indicate that the Commission is rather in the middle, where it should be. More importantly, even if the procedure conferred substantial advantages on the Commission, do not forget that by launching the private enforcement project we have engaged in a massive enterprise in which we have looked carefully at the rights of victims. That project is aimed precisely at benefiting the consumers victimized by anticompetitive conduct. There is therefore no question of the Commission ignoring or forgetting about plaintiffs in that context. It is my personal conviction that, as the Commission goes forward with settlements it is highly important for the entire process to become more and more transparent. There needs to be greater transparency, and there needs to be more consistency with regard to the fining policy of the Commission. That is absolutely fundamental. It is equally fundamental that whatever the Commission does remains fully under the control of the European judges. If we do not have the control and support of the judges, the settlement system won’t be credible, and it’s not going to fly. So for the purpose of ensuring the legitimacy and fairness of the procedure and its application, we need to have judicial control. Another point that has been made concerns the variety of national systems, and the fact that they are not aligned. If we look at this from a long-term 34 At the time of the Workshop, Mr Paulis had just taken up his new post in DG MARKT as Director of Directorate G, “Financial services policy and financial markets”.

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perspective, just as we have seen with leniency programs, we have had major differences across jurisdictions with respect to leniency programs. In the beginning there were some Member States that had programs, others that didn’t, and those that did had different criteria and characteristics. But in this regard we have benefited from a dynamic which is built in to the European Competition Network. Today, I’m very happy to say, nearly all Member States have a leniency program,35 and we have a Model Leniency Program.36 And I think we can expect exactly the same thing with settlement programs. We will see a dynamic of convergence, and so I’m not worried at this early stage about the differences. There has also been discussion of the reward, that is, of the fine discount that will be granted to settling defendants. Different people will consider different percentages to be the appropriate one. That is something that I think you will just have to leave to the trial and error of the Commission. But it needs to be stressed that this reward is part of a larger system. As Kirti has explained, we don’t have only one rebate. We also have immunity, and we have leniency reductions, and these can combine with the reduction granted for settling. The interplay of those elements remains to be seen, but there are plenty of good incentives in the system to bring people forward, and to encourage them ultimately to settle. Some of you have questioned why, in a settlement submission, it should be necessary for a defendant to recognize liability for an infringement. That is an important issue. It’s not enough to refrain from contesting facts. Think of a crisis cartel.37 What is a crisis cartel? Should that be characterized in the same way that we would qualify a straightforward hard core cartel? This is just to exemplify the fact that many, many issues of qualification can arise in a case, and it’s very important for a settling defendant not only to concede the facts but also to accept legal responsibility where it has infringed the competition rules. In any event, where the Commission settles a case this will take the form of an Article 7 decision, which means that within a few of months of settling there will invariably be a formal finding of infringement. And under Article 35 As of 28 February 2008, 25 of the 27 Member States had adopted a leniency program, all of them except for Malta and Slovenia. See http://ec.europa.eu/competition/ecn/leniency_ programme_nca.pdf. 36 See http://ec.europa.eu/competition/ecn/model_leniency_en.pdf. 37 Historically, see, e.g., Commission, Twelfth Annual Report on Competition Policy (1982), points 38–41 (emphasizing structural overcapacity with no hope of recovery in the medium term); Synthetic Fibres, 1984 OJ L207/17 (Article 81(3) exemption); Stichting Baksteen, 1994 OJ L131/15 (Dutch brick market—Article 81(3) exemption). See also the judgment of the CFI in Case T-148/89, Tréfilunion v Commission [1995] ECR I-1063, para. 117 (describing other Commission decisions where crises in the zinc and flat glass sectors had led to a mitigation of fines). For discussion of the EC practice, see, e.g., Andre Fiebig, “Crisis Cartels and the Triumph of Industrial Policy Over Competition Law in Europe”, 25 Brooklyn Journal of International Law 607, 619 et seq. (1999). Of course, many national jurisdictions (such as Germany and the Netherlands, to cite only two examples) have had experience with crisis cartels.

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16 of the Regulation, national courts and national competition authorities will not be able to call that finding into question. So what’s the difference, then, for the defendants? What about the position of third parties? I agree with Kris Dekeyser that the Commission should be very prudent and should firmly give priority to our public enforcement system. Don’t kill the hen that lays the eggs. We have got to get the ranking of priorities right. For the Commission, there’s no doubt that public enforcement will always have priority, from our perspective, over private enforcement. Public enforcement yields many benefits, including not only deterrence but also benefits for private plaintiffs. Why should we carry the burden of individual plaintiffs? If the needs of individual private plaintiffs would lead to delays or otherwise impair public enforcement, then in fact that would be detrimental to plaintiffs overall, and that is not what we want. It should also not be forgotten that the Commission is under no obligation to reach a finding of infringement.38 We have no obligation to facilitate private enforcement. We only have to act, within the framework of the control of the Community Courts, under very limited, specific circumstances.39 So let’s keep the church in the middle of the village. The Commission will always give priority to its public enforcement priorities, and rightly so. Furthermore, if the Commission settles a case, and if this means that the decision takes advantage of shortcuts, and it doesn’t contain all the information that it would have contained if the investigation had gone on for several years, that does not preclude plaintiffs from going to court on the basis of additional facts establishing that the scope of the cartel was wider. It is true, however, that we have made a policy choice. We will focus on inter partes disclosure of evidence at the cost of the litigating parties, and not at the cost of public enforcement. We also think that, pending the period of inter partes disclosure, if we opened our files this would have a very negative impact on the efficiency of public enforcement. The next point, and I was very glad that John Fingleton insisted on this, is that as enforcers we should not be expected to prove that cartels cause consumer harm, and actual effects on prices. Sorry—that’s not our business! 38 See Case T-24/90, Automec v Commission (“Automec II”) [1992] ECR II-2223, paras. 63–69 and 72–86, especially paras 77 and 83. The ECJ has confirmed that the Commission may set its own priorities, although the Commission has a duty to state reasons sufficiently precise to enable the CFI to review the Commission’s discretion to establish those priorities. See Case C-119/97 P, Ufex v Commission [1999] ECR I-1341, paras. 88–93; Case T-193/02, Piau v Commission [2005] ECR II-209, para. 80, appeal dismissed by Order of the ECJ, Case C-171/05 P. 39 The Commission is only obliged to act in what are now the rare cases where it has exclusive competence. See Automec II, cited previous footnote, para. 75. On the basis of the cited paragraph, this would include the (very uncommon) decision to withdraw the benefit of a block exemption (Article 29(1) of Regulation 1/2003, assuming Article 29(2) does not apply). On the other hand, the same principle is unlikely to apply to Article 10 of the Regulation (famous for never having been used), despite its attribution to the Commission of exclusive powers, as that provision can only be used by the Commission on its own initiative.

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That’s not the business of a public authority. So again, let’s leave those issues to be debated in national courts. One question which has come up several times is about whether companies will have incentives to settle, or whether instead they will contest the case and appeal the Commission’s decision. And it has been suggested that perhaps if the company puts up a fight then it can delay payment, which it might want to do if it has a cash flow problem. Don’t forget that Commission decisions are immediately effective.40 So even if you appeal—and good luck to those who go to court and ask for a suspension of a cartel decision41—during the appeal, the Commission’s decision all the while has binding effects, and it can be used immediately by private plaintiffs in national courts. And a national court would only stay its proceedings if there was a real, fundamental question about the illegality of the Commission’s decision.42 In that regard, it’s worth stressing that in cartel cases where Commission decisions are annulled, they are annulled for purely procedural reasons, or because of the level of the fine. Only rarely are they annulled on grounds relating to the core finding of an infringement. And that is something which I think stands out very conspicuously in the landscape. On Article 9, Ian Forrester suggested that with these decisions the Commission might regulate markets and produce bad law beyond the reach of the Community Courts. I think we should compare Article 9 with what we had prior to Regulation 1/2003. Would you prefer informal settlements? Realistically, there will always be settlements between public enforcers and companies suspected of an infringement. Is it better to have informal settlements than to have a formal procedure, where under Article 27(4) the proposed commitments must be published and there’s at least a public debate with the possibility for third parties to challenge the commitments? I don’t think so. Furthermore, don’t forget that in Europe we are committed to an effectsbased approach. That applies as much to the remedies as it does to the 40 See, e.g., Case T-275/94, CB v Commission [1995] ECR II-2169, paras. 50 and 51; Case T-28/03, Holcim (Deutschland) v Commission [2005] ECR II-1357, para. 121. In practice, when a fine imposed by the Commission is appealed, the Commission itself refrains from collecting the amount in controversy on condition of a bank guarantee sufficient to cover the fine plus interest. See, e.g., Joined Cases T-236/01 et seq., Tokai Carbon and Others v Commission [2004] ECR II-1181, para. 475; Case 86/82 R, Hasselblad v Commission [1982] ECR 1555, paras. 2–3. Securing the guarantee, of course, is not costless for the undertaking concerned. An applicant for annulment may seek an interim order suspending such financial obligations, but such requests are generally denied. See, e.g., Case 392/85 R, Finsider v Commission [1986] ECR 959, paras. 18–19 (suggesting the undertaking concerned was large enough to have no difficulties obtaining a guarantee). 41 To secure a suspension of the obligation to provide a guarantee (see previous footnote) the legality of the Commission’s decision would have to be in “particularly serious” doubt. See Case T-301/94 R, Laakman v Commission [1994] ECR II-1279, para. 30. 42 See Cooperation Notice on the co-operation between and the courts of the EU Member States in the application of Articles 81 and 82 of the EC Treaty, 2004 OJ C101/52, para. 13 (citing Case 314/85, Foto-Frost [1987] ECR 4199, paras. 12–20).

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concept of what constitutes an infringement. And increasingly the Commission is called on to demonstrate not only the likely effects of an infringement, but also to demonstrate the proportionality of particular remedies. What is happening in the field of mergers today will happen tomorrow in the field of antitrust.43 These remedies will be controlled more and more by the Community Courts, and therefore I am less pessimistic than you, Ian, about what will happen under Article 9. On the fines, I completely disagree. If you want to move towards a world where there would no longer be fines imposed in Article 82 cases, which is not exactly what Ian said, then you would transform the ex ante dissuasive effect of Article 82 into an ex post control of behaviour. That would be totally inefficient. But you can indeed question the level of fines under the existing law. The law says that a fine can be imposed only where there is negligence or intention. So there is a spectrum of culpability which can be used by defendants and by the judges in order to assess whether, in a specific case, a fine is justified. But we should not touch the system as such. Now for the very last point and then I’m finished. The Commission will go ahead and fine-tune its proposed settlement procedure, but the Commission will also likely consider whether to develop legislative proposals in the area of private enforcement. As Commissioner Kroes has indicated, if the comments we receive44 are not destabilizing, then it is likely that a proposal will be made. So there’s plenty of interesting work ahead of you. Thank you very much. 䉴 MASSIMO MOTTA: Thank you very much, Emil. That brings this interesting session to a close. Before I pass the floor to Claus, Judge Cooke will make a short announcement.

JOHN COOKE: Thank you, Massimo. As I will be retiring from the CFI in September, I’d like to offer a few words of thanks to the Institute for the way the Workshop has been organized, and particularly to Claus-Dieter for the honour of being here in Fiesole for several editions of the Workshop over the years. For me, this is a unique forum. It’s extraordinary to have 40 people around a relatively small table who represent such a wide range of actors in the competition field. It has always been, for me, one of the most rewarding and informative forums that I’ve ever taken part in during my twelve years in Luxembourg, and I’m very grateful for that. (general applause)

䉴

䉴 CLAUS-DIETER EHLERMANN: Thank you, John. And thanks to everybody for the extremely stimulating discussions we’ve had yesterday and today. This

43

See Case C-13/03 P, Tetra Laval v Commission [2005] ECR I-1113. See http://ec.europa.eu/competition/antitrust/actionsdamages/white_paper_comments. html. 44

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is surprising to Mel and myself because we weren’t sure whether the subject would lend itself to a day and half of discussion. We thought it might be repetitive, or too narrow compared to matters we’ve discussed in earlier years. However, it has been extraordinary and rewarding. But that’s the genius of the group. You’ve said it, John, this is a unique mixture of people, and those sitting around the table certainly know of what they speak. I would like to thank the chairs for efficiently running an event which should be as rich in discussions as in presentations. This is not an academic exercise where people present papers. I would like to thank those who helped to shape the program, and it wasn’t easy. Finally, a word of thanks to our sponsors, without whom we would not have the pleasure of meeting together and learning from each other. And thanks to you all—if the Workshop is a success, it is thanks to you. And have a good trip back!

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III Kirtikumar Mehta and María Luisa Tierno Centella* EU Settlement Procedure: Public Enforcement Policy Perspective

I. Introduction to the EU concepts of “settlement” and “settlement procedure” From the perspective of the European Commission, a “settlement” refers to a procedure culminating in a formal infringement decision which reflects the findings of the investigation and imposes a fine, and which is adopted at the end of a simplified procedure in which the addressees have expressly accepted liability for an infringement of Article 81. EU settlements are thus not conceived as an informal way of closing infringement procedures. They are regular, streamlined procedures, and the resulting decision is subject to judicial review.1 EU settlements, the purpose of which is to benefit from parties’ cooperation as a means to achieve procedural economies, do not foresee any negotiation2 on the scope of the envisaged objections, or on the use of evidence or the appropriate sanction. Instead, the settlement procedure ensures that parties will be heard effectively and will have the opportunity, through argument, to exercise their rights of defence in relation to the Commission’s objections. The EU settlement procedure is devised to be inserted into the existing institutional and legal framework, introducing adjustments only at the level of implementing legislation. The aim is to ensure that: parties cannot be * Mr Mehta is Director for Cartels in the Directorate General for Competition of the European Commission; Ms Tierno Centella is Deputy-Head of Unit G-2 in the same Directorate. We gratefully acknowledge comments and suggestions from Wouter Wils. The opinions expressed in this paper are personal and do not necessarily reflect those of the Commission. 1 See Commission Notice on the conduct of settlement proceedings in view of the adoption of Decisions pursuant to Article 7 and Article 23 of Council Regulation (EC) Nº 1/2003 in cartel cases (“Settlements Notice”), 2008 OJ C167/1, para. 41: “Final decisions taken by the Commission under Regulation (EC) No 1/2003 are subject to judicial review in accordance with Article 230 of the Treaty. Moreover, as provided in Article 229 of the Treaty and Article 31 of Regulation (EC) No 1/2003, the Court of Justice has unlimited jurisdiction to review decisions on fines adopted pursuant to Article 23 of Regulation (EC) No 1/2003.” 2 Paragraph 2 of the Settlements Notice (cited previous footnote) states: “Whilst the Commission, as the investigative authority and the guardian of the Treaty [. . .] does not negotiate the question of the existence of an infringement of Community law and the appropriate sanction, it can reward the cooperation described in this Notice.”

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forced into settling, and they make an informed choice in view of the evidence in the file and in full awareness of the charges and consequences they face; and the Commission can judge whether the progress made overall is likely to result in procedural efficiencies justifying the settlement reduction. The introduction of the option to settle cases, i.e. the possibility of allowing for procedural efficiencies in a scenario of explicit consent by the parties with the Commission on the scope of liability that the Commission can attribute and the elements of the infringement that it can prove, requires the adoption of an amendment of Commission Regulation 773/2004 and a dedicated Notice. The amendment of Regulation 773/2004 3 is technically necessary to accommodate the settlement option in the existing legal framework, since this entails: a) introducing variants in the provisions dealing with initiation of proceedings, participation of complainants in proceedings, access to the file and oral hearings; b) allowing for the choice of a different sequence of procedural steps, advancing certain ones in anticipation of the notification of the Statement of Objections; and c) ensuring that companies choosing to explore and, eventually, to commit to settlements will be bound by some obligations indispensable for procedural efficiency, since a Commission Notice binds the Commission but cannot create obligations for companies. Paragraph 3 of the Settlements Notice clarifies that Regulation 773/2004, as amended, “bestows on the Commission the discretion whether to explore the settlement procedure or not in cartel case, while ensuring that the choice of the settlement procedure cannot be imposed on the parties”. The Settlements Notice4 sets out the specifics of the settlement procedure, interprets the new provisions in the amended Regulation, and provides guidance for the legal and business community to enable companies to: a) rely on a basic framework; b) anticipate the kind and extent of cooperation expected from them in order for settlement to succeed; and c) estimate the individual benefits and value of settling.

II. Policy grounds for introducing settlements in the EU II.1. Enforcement policy considerations The introduction of settlements in EU cartel enforcement has to be seen in the wider context of the Commission’s active search for ways to maintain and 3 See Commission Regulation 622/2008 amending Commission Regulation No 773/2004 in connection with the conduct of settlement procedures in cartel cases, 2008 OJ L171/3. 4 Cited supra note 1.

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EU Settlement Procedure: Public Enforcement Policy Perspective 393 improve its performance in its relentless fight against cartels for the benefit of consumers. EU settlements are not meant to replace the ordinary procedure, but to constitute an alternative course in appropriate cartel cases. Therefore, EU settlements are neither driven by any intention to emulate other settlement procedures, which target different objectives and respond to different contexts and legal constraints,5 nor do they respond to any need to cope with a hypothetical backlog.

a) Settlements in jurisdictions where cartels are prosecuted as criminal offences The conclusion of a settlement between the public prosecutor and the individual or the company subject to an investigation is the standard practice followed in jurisdictions which have a long tradition of prosecuting cartels as criminal offences. In such a context, the public prosecutor is required to prove, before a judge and sometimes a jury, the involvement of the individual or company in a cartel. Individuals risk a criminal record and imprisonment. The public prosecutor also deals with each company separately. In order to make a convincing case, experience shows that the public prosecutor stands a better chance to dissipate any reasonable doubt if the company or individual at stake admits the infringement and accepts the penalty in a negotiation process resulting in a plea agreement, including a waiver of the right of appeal. In that context, the best efficiencies are reached if the prosecutor uses settlements as an investigative tool (or as a substitute for investigation). This explains why settlements are the only means available to companies which were not the first to report the cartel (the first to report the cartel benefits from amnesty and does not face prosecution), if they are to negotiate a lower penalty in exchange for cooperation. EU settlements cannot follow that model because the Commission proceeds simultaneously against all cartel members under a strict interpretation of the principle of non-discrimination. The Commission is obliged to carry out a full investigation and to adopt a reasoned decision that satisfies the requisite legal standard under the control of the Community Courts. The EU leniency program grants reductions in fines for substantial cooperation with the investigation, next to the granting of immunity for the first company to report the cartel.

5 These issues are explained below under heading IV: “Settlement procedure in the EU context”.

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b) Settlements in administrative systems with separation between the investigative and the adjudicating bodies Some enforcement systems applying administrative or civil penalties operate settlement variants in the context of separation between the investigative body and the adjudication board. In those systems, settlements are not used as investigative tools either; they are used to reduce the delay between the moment the findings are established and the imposition of fines, in the specific context of the respective system. For instance, in France, settlements currently offer the Competition Council the possibility to forego a report summarizing the parties’ replies to the objections which the rapporteur would otherwise have to prepare. This procedural economy is possible in any competition case, and settlements are options not only in cartel cases but in other kinds of cases as well. However, since the Commission procedure does not include an additional report between the Statement of Objections and the decision, there would be no point in reproducing a settlement system that would not offer an equivalent economy out of its particular context.

c) EU settlements do not respond to any backlog Some commentators have argued that the Commission is contemplating settlements because it is the victim of the success of the leniency program, which is supposed to have created a considerable backlog. However, there is no such problem. Any hypothetical backlog would have been solved by increasing or reallocating resources, rather than by introducing a new procedural instrument. The rationale for introducing a settlement procedure for certain categories of cartel cases is to further reinforce the deterrence against cartel conduct. Reducing, through procedural efficiencies, the duration of the administrative procedure will mean that the fines will be imposed when the senior management incumbent during the period of infringement may still be in place. Furthermore, the efficiencies can be expected to release resources that can be deployed to other cases, thus materially increasing the enforcement effort.

II.2. Objectives Settlements aim at simplifying the procedure leading to the adoption of a final decision establishing the involvement of the companies in a cartel and imposing a fine on them. As an instrument for regular application, by freeing resources to deal with other cases, settlements could increase the detection rate and overall efficiency of the Commission’s antitrust enforcement. Recital 4 of the amending Regulation justifies the introduction of a settlement procedure

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EU Settlement Procedure: Public Enforcement Policy Perspective 395 “in order to enable the Commission to handle faster and more efficiently cartel cases”. The crucial procedural economies envisaged in individual cases are due to changes: —allowing for the drafting of shorter Statements of Objections (i.e., shorter than in the case where the parties are expected to contest the Commission’s findings) and shorter final decisions, since the Commission would not normally expect substantive contestation in Court; and —economizing on redundant screening for confidentiality and other resource-intensive procedural steps post-SO, which become superfluous if a settlement is achieved, such as the processing of substantive replies to the adversarial SO, translations, access to the remainder of the Commission file, and the holding of an oral hearing.

II.3. Method: Channelling parties’ legitimate procedural choices to ensure procedural efficiencies overall The EU antitrust procedure is one of the most comprehensive as regards procedural steps and legal safeguards for parties subject to an investigation. Such completeness justifies a certain rigidity meant to ensure that companies contesting the Commission’s views have all means and opportunities to exercise their rights of defence and to challenge the disputed decision in court. Under the existing rules (the ordinary procedure), it is theoretically possible for a company to decide, for example, to contribute to the Commission’s investigation, to acknowledge the facts and assessment, to choose not to request access to the file (at all or partially), and not to request an oral hearing. Provided that these preferences are not imposed on companies, they are legally unimpeachable, and companies do exercise some of those options from time to time. However, the ordinary procedure cannot ensure that, in appropriate cases, those choices would be likely to be made by all or most parties under investigation, and hence it cannot guarantee efficiencies for the procedure overall, because: —A hearing would still need to be held (and full access to the file would still need to be prepared) for all the other parties, and the Commission would still have to draft the Statement of Objections expecting contestation, because each cartel decision groups as many decisions as addressees; —The structure of the ordinary procedure was not conceived to facilitate this, and it does not specifically provide for the possibility of the Commission hearing the parties only in anticipation of the formal objections and taking the result of those discussions into account in its objections;

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—The ordinary procedure does not provide any incentive or safeguard for those choices. The settlements package is based on the recognition that parties to a cartel procedure will only opt for a streamlined procedure when the companies consider that this course of action is more advantageous to them. It is when all parties make an informed choice to take the settlement route that the efficiencies sought are likely to be achieved. Companies who do not fundamentally contest the Commission’s findings, or who contribute to lighten the Commission’s burden of proof in exchange for leniency, for instance, and who are interested in putting the procedure, the fines and the reputational costs behind them, do not voluntarily request the exhaustive exercise of each and every auxiliary right (these are rights currently exercised upon parties’ request within the ordinary procedure) in all modalities available (for example, request to be heard orally in a multilateral hearing after having been heard both in writing and orally in a bilateral setting). Experience shows that, in many cartel cases, parties that go to court challenge conclusions which have a direct impact on the amount of the fine, rather than the existence and features of the cartel and their involvement in it (although, since the entry into force of the new Commission Guidelines on fines,6 several cases have not been appealed at all). It follows that, for procedural efficiencies to be attained, the settlements package needs to provide transparent rules, conditions, safeguards and incentives for parties to the proceedings to make similar use of procedural rights that can be exercised upon parties’ request. This enables the Commission to deal with cases more efficiently and puts all companies involved in the same cartel on an equal footing. (The principle of non-discrimination is a demanding one in the EC case law.) The settlement package respects the freedom of the parties to stick to the ordinary procedure and dispute the case, by all means and in all possible aspects, up until the final decision and beyond. But it also enables the parties to make another strategic choice.

II.4. Settlements distinguished from commitments: the need for a different instrument When Commissioner Kroes announced for the first time that she had instructed the services of DG Competition to devise a settlement instrument, many commentators speculated on the possibility of introducing settlements for all EU antitrust cases (not only in the cartel field) and of using for this purpose commitment decisions pursuant to Article 9 of Regulation 6 Guidelines on the method of setting fines imposed pursuant to Article 23(2)(a) of Regulation No 1/2003, 2006 OJ C210/2.

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EU Settlement Procedure: Public Enforcement Policy Perspective 397 1/20037 or some similar instrument. It might be argued from a linguistic, semantic point of view that companies “settle” a case with the Commission when they offer commitments which become binding on them by a decision adopted pursuant Article 9; however, since the adoption by the Commission of a “settlements package” for its submission to a public consultation, the terms “settlement” and “settlement procedure” used in the EU context properly refer only to the instrument and regulated procedure described mainly in new Article 10a inserted in Regulation 773/2004 and in the “Settlements Notice”, which result in the adoption of a decision pursuant to Articles 7 and 23 of Regulation 1/2003. These distinct legal bases for “commitments” and “settlements” reflect a number of essential differences. On the one hand, commitment decisions: a) are adopted provided that commitments offered by the relevant company are appropriate to put an end to competition concerns. They allow for prioritization of cases. b) do not formally establish an infringement8 or impose a fine; they bring suspect behaviour to an end9 by giving binding force to the commitments offered by companies to meet the Commission’s concerns.10 —The commitment procedure requires the level of investigation of the case that enables the Commission to raise concrete competition concerns and the choice of procedure in a (formal) preliminary assessment of the case. The preliminary assessment can be less detailed than a Statement of Objections. —The fact that the Commission had serious concerns (which the company was willing to meet) and adopted a decision can be taken into account by a court in private litigation, but if a court wishes to grant damages it will need to make its own assessment as regards the infringement because the infringement as such has not been established. —Commitment decisions are not precedents to establish recidivism for subsequent infringements. —If EU (or EEA) National Competition Authorities and courts decide on the same case on the basis of Article 81 EC (or Article 53 EEA), they do not encounter any problems related to the ne bis in idem principle 7 Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Article 81 and 82 of the Treaty, 2003 OJ L1/11. 8 According to recital 13 of Regulation 1/2003, commitment decisions are to be adopted “[. . .] by the Commission without concluding whether or not there has been or still is an infringement [. . .]”. 9 According to Article 9 of Regulation 1/2003, commitment decisions require that “[. . .] the Commission intends to adopt a decision requiring that an infringement be brought to an end [. . .]”. 10 Also according to Article 9: “[. . .] the undertakings concerned offer commitments to meet the concerns expressed to them by the Commission in its preliminary assessment, the Commission may by decision make those commitments binding [. . .]”.

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Session Two: Settlements in Cartel Cases because commitment decisions “are without prejudice to the powers of competition authorities and courts of the Member States to make such a finding [of an infringement] and decide upon the case”.11 The initiation of proceedings only suspends the competence of EU/EEA National Competition Authorities, at most until the commitment decision is adopted. Arguably, the reason for this is that even proceedings leading to a commitment decision are initiated either with a view to or with the possibility of adopting an infringement decision pursuant to Article 7, if necessary. If, ultimately, an Article 9 decision is adopted, the finding of infringement is not made, and there is no adverse precedent.

c) are not appropriate in cartel cases because they “are not appropriate in cases where the Commission intends to impose a fine”,12 and a commitment decision would simply conclude that “there are no longer grounds for action by the Commission”.13 —In principle, the Commission can be expected to impose a fine in all cartel cases against which it decides to act, and it considers them a priority amongst antitrust cases because cartels are outright, deliberate violations which are often concealed and difficult to detect and investigate. It is therefore crucial to impose sanctions for them which are set at a level sufficient to deter. The two possible reasons not to fine cartel behaviour against which the Commission intends to act would also exclude the adoption of a commitment decision: i) prescription: under Article 25 of Regulation 1/2003 fines may no longer be imposed if the behaviour in question ended at least five years before the first investigative measure undertaken by the Commission or an EU National Competition Authority. In that case, the company is not in a position to offer any commitment to terminate its involvement in the infringement;14 and ii) parties’ uncertainty: fines may be inappropriate in exceptional cases where parties were uncertain that their conduct was an infringement. However, it is hardly conceivable that a cartel modality has no precedent whatsoever, or that parties are unaware that they are in a cartel. —Possible commitments to terminate cartel behaviour normally consist of simple abstention from contacts, exchanges of information and concerted or agreed action. As a rule, cartels are interrupted from the moment that parties become aware of the Commission investigation. Moreover, 11

See recital 13 of Regulation 1/2003. See ibid., in fine. 13 See Article 9(1) of Regulation 1/2003, in fine. 14 Article 7 of Regulation 1/2003 in fine reads: “If the Commission has a legitimate interest in doing so, it may also find that an infringement has been committed in the past”. 12

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EU Settlement Procedure: Public Enforcement Policy Perspective 399 since cartels are multilateral infringements by nature, they are unlikely to terminate through individual unilateral commitments to act or abstain from acting (that would require all members to unilaterally decide to defect from the cartel). On the other hand, settlement decisions: a) are adopted pursuant to Articles 7 and 23 of Regulation 1/2003,15 which are the standard legal bases for Commission decisions acting against violations of Articles 81 and 82. b) establish the existence of an infringement, describing and proving all the relevant parameters thereof, require the termination of the infringement and impose a fine. Hence, settlement decisions: —are adopted at the end of a regular procedure including an ordinary, thorough investigation of the cartel and the notification of a Statement of Objections; —can be the basis for follow up damage actions; —create a precedent valid to establish recidivism for subsequent similar infringements; and —preclude the adoption of another decision for the same facts and pursuant to the same legal basis (ne bis in idem). Already at the stage in which the Commission initiates proceedings with a view to take a decision pursuant to Articles 7 and 23, National Competition Authorities are relieved of their competence to act in that case, irrespective of whether the ordinary or the settlement procedure applies. c) are only foreseen for cartel cases, for the reasons explained below. It is clear, therefore, that the only similarities between commitment decisions and settlement decisions are that they are both formal, perfectly regular procedures, and they both require the cooperation of the undertakings concerned.

15 New Article 10(a) 3 of Regulation 773/2004 makes this clear: “[. . .] The Commission may then proceed to the adoption of a decision pursuant to Article 7 and Article 23 of Regulation (EC) No 1/2003 [. . .]”. In this regard, see also paragraphs 2, 28 and 30 of the Settlements Notice, cited supra note 1.

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III. Why is the EU settlement procedure reserved only for cartel cases? III.1. Scope for procedural efficiencies Cartel investigations are comparatively more frequent than other antitrust cases, and procedural burdens are high because they often entail a heavier procedure worth simplifying in view of the multiplicity of parties and languages involved and the jurisdictional issues they raise (e.g., discovery). The average cartel file numbers tens of thousands of pages (between around ten thousand to two hundred thousand pages), all of which have to be screened for confidentiality issues, while only a few hundreds of those pages on average are actually used in evidence. Preparing a whole cartel file for access to file requires screening, deciding upon the scope and justification of confidentiality claims, and clearing contradicting requests by other parties for access to the documents, pages, paragraphs or data that have been claimed confidential. This exercise is done irrespective of whether those data or texts have been used at all to establish the facts, because the Commission can only select what it uses to inculpate a company, and it cannot choose which evidence or information may be useful to exculpate it. Moreover, disagreements on confidentiality claims and access requests can be brought before the Hearing Officers and, ultimately, they can be appealed separately to the CFI (“Akzo procedure”), irrespective of whether they are simple pieces of information which will not be used for or against any party. However, experience shows that only a few hundreds of pages in the file—at most around two thousand—are actually used in evidence in our cases (by the Commission and by the parties, in their defence). This has been established on the basis of our files from recent years, which systematically illustrate this point. This tremendous effort is subject to constraints particularly exacerbated when parallel proceedings are conducted in third country jurisdictions where parties face discovery issues, when there is a great number of companies and/or languages, and when parties make unmotivated claims. Substantial savings in efforts, resources and time could be gained if only the hundreds of pages on which the case turns were screened and cleared, rather than the whole file. Of course, full access to the file is granted, upon request, to the addressees of a formal SO in order to allow them to exercise their right to be heard as concerns the objections provisionally retained against them. Engaging in settlement discussions before the issuing of a formal SO does not detract from this right. Full access remains available after the SO if parties are not convinced and choose not to settle.

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EU Settlement Procedure: Public Enforcement Policy Perspective 401 Since, as a rule, Commission cartel investigations concern multiple undertakings from different Member States, the burdens associated with translation are often considerable. This is a concern that the CFI has addressed itself in the expedited appeal procedure. Shorter SOs and more concise decisions would help to alleviate that burden. Generally, therefore, in cartel cases there is scope for substantial procedural savings that would justify a reward for cooperation and a dedicated legal instrument.

III.2. Probability of success in reaching a settlement with the parties concerned Cartels16 are deliberate infringements which companies often try to conceal and which count, by their very object, amongst the most serious infringements of Article 81. Competition authorities fight cartels resorting to investigative powers and leniency programs tailored to encourage insider cooperation. It has already been mentioned that, unlike for other competition cases, litigation in cartel cases rarely relates to the infringement itself and mainly regards procedural issues, circumstances having a bearing on the amount of the fine, and liability of parent companies for actions undertaken by their subsidiaries. This is particularly so in cases driven by leniency. When cartel participants are confronted with a procedure for their conduct, they are interested in knowing whether the Commission has managed to uncover their secrets, whether it has gathered enough evidence to prove the full scope of their involvement and what the likely penalty is. Parties are presented with the option to agree on an assessment exclusively depending on the quality and extent of the evidence gathered during the investigation. Hence, in cartel cases the Commission and the parties do not need to dispute more debatable issues intrinsic to other antitrust cases, such as proof of intent, market definition or the extent, nature and relative weight of pro- and anticompetitive market effects produced by the conduct over time. In those cases, bilateral rounds of settlement discussions would be likely to delay rather than accelerate the procedure. In view of these characteristics, the Commission considers that it is in the field of cartels where a common 16 Cartels are “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 anticompetitive actions against other competitors”. Commission Notice on Immunity from fines and reduction of fines in cartel cases (“Leniency Notice”), 2006 OJ C298/17, recital 1, and footnote 2 of the Settlements Notice, cited supra note 1.

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understanding can be reached relatively quickly with the companies involved, on the basis of the evidence gathered against them. Therefore, the settlement procedure will only concern selected cartel cases.

III.3. Only for suitable cartel cases The settlement procedure will not replace the ordinary antitrust enforcement procedure for all cartel cases. Neither companies nor the Commission are obliged to enter settlement discussions;17 nor are they obliged, once discussions have started, to ultimately settle.18 Settling a cartel case is an option available only if parties submit an explicit request, and only if the Commission finds the case suitable for settling. In deciding whether or not to settle a case, the Commission will consider, in particular, the probability of reaching a common understanding with all or most of the parties on the relevant facts, the scope of the objections and of liability, and therefore the likelihood of achieving procedural economies.19 This flexibility is possible, both for the Commission and for the parties, because the ordinary procedure (with substantive replies to the SO, full access to file and oral hearing post-SO, upon request): —remains in force and will be applicable by default to cartel cases, if the parties do not request a settlement20 or if the Commission does not open the case for settlement or does not follow up on the parties’ request; and

17 Paragraph 5 of the Settlements Notice (cited supra note 1) states, in fine, that “The Commission may only engage in settlement discussions upon the written request of the parties concerned”, in coherence with the provisions in new Article 10a(1) of Regulation 773/2004. 18 Paragraph 20 of the Settlements Notice distinguishes parties choosing settlement from the rest: “Parties opting for a settlement procedure must introduce a formal request to settle in the form of a settlement submission”. 19 Paragraph 5 of the Settlements Notice states: “The Commission retains a broad margin of discretion to determine which cases may be suitable to explore the parties’ interest to engage in settlement discussions, as well as to decide to engage in them or discontinue them or to definitely settle. In this regard, account may be taken of the probability of reaching a common understanding regarding the scope of the potential objections with the parties involved within a reasonable timeframe, in view of factors such as number of parties involved, foreseeable conflicting positions on the attribution of liability, extent of contestation of the facts. The prospect of achieving procedural efficiencies in view of the progress made overall in the settlement procedure, including the scale of burden involved in providing access to non-confidential versions of documents from the file, will be considered. Other concerns such as the possibility of setting a precedent might apply. The Commission may also decide to discontinue settlement discussions if the parties to the proceedings coordinate to distort or destroy any evidence relevant to the establishment of the infringement or any part thereof or to the calculation of the applicable fine [. . .].” 20 Paragraph 19 of the Settlement Notice provides: “Should the parties concerned fail to introduce a settlement submission, the procedure leading to the final decision in their regard will follow the general provisions, in particular Articles 10(2), 12(1) and 15(1) of Regulation (EC) No 773/2004, instead of those regulating the settlement procedure.”

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EU Settlement Procedure: Public Enforcement Policy Perspective 403 —is the fallback procedure if the settlement process fails—if the parties’ formal settlement proposals do not reflect the results of settlement discussions with the Commission, or if the College of Commissioners departs from them.21

IV. Settlement procedure in the EU context IV.1. The EU enforcement system has its own rules and equilibrium Having been inserted into the existing institutional and legal framework, the settlement procedure also implements the basic rules of the EU procedure as established in Regulation 1/2003,22 which is not modified by the new rules. In adopting the settlement procedure, the Commission is building on half a century of EU case law and Commission practice, and on the achievements made over time. In that regard: —A well-designed and well-functioning cartel enforcement system must be congruent with its own legislative context and institutional environment, and suitable to converge upon the expectations of expediency and justice created in the business community and the public at large. The specific instruments, factors and features of any given enforcement system are closely interrelated in a subtle equilibrium, and one cannot alter 21 Paragraph 27 of the Settlements Notice states: “The Commission retains the right to adopt a statement of objections which does not reflect the parties’ settlement submission. If so, the general provisions in Articles 10(2), 12(1) and 15(1) of Regulation (EC) No 773/2004 will apply. [. . .]”. Similarly, paragraph 29 reads: “The Commission retains the right to adopt a final position which departs from its preliminary position expressed in a statement of objections endorsing the parties’ settlement submissions, either in view of the opinion provided by the Advisory Committee or for other appropriate considerations in view of the ultimate decisional autonomy of the Commission to this effect. However, should the Commission opt to follow that course, it will inform the parties and notify to them a new statement of objections in order to allow for the exercise of their rights of defence in accordance with the applicable general rules of procedure.” 22 Cited supra note 7. As is well known, Regulation 1/2003 establishes the basic framework for the handling of antitrust cases by the Commission. It contains a number of safeguards and rights conceived to ensure due process, to enable parties to be effectively heard before the adoption of any final decision, and to allow for efficient scrutiny by the Court of First Instance. Procedural rules guarantee that companies make informed choices, that their views are taken into account and that they have several occasions and modalities (in writing and/or orally) to dispute the Commission’s findings during the administrative procedure and thereafter. As noted in the main text, the procedural framework established in Regulation 1/2003 is not altered by the introduction of the settlement procedure for cartel cases.

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them lightly or simply import them in isolation from another system, without revisiting the whole system and preserving the overall balance. —It would be disproportionate to change the EU’s paradigms, institutional division of powers, and the nature of our procedures and sanctions, (applicable to all antitrust cases and not only to cartels) for the sole purpose of obtaining some procedural efficiency in selected cartel cases. —In an enforcement context where only administrative sanctions are applicable, the burden of proof does not justify a readiness on the part of the Commission to negotiate with companies in order to gather evidence. There are a number of advantages to proceeding in this way. First of all, the Commission’s approach does not call for any change in the founding Treaty regarding the competences of the Court of Justice and Court of First Instance on the one hand (to make the final decision, rather than review it) or of the Commission on the other (as a simple prosecutor and not a decision maker). Nor would it imply a radical change in our procedures (Regulation 1/2003, Commission Regulation 773/2004, and all the implementing Notices). The legislative and institutional framework in the EU imposes some basic rules and constraints: —Articles 7 and 23 of Regulation 1/2003 will remain the legal basis for all Commission decisions finding a cartel, irrespective of whether the case has been settled or not. As we have seen, this means that the Commission will in any event establish the infringement and impose a fine in a reasoned decision based on an SO notified to the parties after a thorough investigation. —The College of Commissioners only fixes its final position in the decision. This preserves the decisional autonomy of the College,23 and it allows for the possibility that the Opinion of the Advisory Committee might influence the decision of the College at the last minute. This should of course happen very exceptionally if the instrument enabling settlements is to be preserved. In such a scenario, the Commission will send a new, “fully fledged” SO to the parties, who will be able to exercise their rights of defence anew according to the ordinary procedure and withdraw their acknowledgements so that they cannot be used against any party to the proceedings.

23 The principle of collegiality needs to be respected. Therefore, until the final decision is adopted, a settlement is not binding upon the College. See Joined Cases T-129/95, T-2/96 and T-97/96 Neue Maxhütte Stahlwerke and Lech-Stahlwerke v Commission [1999] ECR II-17, para. 231; Case T-16/02 Audi v OHIM [2003] ECR II-5167, para. 75; Case T-15/02, BASF AG v Commission [2006] ECR II-497, para. 94.

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EU Settlement Procedure: Public Enforcement Policy Perspective 405 —Whether settled or not, any Commission decision establishing an infringement and imposing a fine can be appealed to the CFI, which enjoys unlimited jurisdiction as regards the calculation of fines.

IV.2. Settlements do not replace leniency EU settlements will not replace leniency: these are separate but complementary tools in the Commission’s enforcement arsenal, and reductions under the Leniency Notice 24 and reductions for settlement can be cumulated for parties entitled to both.25 The Leniency Notice rewards companies involved in a cartel which voluntarily disclose its existence to the Commission and provide evidence to prove the infringement. The Settlements Notice will reward concrete contributions to procedural efficiency. The main difficulty in fighting cartels lies in the fact that companies often try to conceal them from the authorities as well as from their customers and from other outsiders. To this end, they turn to increasingly sophisticated means and practices. Therefore, the enforcement of anti-cartel rules also requires specific means and instruments in order to enable the competition authority or enforcement agency to detect secret cartels and obtain the necessary evidence to prove infringements. Cartels often involve many companies and can only be uncovered with the help of insider information. There is a consensus today that an efficient fight against cartels requires the protection of whistleblowers and the provision of adequate incentives to encourage cartel members to terminate their conduct and self-report the infringements. Leniency policy is an instrument conceived to destabilize cartels, to uncover secret cartels and to obtain decisive evidence thereof with insider cooperation. Leniency instruments are devised to encourage self-reporting by providing the appropriate incentives ensuring that companies are always better off by cooperating with the authority. To this end, leniency programs normally grant a complete exemption from sanctions in favour of the first cartel member to report a secret cartel to the authority, thus enabling it to take appropriate action. In some jurisdictions, the first cartel member to report is also spared prosecution and a formal finding of an infringement. This creates incentives to participate in a “race” to self-report. 24

Leniency Notice, cited supra note 15. Paragraph 1 of the Settlements Notice reads: “[. . .] The cooperation covered by this Notice is different from the voluntary production of evidence to trigger or advance the Commission’s investigation, which is covered by the Commission Notice on Immunity from fines and reduction of fines in cartel cases (the Leniency Notice). Provided that the cooperation offered by an undertaking qualifies under both Commission Notices, it can be cumulatively rewarded accordingly”. Likewise, paragraph 33 states: “When settled cases involve also leniency applicants, the reduction of the fine granted to them for settlement will be added to their leniency reward.” 25

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In order to guarantee that companies are not subject to discrimination, the initiative to approach the authority necessarily rests on them. Moreover, in Europe, the race continues for the second, third and following companies providing additional evidence, because decreasing levels of fine reductions may still be available if they contribute significant added value to the investigation compared to the evidence already existing in the file. The incentive to race for a fine reduction is created by two factors. Firstly, the order in which companies apply for leniency affects the level of the fine to which they can be entitled. Secondly, the assessment of whether the evidence provided contributes significant added value to the investigation is done in relative terms, and the chances to qualify logically decrease once other companies have provided the evidence at their disposal. If the Commission were to pick the order in which companies could apply, it would discriminate between companies and undermine the race for leniency. The Commission assesses leniency applications but it does not have the discretion to refuse leniency if the relevant threshold is met and the subsequent conditions are fulfilled. The CFI can control this assessment. Unlike leniency, settlements are not an investigative tool, and by the time settlement discussions take place the possibility to obtain leniency will have lapsed. The leniency window closes because the core investigation has already been conducted and because settlements should not interfere with the incentives to race for leniency. If parties knew that they could still expect leniency in the settlements phase, they could start considering whether it is more interesting to wait until they have been informed by the Commission of the envisaged objections against them and they have seen the evidence supporting the objections. In this way they could tailor their contribution of significant added value to the minimum required. When it comes to settlements (as the Commission conceives of them), if the case can be resolved through this mechanism, all parties contribute in an equivalent way to the procedural efficiencies. Different rewards for equivalent contributions would discriminate between companies. Obtaining the procedural efficiencies sought depends not only on the individual company but also on the overall behaviour of all parties. Therefore, the Commission needs to retain discretion as to whether a settlement procedure is available and whether settlement will in the end be likely or worthwhile (or whether, e.g., the ordinary procedure will need to be followed in parallel against other, non-settling companies that participated in the same cartel). This is the necessary counterpart to the parties’ discretion to enter or discontinue settlement discussions or to ultimately settle. In view of their specific features, blurring the differences between settlements and leniency in the Commission procedure would only render both instruments less well targeted for their respective objectives, and could contribute to confusing the investigation with efforts to gain procedural efficiency. This could lead to apparent or real negotiations on evidence and objections.

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EU Settlement Procedure: Public Enforcement Policy Perspective 407 As we have seen, in the EU’s administrative system, settlements may be convenient or more efficient in some cases, but they will not be an unavoidable path to reach a decision. Hence, maintaining the incentives to report under a leniency program is far more important for the Commission’s fight against cartels than reaching a settlement with cartel members.

IV.3. Short description of the settlement procedure in cartel cases IV.3.1. Investigation: putting facts together The Commission investigates the cartel in the usual way and with the usual means (e.g., inspections, leniency applications and information requests). Regulation 773/2004 has not been amended in this regard to introduce any alternative to the investigation or alternative role for the Commission. Indeed, paragraph 2 of the Settlements Notice reaffirms the Commission as “the investigative authority and the guardian of the Treaty”. The Commission will not be ready to assess whether a given case is in principle suitable for settlement until it has gathered and analyzed evidence and is ready to raise formal objections against the companies involved. Since the settlement procedure does not involve any bargaining or negotiation on charges or evidence (although parties will be effectively heard, and although this may have consequences regarding the objections retained, as in any other regular antitrust procedure), the Commission will investigate and provisionally qualify the facts internally before it explores settlements with the parties.

IV.3.2. Exploring parties’ interest in settling In assessing for the first time the desirability of exploring settlements in a given case, the Commission will evaluate the prospects that all companies concerned would consent with the Commission’s findings, and that the case could be handled faster and more efficiently than it would be if the ordinary procedure applied. To this end, as explained in paragraph 5 of the Settlements Notice, the Commission will consider factors such as the number of parties concerned, the number of parties which have not applied for or will not obtain a leniency reward, the number of parties having spontaneously declared their readiness to engage in settlement discussions, the foreseeable divergences in their relative positions and contradicting interests regarding the attribution of liability, the predictable margin for contestation, etc. If the balance of factors favours exploring settlements, the Commission will notify to the relevant companies a decision with “the effect of formally

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initiating proceedings within the meaning of Article 11(6) of Regulation No 1/2003”.26 From that moment on, the EU National Competition Authorities are relieved of their competence to apply Article 81 in that case, and those companies become “parties” to the Commission proceedings.27 The parties will also receive a letter setting a time limit within which each of them can declare its interest in participating in bilateral settlement discussions with the Commission. If the Commission has initiated proceedings against several legal entities which it identifies with the same group of undertakings, it will also indicate this to all the legal entities concerned, which can only participate in settlement discussions if they appoint a single representative.28

IV.3.3. The leniency window “closes” Parties will be reminded that the time limit set to declare their interest in participating in settlement discussions is also the time limit for submitting any leniency application under preparation. Beyond that time limit, leniency applications are not forbidden, but they may be rejected on the ground that the time limit has expired.29

IV.3.4. Bilateral settlement discussions The settlements procedure has created space for bilateral settlement discussions with the parties between the initiation of proceedings (and the exploratory letter followed by favourable reactions by the parties) and the issuing of a formal SO. Taking part in settlement discussions does not imply any admission of illegal conduct or duty to settle for the parties concerned.

26 See Case T-339/04, France Télécom SA v Commission [2007] ECR II-521, para. 81. The principle is also explained in section 3.2 (“The initiation of proceedings by the Commission under Article 11(6) of the Council Regulation”) of the Commission Notice on cooperation within the Network of Competition Authorities, 2004 OJ C101/43. 27 Article 2 of Regulation 773/2004, “Initiation of proceedings” in Chapter II, of the same heading already refers to the companies against which proceedings have been initiated as “parties” in its paragraph 2, which ensures that the parties concerned are informed in advance of the fact that Commission will make public the initiation of any proceedings. Likewise, Chapter V (“Exercise of the right to be heard”) and Chapter VI (“Access to the file and treatment of confidential information”), which deal with actions that take place only after the initiation of proceedings, systematically distinguish the “parties concerned” by the procedure from other “persons”. 28 This does not prejudge the attribution of parental liability, but it facilitates the conduct of bilateral discussions and allows parties with identical or similar interests to be equally and simultaneously aware of the content and conclusions of the meetings. 29 Paragraph 13 of the Settlements Notice reads: “The Commission may disregard any application for immunity from fines or reduction of fines on the ground that it has been submitted after the expiry of the time-limit referred to in point 11.”

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EU Settlement Procedure: Public Enforcement Policy Perspective 409 Settlement discussions aim at allowing the parties (but also the Commission) to evaluate the benefits of settling from their respective viewpoints and to make an informed choice between the settlement procedure and the ordinary procedure. Parties cannot be asked to acknowledge anything formally, or to accept the prospect of a certain level of fines, unless they have been able during the settlement discussions to effectively exercise their rights to be heard on the envisaged objections, and unless they have been informed of the range of fines that they may incur. To this effect, as discussions progress the Commission will inform them of the objections envisaged against them, and it will make available the evidence supporting those objections and disclose the fine range calculated according to the Fining Guidelines. Parties will have the full opportunity to express their views on the objections and the evidence, and to argue their position. The Commission may modify or drop some original objections if the parties’ arguments are convincing, and this may have a consequence for the range of potential fines. Such discussions should not be construed as negotiations. Where a company genuinely lacks information about its own past behaviour or the circumstances surrounding a certain period or aspect of the cartel (e.g., if it no longer has access to any of the employees or the members of the board who represented them in the cartel at the time in a given product or area, etc.), it can also lodge a reasoned request justifying this and specifying the (non-confidential versions of) accessible documents or categories thereof that it would like to consult to assess its interests and possibly to make an informed choice to settle. To this end, parties would consult the list of the case-file as it stands at that point in time. Parties can always call upon the Hearing Officer for any issue concerning access to file or due process. The Commission will grant these requests when they are justified and when the access requested is not such that it would jeopardize the procedural economies envisaged with the settlement procedure. The Commission will not refuse to grant access to those documents or to grant full access to the file altogether, but it may refuse to grant access before issuing the SO, in line with the ordinary procedure. Settlement discussions will take place on the basis of a template settlement submission. The Commission is not obliged to pursue settlement discussions if the parties’ positions and arguments lead to the conclusion that no agreement will be reached which would serve the public interest or that, overall, the efficiencies sought with a settlement procedure are not likely to be achieved. In such a scenario, the Commission may put an end to the settlement discussions and hence to any further disclosure of evidence or information, thus reverting to the ordinary procedure. Settlement discussions can be bilateral in the same way that it would be legally possible to undertake formally separate proceedings against each party, issue individual SOs and adopt individual decisions. Actually, each joint SO or decision constitutes as many SOs or decisions as addressees. At

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the stage of settlement discussions, parties have not yet decided or expressed their formal position and the Commission has not yet adopted a formal SO either. In this light, settlement discussions are bilateral to allow for confidential, open exchanges where parties will not be concerned about the presence of other parties and where confidential information relative to the relevant undertaking can be discussed, including the very sensitive information regarding the likely range of the fine. Discussions are also bilateral to be focussed and efficient in dealing with the concerns of the relevant undertaking in a relatively short sequence of meetings, without having to carry out comparative exercises.30 Procedural efficiencies would be lost if bilateral meetings were used to discuss with each party the arguments of all other parties on the basis of the exchanges they had between parties. In such a scenario, the settlement procedure would be more laborious and lengthy than the ordinary one, in which all parties can reply to the common SO within the same period. It is worth noting that recitals 12 and 14 of the Leniency Notice forbid leniency applicants to disclose the fact or the contents of their leniency submissions to others until the issuing of the formal SO. This duty remains unchanged in settlement cases. Other jurisdictions with long experience in settlements that take place before the formal adoption of objections by the agency or authority in charge (the US, Canada, Australia . . .) require parties to keep discussions confidential. It is certainly essential to keep the content of settlements discussions secret as regards third parties in any jurisdiction, for the same reasons that settlement submissions and leniency corporate statements are protected (see in this regard recital 7 of the Settlements Notice and new Article 10a(2) of Regulation 773/2004 31). It has sometimes been argued that the Commission has an interest in having companies to discuss their respective views and the terms of their draft settlement submissions, so that those more favourable to settle might “convince” others to do so. Nothing prevents parties from encouraging others to take part in settlement discussions. Nor does anything prevent them from telling each other that they actually intend to settle. However, just as the Commission does not bargain or negotiate with companies but simply relies

30 The exception to this is the exchange of information between parties within the same group of undertakings, which is actually encouraged, since all parties belonging to the same group or undertaking will be present in the same discussions through a joint representation. 31 Recital 7 of the Settlements Notice reads: “The parties to the proceedings may not disclose to any third party in any jurisdiction the contents of the discussions or of the documents which they have had access to in view of settlement, unless they have a prior explicit authorization by the Commission. Any breach in this regard may lead the Commission to disregard the undertaking’s request to follow the settlement procedure. Such disclosure may also constitute an aggravating circumstance, within the meaning of point 28 of the Guidelines on fines and may be regarded as lack of cooperation within the meaning of points (12) and (27) of the Leniency Notice”. Article 10a(2) of the Regulation reads: “[. . .] This information shall be confidential vis-à-vis third parties, save where the Commission has given a prior explicit authorization for disclosure [. . .]”.

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EU Settlement Procedure: Public Enforcement Policy Perspective 411 on the compelling value of the evidence gathered and the benefits of the procedure in order to get companies to settle, it would not be appropriate to rely on undertakings bargaining or negotiating joint settlement terms amongst themselves or providing persuasive positive or negative incentives to each other. Parties are therefore warned that coordination to distort the facts, or to distort the evidentiary value of documents in the file to find the “minimum common denominator” suiting all parties can lead the Commission to terminate the settlement discussions, to impose higher fines by finding an aggravating circumstance, and by withdrawing leniency (see recital 5 of the Settlements Notice32).

IV.3.5. Parties’ Settlement Submissions In settlement discussions, the Commission and the parties concerned will reach a common understanding on the wording of the settlement submission that the parties will introduce in the next procedural phase. In principle, only when this understanding is reached and when similar progress has been made with all parties concerned by the settlement discussions will the Commission set a time limit for the undertakings to lodge their respective settlement submissions. The contents of the parties’ settlement submissions are established in new Article 10a(2) of Regulation 773/2004, and they are further explained in recital 20 of the Settlements Notice. They should contain, in the terms agreed at the end of the settlement discussions: —An acknowledgement of the parties’ liability for the infringement and of their involvement in it (object, duration, main facts, legal assessment, etc.); —An indication of the maximum amount of the fines the parties would expect to be imposed; —The parties’ request to handle the case through the settlement procedure and confirmation that they: a) have been informed of the Commission’s objections in a satisfactory manner and that they have been given the opportunity to be heard; b) will request neither further access to the file nor an oral hearing; c) request to receive the SO and the final decision of the Commission in one of the official EU languages. 32 “[. . .] The Commission may also decide to discontinue settlement discussions if the parties to the proceedings coordinate to distort or destroy any evidence relevant to the establishment of the infringement or any part thereof or to the calculation of the applicable fine. Distortion or destruction of evidence relevant to the establishment of the infringement or any part thereof may also constitute an aggravating circumstance within the meaning of point 28 of the Commission Guidelines on the method of setting fines imposed pursuant to Article 23(2)(a) of Regulation (EC) No 1/2003 (the Guidelines on fines), and may be regarded as lack of cooperation within the meaning of points (12) and (27) of the Leniency Notice [. . .].” (footnote omitted)

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Until their submission, parties are not committed to settle. By lodging a settlement submission, a party formally exercises the choice for the settlement procedure and commits to settle, provided that the Commission follows up. This idea can be found in recitals 21 and 22 of the Settlements Notice.33 If the SO raises objections additional to or different from the ones acknowledged by a party, or if the Commission intends to impose a fine exceeding the maximum amount submitted, the party concerned is no longer bound by its submission, and the acknowledgements provided cannot be used in evidence against any of the parties to the proceedings.

IV.3.6. Settlement Procedure up to the Final Decision If the settlement submissions duly reflect the understanding reached during the settlement discussions, then shortly after receiving them the Commission will normally adopt a streamlined SO endorsing them, i.e. reflecting their content.34 Issuing a Statement of Objections is mandatory in settlement cases, pursuant to Article 10(1) of Regulation 773/2004. In the context of settlements, the SO should contain information enabling the parties to confirm that it accurately reflects their settlement submissions. In that scenario, parties are expected to reply to the SO by simply confirming that it reflects their submission, if that is objectively the case.35 The rest of the procedure may be considerably simplified because, following the parties’ confirmation, procedural steps such as further access to the file or an oral hearing become redundant, and a streamlined decision can be drafted. New

33 Recital 21 of the Settlements Notice reads: “The acknowledgments and confirmations provided by the parties in view of settlement constitute the expression of their commitment to cooperate in the expeditious handling of the case following the settlement procedure. However, those acknowledgments and confirmations are conditional upon the Commission meeting their settlement request, including the anticipated maximum amount of the fine.” Recital 22 states: “Settlement requests cannot be revoked unilaterally by the parties which have provided them unless the Commission does not meet the settlement requests by reflecting the settlement submissions first in a statement of objections and ultimately, in a final decision [. . .].” 34 Recital 22 of the Settlements Notice ends with: “[. . .] The statement of objections would be deemed to have endorsed the settlement submissions if it reflects their contents on the issues mentioned in point (a). Additionally, for a final decision to be deemed to have reflected the settlement submissions, it should also impose a fine which does not exceed the maximum amount indicated therein.” 35 Recital 26 of the Settlements Notice states: “Should the statement of objections reflect the parties’ settlement submissions, the parties concerned should within a time-limit of at least two weeks set by the Commission in accordance with Articles 10a(3) and 17(3) of Regulation (EC) No 773/2004, reply to it by simply confirming (in unequivocal terms) that the statement of objections corresponds to the contents of their settlement submissions and that they therefore remain committed to follow the settlement procedure. In the absence of such a reply, the Commission will take note of the party’s breach of its commitment and may also disregard the party’s request to follow the settlement procedure.”

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EU Settlement Procedure: Public Enforcement Policy Perspective 413 Articles 12(2)36 and 15(1a)37 of Regulation 773/2004 apply to make the simplification possible. The draft decision will be submitted to the Advisory Committee of representatives of the Member States for their Opinion, and the Hearing Officer will make a report, as in any other antitrust procedure.38 The final decision, which is adopted on the basis of the SO (and which thus reflects the settlement submissions), can then be adopted swiftly, with the Commission imposing a fine not exceeding the maximum level of the fine submitted by the party. The settlement reduction will be deducted from the fine that a company would normally have to pay according to the provisions of the current Fining Guidelines. All parties settling a case with the Commission will benefit from a fine reduction of the same percentage. The notion of accepting settlements only after the SO, or of accepting them after the SO as well as before (which could discourage the more efficient pre-SO option) would jeopardize the efficiencies sought with the settlement procedure. In such a scenario, the SO would have to be drafted as if an adversarial procedure was expected, without any economy or impact on timing. It is difficult to see any enforcement advantages which would justify the enforcement costs of a settlement reduction.

IV.4. Parties’ incentives to settle By introducing a phase for discussions in view of settlement, companies have a unique opportunity to be informed of the likely range of fines prior to the adoption of the final decision, and they can be informed earlier of potential objections and of the evidence supporting them. On the basis of these facts and documents, the parties have the opportunity to express their views to the 36 “However, when introducing their settlement submissions the parties shall confirm to the Commission that they would only require having the opportunity to develop their arguments at an oral hearing, if the statement of objections does not reflect the contents of their settlement submissions.” 37 “After the initiation of proceedings pursuant to Article 11(6) of Regulation (EC) No 1/2003 and in order to enable the parties willing to introduce settlement submissions to do so, the Commission shall disclose to them the evidence and documents described in Article 10a(2) upon request and subject to the conditions established in the relevant subparagraphs. In view thereof, when introducing their settlement submissions, the parties shall confirm to the Commission that they will only require access to the file after the receipt of the statement of objections, if the statement of objections does not reflect the contents of their settlement submissions.” 38 New Article 10a (3) of Regulation 773/2004 reads: “When the statement of objections notified to the parties reflects the contents of their settlement submissions, the written reply to the statement of objections by the parties concerned shall, within a time-limit set by the Commission, confirm that the statement of objections addressed to them reflects the contents of their settlement submissions. The Commission may then proceed to the adoption of a decision pursuant to Article 7 and Article 23 of Regulation (EC) No 1/2003 after consultation of the Advisory Committee on Restrictive Practices and Dominant Positions pursuant to Article 14 of Regulation (EC) No 1/2003.”

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Commission. Full access to file remains available after the SO for those who do not settle, as is the case today, and the parties may decide at any moment to stop the settlement discussions, or not to send a settlement submission. By reaching a settlement, companies can put the procedure behind them, reduce the damage to their reputation and obtain a reduction of the fine. —10% rebate for settlement:39 The settlement reduction established in the Notice is 10% of the fine that would otherwise have been imposed. This percentage is the same for all parties settling with the Commission because they all contribute to procedural efficiencies in a similar manner, and because the Commission retains the right to decide the order in which it enters settlement discussions with the different companies. Introducing different percentages would take that possibility away, since in that case, the Commission could be accused of discriminating against one company in favour of another one (leniency discounts can be different because, among other reasons, the initiative rests exclusively on the parties and the discount depends on timing and on additional value relative to what other parties have already submitted). The 10% reduction applies at the end of the calculation of the fine, on top of the leniency reduction (where applicable). This provision ensures that companies that have reached the cap foreseen in Article 23(4) of Regulation 1/200340 will have an incentive to settle because the settlement reduction, like the leniency reduction, applies to the fine capped. The percentage of settlement reduction has been chosen carefully: • The settlement reduction should not exceed 20%, in order not to interfere with the incentives to cooperate with the investigation by providing evidence under the Leniency Notice. Leniency is a formidable tool in the fight against secret cartels, and the incentives for companies to come forward and race for it should remain untouched so that no company entertains the doubt of whether it would be better to wait for settlements if the case is convincing, rather than helping the Commission to prove the case in the first place. • The settlement reduction should be modest to preserve the deterrent effect of fines, taking into account, in particular, that it is added to any leniency reductions. 39 Recital 32 of the Settlements Notice provides: “Should the Commission decide to reward a party for settlement in the framework of this Notice, it will reduce by 10% the amount of the fine to be imposed after the 10% cap has been applied having regard to the Guidelines on the method of setting fines imposed pursuant to Article 23(2)(a) of Regulation (EC) No 1/2003. Any specific increase for deterrence used in their regard will not exceed a multiplication by two.” (footnotes omitted) 40 “The financial liability of each undertaking in respect of the payment of the fine shall not exceed 10% of its total turnover in the preceding business year.”

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EU Settlement Procedure: Public Enforcement Policy Perspective 415 • The settlement reduction should be modest to reflect the fact that the Commission does not intend to “negotiate” or bargain away evidence or objections to accommodate the fine. On the contrary, the Commission only intends to explore settlements once it has conducted the investigation and is persuaded of having a compelling case and ready to pursue it with or without settlements. In that scenario, settling is a “one-way option” for companies. • The settlement reduction should be modest to dispel any idea that the settlement reduction could induce companies to admit to objections that, in their view, are not sufficiently proven by the evidence in the file. • The settlement reduction should be no less than 10% because in the past the Commission has already granted 10% for non-contestation of the facts, which is less than what we will require in the future (although the fact that they acknowledge liability will render their appeals less likely). —Safeguards While it is possible for the Commission to adopt a final position deviating from the settlement submission or the Statement of Objections (to the extent that the Commission position is only final in the decision adopted by the College at the end of the procedure), the Notice foresees some safeguards to protect the contents of the settlement submissions (in particular the acknowledgements).41 This is unlikely to happen, both for policy reasons (the credibility of the procedure is to be preserved for other cases), but also due to some features inherent in the internal operation of the Commission’s decision-making process: —The SO reflecting the contents of the settlement submissions is an act of the Commission, adopted (through an empowerment) by the same Commissioner for competition who has authorized the relevant officials to embark on settlement talks after ordinary internal consultations. —The final decision adopted by the College cannot include objections additional to the ones included in the SO and on which the parties have been heard, because according to the relevant case law,42 “the rights of the defence are infringed as a result of a discrepancy between the statement of objections and the final decision only where an objection stated in the decision was not set out in the statement of objections in a manner sufficient to enable the addressees to defend their interests”. If the Commission were to 41 If a settlement is not successfully concluded, the acknowledgements provided by the parties in the settlement submissions would be deemed to have been withdrawn and could not be used against any of the parties to the proceedings. The case would revert to the ordinary procedure. 42 See Case T-44/00 Mannesmannröhren-Werke v Commission [2004] ECR II-2223, paras. 98 to 100; Case T-15/02, BASF AG v Commission [2006] ECR II-497, para. 95.

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add new objections, it would be bound to issue a supplementary Statement of Objections and to allow a new defence following the general rules of procedure. Moreover, paragraph 29 of the Settlements Notice 43 extends this requirement to the situation where the Commission intends to impose a higher fine than the one specified in the settlement submission. In optimal settlement cases (where all parties settle), there is, by definition, no access to the file after the issuing of the SO. This implies that none of the parties will have access to the settlement submissions introduced by the others. However, in hybrid procedures, parties who do not settle are entitled to have access to the file, including settlement submissions, for the sole purpose of defending themselves in judicial or administrative proceedings for the application of Article 81. In any event, in order to comfort those who have settled and dispel concerns regarding possible discovery orders in other jurisdictions, the Settlements Notice protects settlement submissions in recitals 35 to 39 to the same extent that corporate statements submitted in the framework of the Leniency Notice are protected. This implies that settlement submissions will only be accessible to parties (not to complainants or other third persons) at the Commission’s premises, for the purpose of the application of Community competition law provisions,44 and that parties cannot make any copy thereof by mechanical or electronic means.45 Settlement submissions 43 “The Commission retains the right to adopt a final position which departs from its preliminary position expressed in a statement of objections endorsing the parties’ settlement submissions, either in view of the opinion provided by the Advisory Committee or for other appropriate considerations in view of the ultimate decisional autonomy of the Commission to this effect. However, should the Commission opt to follow that course, it will inform the parties and notify to them a new statement of objections in order to allow for the exercise of their rights of defence in accordance with the applicable general rules of procedure. It follows that the parties would then be entitled to have access to the file, to request an oral hearing and to reply to the statement of objections. The acknowledgments provided by the parties in the settlement submissions would be deemed to have been withdrawn and could not be used in evidence against any of the parties to the proceedings.” 44 Recital 36 of the Settlements Notice adds: “The use of such information for a different purpose during the proceeding may be regarded as lack of cooperation within the meaning of points (12) and (27) of the Leniency Notice. Moreover, if any such use is made after the Commission has already adopted a prohibition decision in the proceedings, the Commission may, in any legal proceedings before the Community Courts, ask the Court to increase the fine in respect of the responsible undertaking. Should the information be used for a different purpose, at any point in time, with the involvement of an outside counsel, the Commission may report the incident to the bar of that counsel, with a view to disciplinary action.” 45 Recital 35 of the Settlements Notice reads: “Access to settlement submissions is only granted to those addressees of a statement of objections who have not requested settlement, provided that they commit—together with the legal counsels getting access on their behalf—not to make any copy by mechanical or electronic means of any information in the settlement submissions to which access is being granted and to ensure that the information to be obtained from the settlement submission will solely be used for the purposes of judicial or administrative proceedings for the application of the Community competition rules at issue in the related proceedings. Other parties such as complainants will not be granted access to settlement submissions.”

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EU Settlement Procedure: Public Enforcement Policy Perspective 417 can be provided orally 46 when parties are concerned about the possibility of discovery. Transmission of settlement submissions to the competition authorities of the Member States (pursuant to Article 12 of Regulation 1/2003) is subject to the same constraints that apply to the transmission of corporate statements provided in the framework of the Leniency Notice.47 Finally, the Settlements Notice guarantees that the Commission will only transmit settlement submissions to national courts with the prior consent of the relevant applicants.48

V. The rights of defence are respected under the settlement procedure The Commission has gone a long way to ensure that the settlements package respects the rights of defence, enabling parties to make a fully informed choice of procedure and drawing inspiration on the principles established by the relevant case law. The statement contained in recital 4 of the Notice is not a mere formality, but the backbone of the project and a guiding conviction of the legislator when aiming at the objective of procedural expediency: “Effective enforcement of Community competition law is compatible with full respect of the parties’ rights of defence, which constitutes a fundamental principle of Community law to be respected in all circumstances, and in particular in antitrust procedures which may give rise to penalties. It follows that the rules established to conduct the Commission proceedings to enforce Article 81 of the EC Treaty should ensure that the undertakings and associations of undertakings concerned are afforded the opportunity effectively to make known their views on 46 Recital 38 of the Settlements Notice reads: “Upon the applicant’s request, the Commission may accept that settlement submissions be provided orally. Oral settlement submissions will be recorded and transcribed at the Commission’s premises. In accordance with Article 19 of Regulation (EC) No 1/2003 and Articles 3(3) and 17(3) of Regulation (EC) No 773/2004 undertakings making oral settlement submissions will be granted the opportunity to check the technical accuracy of the recording, which will be available at the Commission’s premises and to correct the substance of their oral settlement submissions and the accuracy of the transcript without delay.” 47 Recital 37 of the Settlements Notice reads: “Settlement submissions made under this Notice will only be transmitted to the competition authorities of the Member States pursuant to Article 12 of Regulation No 1/2003, provided that the conditions set out in the Network Notice are met and provided that the level of protection against disclosure awarded by the receiving competition authority is equivalent to the one conferred by the Commission.” (footnote omitted) 48 Recital 39 of the Settlements Notice reads: “The Commission will not transmit settlement submissions to national courts without the consent of the relevant applicants, in line with the provisions in the Commission Notice on the co-operation between the Commission and the courts of the EU Member States in the application of Articles 81 and 82 EC.”

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the truth and relevance of the facts, objections and circumstances put forward by the Commission, throughout the administrative procedure.”49

In settlement cases, parties’ rights of defence under the settlement procedure remain the same as in the ordinary procedure. They are simply exercised to the parties’ satisfaction in the framework of bilateral discussions, both orally and by means of a submission, in anticipation of the formal notification of objections. As in any other procedure, the Commission must base its decisions only on objections on which the parties concerned have been able to comment and, to this end, they shall be entitled to have access to the Commission’s file, subject to the legitimate interest of undertakings in the protection of their business secrets.50 Parties have no duty to participate in settlement discussions or to settle. If parties are not satisfied with the scope or level of exercise or their rights available in the settlement procedure, they can simply turn to the ordinary procedure. As already mentioned, the flexibility introduced in the settlement procedure is due to the fact that its application requires the explicit request of the parties concerned; the ordinary procedure remains both the fallback procedure and the procedure by default. Parties are neither obliged to engage in settlement discussions nor compelled to submit a settlement submission. They have the ultimate choice between: —directly contesting the Commission case upon notification of the formal SO and requesting full access to the file and/or an oral hearing (i.e., the ordinary procedure); or —presenting a settlement submission if they are convinced of the Commission’s case, having seen all the evidence in the file that the Commission intends to use as a basis for the objections, and accepting the likely consequences thereof. In order for the parties to be heard effectively, the Commission must give the parties the opportunity to state their views on the objections and on the evidence, and it must take them into account in its own analysis, if necessary by changing its preliminary conclusions.51 The Settlements Notice recalls the 49 See Case 85/76 Hoffmann-La Roche v Commission [1979] ECR 461, paras. 9 and 11; Case T-11/89 Shell v Commission [1992] ECR II-757, para. 39; Joined cases T-10/92, T-11/92, T-12/92 and T-15/92 [1992] ECR II-2667, Cimenteries CBR, para. 39; Joined Cases T-191/98, T 212/98 to T-214/98 Atlantic Container Line and Others v Commission [2003] ECR II-3275, para. 138; Case C-176/99 P, ARBED SA v Commission, para. 19; Case T-15/02, BASF AG v Commission [2006] ECR II-497, at para. 44; Case T-329/01, Archer Daniels Midland Co. v Commission (sodium gluconate) [2006] ECR II-3255, at para. 358. 50 See Joined Cases T-39/92 and T-40/92, CB and Europay v Commission [1994] ECR II-49, para. 47; Joined Cases T-191/98, T-212/98 to T-214/98 Atlantic Container Line and Others v Commission [2003] ECR II-3275, para. 138. 51 See Case 41/69 ACF Chemiefarma v Commission [1970] ECR 661, at paras. 47, 91 and 92; Joined Cases 40/73 to 48/73, 50/73, 54/73 to 56/73, 111/73, 113/73 and 114/73 Suiker Unie and Others v Commission [1975] ECR 1663, at paras. 80, 437 and 438; Joined Cases 209/78 to 215/78 and 218/78 Van Landewyck and Others v Commission [1980] ECR 3125,

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EU Settlement Procedure: Public Enforcement Policy Perspective 419 Commission’s commitment to respect the rights of defence once more in recital 24, where it is explained that: “for the parties’ rights of defence to be exercised effectively, the Commission should hear their views on the objections against them and supporting evidence before adopting a final decision and take them into account by amending its preliminary analysis, where appropriate.52 The Commission must be able not only to accept or reject the parties’ relevant arguments expressed during the administrative procedure, but also to make its own analysis of the matters put forward by them in order to either abandon such objections because they have been shown to be unfounded or to supplement and reassess its arguments both in fact and in law, in support of the objections which it maintains.”

It is difficult to imagine the Commission hearing the parties in any more effective way53 than by adopting, at the end of the discussions, an SO and a decision that actually draws on the contents of the settlement submissions and does not impose a fine exceeding the maximum amount contemplated in that submission. One should not overlook the fact that the settlement procedure strictly operates on rights and safeguards guaranteed under Regulation 1/2003 upon parties’ request or following parties’ explicit choice. Thus, with the settlement procedure parties can legitimately exercise a different option, for which implementing legislation legally foresees alternative variants and modalities to be exercised. These include the right to have full access to the file (except for non-accessible documents and data: the Commission’s internal documents, business secrets of other companies and other confidential information) or the right to participate in an oral hearing (a modality of exercise of the right to be heard, in addition to the written reply to the SO) or receiving the text of a Commission act in an official language of their choice. If companies fail to request or explicitly renounce the exercise of these rights, or if they exercise them to a limited extent (access to some documents, partial presence in the hearing, etc.) this cannot invalidate the subsequent decision. Finally, parties have the right, but not the duty, not to incriminate themselves; and the Commission bears the burden of proof as a corollary of the presumption of innocence. The modalities of exercise integrating the settlement procedure are expressly requested by the parties in their settlement submission. para. 68; Case T-44/00, Mannesmannröhren-Werke v Commission [2004] ECR II-2223, paras. 98 to 100; Case T-15/02, BASF AG v Commission [2006] ECR II-497, at paras. 93 and 95. 52 “In line with settled case-law, the Commission shall base its decisions only on objections on which the parties concerned have been able to comment and, to this end, they shall be entitled to have access to the Commission’s file, subject to the legitimate interest of undertakings in the protection of their business secrets.” 53 See Case 100/80, Musique diffusion française and Others v Commission [1983] ECR 1825, at para. 21; Case 322/81 Michelin v Commission [1983] ECR 3461, at para. 19; Case T-16/99, Lögstör Rör v Commission [2002] ECR II-1633, at para. 200; and Case T-15/02, BASF AG v Commission [2006] ECR II-497, at para. 62.

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By way of contrast, the exercise of other rights could not have been the object of adjustment or accommodation and, accordingly, they are not modified by the settlement procedure: —If the Commission does not give access to a company to the evidence used to support objections against it, the decision will be null and void; however, if the Commission fails to give access to other documents of the file requested by a party (e.g., because the Commission considers them nonaccessible and the Community Courts disagree with this view), the decision will only be annulled if the party can show that the decision would have been different if the parties had had access to those documents. —Likewise, an infringement decision would be null and void if the Commission adopts it against a company without having notified to it: a) the formal initiation of proceedings; or b) the objections retained against it.54 —An infringement decision would be null and void if the Commission adopts it against a company without having given it the opportunity to argue its case. —Any eventual commitment not to appeal a Commission decision would be unenforceable and void.

VI. Evaluation and concluding considerations It is useful to evaluate the enforcement costs and benefits of the new alternative procedure. While currently the ordinary procedure leading to cartel decision has become somewhat shorter than before, procedural economies have the potential to significantly reduce the length of proceedings. In examining the enforcement costs associated with the possibility to adopt enforcement decisions punctually, there are two distinct costs to bear in mind. Firstly, any settlement reduction applied to the fine obviously implies reduced deterrence, which in turn could only be reinstated if the procedural 54 As stated by the CFI in Case T-15/02, BASF AG v Commission [2006] ECR II-497, para. 58: “[. . .] however much an undertaking cooperates, the function of the statement of objections is still to give undertakings and associations of undertakings all the information necessary to enable them to defend themselves properly, before the Commission adopts a final decision (Ahlström Osakeyhtiöand Others v Commission, [. . .], paragraph 42, and Case C-283/98 P Mo och Domsjö v Commission, [. . .], paragraph 63). From that point of view, the fact that the applicant cooperated with the Commission, acknowledging that it had committed unlawful acts and describing those acts, did not mean that it no longer had any right or interest in obtaining a document from the Commission setting out precisely all the objections that the Commission raised against it, including those that might be based on statements or evidence supplied by other undertakings involved [. . .]”.

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EU Settlement Procedure: Public Enforcement Policy Perspective 421 economies permit redeployment of the freed resources to adopt additional enforcement decisions within any given time period. There are good reasons to believe that deterrence depends not only on the level of the fine, but that it is also related to the probability of being detected and successfully and timely prosecuted. Indeed, the literature on optimal fines suggests that, as the probability of detection and successful prosecution rises, the appropriate fine need not increase. Thus, a modest settlement reduction represents an enforcement cost that is well within the bounds of the additional number of cases that can be conducted with the resources that efficiencies make possible. From the experience of the impact on deterrence of the leniency program, it is important not to over-emphasize as enforcement costs the reductions in fines that successful leniency applicants may have received. Deterrence is far more a function of timely and successful prosecution. A second element of enforcement costs arises if cases do not fall to be handled either as settlement cases or under ordinary procedure but where the Commission finds itself faced with having to apply in the same case both procedures either simultaneously (a hybrid case) or sequentially because settlements fail to take place and there is a reversion to the ordinary procedure. These costs from the enforcement perspective would in fact be quite significant. It is therefore important, in the settlements package, for the Commission to be able to select cases, to proceed in measured steps, and to reserve the right to renounce the final stages of the settlement procedure if procedural efficiencies are non-existent. Notwithstanding these elements, the probability of being faced in sequential procedures is non-zero given that the incentives to settle are not uniform for all parties. Accordingly, this constitutes an important enforcement cost. A major source of misalignment of incentives to settle among parties arises from the fact that the reduction for settlement would be uniform for all parties but those qualifying for leniency have the reduction cumulated with the leniency reduction. With a modest reduction for settlement, the strategy for settling for all parties is a dominant strategy only if the Commission’s case is compelling and settling offers a one-way option to secure a fine reduction. Variable settlement reductions would be discriminatory because the desired procedural efficiencies are imputable equally to all parties, and in any case recourse to such an option would simply open up an unwelcome strategic game for some parties to seek the hold-up potential that reverts to those last to settle. These considerations further support the assessment that the settlement procedure is likely to be applicable in certain categories of cartel cases where settling is the option of choice for all parties because of the strength of Commission’s case. Acknowledgement of this by the Commission, as well as by the parties concerned, should dispel any misconception that parties would be under pressure to opt for the settlement procedure.

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II Ian S. Forrester, QC 1 Creating New Rules or Closing Easy Cases? Policy Consequences for Public Enforcement of Settlements under Article 9 of Regulation 1/2003

Introduction Many eminent practitioners, including Abraham Lincoln,2 have commended settlements. In private law, settlements avoid the cost, antagonism, ritual combat and delay associated with litigation. Usually each party accepts less than it thinks is its due, but more than it might have got if the litigation were to go badly. In several jurisdictions judges in civil litigation will delay the opening of a case to allow settlement talks to have a chance of succeeding, and at the end of a case, before rendering judgment, judges may invite the parties to take a last chance to settle. Dealings with a public authority are different. Public enforcement presents questions of public policy, where transparency and judicial oversight are not lightly to be discarded. Discontinuing a potential or actual prosecution is an act with significant consequences. Enforcing the competition rules presents some parallels to the function of prosecuting crimes. The European Commission will regularly be faced with a case which presents new issues under the competition rules, but which is inapt for the making of new law. This may be because carrying the case forward to a formal condemnation will involve a major deployment of resources, or because the facts do not quite support the new legal initiative being contemplated, or because the law does not clearly support the theories of abuse which underpin the complaint. 1 Queen’s Counsel at the Scots Bar; Visiting Professor, University of Glasgow; White & Case, Brussels. Warm thanks are expressed to Jérémie Jourdan, avocat au barreau de Paris, and others unnamed, for their contribution to this paper. The opinions expressed are wholly personal. 2 In “Notes for a Law Lecture”, Lincoln wrote: “Discourage litigation. Persuade your neighbors to compromise whenever you can. Point out to them how the nominal winner is often a real loser—in fees, expenses, and waste of time. As a peacemaker the lawyer has a superior opportunity of being a good man. There will still be business enough . . . There is a vague popular belief that lawyers are necessarily dishonest. I say vague, because when we consider to what extent confidence and honors are reposed in and conferred upon lawyers by the people, it appears improbable that their impression of dishonesty is very distinct and vivid. Yet the impression is common, almost universal.” See http://showcase.netins.net/web/ creative/lincoln/speeches/lawlect.htm.

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Measures less formal than a condemnation may be a means of clarification while avoiding some of the apparatus of formal condemnations. Commitment decisions can bring an infringement to an end and restore normal competition. In an ideal world, such measures accelerate the ending of the controversial conduct, maybe by years.3 They would substitute a private company’s willing discharge of a bargained-for commitment for that company’s possibly reluctant discharge of an imposed remedy. They avoid litigation and its costs, delays and uncertainties. These are the positive merits. In an ideal world the commitments would not make new legal principles which deserve to be debated (and indeed litigated) for the sake of clarification. Nor would they offer a soft option whereby the truly guilty escape the consequences of their conduct. Formal settlements do not advance other public enforcement objectives, such as punishment and deterrence, which generally require the adoption of a full prohibition decision and the imposition of a fine. Neither do they help clarify what the law is, but—worse or better?—they may advance what the authority believes the law should be. It would be regrettable if a succession of commitment decisions never tested judicially were to establish a new set of legal norms clearer and stricter than the rules established via judicial precedents. These are the drawbacks. This paper will consider the respective merits and problems of settlements via commitment decisions as they are contemplated in Article 9 of Regulation 1/2003,4 which states: “Commitments 1. Where the Commission intends to adopt a decision requiring that an infringement be brought to an end and the undertakings concerned offer commitments to meet the concerns expressed to them by the Commission in its preliminary assessment, the Commission may by decision make those commitments binding on the undertakings. Such a decision may be adopted for a specified period and shall conclude that there are no longer grounds for action by the Commission. 2. The Commission may, upon request or on its own initiative, reopen the proceedings: (a) where there has been a material change in any of the facts on which the decision was based; (b) where the undertakings concerned act contrary to their commitments; or 3 The lapse of time can indeed be great. I was involved in arguing the Irish ice cream freezer cases in Luxembourg: Case T-65/98, Van den Bergh Foods v Commission [2003] ECR II-4653; Case C-552/03 P, Unilever Bestfoods (Ireland) Limited (formerly HB Ice Cream Limited) v Commission [2006] ECR I-9091. The effectiveness of the Commission order bit only in October 2003 whereas the controversial conduct went back to the boyhood of counsel for the Commission in the 1960s. Very few competition cases are disposed of quickly. 4 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 (Text with EEA relevance), 2003 OJ L1/1.

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Creating new rules or closing easy cases? 639 (c) where the decision was based on incomplete, incorrect or misleading information provided by the parties.”

I. The general economy of Article 9 decisions A jump in history The ancien régime for Article 81 was based upon an extravagantly broad prohibition of restrictive agreements mitigated by a theoretically applicable legal authorization. The theory was that those who had an uneasy conscience could seek the analysis of the Commission and an exemption from the prohibition. Things turned out differently from what the drafter in 1962 contemplated, in that formal exemptions were hardly ever granted, and in 98% of cases the Commission’s sentiment as to a notified deal was not revealed formally in the form of a Commission decision. Block exemptions were in theory relaxations of an otherwise too strict prohibition; but in practice they became regulatory minima, departing from which was dangerous. If notifications received express or informal endorsement from the Commission, such approval was usually conditioned upon the making of concessions. Under the new regime in force since May 1, 2004, enforcement is supposed to advance by condemnations. Arguably, the new regime requires a provision like that of Article 9, which is particularly European, reflecting our continental preference for consensus privately negotiated. The system of notification committed the Commission to be ready to consider, to react, and to advise in response to requests for guidance by the private sector. That was an excellent phenomenon, although it had the drawback of dominating the Commission’s enforcement priorities. (I wonder if notifications could be compared to today’s e-mails, a perpetual burden which never seems to disappear.) Notifications did, however, lead to settlements, the fruit of negotiation between the company and the Commission. But as in past ages not everything which deserved approval could receive approval, so not every practice or arrangement which deserves criticism could receive condemnation. Thus settlements will be made public via decisions under Article 9, so it is possible, indeed likely, that they may become an important vehicle for resolving cases. The authority will indeed be tempted to use Article 9 to conclude cases where its legal position is weak or the facts not helpful. There are evident attractions in using Article 9 to advance the law without running much risk of judicial review. In previous times, cases were effectively closed under both Articles 81 and 82 by the reaching of elaborately-negotiated compromises. The arrangements might be an elaborate set of disclosure obligations, subject to Commission

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supervision (IBM 5 ), or a comprehensive set of licensing and sub-licensing arrangements (EBU—collectively-acquired broadcasting rights6), sometimes with procedural rights for interested parties (UIP—distribution of films for cinema projection7). These arrangements were presumably effective means of concluding a difficult case. The parties would likely not appeal (though complainants might); the Commission would police compliance and receive news about non-compliance; and there would probably be no judicial review.

The new system Formal acts to conclude cases with a commitment became part of the European Commission’s enforcement armament with the entry into force of Regulation 1/2003.8 The procedural formalities associated with Article 9 are more elaborate than previous arrangements. While Article 9 measures are likely to be called informally “settlements”, their more proper title is “commitment decisions”, whereby a private party engages to effect certain steps which will allow the public authority to terminate a proceeding. They can be compared to consent orders under US practice. Article 9 decisions have been quite popular since their introduction, with five cases closed or pending at the EU level and more at national level. In France, for example, the Conseil de la Concurrence indicated in April that 22 commitments decisions have been adopted since November 2004.9 As a comparison, for what it is worth, close to 90% of civil cases in the US are supposedly settled by the FTC / DOJ.10

Broad discretion to use Article 9 Article 9 does not prescribe when the Commission should decide to go for a formal settlement as opposed to a prohibition decision. The only requirement expressed in Article 9 is that the commitments proposed by the undertakings 5

Commission, XIVth Report on Competition Policy, 1984, points 94–95. Commission Decision 93/403/EEC of 11 June 1993 (Case IV/32.150—EBU/Eurovision System), 1993 OJ L179/23, recitals 36 et seq. 7 Commission Decision 89/467/EEC of 12 July 1989 (Case IV/30.566—UIP), 1989 OJ L226/25. 8 Council Regulation, cited supra note 4. 9 See Communiqué de procédure du Conseil de la concurrence relatif aux engagements en matière de concurrence, 3 April 2008, http://www.conseil-concurrence.fr/user/ standard.php?id_rub=255&id_article=901. 10 James Atwood, “Observations on Negotiating Government Antitrust Settlements in the United States”, in Barry Hawk, ed., International Antitrust Law and Policy: Fordham Corporate Law 2005, Juris Publishing, 2006, chapter 9. 6

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Creating new rules or closing easy cases? 641 concerned meet the concerns of the Commission as expressed in its preliminary assessment. Recital 13 provides however that “commitment decisions are not appropriate in cases where the Commission intends to impose a fine.”11 The Commission has issued some limited guidance on this topic. In a memo published on its website, it stated: “The Commission is never obliged to terminate its proceedings by adopting an “Article 9” commitment decision, but it can consider such a decision if and when: • the companies under investigation are willing to offer commitments which remove the Commission’s initial competition concerns as expressed in a preliminary assessment, • the case is not one where a fine would be appropriate,12 • efficiency reasons justify that the Commission limits itself to making the commitments binding, and without a formal prohibition.”

From Article 9 itself and the guidelines published by the Commission, it is clear that the Commission has a broad discretion as to when it will decide to opt for an Article 9 procedure rather than an Article 7 procedure. The Court confirmed in Alrosa that the Commission had no obligation to take into account the offers made by the undertakings subject to the investigation: “By making a particular type of conduct of an operator in relation to third parties binding, a decision adopted under Article 9 of Regulation No 1/2003 may indirectly have legal effects erga omnes, which the undertaking concerned would not have been in a position to create on its own; the Commission is thus their sole author from the time at which it makes binding the commitments offered by the undertaking concerned and accordingly assumes sole responsibility for them. It is not obliged in any way to take into account and, a fortiori, to take into account on a take-it-or-leave-it basis, the offers of commitment which the undertakings concerned submit to it.” (para. 88; emphasis added).

The Court further recognized that “the Commission possesses a margin of discretion in the choice offered to it by Regulation No 1/2003: it may make the commitments proposed by the undertakings concerned binding through the adoption of a decision under Article 9 of that 11

Recital 13 of Regulation 1/2003: “(13) Where, in the course of proceedings which might lead to an agreement or practice being prohibited, undertakings offer the Commission commitments such as to meet its concerns, the Commission should be able to adopt decisions which make those commitments binding on the undertakings concerned. Commitment decisions should find that there are no longer grounds for action by the Commission without concluding whether or not there has been or still is an infringement. Commitment decisions are without prejudice to the powers of competition authorities and courts of the Member States to make such a finding and decide upon the case. Commitment decisions are not appropriate in cases where the Commission intends to impose a fine.”

12 So, presumably, an undesirable or imprudent exchange of industry-wide data with competitors might be eligible for a commitment decision, but not a true cartel case.

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regulation, or it may follow the procedure laid down under Article 7(1), which requires that an infringement be established.” (para. 96)

Some national authorities have offered guidance on when they consider that commitment decisions are suitable. For example, the OFT indicated that it is likely to consider it appropriate to accept binding commitments only in cases where (i) competition concerns are readily identifiable (this would seem to exclude novel cases); (ii) concerns are fully addressed by commitments; and (iii) commitments are capable of being implemented effectively and, if necessary, within a short time frame.13 The French Conseil de la Concurrence stated in recently published guidelines that commitments proceedings apply to situations raising competition concerns which are ongoing and which can be ended quickly by means of commitments.14 Decisions adopted so far in France under the commitment procedure concern essentially unilateral or vertical practices having the effect of restricting market access. The industries concerned were in particular media (4 cases), telecoms (2 cases), energy (1 case), publishing (5 cases), health (4 cases).15 According to the Conseil de la Concurrence, competition authorities should use commitment decisions with a view to achieving a pre-litigation closing in which the quick fix and the voluntary fix of a deal with the authorities is useful.16 Indeed, the President of the Conseil de la Concurrence has recommended recourse to settlements in cases where a fine might be appropriate, precisely because of the leverage that possibility gives to the agency. One may assume that in settlement negotiations in many jurisdictions, the officials will remind the company of the weaknesses of its case, how things might go horribly wrong, and the painful, unforeseeable consequences of being condemned.

Cartel and, in all likelihood, serious dominance cases, are unlikely to be closed through formal settlements The Commission states that it will refrain from using formal settlements in cases where a fine is warranted.17 According to the Commission’s Memorandum, 13 Enforcement Guidelines, para. 4.3. See: http://www.oft.gov.uk/shared_oft/business_ leaflets/ca98_guidelines/oft407.pdf 14 Communiqué de procédure, 3 April 2008, cited supra note 9, para. 9. 15 Ibid., para. 12. See also Bruno Lasserre, “Remedies and sanctions for unlawful unilateral conduct: the French experience”, in Barry Hawk, ed., International Antitrust Law and Policy: Fordham Competition Law 2007, Juris Publishing, 2008, chapter 19. 16 Bruno Lasserre, “La non contestation des griefs en droit français de la concurrence : bilan et perspective d’un outil pionnier”, speech before the Association française d’étude de la concurrence (AFEC), Paris, 10 April 2008, http://www.conseil-concurrence.fr/doc/transaction_afec_10avril2008.pdf. 17 Philip Lowe and Frank Maier-Rigaud, “Quo Vadis, Antitrust Remedies?”, in Barry Hawk, ed., International Antitrust Law and Policy: Fordham Competition Law 2007, Juris

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Creating new rules or closing easy cases? 643 Article 9 decisions are excluded in cartel cases. It can also be anticipated that the Commission will not use Article 9 decisions to remedy what it regards as serious abuses of a dominant position. Some national authorities have explicitly so stated. The French Conseil de la Concurrence published guidelines in which it indicated that it will not use formal settlements in cartel cases and certain abuses of dominant position which have caused an important harm to the economy.18 In the UK, the OFT excluded cases involving serious abuse of a dominant position, for example predatory pricing.19 The theory is that a commitment would not be a suitable remedy: punishment and deterrence are said to be the goals. By contrast, as to other controversial conduct, there may be no improper intent and the law may be less clear. A behavioural—or even structural—remedy may be warranted, not a fine, whose deterrent effects are generally dubious in such cases.20 Correspondingly, there may be categories of horizontal conduct where competitors cooperate in a manner which is imprudent but not plainly unlawful: Article 9 might be an appropriate vehicle to conclude matters in such a case. Indeed, I am not wholly convinced that any category of abusive conduct is incapable of being remedied by an Article 9 decision.

Publishing, 2008, chapter 20, p. 603: “[T]heir main purpose is the negotiation of a remedy in cases where the conduct in question does not require a punitive action.” 18 Communiqué de procédure, 3 April 2008, cited supra note 9, para. 11: “Le Conseil n’applique pas la procédure d’engagements dans les cas où, en tout état de cause, l’atteinte à l’ordre public économique impose le prononcé de sanctions pécuniaires, ce qui exclut notamment a priori les ententes particulièrement graves comme les cartels et certains abus de position dominante ayant déjà causé un dommage à l’économie important.” 19 OFT, Enforcement Guidelines (407), December 2004, http://www.oft.gov.uk/shared_ oft/business_leaflets/ca98_guidelines/oft407.pdf, at para. 4.4 and footnote 16: “It is the OFT’s assessment of the seriousness of an abuse and its effect on competition which will be taken into account in determining whether commitments are appropriate in a particular case. When making its assessment, the OFT will consider a number of factors, including the nature of the product, the structure of the market, the market share(s) of the undertaking(s) involved, entry conditions and the effect on competitors and third parties (the term product would be interpreted to include goods, services and property rights). The damage caused to consumers whether directly or indirectly will also be an important consideration. This assessment will be made on a case by case basis, taking account of all the circumstances of the case. However, as a general rule, the OFT will regard predatory pricing as a serious abuse.” 20 I have argued elsewhere that I generally do not believe that fines in Article 82 cases have a deterrent effect. At worst, they would deter dominant companies from competing on the merits. As the scope of Article 82 is expanding in unforeseeable ways, companies are unlikely significantly to vary their conduct in response to the possible applicability of fines. In such areas as rebates and discounts, assistance to competitors with technical information and even compulsory licensing, the safest policy would be to refrain from initiatives which may be criticised. The risk of being ordered to change the business model is a more significant threat than fines.

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II. Attractiveness of commitment decisions for competition authorities and companies What does the authority desire? Antitrust authorities will want to end the investigated infringement if it is still ongoing; restore competition on the market; and where necessary punish the undertaking subject to the investigation, individually to penalize it, and for deterrence. Separately, an authority is accountable to the outside world. It has limited resources, but needs to show results, make headlines. Public demand for results may be particularly high in some industries, against some practices (cartels). This impacts the selection of case by the authority. Occasionally, authorities will also want to clarify the law. The European Commission generally has the following options: • Adopting a prohibition decision finding a violation of Article 81 or Article 82. The decision may be accompanied with a fine. The decision can also order a remedy (behavioural/structural). In EU parlance, this is an Article 7 decision (condemnation). • Adopting a commitment decision, making binding behavioural or structural remedies proposed by the investigated undertaking, but without imposing a fine. This is an Article 9 decision (formal settlements). • Closing the case, possibly after having received the assurance from the undertakings subject to the investigation that it has ceased the controversial conduct (informal settlement); or deciding to reject the complaint, under Article 7 of Regulation 773/2004. • For completeness, note that there is a new procedure21 for “settlements” in cartel cases; but I would categorize this as a sophistication added to the existing leniency regime rather than the resolution of a controversy by making promises. Article 9 settlements are suitable to obtain quick results, quickly to end an infringement and restore competition. Article 7 decisions do so too, but less efficiently. This is because Article 7 decisions are only adopted following a long adversarial administrative process, and are often appealed. Article 9 decisions allow for much shorter proceedings, and therefore much quicker implementation of remedies in the marketplace. During the administrative 21 The Commission has adopted a notice favouring the smooth and expedited conclusion of cases, with a reduced fine: 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, 2008 OJ C167/1. How this will work remains uncertain.

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Creating new rules or closing easy cases? 645 stage, the procedure is much “lighter” than a normal procedure. There is no need for a Statement of Objections, limited access or no access to the file, no hearing and less procedural wrangling. Once the decision has been adopted, an appeal is unlikely. So far, out of 11 decisions, only two were appealed, and only one was admissible.22 This means that the remedy will be implemented much faster. Authorities do not like to lose in court. The use of an Article 9 decision reduces that risk greatly, while not eliminating it.

What does the company desire? Any large company will have a high interest in avoiding the uncertainty of a long procedure, the consumption of vast amounts of management time, the publicity associated with being a wrongdoer, and the associated costs of defending itself. So as long as the requested concession does not go too close to the heart of its business model, a negotiated settlement involving a quantifiable sacrifice of business freedom will be more attractive than defending itself robustly, especially where the facts are so hotly-contested that judicial oversight will necessarily be limited. Condemnations are almost always worse than settlements.23 No condemnation allows the company to avoid bad publicity in being found to have infringed competition rules. The risk of private damages claims (still a quite uncertain contingency except in the case of classic price-fixing cartels) will be low. An Article 9 decision would seem to have modest value in court proceedings to prove the existence of an infringement: rather the opposite. Most companies would favour remedies designed and implemented cooperatively not coercively. The officials and the company representatives may have tense relations, may think the other side’s concerns are misguided or exaggerated, but both sides will be sitting at a table in a cooperative horizontal relationship with the same objective: to design a system that works and will allow life to resume. The company will have much more say on the design of the remedy, and more opportunities to discuss objections from hostile third parties. 22 Only the De Beers and Repsol decisions were appealed. The De Beers decision was appealed in Case T-170/06, Alrosa Company Ltd v Commission [2007] ECR II-2601, on appeal: Case C-441/07 P, Commission v Alrosa, not yet decided. The Repsol decision was appealed in Case T-274/06, Estaser El Mareny v Commission, but the CFI rejected the appeal as inadmissible. See Order of the CFI of 25 October 2007 [2007] ECR II-143. 23 See, e.g., John Temple Lang, “Commitment Decisions and Settlements with Antitrust Authorities and Private Parties under European Antitrust Law”, in Barry Hawk, ed., International Antitrust Law and Policy: Fordham Corporate Law 2005, Juris Publishing, 2006, chapter 13; Ian Forrester, “Remedies and Sanctions for Unilateral Conduct in Competition Cases”, in Barry Hawk, ed., International Antitrust Law and Policy: Fordham Competition Law 2007, Juris Publishing, 2008, chapter 18A.

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The investigation should in theory be closed more quickly than a formal case, and will generally not involve an appeal. In addition to cost-savings (lawyers, economists, etc), it will also allow the company subject to the investigation to “go back to business” much earlier. This is particularly important in Article 82 cases, if the abuse targeted by competition law enforcers hinges on the very business model of the company. Contrast in this respect the relative happiness of Coca-Cola about its future discount policies with the difficulties of Microsoft to carry on its business activities without constant challenges from plaintiffs or competition authorities. But not all companies will favour settlement over litigation with the Commission in all circumstances. Where the price to pay—the remedy required—goes far beyond what is necessary or touches the heart of the business model of the company, there may be no option for the company but to fight, especially if the law is not clear. From this, I conclude that commitments have a bright future, possibly too bright. If competition authorities were to use Article 9 excessively, this might lead to imperfect enforcement.

III. Risk of misuse of Article 9 decisions: theory and practice Antitrust authorities routinely rely on a mix of prohibition decisions and settlement decisions. Choosing the wrong mix can result in imperfect enforcement. For example, in relation to the use of Article 9, problems could theoretically arise from the following: • Using an Article 7 decision where an Article 9 decision would have been more appropriate (for example, where the Article 9 decision would have been equally good at solving the problem and would have been simpler or quicker). • Using an Article 9 decision where an Article 7 decision should have been used, for example because the law should have been clarified; or because it would have been preferable to encourage private litigation to clarify facts which are crucial to the essence of the case. • Using an Article 9 decision where no case should have been brought, because there was no infringement or because the infringement was not serious enough to be part of the Commission’s antitrust priorities. Companies are sometimes ready to go very far to avoid a condemnation; sometimes much further than what is necessary to alleviate potential competition concerns. In such weak cases, there is an additional risk that commitments imposed may be disproportionate.

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Getting the balance right between Article 7 and Article 9 I submit that the main risk of imperfect competition law enforcement stemming from the use of Article 9 is over-use. When an Article 9 decision is used where an Article 7 decision should have been used, the policy consequences may include: • Lost opportunities to clarify the law: for example, when the Commission decides to settle a case which would have set a useful precedent via an appealed condemnation or a fully-litigated case. As some commentators have already noted,24 novel cases are poor candidates for Article 9 decisions.25 But settlements are likely to be so attractive that companies must be tempted to accept a known sacrifice rather than pursue a possible victory. • Imperfect private enforcement: as mentioned above, it is difficult for private plaintiffs to rely on an Article 9 decision, so few private actions are likely to be launched following an Article 9 decision. I think this is a very hypothetical problem. • Under-deterrence: on this theory, other firms may decide to do what the settling company chose to abandon via a commitment, the other firms concluding that the commitment was not very painful. I do not think that a company contemplating continuing or discontinuing a commercially rational but controversial policy is likely to be influenced by the fact that another company negotiated a painful settlement as opposed to refusing one and being condemned. The possibility for the Commission to use Article 9 in cases where the law is not entirely clear raises the interesting “what if . . .” question. What would have happened if that tool had been available in the past? For example: • What would have happened if Oscar Bronner 26 had been settled? Suppose that Oscar Bronner had unsuccessfully complained to the Commission. The European Court of Justice favoured private property over free-riding in this case. Yet, it is possible that consumers would have been better off if 24 See Roundtable, “Settlements of Government Civil Proceedings and Private Actions”, Barry Hawk, ed., International Antitrust Law and Policy: Fordham Corporate Law 2005, Juris Publishing, 2006, chapter 15, at p. 339. 25 Contrast with the statement of the Commission in its defence in Alrosa, cited supra note 22, para 78: “a decision pursuant to Article 9 of Regulation No 1/2003 does not need to be based on a statement of reasons such as that required for a decision pursuant to Article 7 of Regulation No 1/2003, in particular where it proves difficult to determine the nature or extent of the commitment necessary to meet the concerns expressed by the Commission, for example because the conduct of concern to the Commission is novel or specific, as in the present case.” (emphasis added) 26 Case C-7/97, Oscar Bronner GmbH & Co. KG v Mediaprint Zeitungs- und Zeitschriftenverlag GmbH & Co. KG, Mediaprint Zeitungsvertriebsgesellschaft mbH & Co. KG and Mediaprint Anzeigengesellschaft mbH & Co. KG [1998] ECR I-7791.

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Oscar Bronner had been able to access the highly developed home delivery distribution system of Mediaprint. The Bronner business model was a valid one, but weaker than that of the incumbent. If Mediaprint had felt threatened by a big dispute, it might have chosen to give access to its network to Bronner. A “Mediaprint Commitment” might have advanced the doctrine of “convenient facilities”. And the case law on refusal to supply would have been different without the magisterial opinion of Advocate General Jacobs. • What would have happened if Ladbroke 27 had been settled? Ladbroke wanted to be able to show French horse-races on screens in its Belgian betting shops, but was refused access to the television programmes by the French Société des Courses. The Commission and the Court considered that access to these programmes did not prevent Ladbroke from competing: access to the programmes was not necessary for it to run its betting shops. Yet no one can deny that the betting shops would have been nicer, more exciting, offering a richer experience, if gamblers had had access to the live images. The possibility to close that case with a swift settlement might have led to a different result, probably favouring the routine licensing of material which is “nice to have but not essential”. This might have shifted the law on compulsory licensing. • What about European Night Services?28 The Commission exempted the agreements subject to the condition that the parties to the agreement should supply to third parties wishing to operate night passenger trains through the Channel Tunnel the same necessary rail services as they have agreed to supply to ENS. The Commission’s decision was appealed by ENS and annulled by the Court, on the grounds that the Commission failed to prove that Article 81(1) was infringed and, in addition, that the Commission failed to prove the indispensability of the conditions for the purpose of granting an exemption.29 If the Commission had settled this case with the undertaking concerned, EC competition law would have lost a precious precedent. I suggest that there is some risk of creeping evolution of the content of the law through repeated settlements. Taking an extravagant example, let us imagine that before the Microsoft case reached the Court the Commission had concluded ten settlements with large companies, each time obtaining that the allegedly dominant company (Ladbroke and the children of Ladbroke, let us say) grant access to proprietary information. The controversy about the duty to assist competitors would have declined; and the judges of the CFI may have found it much easier—I would like to believe they did not find it easy—to rule on the Microsoft case; or the law might even have become clear enough to make a condemnation unnecessary and a settlement easy. 27

Joined Cases C-359/95 and C-379/95, Commission v Ladbroke Racing [1997] ECR I-6265. Commission Decision 94/663/EC of 21 September 1994 (Case IV/34.600—Night Services), 1994 OJ L259/20. 29 See Case T-374/94, European Night Services v Commission [1998] ECR II-3141. 28

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Creating new rules or closing easy cases? 649

The risk of selecting weak cases The attractiveness of the settlement procedure may have an impact on the selection of cases by the authorities. Like all public authorities, antitrust agencies have limited resources, and must choose their case. At the same time, they are accountable to the outside world, and need to show results. There is a risk that, as time passes, some types of cases appear to the enforcers to be particularly suitable to quick resolution through the settlement procedure, even though the cases are not strong. There are plenty of situations where a practice or a situation could be criticized under the competition rules, but could also be defended. I remember times where the Commission took numerous decisions on trade fairs:30 although it remains to be seen why they contributed significantly to consumer harm, there were no appeals. The targets were quite soft. The selection of cases should be driven by policy priorities, not statistics. Choosing to intervene and encourage a settlement via an Article 9 commitment decision should occur only once the existence of a genuine competition problem has been verified, not before! The risk of selection of weak cases is particularly high in industries which are high on the Commission’s regulatory agenda, where influencing how the market functions may exceed in importance sound competition law enforcement.

The danger of successfully creating legal uncertainty The success of Article 9 decisions can make policy difficult to decipher. Take the Distrigaz31 example: if I am dominant in the market for gas supply, I know I should be careful with the duration of the contracts I enter into (Distrigaz committed to no more than five years, or two years, depending on the contracting party). The concern is the duration of the long-term supply agreements by which the dominant gas supplier delivers gas to major users or resellers. If these contracts last for many years, it is difficult for new entrants to sign-up customers. However, is it an abuse to enter into too many longterm supply contracts if customers are content to have long-term security of delivery? Maybe I should be aware that as a dominant player I ought not to cover too much of the market by long-term supply contracts. But should I 30 See, e.g., Commission Decision of 18 September 1987 (Case IV/31.739— Internationale Dentalschau), 1987 OJ L293/58; Commission Decision 86/499/EEC of 30 September 1986 (Case IV/28.959—VIFKA), 1986 OJ L291/46. 31 Commission Decision of 11 October 2007 (Case COMP/37.966—Distrigaz), 2008 OJ C9/8, available at http://ec.europa.eu/comm/competition/antitrust/cases/decisions/37966/ en.pdf.

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then make sure that no more than 20%–30% of the market is tied up?32 Should I volunteer to put 50%, 60% or more of the volumes I supply up for competitive bidding every year? The rule seems to be that five-year supply agreements can be done but not too many of them: I am told to go ahead, but told not to be so successful that I win more than 30% of the contracts negotiated in any one year; if, regrettably, I win many contracts, their duration may not exceed one year. The imbalance between the sometimes high complexity of the commitments and the simplicity of the concerns as stated by the Commission may create more uncertainty than legal certainty for companies. Some companies may even be tempted to approach the Commission with a suggested code of conduct in exchange for immunity, which would mean nothing less than the re-introduction of a notification mechanism whereby potentially controversial conduct was submitted for the Commission’s blessing.33 I consider further below the pressuring of car companies to share with rivals secret details of how to service their vehicles. In any event, the Commission should be careful of signalling a given settlement case as a precedent,34 if it is not clear what the concerns are and if the solution is too complex or fact-specific. With press coverage nowadays so important and so reputation-sensitive commercially, no manufacturer of consumer products (toys, telephones, cars, sports equipment, computers, food) will wish to risk condemnation. The public authority has more weight, the right of the property-holder not to deal will rarely look sympathetic in print, and reputation is easily damaged. It will be very tempting to concede rather than to fight.

The risk of remedies going beyond what is necessary Another concern with the attractiveness of commitments relates to the design of the optimal remedy. The optimal remedy is that which addresses the com32 See Distrigaz, cited previous footnote, para. 35, where the Commission states that “the effect of the Commitments is to oblige Distrigas on average not to tie more than 20 percent of the total market or 30 percent of its own sales portfolio more than one year ahead”. 33 For a discussion on this issue, see Roundtable, supra note 24, pp. 355 and 360. 34 For an example of the Commission signalling an Article 9 decision as a precedent, see its Evaluation Report on the operation of Regulation 1400/2002 concerning motor vehicle distribution and servicing, 28 May 2008, http://ec.europa.eu/comm/competition/sectors/ motor_vehicles/documents/evaluation_report_en.pdf:

“The Commission will continue to monitor the situation, and will assess any complaints received from the independent repair sector. It should be noted in this respect that the four Commission decisions adopted in September 2007, which gave valuable guidance to the sector, analysed the failure to grant access to technical information on the basis of Articles 81(1) and 81(3) of the Treaty, as well as with reference to the BER. Consequently, even in the absence of the current rules in the BER, the Commission would still be in a position to take appropriate enforcement action on the basis of Articles 81 and/ or 82 of the Treaty.” (emphasis added)

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Creating new rules or closing easy cases? 651 petition concerns identified by the Commission, nothing more. In the Court’s words, the measures adopted by Community institutions must not exceed what is appropriate and necessary for attaining the objective pursued.35 It would be wrong to try to excuse scrutiny of Article 9 decisions on the ground that the commitments were voluntary. The Court notably took this into account in Alrosa.36 Third parties are unlikely to have much weight in support of a light antitrust touch. The Commission is likely to get input from parties which have a clear interest in the proceedings, in particular competitors foreclosed by the dominant player. Competitors are likely to play an active role in Article 9 proceedings. We know from merger control that third parties are not necessarily objective in their comments, and often have their own legal/commercial agenda. Clearly, the Commission is nobody’s fool; yet, the risk of intellectual capture is not negligible. In Alrosa, the Court of First Instance stated that Article 9 decisions should not be used by the Commission as a means to obtain commitments which go further than what the Commission could have imposed in an Article 7 proceeding. The Court further imposed on the Commission an obligation to state the concerns sufficiently so that the appropriateness of the commitments could be reviewed.37 This is most welcome. Although the CFI’s judgment raises some practical questions—how do we know what the result would have been with an Article 7 decision?—it nevertheless forces the Commission to carry out a more significant preliminary assessment to show that the proposed remedies are proportionate (in particular to consider less burdensome alternatives).38

35 Case T-260/94, Air Inter v Commission [1997] ECR II-997, para. 144, and Case T-65/98, Van den Bergh Foods v. Commission [2003] ECR II-4653, para. 201. 36 Alrosa, cited supra note 22, para. 105: “In the third place, the voluntary nature of the commitments also does not relieve the Commission of the need to comply with the principle of proportionality, because it is the Commission’s decision which makes those commitments binding. The fact that an undertaking considers, for reasons of its own, that it is appropriate at a particular time to offer certain commitments does not of itself mean that those commitments are necessary.” 37 Ibid., para. 100: “In cases to which Article 7(1) of Regulation No 1/2003 applies, the Commission has to establish the existence of an infringement, which implies a clear definition of the relevant market and, where relevant, of the abuse for which the undertaking in question is alleged to be responsible. It is true that, under Article 9(1) of that regulation, the Commission is not required formally to establish the existence of an infringement, as, moreover, recital 13 in the preamble to Regulation No 1/2003 indicates, but it must none the less establish the reality of the competition concerns which justified its envisaging the adoption of a decision under Articles 81 EC and 82 EC and which allow it to require the undertaking concerned to comply with certain commitments. This presupposes an analysis of the market and an identification of the infringement envisaged which are less definitive than those which are required for the application of Article 7(1) of Regulation No 1/2003, although they should be sufficient to allow a review of the appropriateness of the commitment.” (emphasis added) 38 Interestingly, in the Distrigaz decision, cited supra note 31, at paras. 34 et seq., the Commission justified the proportionality of the commitments.

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However, we are in an antitrust world where the Commission enjoys strong procedural advantages, where there is a low likelihood of challenge of Article 9 decisions, and where effective judicial review is therefore usually absent. A look at Commission practice so far does not eliminate these concerns.

The practice: what do we learn from the Commission’s practice so far? The table below simply summarizes the Article 9 cases which have been dealt with by the Commission since the introduction of Regulation 1/2003. Cases

Article 81 Article 82 Notified under Reg 17/62

Joint selling of the media rights to the German Bundesliga / FA Premier League (2 decisions39) Coca-Cola (decision40) De Beers (decision41)

X

Repsol (decision42)

X

Sector

Concern

Yes

Media Rights

Output limitation and foreclosure on downstream markets

X

No

Soft drinks

Foreclosure

X

Yes

Diamond production and sale

Yes

Energy (Gas stations)

Exclusivity leading to a reduction of competition between rivals Foreclosure of new entrants and barriers to expansion

39 Commission Decision 2005/396/EC of 19 January 2005 (Case COMP/37.214— Bundesliga), 2005 OJ L134/46; Commission Decision of 22 March 2006 (Case COMP/38.173—Premier League), 2008 OJ C7/18. 40 Commission Decision 2005/670/EC of 22 June 2005 (Case COMP/39.116—CocaCola), 2005 OJ L253/21. 41 Commission Decision 2006/520/EC of 22 February 2006 (Case COMP/38.381—De Beers), 2006 OJ L205/24. 42 Commission Decision 2006/446/EC of 12 April 2006 (Case COMP/38.348—Repsol CPP), 2006 OJ L176/104.

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Creating new rules or closing easy cases? 653 Cases

Cannes Extension Agreement (decision43)

Article 81 Article 82 Notified under Reg 17/62 X

Distrigaz (decision) DaimlerChrysler / Toyota / General Motors / Fiat (4 decisions44) Buma / Sabam (Santiago Agreement) (notice45) Austrian Airlines\ SAS cooperation agreement (notice46) CISAC (notice47) Skyteam (notice48)

X

Sector

Concern

Yes

Music rights

No

Energy (Gas supply) Car industry

Rebate restriction; non-compete clause Foreclosure of new entrants

X

No

Foreclosure of independent repairers

X

Yes

Music rights

Territorial restrictions

X

Yes

Airlines

Reduction of competition between rivals

X

No

X

No

Music rights Airlines

Territorial restrictions Reduction of competition between rivals

43 Commission Decision 2007/735/EC of 4 October 2006 (Case COMP/38.681—The Cannes Extension Agreement), 2007 OJ L296/27. 44 IP/07/1332 of 14.09.2007 and summary decisions: Commission Decision of 13 September 2007 (Case COMP/39.142—Toyota), 2007 OJ L329/52; Commission Decision of 13 September 2007 (Case COMP/39.143—Opel), 2007 OJ L330/44; Commission Decision of 13 September 2007 (Case COMP/39.141—Fiat), 2007 OJ L332/77; Commission Decision of 13 September 2007 (Case COMP/39.140—DaimlerChrysler), 2007 OJ L317/76. 45 Notice published pursuant to Article 27(4) of Council Regulation (EC) No 1/2003 in Cases COMP/39.152, BUMA and COMP/C2/39.151, SABAM (Santiago Agreement— COMP/38.126), 2005 OJ C200/11. 46 Notice published pursuant to Article 27(4) of Regulation (EC) No 1/2003 in Case COMP/37.749, Austrian Airlines/SAS cooperation agreement, 2005 OJ C233/18. 47 Notice published pursuant to Article 27(4) of Council Regulation No 1/2003 in Case COMP/38.698, CISAC, 2007 OJ C128/12. Note that the Commission finally adopted an Article 7 decision in this case without, however, imposing a fine. See 2008 OJ C323/12 and Press Release IP/08/1165 of 16 July 2008. The decision is available at http://ec.europa.eu/ competition/antitrust/cases/decisions/38698/en.pdf. 48 Notice published pursuant to Article 27(4) of Council Regulation (EC) No 1/2003 in Case COMP/37.984, SkyTeam, 2007 OJ C245/46.

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More Article 81 than Article 82 cases: an indication? So far, formal settlement procedures have been used at the EU level in eight Article 81 decisions and three Article 82 decisions. Four cases are pending (only a notice has so far been published), all of which are Article 81 cases. Many of the Article 81 cases concerned some kind of cooperation, in the music or media rights industry, or the airline industry. Repsol and the four cars cases involved vertical restrictions. This is probably not a reliable indication as to the preferences of the Commission in the future. Most of the Article 81 cases arrived as a notification under Regulation 17/62 about a supposed problem of market access. Formal settlements may in future be used in cases of moderate foreclosure. The four cases about furnishing technical assistance to independent repairers of cars were exceptions, opened by the Commission without a notification (De Beers was brought to Commission attention by a joint notification by Alrosa and De Beers of a cooperation agreement). It is difficult to predict how the Commission will handle Article 81 cases now that notifications have disappeared. It is possible that without notification some of these cases would not have come to Commission attention. It is possible that our continent’s readiness to negotiate private deals with the public authority will supply a steady stream of requests.

Commitment decisions and target industries The Commission’s use of Article 9 measures coincides with industries which are at the same time subject to regulatory initiatives, for example the energy sector and the automotive sector. Case practice in these areas as well as in air transport, music and media are discussed below.

Energy The energy sector is high on the Commission’s enforcement agenda. There have been two Article 9 cases so far, and more cases are apparently cooking. In the Distrigaz case proceedings were opened in February 2004 and the decision adopted in October 2007. The Commission’s findings were that Distrigaz was controlling a significant proportion of the market through its gas supply contracts, thereby foreclosing new entrants in the newly liberalized gas market. This proportion was found to be 50–60% six months ahead, and 20–30% three years ahead. In addition to limiting the duration of the exclusive supply contracts, the remedies required that adequate volumes of gas become contestable every year (a minimum of 65% of volume supplied by Distrigaz each year; and

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Creating new rules or closing easy cases? 655 70% on average on the whole period). The complexity of the remedy and—in my view—the relative novelty of the antitrust concerns (is controlling 20%–30% of demand at a three-year horizon really a serious abuse?) suggest that this was a case driven by the results to be achieved—quicker opening of the markets, rather than taking care of illegal past conduct. In another energy sector matter, E.ON announced that it would be ready to divest its electricity transmission system network to settle ongoing antitrust investigations with the Commission,49 and proposed commitments to that effect.50 Similarly, German energy company RWE is in advanced negotiations with the Commission to settle an antitrust case over its gas supply network, possibly involving the divestiture of its transmission network.51 Such activism in the energy sector is not a surprise. The Commission has been very active in this field in recent years, in particular proposing the third liberalization package. The difficulties encountered in the negotiations with Member States on this legislative front naturally raise concerns that regulatory goals, maybe worthy goals, are being achieved via commitment decisions. The negotiation of farreaching settlements in merger cases in the European energy sector is wellrecognized.52 I am strongly reminded of the atmosphere in the 1990s touching questions of the organization of professional football or broadcasting of major sporting events. The prize being pursued by the notifying party was a legally peaceful environment in which to organize first division football or the exploitation of the broadcasting rights to broadcast the Olympic Games. The denial of Commission blessing would unleash immense commercial uncertainty; the legal theories being deployed against the notified practices were novel; there was lively media coverage; and concluding the deals took energy and high-level decision-makers on both sides. What was technically the grant of an exemption or other manifestation of approval in another sense involved the acceptance of important new obligations.

Car industries The decisions concerning technical information and car manufacturers are also interesting, arguably troublesome. The four car manufacturers were accused of 49

See Commission MEMO 08/132 of 28 February 2008. See Commission MEMO 08/396 of 12 June 2008. 51 See Commission MEMO 08/346 of 28 May 2008; Financial Times, 2 June 2008 (“German utility to sell off gas network”). 52 See, e.g., Commission Decision of 14 November 2006 (Case COMP/M.4180—Gaz de France/Suez), http://ec.europa.eu/comm/competition/mergers/cases/decisions/m4672_ 20070806_20310_en.pdf. For discussion, see Kirsten Bachour et al., “Gaz de France/Suez: keeping energy markets in Belgium and France open and contestable through far-reaching remedies”, Competition Policy Newsletter No 1—2007, pp. 83. et seq. 50

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not having put in place an effective system to allow independent repairers to have access to technical information in an unbundled and complete manner, which according to the Commission potentially threatened to strengthen the negative effects resulting from the network of exempted agreements with authorized repairers. For example, in the Opel case, the Commission stated: “In essence, Opel’s service and parts distribution agreements require the members of its authorized networks to carry out a full range of brand-specific repair services, and act as spare parts wholesalers. The Commission is concerned that possible negative effects stemming from such agreements could be strengthened by Opel’s failure to provide independent repairers with appropriate access to technical information thereby foreclosing firms which would be willing and able to offer repair services through a different business model.”53

Modern motor cars are costly, sophisticated and complex products. They are (to my amateur eye) miracles of engineering which cost millions and millions to develop. Keeping them in good order requires sophisticated, complex and secret technology. For decades, the Commission’s policy has been to favour the emergence of alternative distribution and servicing business models to the dealerships which sell new vehicles and service them. Some dealers are good, some less good, and no doubt some consumers like to go off piste for their servicing needs. The delivery to independent repair shops of sophisticated diagnostic tools is of course welcome to those who wish to see more competition. But it is very difficult to see in Article 82 or Article 81 any affirmative duty to give help in this way. The wording of Regulation 1400/200254 on the topic is quite cautious: “Access must be given to independent operators in a non-discriminatory, prompt and proportionate way, and the information must be provided in a usable form. If the relevant item is covered by an intellectual property right or constitutes knowhow, access shall not be withheld in any abusive manner.”55

The Commission interpreted Article 4(2) of Regulation 1400/2002 very boldly: “Article 4(2) of Regulation (EC) No 1400/2002 provides that technical information must be made available in a way that is proportionate to independent repairers’ needs. This implies both unbundling of information and pricing that takes account of the extent to which independent repairers use the information.”56

The commitments extracted had obviously been drafted in great detail. They included the obligation to make available all updated technical information on the car manufacturers’ website at access fees set on a pro-rata basis 53

Opel, cited supra note 44, para 5. Regulation 1400/2002 on the application of Article 81(3) of the Treaty to categories of vertical agreements and concerted practices in the motor vehicle sector, 2002 OJ L203/30. 55 Regulation 1400/2002, Article 4(2), para. 3. 56 Opel, cited supra note 44, para. 16 (emphasis added). 54

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Creating new rules or closing easy cases? 657 (yearly, monthly, weekly, daily, four-hourly, three hourly, hourly—the actual access fee are set out in each decisions). For example, in the Toyota decision the Commission states: “Toyota agrees to provide for a pro rata breakdown into monthly, weekly, daily, four-hourly, three-hourly, two-hourly and hourly time windows at a price of EUR 3 per hour, EUR 6 per two hours, EUR 9 per three hours, EUR 12 per four hours, EUR 16 per day, EUR 72 per week and EUR 240 per month.” (para. 19)

These four decisions also moved rapidly. Although the first Article 18 letters had been sent to the undertakings in December 2004, the proceedings were opened in December 2006 and a decision adopted in September 2007. Presumably the horse-trading was swift and efficient.

Airlines Two pending cases concern the airline industry. The SAS/Austrian Airlines case is a legacy of Regulation 17/62 but the Skyteam case is not (the Commission opened a formal investigation of the Skyteam alliance in 2002). In both cases, the Commission is concerned about the potential anticompetitive effects stemming from the close cooperation between the alliance members on some routes. The commitments proposed by the parties to each of these agreements include releasing some slots for new entrants, as well as other measures aiming at lowering barriers to entry for new entrants (for example, commitments to enter into interlining agreements with new entrants and sharing Frequent Flyer Programmes). It is interesting to note that such commitments are routinely imposed by the Commission in merger cases involving the airline industry. One may assume that the airlines did not want to make those concessions, but did not want a prolonged battle on a possibly marginal practice. The two cases raise other interesting questions. Consider for example the creation of a new airline alliance by airline companies enjoying a strong position on some of the routes where they cooperate. Article 9 cases so far suggest that the alliance may be compatible with EU law only at the price of the disposal of some slots on these routes. To seek legal certainty, the founders might wish to obtain Commission blessing under Article 9, as they can hardly be expected autonomously to put slots on the market or to appoint a trustee to supervise the moderateness of the competitive influence of the alliance. Again, I can see the re-emergence of something like the old notification system.

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Music and Media rights Three decisions and two notices concerned either media or music rights. Except for the CISAC case, all other cases had been notified under Regulation 17/62. These cases concern the collective selling (media rights) or collective management/licensing of rights (music rights). The Commission seemed of the view that the agreements had pro-competitive features,57 but was concerned about the potential anti-competitive effects of some of the restrictions (such as exclusivity rights, territorial restrictions, non-compete clauses, restrictions on rebates). The individual decisions followed the acceptance by the undertakings of (sometimes) complex commitments to satisfy the Commission’s concerns. I am again reminded of the EBU case where the exemption was granted at the cost of a set of complex licensing commitments. The use of Article 9 of Regulation 1/2003 in these cases seems to be more likely than the use of Article 10, by way of which the Commission can find that Article 81 is not applicable if the conditions of Article 81(3) are met. Instead of saying “There is no problem”, the Commission will probably condition its approval upon significant commercial concessions. In the same vein, I note that the Commission is pressing collecting societies, which gather-in royalties for music and performing rights on behalf of artists, to change fundamentally their business model. Concessions have been proposed, insufficient for some, too generous for others, and the Commission is speaking of using either Article 7 or Article 9 to conclude the matter.58 There is no doubt that the Commission believes the market will function much better if reforms are made, but it is not so evident that the controversial behaviour is clearly an infringement of the competition rules.

57 For example, see the Cannes Extension Agreement decision, cited supra note 43, para 5: “Central Licensing Agreements, which were first introduced in the mid-1980s, have brought substantial improvements for commercial users by allowing them to reduce transaction costs for obtaining licenses for the necessary rights related to the pan- European production and distribution of sound recordings. They are also beneficial to right-holders as they allow easier access to repertoire and, as a result, better exploitation of it.” For media rights, see Press Release IP/05/62 of 19 January 2005: “Competition Commissioner Neelie Kroes commented: ‘This decision benefits both football fans and the game. Fans benefit from new products and greater choice. Leagues and clubs benefit from the increased coverage of their games. Readily available premium content such as top football boosts innovation and growth in the media and information technology sectors. Moreover, open markets and access to content are an essential safeguard against media concentration.’ ” 58 Finally, the Commission adopted an Article 7 decision with no fine. See supra note 47.

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Scope of commitments Two cases illustrate the risk that the Commission may go beyond what is necessary in a given case to solve the competition concerns identified in the preliminary assessment, namely De Beers and Coca-Cola. The De Beers decision required De Beers to put an end to its commercial relationship with Alrosa, whereas a first set of commitments jointly proposed by De Beers and Alrosa contemplated only a limitation of these commercial relationships. The Court annulled the decision on the ground inter alia that the complete prohibition of all commercial relations between the two parties was manifestly disproportionate and that only exceptional circumstances, such as the existence of a possible collective dominant position, would justify the extinction of the contractual freedom of the parties. The Court also reproached the Commission for having merely accepted the commitments proposed by De Beers at face value, without looking for alternative solutions which might have better respected the contractual freedom of the parties. The Coca-Cola case is an example of wide-reaching remedies which the Commission would most likely not have been able to impose at the end of a proceeding leading to an Article 7 condemnation. In this case, although the Commission’s investigation covered only four countries and one company (The Coca-Cola Company), the commitments finally imposed potentially applied to all Member States in which TCCC’s carbonated soft drinks account for more than 40% of sales and more than twice of the nearest competitor, and to other EU bottlers.59

Conclusion No one can object to the concept of commitment decisions which conclude a case without a condemnation. One problem is that the attraction of not being condemned will powerfully induce companies to accept constraints on their behaviour which will limit the level of competitive aggression they could otherwise deploy, even if such constraints are not called for by regulation or jurisprudence. The danger which we all want to avoid is a regulated marketplace. It would be unfortunate if Article 9 procedures became a new form of competition law regulation. In former times, block exemption regulations were intended to create legal certainty by establishing a safe area where exemption prevailed. Yet the reality was that the regulation became a mandatory 59 See Christopher Cook, “Commitment Decisions: The Law and Practice under Article 9”, 29(2) World Competition 209, 213 (2006).

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standard in actual practice (though not in theory). In the same way, there is a likelihood that Article 9 decisions will set behavioural standards, precedents to be followed. The negotiations associated with old notifications, where a legal weakness on one topic was exploited to extract concessions on other topics, were characteristic of how competition law was practised on our continent. I suggest that Article 9 may give rise to comparable phenomena.

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III Kirsten Edwards and A. Jorge Padilla* Antitrust Settlements in the EU: Private Incentives and Enforcement Policy

1. Introduction Article 9 of Regulation 1/2003 provides for formal settlements of investigations by the European Commission of suspected infringements of Articles 81 and/or 82 of the EC Treaty. This paper considers the implications of the Article 9 procedure for public enforcement. In particular, we investigate its likely impact on (a) deterrence and (b) consumer welfare. The literature on the optimal use of formal settlements in litigation is relatively sparse.1 Scholars have explained the many reasons why the private and social incentives to settle are likely to diverge. The literature thus finds that there may be too many or too few trials, and it is hard to predict which of the two excesses is likely to dominate. Settlements may not occur even when socially desirable because plaintiffs and defendants are unlikely to take all of society’s trial costs into account and because they may misgauge each other’s likelihood of prevailing in court. On the other hand, settlements may be reached even when a trial would have been desirable. Trials may deliver valuable interpretations of the law and establish new precedents.

* Kirsten Edwards is a Principal at LECG and A. Jorge Padilla is Managing Director of LECG and Research Fellow at CEMFI and CEPR. We have benefited from discussions with participants of the Workshop, and we would like to thank in particular John Fingleton, Ian Forrester, Bill Kovacic and Dan Rubinfeld for their comments. The usual disclaimers apply. 1 The only paper we have found which explicitly assesses the optimal use of Article 9 commitment decisions is Wouter Wils, “Settlements of EU Antitrust Investigations: Commitment Decisions under Article 9 of Regulation No 1/2003”, 29(3) World Competition 345 (2006). Jeffrey Perloff, Daniel Rubinfeld and Paul Ruud, “Antitrust Settlements and Trial Outcomes”, 78 Review of Economics and Statistics 401 (1996), consider reasons for settlement or success at trial in U.S. antitrust cases. The incentives to settle litigation are discussed in Steven Shavell, “The Level of Litigation: Private Versus Social Optimality of Suit and of Settlement”, 19 International Review of Law and Economics 99 (1999); A. Mitchell Polinsky and Daniel L. Rubinfeld, “The Deterrent Effects of Settlements and Trials”, 8 International Review of Law and Economics 109 (1988); and John Temple Lang, “Commitment Decisions and Settlements with Antitrust Authorities and Private Parties under European Antitrust Law”, in Barry Hawk, ed., International Antitrust Law and Policy: Fordham Corporate Law 2005, Juris Publishing, 2006, chapter 13. We review this literature in Section 3.

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A paper published in 2006 by Dr. Wils considered the pros and cons of Article 9 settlements for the enforcement of Articles 81 and 82.2 He concludes that: “Optimally, commitment decisions should thus be used instead of infringement decisions (only) in those cases where the benefit in terms of an earlier termination of the infringement and the saving of the cost of longer proceedings outweigh the benefit of the other contributions to the enforcement of Articles 81 and 82 EC which infringement decisions could make, in terms of clarifications of the law, public censure, deterrence, disgorgement of illicit gains and punishment, and facilitation of follow-on actions for compensation.”3

Dr. Wils also discusses whether there are discernible risks of insufficient or excessive use of this instrument. He sustains that while “there would not appear to be much risk of insufficient use of commitment decisions [. . .] one could identify three possible sources of risk of excessive use of commitment decisions”.4 According to Dr. Wils, these risks are that: (a) the undertakings concerned have a systematic bias in favour of commitment decisions in order to avoid public censure, fines and follow-on actions; (b) settlement decisions could be used to deal with possible minor infringements; and (c) competition officers may try to obtain competition policy results that are well beyond the scope of their legal powers. In this essay we revisit the conclusions of Dr. Wils’ seminal paper. We set out a simple economic model to understand the impact of settlements on consumer welfare and deterrence. We also reconsider Dr. Wils’ propositions regarding the excessive use of settlement decisions from a social standpoint. The remainder of the paper is structured as follows. Section 2 provides a brief overview of Article 9 of Regulation 1/2003. Section 3 reviews the existing literature on the optimal use of settlements in legal disputes and, in particular, in competition law. Section 4 sets out a simple framework for the analysis of formal commitment decisions on deterrence and consumer welfare. Section 5 presents the results of our analysis of the private and social incentives to settle antitrust disputes. Section 6 considers the implications of the option to settle on ex ante deterrence. Section 7 discusses the policy implications of our modelling exercise, and Section 8 sets out possibilities for further research.

2 3 4

Wils, cited supra note 1. Ibid., at p. 8. Ibid.

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2. A Brief Overview of Article 9 of Regulation 1/2003 This Section borrows from the paper referenced above by Dr. Wils.5 Regulation 1/2003 lays down detailed rules for the implementation of Articles 81 and 82. Article 9 of the Regulation provides that the Commission may accept commitments by undertakings to bring (suspected) infringements to an end, and that by making them binding it effectively concludes there are no further grounds for action. Prior to this, there was no legal provision for commitment decisions; however there were no legal obstacles which prevented informal settlements, either, and in fact they did occur. The Commission’s published memo on commitment decisions6 states that: “the Commission is never obliged to terminate its proceedings by adopting an ‘Article 9’ commitment decision, but it can consider such a decision if and when: • the companies under investigation are willing to offer commitments which remove the Commission’s initial competition concerns as expressed in a preliminary assessment, • the case is not one where a fine would be appropriate (this therefore excludes commitment decisions in hardcore cartel cases), • efficiency reasons justify that the Commission limits itself to making the commitments binding, and does not issue a formal prohibition decision.”

Commitment decisions are therefore relevant where the Commission has made a preliminary assessment of a case in which it considers there has been an infringement—for example at the stage of issuing a Statement of Objections—but where the infringement is not thought to be so severe that it warrants a fine. Once the Commission’s preliminary concerns have been relayed to the parties, they may choose to offer commitments which they consider to address these concerns. The Commission may then issue a decision that makes those commitments binding on the companies involved. In that scenario, the Commission must first publish a summary of the case and the main content of commitments. Third parties then have at least a month to submit their observations; the Commission formally responds to these and takes them into account in deciding whether amendments to the commitments as initially proposed are appropriate. The final commitment decision must be published. The Commission can fix the period over which the commitments are binding and then close proceedings against the parties. As for the types of commitments that may be offered and made binding, Article 9 does not specify these; it refers only to commitments that meet the 5

Wils, cited supra note 1. MEMO/04/217 of 17 September 2004, “Commitment decisions (Article 9 of Council Regulation 1/2003 providing for a modernised framework for antitrust scrutiny of company behaviour)”. 6

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Commission’s concerns. However, it is worth noting that, in cases where the Commission finds an infringement, Article 7 authorizes the Commission to impose “any behavioural or structural remedies which are proportionate to the infringement commitment and necessary to bring the infringement to an end”.7 Proceedings may be later reopened against the undertakings if (i) there has been a material change in the facts on which the decision was based; (ii) the undertakings breach their commitments; or (iii) the decision was based on incomplete, incorrect or misleading information provided by the parties. As of this writing, 16 commitment decisions have been initiated under Article 9.

3. Optimal Use of Formal Settlements—A Review of the Literature With the exception of the article by Dr. Wils, we are unaware of any papers which explicitly discuss the optimal use of Article 9 commitment decisions. By contrast, the optimal use of settlements in US antitrust trials or in general litigation has been the subject of some detailed consideration. Polinsky and Rubinfeld (1988) show that it is not always socially optimal for parties to avoid a trial by settling their case out of court.8 Settlements are superior to the extent that they reduce transactions costs; however, they may also provide lower deterrence effects. Settlements will only occur when the plaintiff’s expected gain from litigating is less than the injurer’s expected loss from trial. Polinsky and Rubinfeld conclude by noting that the deterrence effect depends on the legal standard of care required, the level of liability compared to the plaintiff’s loss, and the allocation of legal costs. Shavell (1999) similarly shows that the privately determined level of litigation and settlement can depart from the socially optimal level because the parties only take into account their own legal costs (but not the costs of the other party, nor those of the state); and they do not take into account social incentives to reduce or deter harm.9 As a settlement enables the parties to avoid the costs of trial, the possibility of settlement “implies that a suit becomes, in effect, socially cheaper and, consequently, that the socially optimal level of suit rises”.10 This may undesirably dilute the deterrence effect of trials, or it may lead plaintiffs to bring excessive numbers of lawsuits. However, Shavell argues that these effects can be alleviated through other 7 8 9 10

Article 7(1) of Regulation 1/2003. Polinsky and Rubinfeld, cited supra note 1. Shavell, cited supra note 1. Ibid., at p. 100.

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inexpensive means, such as an increase in court awards (which will increase the settlement amount) and fees for bringing suit. Perloff, Rubinfeld and Ruud estimate an empirical model of the probability of settlement and likelihood of success at trial in private antitrust cases between firms.11 They find that the alleged violation, the jurisdiction, the size of the plaintiff and defendant, and the industry all have an effect on these probabilities. The authors find that a 1% increase in the probability that the plaintiff will win at trial raises the probability of a settlement by 0.13%. They thus conclude that risk aversion goes some way to explaining why the parties in many antitrust cases settle instead of going to trial. They also find that defendants do not view the stakes as higher than the plaintiffs, which they suggest means that defendants’ reputations do not determine whether the parties settle. A number of authors touch on the incentives of the companies and/or the Commission to enter into commitment decisions without explicitly considering how this affects their optimal use. Davies and Das (2005) note that a key incentive for the Commission is to improve administrative efficiency.12 Ducore (2005) points out that, while companies want to avoid a judicial determination that they have violated the law—as this would make it easier for private parties to seek monetary damages—enforcement agencies are not seeking to obtain relief for individual plaintiffs.13 Temple Lang (2005) discusses the conflicting incentives of the companies and the Commission more extensively.14 Among other reasons, he notes that companies may wish to offer commitments in order to: avoid a formal infringement finding that facilitates damages claims; avoid the uncertain outcome following proceedings and the possible risk of a fine; avoid the time and costs involved in extended proceedings; understand how to run their business without being criticized by antitrust authorities; and protect their reputation. He also points out that firms take advice from lawyers who may consider it better to settle than to have the firm rely on their advice. Temple Lang also notes several reasons why the Commission might prefer to enter into a commitment decision. A commitment decision is quicker, easier, less controversial, less uncertain and more efficient than an infringement decision. Furthermore, if the facts are very complex or the evidence is weak, the Commission may have more incentive to settle.

11

Perloff, Rubinfeld and Ruud, cited supra note 1. John Davies and Manish Das, “Private Enforcement of Commission Commitment Decisions: A Steep Climb, Not a Gentle Stroll”, in Barry Hawk, ed., International Antitrust Law and Policy: Fordham Corporate Law 2005, Juris Publishing, 2006, chapter 10. 13 Daniel Ducore, “Settlement of Competition Conduct Violations at the United States Antitrust Agencies and at the European Commission—Some Observations”, in Barry Hawk, ed., International Antitrust Law and Policy: Fordham Corporate Law 2005, Juris Publishing, 2006, chapter 11. 14 Temple Lang, cited supra note 1. 12

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4. Optimal Use of Formal Settlements—A Simple Model This Section sets out a simple economic model to analyze the incentives to settle of both the competition authorities and the companies concerned, and the impact of settlements on deterrence. At each point in time t, company A can choose between an anticompetitive action b (b for bad) and a pro-competitive action g (g for good). Formally, at 僆 (b, g). The profits of company A at time t depend on its current action but also on the history of all its past actions ht = 冓a1, a2, . . ., at–1冔. This is because, for example, its past actions may have (i) caused the exclusion of competitors, thus affecting the structure of the market at t and/or (ii) reduced the strength of competition in that market at time t. Let t (at; ht) denote the profits of company A at time t. The net present value (NPV) of company A at time t is thus given by: 15 16 The actions of company A Vt (at;ht) = t (at;ht) +  t+1 E ( (a ;h)). have an impact on consumer welfare. Let consumer welfare at time t be denoted by t (at;ht). Then, Wt (at ;ht) = t (at;ht) +  t+1( (a  ;h)). We assume: (a) (b) (c) (d)

t (b;ht) > t (g;ht); t (at;ht (b) = 冓b1,b2,...,bt–1冔) > t (at ;ht (g) = 冓g1,g2,...,gt–1冔); t (b;ht) < t (g;ht); and t (at;ht (b) = 冓b1,b2,...,bt–1冔) < t (at;ht (g) = 冓g1,g2,...,gt–1冔).

That is, we assume that ceteris paribus (a) company A’s profits are greater when it behaves anticompetitively; (b) the profits of company A at time t are greater, irrespective of the action chosen at that time, when it behaved anticompetitively in the past; (c) consumers are better off when company A behaves pro-competitively; and (d) consumer welfare at time t is greater, irrespective of the action chosen by A at that time, when company A behaved pro-competitively in the past. Consider a competition authority which seeks to protect consumer welfare by inducing company A to choose action g. The objective function of the competition authority at time t is given by the following expression: Wt (at;ht) + E(F) – E(C);

(1)

where the first term denotes the net present value of consumer welfare at time t; the second term is proportionate to the expected fines collected by the 15 For simplicity the future is discounted at = 1. None of our results depend on this simplifying assumption. 16 E(.) denotes the expectation operator. The source of uncertainty relates to the enforcement policy of the competition authority, which only detects anticompetitive behaviour with some probability and is only able to impose fines on suspected anticompetitive behaviour in a limited proportion of cases (see below for further explanation).

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competition authority E(F); and the third term represents the expected cost of litigation. That is, the competition authority is interested in (a) protecting the well-being of company A’s customers, (b) ensuring that its enforcement action, which is here proxied by the level of fines, has a deterrent effect on other firms and in other markets, and (c) minimizing litigation costs. The coefficient  (greater than 0) provides the relative weight attributed by the competition authority to this second objective. The greater the value of this coefficient, the more willing the competition authority will be to sacrifice consumer welfare and incur greater litigation costs today in order to achieve a sufficient deterrent effect in the future. We assume that the competition authority’s objective function coincides with the objective function of the majority of citizens, so that it can be regarded as a legitimate social welfare function. The competition authority has a number of instruments at its disposal in order to achieve its goals and maximize its objective function. Of course, it can determine the amount of the fine F to be paid by company A in case it is found to have infringed the law. In addition, it can affect the probability that an infringement is detected, (d for detection), and the probability that a detected infringement is successfully prosecuted in court, (s for successful enforcement), by investing in detecting and prosecuting suspected actions. Once a certain suspected behaviour has been detected, the competition authority can either prosecute the case or try to settle it. Figure 1 below depicts the sequence of events. Figure 1

A chooses action

Detection

Settlement negotiations

Litigation and possible infringement decision First, company A chooses action at. Second, A chooses action b, and the competition authority detects the infringement with probability pd. (There are no false convictions.) Third, the competition authority and company A negotiate a settlement. If they agree on the terms of the settlement, a commitment decision is adopted and published, and the case ends. Otherwise, they litigate. In case of litigation, company A will be found guilty with probability ps. We proceed to analyze this simple model in the next two sections.

5. Too Many or Too Few Settlements? Let us assume that company A has chosen to behave anticompetitively and has been detected. We first consider the incentives of company A to settle the

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case and then investigate the corresponding incentives for the competition authority.

A. Company A’s incentives to settle Company A’s NPV in case of settlement equals  (b;h ) +   (g;h (b)). t

 t+1

t



(2)



That is, the sum of the period t profits when it behaved anticompetitively plus the NPV from t+1 onwards when it is committed to choose action g.17 Company A’s NPV in case of litigation is given by   (g;h (b)) – F + (1 – p )   (b;h (b)) ( (b;h ) – L) + p (3) t

[ s( t+1

t

t

)



s

( t+1





)]

That is, the sum of the period t profits when it behaved anticompetitively net of the costs of litigation L plus the expected NPV from t+1 onwards (the two terms in square brackets). • First term: with probability ps, company A will be found to have acted anticompetitively. It will then be required to cease the infringement by choosing g from then onwards and to pay a fine F. The profits associated with action g from t+1 onwards will be conditioned by the history of anticompetitive behaviour, h (b). • Second term: with probability (1 – ps), the behaviour of company A is not found to be anticompetitive. Company A will thus continue choosing action b. From equations (2) and (3), we have: Proposition 1. Company A will prefer to settle and avoid longer infringement decisions when the following condition holds: L + p F > (1 – p )   (b;h (b)) –   (g;h (b)) (4) s

s

[ t+1





 t+1

t



]

In other words, company A will be willing to settle in order to avoid incurring litigation costs, L, and the payment of a fine, F. Its incentives to settle are greater when L and F are greater. The incentive to settle will also be greater the greater the probability of successful enforcement, ps, and the smaller the additional profits that company A could achieve by continuing with its anti competitive strategy:  t+1  (b;h(b)) –  t+1  (g;h (b)) in the event it is not found guilty.

17

For simplicity we assume no costs of implementing commitments.

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B. The incentives to settle of the competition authority We now investigate the incentives of the competition authority to settle rather than litigate. In case of settlement, the value of the authority’s objective function will be given by:  (b;h ) +   (g;h (b)). (5) t

 t+1

t





That is, it will be equal to consumer welfare in period t when company A behaved anticompetitively plus the expected NPV of consumer welfare from t+1 onwards when company A is committed to choose action g. On the other hand, in case of litigation, the authority’s objective function will take a value equal to:   (g;h (b)) + (1 – p )   (b;h (b)) + p F – C (6) ( (b;h ) + p t

t

[ s( t+1



)



s

( t+1





)]

s

That is, it will be equal to consumer welfare in period t when company A behaved anticompetitively plus the expected NPV of consumer welfare from t+1 onwards when company A ceases to act anticompetitively only if found to be guilty of violating the competition laws, plus the fine weighted by coefficient  and minus the social cost of litigation C. From equations (5) and (6), we can characterize the incentives to settle of the competition authority: Proposition 2. The competition authority will prefer to settle and avoid longer infringement decisions when the following condition holds: (1 – p )   (g;h (b)) –   (b;h (b)) + C > p F (7) s

[ t+1





 t+1





]

s

Intuitively, the competition authority will be willing to settle when the potential sacrifice in consumer welfare resulting from litigation  (  t+1 (g;h(b)) –  t+1  (b;h(b)) ) and the litigation costs C exceed the cost of settling in terms of lost fines and diminished deterrence. Note that the competition authority will always be willing to settle when  is equal to zero. That is, it will always be willing to settle when it is only concerned about short-term consumer welfare and efficiency. Reaching a settlement agreement allows the competition authority to avoid the expected loss in consumer welfare associated with uncertain and protracted litigation. The cost of settling without litigation is given by the negative impact on deterrence, which is only relevant provided is  positive. In contrast, the competition authority will never be willing to settle when  is sufficiently large. – – Proposition 3. There is a value of ,  , such that for all    , the competition authority will always prefer to litigate. – For values of    , the short term consumer welfare sacrifice associated with continued litigation is regarded as insufficient compared with the

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benefits of further litigation in terms of deterrence. Since it takes two to – tango, there will be no settlements for    .

C. Comparing the social and private incentives to litigate From equations (4) and (7), we can show that: Proposition 4. The private and social incentives to settle are likely to diverge. In particular, company A’s incentives to settle are (a) insufficient from a social standpoint when  is sufficiently small, and (b) excessive when  is sufficiently large. Since a settlement will only be reached when both parties—company A and the competition authority—are in agreement, it follows from Proposition 4 that there will be too few settlements from a social viewpoint when  is sufficiently small. The intuition is simple. From a social perspective the settlement is desirable because it allows implementing action g without having to find whether company A is infringing the competition laws. But company A does not take that effect into account. On the contrary, it may well prefer to risk a fine and incur litigation costs if in that way it can avoid (albeit with limited probability) switching from b to g, given the contemporary costs as well as the loss in future profits of such a move. In conclusion, Proposition 5. Under the above assumptions, there will be too few settlements when  is sufficiently small. When  is sufficiently large, there will be few settlements but not an insufficient number of them. For intermediate values of  there may be an inefficiently small number of settlements when: (a) the private costs of litigation, L, are significantly below the social costs of litigation, C; (b) the additional profits that company A could achieve by continuing with its anticompetitive strategy are large; and (c) the sacrifice in consumer welfare resulting from continued and/or unsuccessful litigation is large.

D. The impact of agency problems on settlement policy In this Section we explore the implications for settlement policy of departing from the assumption that the competition authority’s objective function coincides with the objective function of the majority of citizens. Suppose first that the competition authority has a biased preference for deterrence. Such a bias may arise because of a legitimate concern about the implications for the future behaviour of company A of negotiating a settlement with no fines attached. But it may also be the result of career concerns of competition officers: successful litigation and high fines may do more to

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foster a professional career within the authority than a settlement. Or it may reflect a desire to obtain competition policy results through settlement that are well beyond the scope of their legal powers: by setting too high a price for company A to pay in order to settle, litigation becomes more likely. Independently of the causes of this bias, Proposition 6. When the bias of the competition authority in favour of deterrence is sufficiently large—i.e., when the competition authority’s  is greater – than  , which in turn is greater than the  of the median voter—the competition authority will not settle cases in circumstances in which it would be socially optimal to do so. This has interesting policy and organizational implications. From a policy perspective, it suggests that competition authorities may have a tendency to litigate too often. As shown in Proposition 2, this is socially costly since (a) litigation is costly and (b) consumers may be harmed by the anticompetitive behaviour of company A for a longer period of time. The solution to this problem is difficult. One option is to increase the accountability of the competition authority in relation to its settlement practice. For example, the competition authority could be required to explain in its annual reports the reasons why it settled or failed to settle each and every case of suspected infringement of the competition laws, thus comparing the social benefits of litigation and settlement. Another strategy, not incompatible with the previous one, is to devise incentive schemes that motivate the authority’s officers to value settlements in spite of their more limited visibility. Competition officers should come to realize that their careers within the organization are not a function of the size of the fines they manage to collect but rather of the impact of their decisions on social welfare. Designing incentive mechanisms of this sort is likely to be very difficult, however. Finally, the internal organization of the agency can be designed to minimize such biases; for example by ensuring that policy units oversee the decisions made by case handlers, or that the final responsibility regarding settlement decisions is allocated at levels of the hierarchy that are less likely to respond to career concerns, i.e. senior staff or staff with limited mandates. Suppose instead that the bias of the competition authority is not in favour of deterrence but rather in the direction of protecting short-term consumer welfare. That is, assume that the competition authority over-emphasizes the impact of its decisions on existing consumers and relatively neglects the implications of its actions on the future behaviour of firms. Such a bias may reflect electoral concerns: only the current generation of consumers vote. It may be caused by a short-term need to meet certain reported metrics and to show that the authority is achieving results for consumers, or by a lack of attention paid to the development of doctrine. It may reflect the personal preferences of the case handler who wishes to clear his desk or move on to a new case. Or it may be driven by ideological considerations, i.e. by a preference for discretionary

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interventions of a quasi-regulatory nature, motivated perhaps by a lack of trust in the deterrence effect of the jurisprudence. Finally, it may reflect risk aversion of the authority or of its officers, or information asymmetries about the socially optimal level of .18 In this case, the competition authority’s  is lower than the  of the median voter and, hence, there may be circumstances when the competition authority will settle cases in which it would be socially optimal to litigate. Therefore, contrary to our previous results, Proposition 7. When the competition authority focuses excessively on the short-term welfare implications of its decisions, there may be too many settlements compared to the socially optimal level. A possible way of dealing with this inefficiency (in addition to the organizational design measures mentioned earlier) is to allow those third parties potentially affected by the actions of company A to apply for annulment of the settlement decision to the appeals court—in the EU context, the CFI—on substantive grounds. So far in this Section we have discussed agency problems arising in respect of the competition authorities. However, agency problems can equally cause biases in the incentives of firms to settle. Employees of the parties involved will have private incentives regarding settlement which are not fully aligned with those of the companies they represent. If an employee’s bonus is likely to be negatively affected by a settlement decision (e.g., which prevents some kind of action or in cartel cases involves a fine) the employee is more likely to argue for litigation to avoid any personal impact or to deflect that impact to future periods. Employees could be risk averse or risk loving by nature, which would also affect their incentives to settle or litigate. Further, firms are likely to instruct legal and economic teams to advise them. The professional advisors likely earn more fees from litigation than settlement, which may move them to advise against settlement. On the other hand, as individuals they may have incentives similar to those of the officers employed by competition authorities: reputation, career progression and caseload may all have an impact on the incentive of advisors to counsel for or against settlement.

18 Other information asymmetries may arise which are not explicitly modelled in this paper. The authority and the firm may have different views on the expected outcome of a case. The authority may have more information about its internal processes and will have been through the litigation procedure many times. The company may have more information about its own behaviour. This uncertainty will affect the incentives of both parties to settle. The scope for judicial review will also cause uncertainty for the firm and the authority. In the EU, judicial review is limited because the Community Courts cannot change an economic assessment of the Commission unless it is manifestly erroneous.

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6. Impact of Settlement Policy on Ex Ante Deterrence So far we have analyzed the likelihood of settlement once company A has chosen to behave anticompetitively and has been detected. We now consider the impact of the option to settle on ex ante deterrence—i.e., on the choice of action by company A. Ceteris paribus the option to end an antitrust investigation via settlement reduces the deterrence effect of competition policy. In other words, action b becomes relatively more attractive when settlements are possible. This is because, if company A’s anticompetitive action is detected, it now has the option to settle and thus avoid the payment of a fine and the pecuniary and non-pecuniary costs of litigation. The option to settle can only increase the expected return of action b, while it leaves unchanged the return associated with action g. To see this, let us denote by S company A’s transaction costs associated with negotiating a settlement. Let L be re-interpreted for the purposes of this analysis as the incremental costs of litigating the case. We can thus compare company A’s NPV ex ante under three different scenarios: Scenario 1. Company A chooses g: Vt(g;ht) = t(g;ht) +  t+1 (g;h(g))

(8)

Scenario 2. Company A chooses b and then settles in case it is detected, which occurs with probability pd: Vt(b;ht, settlement) = t(b;ht) + pd  (9) t+1 (g;h(b)) – S + (1 – p )   (b;h (b))

(

)

( t+1

d





)

Scenario 3. Company A chooses b, is detected with probability, and then litigates:   (g;h (b)) – F V (b,h , litigation) =  (b,h ) + p [p t

+ (1 – ps)

t

t

t

d

s

( t+1





)

(t+1 (b;h(b))) – (L + S)] + (1– pd ) (t+1 (b;h(b))) (10)

The NPV associated with the adoption of action b, Vt(b;ht), is thus given by: Vt(b;ht) = max {Vt(b;ht, settlement), Vt(b;ht, litigation)} Vt(b;ht, litigation).

(11)

Proposition 8. Ceteris paribus, the option to settle increases company A’s incentives to behave anticompetitively. Under certain conditions, company A

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will choose action b when it has an option to settle with the competition authority if the infringement is detected, while it would have chosen g in the absence of that option. That will be the case when: Vt(b;ht) > Vt(g;ht) Vt(b;ht, litigation)

(12)

So, unless the introduction of a settlement policy goes hand in hand with other complementary measures, its impact on deterrence may undermine its logic and ultimate goals: the protection of short-term and long-term welfare at minimum cost. The most obvious way to address this problem is to reduce the NPV of adopting action b irrespective of whether the case is litigated or settled. From equations (9) and (10), we see that this can be achieved by increasing the probability of detection pd . Raising pd decreases both Vt(b;ht, settlement) and Vt(b;ht, litigation) hence increases the likelihood that company A will prefer action g to action b. In sum, Proposition 9. To ensure that the possibility of settlement does not negatively impact the deterrence effect of public antitrust enforcement, a policy reform aimed at facilitating the settlement of antitrust cases must be accompanied by an increase in the resources dedicated to the detection of anticompetitive behaviour.19

7. Policy Implications In this paper we have considered the implications for public enforcement of Article 9 of Regulation No 1/2003, which provides for formal settlements of investigations by the European Commission into suspected infringements of Articles 81 and/or 82. Our main findings are: • The incentives of a defendant to settle are greater when (i) litigation costs are large; (ii) the fine levied in case of an adverse decision is large; (iii) the probability of successful enforcement is large; and (iv) the additional profits that it could achieve by continuing with its anticompetitive strategy are small. • The competition authority will be willing to settle when (i) the sacrifice in consumer welfare resulting from continued or unsuccessful litigation is 19 This result assumes that the caseload of the authority is fixed, regardless of the number of cases which settle or go to court. In practice, settlement decisions may free up some of the resources of the authority, which will enable it to investigate more cases and which may have the effect of automatically increasing the probability of detection. Further, not all cases will be equal. A settlement may not be optimal in a particular case in isolation, but to the extent that it allows the authority to focus on a larger case with much greater implications for consumer welfare it may result in a more optimal use of resources overall.

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•

•

•

•

675

large; and (ii) the litigation costs saved exceed the cost of settlement in terms of lost fines and a diminished deterrence effect. When the preferences of the competition authority in terms of short-term consumer welfare and deterrence reflect those of society, litigation may take place when a settlement would have been socially desirable, but the opposite is not true. That is, there may be too few settlements but never an excessive number of settlements. The number of settlements will be inefficiently low when: (i) the competition authority places a very limited value on deterrence; (ii) the private costs of litigation are significantly below the social costs of litigation; (iii) the additional profits that the company under scrutiny could achieve by continuing with its anticompetitive strategy are large; and (iv) the sacrifice in consumer welfare resulting from continued and/or unsuccessful litigation is large. When the preferences of the competition authority are biased in favour of deterrence, possibly as a result of career concerns, and when that bias is sufficiently large, the competition authority will fail to settle cases in circumstances where settlement would be socially optimal. This problem may be solved by: organizing the competition authority to ensure there are sufficient internal controls over employee behaviour; increasing the accountability of the competition authority; or placing the final responsibility over settlement decisions at hierarchical levels which may be less affected by career concerns. If instead the competition authority exhibits “populistic” preferences and focuses excessively on the short-term welfare implications of its decisions, or if it is risk averse, there may be too many settlements. One possible way of dealing with this inefficiency is to allow those third parties potentially affected by the actions of company A to apply for annulment of the settlement decision to the appeals court on substantive grounds. The option to settle in isolation increases company A’s incentives to behave anticompetitively. To ensure that the possibility of settlement does not negatively impact the deterrence effect of public antitrust enforcement, a policy reform aimed at facilitating the settlement of antitrust cases must be accompanied by an increase in the resources dedicated to the detection of anticompetitive behaviour.

8. Further research There are further issues for consideration which we have not addressed in this paper. First, our model does not take into account differences in cases. In certain cases, the damage caused by past anticompetitive behaviour on future

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competition may be more severe than in others. Industries characterized by network effects or by high barriers to switching are likely to suffer from anticompetitive behaviour, as the damage caused may be irreparable. This may have implications for policy priorities. Firms in these industries will have lower incentives to settle, as the additional gains from behaving anticompetitively between the settlement and infringement decision periods may increase future profits sufficiently to make litigation worthwhile. A complementary policy measure might be more appropriate in these industries; for example a larger fine would encourage the firms to settle. Second, we only consider a static game. In a repeated game, where firms may be investigated more than once, e.g. for behaviour in different markets, the incentives for firms to settle may change. A firm might prefer to settle to avoid having to submit information about its business practices which reveals other anticompetitive practices. On the other hand, it might prefer to litigate in order to develop a reputation for being tough in front of the authorities, and to use up the authorities’ resources in one specific market to avoid further investigation of its practices in other markets. To address these issues, an authority could open omnibus cases where they broaden the scope of proceedings against a party. Third, under Article 9 a settlement involves commitments not to behave in a certain way. It does not currently involve a fine, although an extended investigation may result in a fine or in stricter commitments. If fines were involved at the settlement stage, the company’s incentives to settle would fall, which might go some way to addressing the negative impact on deterrence which settlement decisions may have in isolation. Finally, our model assumes that each party pays its own litigation costs. If the social cost of litigation was paid by the firm, the incentive to settle would be much higher (and may be excessively high). The implications of this have been noted in other papers (see Polinsky and Rubinfeld, 1988),20 but to our knowledge they have not been explicitly modelled.

20

Polinsky and Rubinfeld, cited supra note 1.

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IV Kris Dekeyser, Rainer Becker and Daniele Calisti* Impact of public enforcement on antitrust damages actions: Some Likely Effects of Settlements and Commitments on Private Actions for Damages

Introduction In April 2008, the European Commission published a White Paper on damages actions for breach of the EC antitrust rules,1 aimed at overcoming obstacles that still stand in the way of more effective damages actions in the EU Member States. This White Paper follows the Commission’s 2005 Green Paper,2 which had identified the causes for the current deficiencies and had put forward a range of options to make damages actions for the breach of antitrust rules more effective. In the White Paper, the Commission clearly opted for the compensation objective as the primary policy driver.3 This fundamental policy orientation, and the various individual measures proposed in the White Paper, are firmly anchored in and derived from the legal traditions of the Member States. In this endeavour to set out a truly European approach to antitrust damages actions, the White Paper seeks to strike the right balance between, on the one hand, giving full effectiveness to the right to compensation as recognized by the European Court of Justice,4 and, on the other hand, the need to avoid the * Directorate-General for Competition, European Commission. The content of this paper does not necessarily reflect the official position of the European Commission. Responsibility for the information and views expressed lies entirely with the authors. 1 Commission, White Paper on Damages actions for breach of the EC antitrust rules, COM(2008) 165 of 2 April 2008. The White Paper and the accompanying Staff Working Paper (SWP) are available at http://ec.europa.eu/comm/ competition/antitrust/ actionsdamages/documents.html. 2 Green Paper on damages actions for breach of the EC antitrust rules, COM(2005) 672 final of 19 December 2005, available at http://ec.europa.eu/comm/competition/antitrust/ actionsdamages/documents.html. 3 As a consequence of this strictly compensatory (rather than deterrence-driven) approach, the White Paper, for example, does not advocate any form of punitive damages and suggests that it is appropriate to compensate the harm at the level of the supply chain where the harm is truly felt; this would imply allowing the passing-on defence. See further Rainer Becker, Nicolas Bessot and Eddy De Smijter, “The White Paper on damages actions for breach of the EC antitrust rules”, Competition Policy Newsletter No 2—2008, pp. 5 et seq. 4 Case C-453/99, Courage and Crehan [2001] ECR I-6297; Joined Cases C-295 to 298/04, Manfredi [2006] ECR I-6619.

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pitfalls of excessive and abusive litigation sometimes experienced in other jurisdictions. The creation of a more effective legal framework for the compensation of victims of antitrust infringements is likely to result in a greater number of claims for damages, both in and out of court. Damages actions may follow on from a decision of a competition authority finding an infringement of Article 81 or 82 of the Treaty (“follow-on actions”), or they may be commenced where such a finding has not been made (“stand-alone actions”). Some see an inherent conflict and unavoidable tension between public enforcement and private antitrust damages actions. In the present paper, we look at certain aspects of this relationship from the perspective of private enforcement and consider (1) some potential consequences for the regime of antitrust damages actions resulting from the need for effective public enforcement. We further (2) try to explore, more particularly, some of the likely effects, on damages actions, of commitment decisions taken pursuant to Article 9 of Regulation 1/2003 (“commitment decisions”) and of Article 7 decisions under the streamlined settlements procedure in cartel cases (“settlement decisions”).5

I. Impact of public enforcement on the regime of antitrust damages actions 1. Different functions It is worth recalling at the outset that, in Europe, public enforcement and private actions for antitrust damages fulfil distinct functions. This is not only the clear conception of the Commission in its White Paper; it also corresponds to the widespread view in the Member States, both among governments and competition authorities, and among other stakeholders.6 The main objective 5 The latter possibility was recently provided for by an amendment to Regulation 773/2004 on the conduct of proceedings by the Commission pursuant to Articles 81 and 82 of the EC Treaty. See Commission Regulation (EC) No 622/2008 of 30 June 2008 amending Regulation (EC) No 773/2004, as regards the conduct of settlement procedures in cartel cases, 2008 OJ L171/3; 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, 2008 OJ C167/1. 6 See the vast majority of the over 170 submissions received by the Commission during the public consultation on the White Paper, available at http://ec.europa.eu/comm/ competition/antitrust/actionsdamages/white_paper_comments.html. For an excellent analysis of the different functions, see Wouter Wils, “The Relationship between Public Antitrust Enforcement and Private Actions for Damages”, 32(1) World Competition 3 (2009).

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of public enforcement is to punish and deter actual infringers (specific deterrence) but also to deter other undertakings (general deterrence) from committing breaches of Articles 81 and 82. In most Member States,7 there is wide consensus that punishment and deterrence of illegal behaviour are tasks that should be carried out by public bodies, not by private actors. An effective legal framework for private damages actions will of course, as any rule on civil liability, have the (very welcome) side effect of adding to greater compliance with EC antitrust rules. Indeed, the ECJ in its Courage judgment stated that the right to claim damages can make a significant contribution to the maintenance of effective competition in the Community by discouraging practices forbidden by the antitrust rules.8 However, this is not the primary objective of damages regimes, which are aimed at the compensation of victims. Conversely, no matter how closely public intervention mirrors the concerns of consumers, no matter how effectively the fines imposed punish and deter unlawful behaviour, the victims of illegal behaviour will still not be compensated for their losses. Public enforcers, at least in Europe, are usually neither authorized nor equipped to calculate and award compensation in individual cases.9 It follows from these different functions of public and private enforcement that the reciprocal influences are of a lesser magnitude than one might think. For example, contrary to what some submissions on the White Paper have suggested, there is no reason to reduce the amount of a damages award below a level of full compensation on the ground that the infringer has already been fined, because the public fine does nothing to achieve compensation of the victim.

2. Consequences for the regime of damages actions resulting from the need for effective public enforcement Nonetheless, there are a range of consequences for the regime of damages actions that result from the need for effective public enforcement. The White Paper addresses these requirements in various ways. One example is the so-called “investigative privilege”. The White Paper, as further explained in the Staff Working Paper,10 proposes to protect the authority’s investigation from “interferences” by a damages claim at the 7 On the possibility of exemplary damages in England and Wales and their exclusion in antitrust cases that follow on from a public decision imposing fines, see Devenish Nutrition Limited & Others v. Sanofi-Aventis SA (France) [2007] EWHC 2394 (Ch). 8 See Courage and Crehan, cited supra note 4, para. 27. 9 On the different issue of whether public enforcers can or should, also in view of the difficulties in terms of quantification and monitoring involved, encourage voluntary compensation by infringers through fine rebates or as a condition for leniency or settlements in cartel cases, see e.g. Wils, cited supra note 6, at II A 3. 10 Staff Working Paper, cited supra note 1, paras. 199 et seq.

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(fragile) stage where secrecy is required for the success of the investigation. This may be the case, for instance, when the authority is preparing a surprise inspection. If during this preparatory phase of the investigation an applicant for leniency were ordered to disclose documents submitted in addition to the corporate statement to the competition authority, and if these documents were to become known to other members of the cartel in the course of an action for damages or a request to settle the case out of court, the Commission’s investigation would undoubtedly be affected. To avoid such undue interference arising from requests for disclosure before national courts with an ongoing antitrust investigation by a competition authority, the Commission advocates a rule according to which courts hearing actions for damages should temporarily refrain from adopting a disclosure order if the Commission or an NCA shows to the court that such an order, during a specified period of time, would jeopardize an ongoing antitrust investigation. A further example where the regime for damages actions proposed in the White Paper has taken into account the requirements of public enforcement is the protection of corporate statements from disclosure. In order to ensure that a leniency applicant is not placed in a less favourable situation than other infringers simply because he has applied for leniency, the White Paper proposes a rule according to which he would be protected against court orders requesting disclosure or reproduction of corporate statements submitted to a competition authority in the EU enforcing Article 81, i.e. the Commission and NCAs insofar as they apply EC law.11 As defined in the Commission’s Leniency Notice, corporate statements are voluntary presentations to the competition authority by or on behalf of an undertaking of its knowledge of a cartel and its role therein, drawn up especially for submission under the Leniency Notice.12 This protection would be applicable both before and after a decision is taken by the authority, and regardless of whether the application for leniency is accepted, rejected or leads to no decision by the competition authority. Voluntary disclosure or reproduction of corporate statements by applicants for immunity and reduction of fines, e.g. in the context of negotiations between victims and infringers, should be precluded at least until a Statement of Objections has been issued.13 Similar reasoning should apply to submissions for the purposes of the streamlined procedure for settlements in cartel cases. In this case too it must be ensured that the undertakings’ submissions for settlements, where the party acknowledges its participation in the infringement, are not disclosed.14 In order to ensure that leniency programs continue to be fully attractive, it is sometimes argued that the civil liability of successful immunity applicants 11

See also Staff Working Paper, paras. 268 et seq. See points 6 and 31 of the Commission Notice on Immunity from fines and reduction of fines in cartel cases, 2008 OJ C298/17. 13 Cf. paragraphs 301 et seq. of the Staff Working Paper. 14 In this context, see also paras. 35–40 of the Settlements Notice. 12

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should be limited. In the White Paper, the Commission therefore presents, in consciously careful language “for further discussion”,15 the possibility of limiting the civil liability of the immunity recipient to claims brought only by his direct and indirect contractual partners. Proposals by others16 envisage a rule with a very similar objective, namely to remove joint and several liability of co-infringers, which is a common principle of civil litigation in the Member States. Further reflection should be given as to the need for any such a measure and the impact it would have on the right to (full) compensation of victims of cartels and on the position and incentives of the co-infringers, especially the other highest ranked leniency applicants. Without meaning to pre-judge the question of the appropriate follow-up to the White Paper, it can be noted in passing that, with a view to legal certainty in the interest of both public and private enforcement, the above issues regarding the interaction of public and private enforcement would greatly benefit from being dealt with in a consistent manner across the European Competition Network.

II. Effects resulting specifically from settlements and commitments decisions The above issues concern all forms of public enforcement, and they are also of relevance for private actions that follow commitment and settlement decisions. However, these have a range of further, more specific implications, some of which are addressed in this section. Before looking at these effects,17 with a special focus on the perspective of (i) the public enforcers, (ii) the victims and (iii) the infringers, it may be useful to recall some basic concepts regarding the type of decisions that will be further discussed, in particular as to their structure and consequences. Decisions adopted under Article 9 of Regulation 1/2003 make binding the commitments offered by the parties to meet the concerns expressed by the Commission in its preliminary assessment. As Article 9(1) specifies, such decisions conclude that there are no longer grounds for action by the Commission. In this respect, Recital 13 of Regulation 1/2003 clarifies that commitment decisions do not contain a finding of an infringement, and “are without prejudice to the powers of competition authorities and courts of the 15

For the underlying reasons, see Chapter 10, section B.2 of the Staff Working Paper. See, e.g., OFT Recommendation, “Private actions in competition law: effective redress for consumers and business”, OFT916rsp, November 2007, http://www.oft.gov.uk/ shared_oft/reports/comp_policy/oft916resp.pdf, at point 9.9. 17 The following considerations concern what can be deemed likely scenarios. Only practical experience will show the full scope of relevant aspects. 16

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Member States to make such a finding and decide upon the case”.18 Commitment decisions, although they may well contain some relevant factual statements, are therefore not capable of binding national courts in subsequent damages actions, given that they do not contain any finding on the existence of a breach of EC competition law. Settlement decisions in cartel cases are conceived as an alternative mechanism to the full ordinary procedure, based on the acknowledgement by the undertaking of its participation in the cartel and its liability for it, as well as on the waiver of some procedural rights. This procedure leads to an expeditious handling of the case and the adoption of a streamlined decision under Articles 7 and 23 of Regulation 1/2003, which has binding effect upon national courts pursuant to Article 16 of Regulation 1/2003.19 In return, the infringer obtains a reduction of the fine and saves the costs of a longer and more complicated procedure.

1. The enforcers’ perspective From the perspective of the authorities that enforce EC competition rules, the potential effects on private enforcement will not influence the enforcement strategy. The choice between an infringement decision under Article 7 of Regulation 1/2003 and a decision accepting commitments under Article 9, like the choice for a settlement in cartel cases, lies within the discretion of the competition authority. As far as the Commission is concerned, the exercise of this discretionary choice is a matter of the effectiveness of public enforcement. For instance, commitment decisions can be appropriate when the Commission does not intend to impose a fine and the commitments offered are capable of removing the initial concerns, and where efficiencies may be gained. The effects on private enforcement are not among these considerations. Private parties have no influence on the choice of procedure.

18 See, e.g., Philip Lowe and Frank Maier-Rigaud, “Quo Vadis, Antirust Remedies?”, in Barry Hawk, ed., International Antitrust Law and Policy: Fordham Competition Law 2007, Juris Publishing, 2008, chapter 20. In this respect, commitment decisions do not even constitute a “conviction” for the purposes of the application of the ne bis in idem principle. See Kris Dekeyser and Céline Gauer, “The new enforcement system for Articles 81 and 82 and the Rights of Defence”, in Barry Hawk, ed., International Antitrust Law and Policy: Fordham Corporate Law 2004, Juris Publishing, 2005, chapter 23. 19 See also Case C-344/98, Masterfoods [2000] ECR I-11369. The ECJ has stressed that, for the purposes of Article 16 of Regulation 1/2003, the binding effect only covers the operative part of the decision; however, this must be construed in light of the statements of fact and reasoning contained in the decision. See, e.g., Joined Cases 40-48/73, Suiker Unie [1975] ECR 1663, para. 123; Case T-266/97, Vlaamse Televisie Maatschappij NV v Commission [1999] ECR II-2329, para. 151.

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2. The victims’ perspective The perspective of those who have suffered harm from the breach of competition rules may be the most revealing in order to appreciate the effects of the commitment and settlement procedures on private damages actions. Indeed, the choice of a commitment decision or a settlement decision, rather than an Article 7 decision issued after an ordinary procedure, has a clear impact on follow-on damages actions by victims.

a) Commitment decisions There is little doubt that often the most “useful” decisions for victims of anticompetitive conduct are Article 7 decisions which are taken after a full ordinary procedure and which contain detailed reasoning and factual statements. Such decisions provide a finding of an infringement of Article 81 or 82 on which victims can rely, pursuant to Article 16 of Regulation 1/2003, as irrefutable proof when they bring their damages claims. National courts are bound not to take a decision running counter to such decision. A similar (albeit more limited) effect is envisaged in the White Paper on damages actions for decisions taken by National Competition Authorities in the EU. In contrast, an Article 9 decision, as explained above, does not contain any finding of an infringement of Article 81 or 82, and therefore it cannot have binding effect on national courts as regards the existence of any such infringement. A commitment decision may nonetheless be helpful for victims in other ways. For instance, the White Paper suggests that national courts should have the power to order disclosure of precise categories of relevant evidence provided that: the claim for damages is plausible; the evidence requested is necessary to support the case; and the disclosure request is proportionate. In this context, a commitment decision could help claimants in a stand-alone action to meet the plausibility threshold and thus to obtain disclosure of relevant evidence. In other words, although the concerns expressed in the Commission’s preliminary assessment that led to the commitment decision are not, and cannot be compared to, a finding of an infringement, damages claimants may point to the existence of the preliminary assessment as an element in support of a disclosure request aimed at obtaining evidence. Moreover, a commitment decision may give victims some guidance as to the relevant facts of the case, and sometimes even as to potentially relevant pieces of evidence. A commitment decision is, of course, also helpful for actions for damages resulting, post-decision, from a breach of the commitments. By virtue of the Article 9 decision, commitments become binding and should have direct effect. Third parties directly concerned should be able to claim before national courts the fulfilment of the commitment, or where a breach of the

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commitments occurs, to claim compensation for harm they suffer as a result of such a breach.20 To be clear, such damages claim would be based on the breach of the commitment and not on an infringement of Article 81 or 82.

b) Settlement decisions in cartel cases An important aspect of the settlement procedure in cartel cases is that the Statement of Objections and the final decision are streamlined and are thus normally less rich in facts than a decision taken following the ordinary procedure. This may be seen as a comparative disadvantage for victims, but it must be recalled that the final decision is an Article 7 decision finding an infringement, and that it is therefore binding on national judges pursuant to Article 16 of Regulation 1/2003. Furthermore, as with an Article 9 decision, victims should be able to rely on an Article 7 settlement decision in order to reach the threshold (plausibility test) set out in the White Paper as a condition for national courts ordering inter partes disclosure of evidence. Settlements in cartel cases should allow a more efficient management of the public enforcers’ limited resources, which can then be used in the detection and prosecution of a greater number of cartels. This would presumably lead to more decisions, a development that would certainly have a positive effect on private enforcement despite the lesser degree of detail in the decision, because it can be expected to allow victims to bring a follow-on action in more cases. It is particularly in relation to cartels that the technical competence and experience of public enforcement authorities are important for the detection and proof of the infringement.

3. The infringers’ perspective a) Commitment decisions At first sight, a commitment decision under Article 9 appears clearly more appealing to infringers than a decision under Article 7 in view of potential damages actions because of the absence of a formal finding of infringement that would be endowed with binding effect.21 20 For a discussion of the possibility of third parties to enforce commitment decisions before national courts see, e.g., Eddy De Smijter and Lars Kjølbye, “The enforcement system under Regulation 1/2003”, in Jonathan Faull and Ali Nikpay, eds., The EC Law of Competition, 2nd edition, OUP, 2007 , chapter 2, p. 124; Wouter Wils, “Settlement of Antitrust Investigations: Commitment Decisions under Article 9 of Regulation no 1/2003”, in Wils, Efficiency and Justice in European Antitrust Enforcement, Hart Publishing, 2008, chapter 2, p. 39. 21 See Christopher Cook, “Commitment Decisions: The Law and Practice under Article 9”, 29(2) World Competition 209 (2006), in particular pp. 210 et seq.

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As already mentioned, though, victims might nonetheless rely on a commitment decision to reach the threshold for a disclosure order. They may also try using it to persuade courts (despite the absence of a finding of an infringement) of the full merits of their case. Infringers may see this possibility as a disincentive to offer commitments. They might prefer to gain time by going through the whole Article 7 procedure (including possible appeals to the Community Courts22), instead of offering commitments which would lead earlier to an Article 9 decision and, possibly, earlier actions for damages. Such considerations would hinge on the assumption that an early decision (although not binding) is likely to trigger a higher number of follow-on actions than a later decision, given the temporal proximity to the behaviour covered in the commitment decision and given the greater awareness of the victims that derives from it. Although much will depend on the particularities of each individual case, it seems unlikely that such considerations will often prevail over the risk of a binding infringement decision and subsequent follow-on actions. This is all the more so since, even absent an Article 9 decision, infringers cannot exclude that victims will already bring a parallel (standalone) action based on the fact that the authority has opened an investigation or sent a Statement of Objections. Victims bringing such an action may invoke that enforcement activity as one element supporting its claim that the plausibility test for evidence disclosure is met. Time considerations are thus rather unlikely to constitute a disincentive to offer commitments, as in any case they would not outweigh the advantage of the absence of a finding of an infringement.

b) Settlement decisions It is sometimes argued that potential damages actions would play an important role in the decision of the infringer as to whether or not to enter into a settlement procedure, in particular in view of the acknowledgement of liability for the infringement,23 and in view of the binding effect of the streamlined decision with respect to national judges. According to this view, the issue of time would be an important factor: with an early and streamlined decision issued after a settlement procedure, the infringer is likely to face follow-on damages actions immediately, whereas a decision taken after an ordinary procedure normally becomes final only years later, considering that in many cases it is also reviewed by the Community Courts.24 The time factor is more 22 It should be noted, though, that the practical and legal implications of judicial appeals for civil courts seized with a damages actions may differ depending on whether the appeal concerns the substantive aspects of the decision or whether it is limited to, e.g., certain calculation issues regarding the fines. 23 See point 20(a) of the Settlements Notice. 24 See supra note 22.

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likely to matter for the settlement scenario given that, unlike Article 9 decisions, settlement decisions (though less detailed) contain a finding of an infringement which is covered by Article 16 of Regulation 1/2003. However, another school of thought would argue that the above line of reasoning does not take into account some important elements. Firstly, with an effective private enforcement system in place, infringers could expect damages actions to be brought anyway, and the incentives of the settlement procedure would be entirely preserved. In other words, actions for damages would not be avoided but only delayed. Secondly, the benefits of such a delay may well be deceptive because: (i) in the case of later follow-on actions, the infringer will have to pay interest on the damage caused at a legal rate that can exceed the market rate; and (ii) an early streamlined settlement decision may make it more difficult for victims to substantiate the details of their case compared to a (later) infringement decision on the basis of a full-fledged ordinary procedure. Moreover, the negative reputational implications for infringing companies may be of a lesser magnitude if the case is settled quickly.

III. Conclusion It is premature to draw any conclusions yet on the likely impact of public enforcement on private damages actions. What we believe the above considerations have shown is that the relationship between public and private enforcement is one of complementarity rather than one of irreconcilable antagonism. One could therefore say that public enforcement and damages actions are faux ennemis. It is true that some safeguards (e.g., investigative privilege or protection of corporate statements) must be put in place in the regime for private damages actions, and that the choice of the type of procedure can have implications for victims claiming damages as well as for defendants. Ultimately, however, pursuing the objectives of public enforcement (detection, punishment, deterrence) in an effective and efficient manner will only benefit the (potential) victims of competition law infringements since it lays the ground for follow-on actions and since it can even trigger stand-alone actions (e.g., after commitment decisions). Of course, it should also prevent future infringements.

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V Lorenzo Coppi and Robert J. Levinson* The Interaction between Settlements and Private Litigation— An Economic Perspective

Following an extensive consultation process,1 the European Commission introduced legislation on 30 June 2008 that enables it to enter into settlements in cartel cases with parties subject to its investigation (the “Legislation”).2 Commentaries on the Legislation and responses to the Commission’s public consultation have raised the question of how the proposed settlement procedures may influence the likelihood and timing of follow-on private actions. Many responses emphasized that settlements may affect firms’ exposure to private litigation, by making private litigation timelier; while other responses highlighted how the reduction in information available to private litigants may make follow-on private litigation more costly, and thus less likely. This paper analyzes, from an economic perspective, firms’ decision to settle, especially in light of the impact of that decision on follow-on private litigation. Our conclusion is that the relatively low and rigid level of discount that the Commission will provide to settling firms (10%) is unlikely to provide many firms with an incentive to settle. We therefore do not expect to see the Commission entering into many cartel settlements in the near future.

I. Introduction Parties contemplating a legal settlement must weigh its expected costs against its expected benefits. These costs and benefits normally have to do with the cost of litigating and expectations as to the outcome of the litigation. As * Dr. Coppi and Dr. Levinson are Vice Presidents in CRA International’s Global Competition Practice. They are based in London and Washington, DC, respectively. 1 See the responses to the Commission’s draft Settlements Notice and draft Regulation amending Regulation 773/2004 to introduce a settlement mechanism for cartel cases (published 26 October 2007), http://ec.europa.eu/competition/cartels/legislation/cartels_ settlements/index.html. 2 See Commission Regulation (EC) No 622/2008 of 30 June 2008 amending Regulation (EC) No 773/2004, as regards the conduct of settlement procedures in cartel cases, 2008 OJ L171/3; 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, 2008 OJ C167/1.

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cartel settlements with the Commission are likely to reduce or eliminate the defendant’s prospects for a later appeal, firms must weigh the potential costs associated with an appeal to the Court of First Instance against the expected reduction in fine that may result from that appeal.3 However, this is not the only consideration for firms considering settlements with the Commission. A decision to settle with the Commission may also have an effect on follow-on private litigation. In particular, a settlement may allow private litigants to bring follow-on cases sooner than otherwise, and it may allow them, as a consequence, to extract financial awards or settlements earlier than otherwise. (This is because a settlement implies an admission of liability and a “voluntary” agreement to accept a specified penalty, which effectively precludes an appeal.) In economics, this is called an externality, as the decision to settle with the Commission and terminate those proceedings has an “external” impact on other proceedings, that is, the follow-on private claims.4 A firm’s incentives to settle with the Commission will depend most crucially on its expectations regarding the effects of the settlement on: (i) the timing of private litigation; and (ii) the information available to private claimants. A consensus seems to be emerging that settlements would hasten private actions, which would constitute a cost for the settling firm. At the same time, it appears that settlements may reduce the amount of information available to private claimants, which might—ceteris paribus—result in a benefit for the settling firm. This interaction between settlements and private actions, this externality, may tilt the balance in the decision on whether to settle. In this chapter, we develop a simplified economic analysis of the incentives of defendants in order to consider whether the new Legislation—and 3 Note that in the following we are considering only two possible rational choices for the parties: (i) settlement, or (ii) no settlement and appeal. Thus, provided the Commission is ready to settle, the no settlement / no appeal choice would not make sense from the parties’ point of view, as they would forego a potential reduction of fines (the “settlement discount”) with nothing in exchange. It is possible that although a party would like to settle, the Commission decides not to use the settlement procedure. In this case, the party could very well end up with no settlement and still decide not to appeal. However, the “no settlement” outcome would not be the party’s decision. As we are interested in analyzing the parties’ incentive to take up a settlement when offered one, this outcome is not discussed further in the paper. 4 When we refer to private follow-on litigants, we refer primarily to such litigants that would bring cases before courts in Europe. The potential for this informational externality of Commission settlements to be meaningful outside of the EEA is reduced because of the likelihood that such settlements will feature admissions limited to cartel behaviour and effects in Europe. Moreover, and in particular, the likelihood that a Commission settlement would accelerate or provoke private litigation in the United States is lessened by the fact that cartel behaviour with effects in both the EU and the US will also be the target of a US Department of Justice cartel investigation and grand jury proceedings. This creates a likelihood of plea-bargained outcomes in the US for the same cartelists that would settle in Europe. Private litigants in the US would be expected to be much more likely to use a DOJ plea bargain as evidence of liability in US cases because the allegations admitted to in such cases would bear directly on anticompetitive effects in the US.

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The Interaction between Settlements and Private Litigation 689 especially the specification of a 10% settlement discount on fines—is likely to provide defendants with a sufficiently strong incentive to settle while, at the same time, remaining consistent with the objectives of deterring future cartel behaviour and encouraging firms to participate in the Commission’s leniency program. Section II outlines the costs and benefits of settlements to the parties. These arise not only in the context of Commission proceedings, but also because settlements influence the likelihood and timing of follow-on private actions. Section III develops and applies a simple economic model that captures the key issues set forth in Section II. We show that this model predicts that, unless the Commission enhances firms’ incentive to settle by significantly reducing the amount of information available to claimants, the 10% discount applied to fines will likely not be enough to induce defendants to settle. This is because the costs to defendants of settling the Commission’s claims—and in particular, the likely hastening and crystallization of follow-on private claims that settlements are expected to engender—will outweigh the expected reductions in fines allowed for in the Legislation. Section IV provides concluding comments on how the relationship between settlements and private actions may have implications for the policy objectives of cartel deterrence, consumer redress, and enforcement efficiency.

II. The role of incentives Speaking generally, settlements offer several benefits, including the prospect of cost savings to all parties to a legal action. A settlement can reduce all parties’ expenditures on the development of testimony, fact evidence, and legal argumentation; it will limit the costs to businesses arising from the distraction of corporate management from their key role in “running the business”; it will limit the opportunity costs to enforcement agencies of expending limited resources on the case in question rather than on others; and it will replace the risks of litigation with a predictable outcome. Nevertheless, cases do often go to trial. This is explained by economists as the result of either or both of the following factors: (i) divergent expectations as to the results of the litigation (i.e., one party, or each of them, is overly optimistic as to the likely result of the case); or (ii) asymmetric information, meaning that one side has more information than the other, which makes reaching a settlement unlikely.5

5 See Joel Waldfogel, “Reconciling Asymmetric Information and Divergent Expectations Theories of Litigation,” NBER Working Papers 6409, National Bureau of Economic Research, 1998. See also Steven Shavell, Foundations of Economic Analysis of Law, Harvard University Press, 2004, pp. 403–410.

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The basic economic theory of settlements begins with the assumption that each of the parties to a lawsuit is a self-interested actor, seeking to maximize its expected net benefits from litigation.6 The early literature on settlements assumed that all parties to litigation had the same information, implying that the litigants find it better to reach a settlement that allows them to avoid the costs of trial when they agree in their assessments of the common information; whereas they are more likely to litigate rather than settle when their assessments of the common information, and thus their expectations as to the outcome of the case, diverge.7 Later models allowed for the more realistic possibility that the litigants have asymmetric information, i.e. where each litigant may know something relevant to the outcome of the case that the other lacks (so-called “private information”). In such models of asymmetric information, litigants choose their bargaining stances not only on the basis of their own “private” information but also their assessments of the limitations of the other litigant’s private information. Such game-theoretic models can result in equilibria characterized by higher likelihoods of bargaining failure (e.g., cases where the matter goes to court rather than being resolved by settlement).8 Models of the decision to settle under asymmetric information have been considered in the standard litigation context, and in the specific context of settlements between businesses and competition regulators.9 There are very few economic contributions discussing how the likelihood of follow-on actions influences the willingness of defendants and the Government to agree to a settlement. One of these contributions shows that liability-establishing settlements are less likely to be reached in the presence of follow-on private litigation, compared to the situation where private litigation does not exist.10 Thus, as also suggested by our model (summarized in 6 See, e.g., Roger Noll, “Comment: Settlement Incentives in Follow-on Litigation,” in Lawrence White, ed., Private Antitrust Litigation: New Evidence, New Learning, MIT Press, 1988, pp. 371 et seq., at p. 371. 7 See, e.g., Andrew Daughety and Jennifer Reinganum, “Economic Theories of Settlement Bargaining”, 1 Annual Review of Law and Social Science 35, 36 (2005) (citing: William Landes, “An Economic Analysis of the Courts”, 14 Journal of Law and Economics 61 (1971); John Gould, “The Economics of Legal Conflicts”, 2 Journal of Legal Studies 279 (1973); Richard Posner, “An Economic Approach to Legal Procedure and Judicial Administration”, 2 Journal of Legal Studies 399 (1973); Steven Shavell, “Suit, Settlement and Trial: A Theoretical Analysis Under Alternative Methods for the Allocation of Legal Costs”, 11 Journal of Legal Studies 55 (1982)). 8 Daughety and Reinganum, cited previous footnote, at 37–41. 9 See, e.g., Andrew Daughety and Jennifer Reinganum, “Settlement,” in Chris William Sanchirico, ed., Encyclopedia of Law and Economics, 2nd edition, Volume 10: Procedural Law and Economics, Edward Elgar, forthcoming 2010, at Section 17.4. 10 For details, see Doughety and Reinganum, “Economic Theories”, cited supra note 7, at 48–50 (discussing approaches taken in Hugh Briggs III, Kathleen Huryn and Mark McBride, “Treble Damages and the Incentive to Sue and Settle,” 27 RAND Journal of Economics 770 (1996), and in Yeon-Koo Che and Jong Goo Yi, “The Role of Precedents in Repeated Litigation,” 9 Journal of Law, Economics and Organization 399 (1993)).

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The Interaction between Settlements and Private Litigation 691 section III), the presence of private litigation appears to dampen the incentive to enter into settlements. With regard to the Commission’s cartel enforcement activities in particular, the benefits of a settlement program to the Commission are clear: settlements reduce its enforcement costs and allow it to divert more resources to investigating and challenging the conduct of other cartels (or, presumably, other anticompetitive practices).11 So long as settlements do not materially erode the Commission’s ability to detect or deter other cartel violations, it will have strong incentives to maximize the number of cartel investigations that are resolved by settlements. The extent to which the Commission’s enforcement costs will be reduced will depend, inter alia, on how frequently firms decide to settle, which in turn is driven by the costs and benefits facing the parties themselves. In order for the settlement process to succeed, the process should provide firms with the right incentives to settle, by properly assessing and analyzing the costs and benefits facing the parties. This is because the parties will rationally settle only when the present value of their expected private costs from settling outweigh their (net) private benefits from pursuing a fully-litigated outcome.

a. Information disclosure and the benefits to the parties of settling The Legislation addresses concerns raised in the response to the Commission’s consultation. Most notably, in our view, the system that has been adopted has avoided the possibility that settlements might have facilitated the disclosure of internal company materials and admissions describing details of the settling firms’ cartel behaviour, which might have been used as evidence of culpability in other jurisdictions. Such disclosures could have had the effect of increasing the frequency of follow-on private actions and the likelihood of adverse findings against the defendants in these jurisdictions, and of eroding defendants’ bargaining positions in connection with financial settlements of such subsequent actions. The Commission introduced several provisions to prevent disclosures of settlement-related acknowledgements of liability to third parties, effectively protecting the confidentiality of such admissions to the same degree as admissions made in the context of the Commission’s leniency program.12 11 As Competition Commissioner Neelie Kroes has argued: “These proposals would ensure more effective decision making whilst safeguarding due process. Companies would benefit by drawing a line under their past illegal behaviour, the Commission would benefit by freeing up resources to pursue more cartels, and the European economy would benefit because more cartels would be punished more quickly.” See Commission Press Release IP/07/1608 of 26 October 2007. 12 This being said, the mere fact that the parties and the Commission have settled might be viewed as a signal that the parties have acknowledged guilt. We understand that the

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The protections from disclosure embodied in the Legislation are likely to reduce the amount and quality of information available to private claimants, increasing their costs (and so reducing their likelihood) of bringing “followon” private actions. In particular, the settlement procedure allows alleged cartelists to avoid oral hearings which, in an ordinary procedure, would have been open to potential complainants. Third parties are thus deprived of evidence that they otherwise could have exploited in subsequent private actions. Furthermore, the settlement procedure produces neither a full Statement of Objections (SO) nor a fully detailed Commission decision. Instead, the procedure is structured to permit the issuance of streamlined SOs and decisions that would provide much less factual “ammunition” to private claimants in follow-on litigation, thereby disseminating less useful information to the public (and to potential private claimants) than full Article 81 proceedings. This reduces the amount of information that private claimants could use not only to establish the scope of the cartelists’ actions, but also to calculate and prove damages claims. As a result, the private claimants would need to incur the costs of developing such information on their own. The UK Office of Fair Trading seems to be concerned with this possibility, and it appears inclined to issue full decisions even in cases closed by settlements. As a practical matter, however, it is not clear to us how significant this effect will actually be relative to the status quo ante, as the Commission already has the discretion to redact the full decisions it issues in the context of fully-litigated cases.13 To the extent that settlements do reduce the information available to potential claimants relative to the information normally available when the ordinary procedure is followed, settlements would increase private claimants’ costs of engaging in follow-on litigation, thus reducing their incentives to bring such actions. The significance of this benefit to parties depends on the nature of the information that will be excluded from the streamlined SO and from the decision issued following a settlement. Similar to a full decision, a settlement would transmit the signal that the defendant has committed a cartel violation, and the fines imposed would give private claimants a sense of the “size” of the case, but it would not necessarily convey actionable information concerning the scope or magnitude of that offence. In this case, the likely effect of limitations on disclosures under the new Legislation would be to prevent the disclosure of evidence amassed by the Commission that could potentially be used by private litigants to estabCommission will not accept a settlement absent an admission of culpability. In this sense, and notwithstanding the significant differences in the EU and US models, the “settlements” contemplated by the Legislation correspond to what Americans would think of as “plea bargains,” where a reduced penalty is offered by the authorities in exchange for an admission of guilt (perhaps to a lesser charge). 13 See, e.g., Cohen Milstein’s response to the Commission’s consultation, http://ec. europa.eu/competition/cartels/legislation/cartels_settlements/cm.pdf, at para. 33.

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The Interaction between Settlements and Private Litigation 693 lish and measure the extent of economic damages (i.e., causation and effect), meaning, again, that the claimants would need to develop such information through their own legal efforts (and therefore at their own expense). While the key variable used for determining damages in cartel cases (i.e., the magnitude of the effective overcharge) is not typically specified in the Commission’s decision, the Commission’s full decisions in cartel cases contain a wealth of details on meetings and agreed price increases or marketsharing arrangements. Reduced access to this information may make it more difficult for claimants (and for their economic experts) to estimate damages. However, until the Commission releases its first streamlined SOs and decisions in connection with settlements, it will not be clear whether a settlement or a full Commission decision would leave private claimants in significantly different positions with regard to their ability to prove causation and effect in private damages actions. That being said, the US experience suggests that the importance of disclosures (or limitations of disclosures) of information other than admissions of guilt might be too easily overestimated. Relatively little substantive information beyond the fact that the defendant has admitted guilt under a plea bargain is made available to the public (and thus to potential plaintiffs) by the US Department of Justice. Yet follow-on private cartel litigation on the basis of plea-bargained federal price-fixing cases is common in the US. It may therefore prove unwise for firms considering settlements to assume that the Commission’s policies restricting third parties’ access to evidence will greatly reduce the extent to which a settlement would encourage follow-on private litigation.

b. Firms’ incentive to settle Despite the limitations on settlement-related disclosures, it appears that the choice to settle with the Commission would precipitate the parties’ exposure to private follow-on actions. While claimants are free to bring private claims against a cartelist on the basis of a Commission decision even when it is appealed to the CFI, in practice an appeal to the CFI is likely to afford the defendant temporary protection from follow-on litigation. Indeed, in the UK, the Competition Appeal Tribunal has stated that parties are protected against follow-on litigation until any relevant appeals process is exhausted, even in circumstances where one defendant has not lodged an appeal.14 As the UK appears to be the favourite EU jurisdiction for follow-on private actions, it is reasonable to believe that lodging an appeal with the CFI (and later, as the case may be, with the European Court of Justice) will buy defendants a few years’ grace period from private claims. 14 See Case No 1077/5/7/07, Emerson Electric Co and others v. Morgan Crucible Company Plc and others, [2008] CAT 8.

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These few years’ grace period from private claims would no longer be available to firms who settle with the Commission. It is true that the Legislation states that settlement decisions are open to appeal, but—barring evidence that the defendant’s admissions or concessions had been secured by the Commission in an improper fashion—it is difficult to see how such an appeal would prevail, as the firm would already have admitted its culpability and agreed to the level of its fine. If indeed appeals of settlements are impractical, defendants would not be able to delay the commencement of follow-on private actions by resorting to such appeals. The inability to defer the legal expenses, damages payments and other costs associated with follow-on private actions once a settlement is accepted may be a significant factor for firms considering settlement. Can a party benefit from settling, given the possibility that a settlement will provoke or accelerate the costs associated with “follow-on” private claims? At the point in time when the party is considering settlement, it will weigh the costs against the benefits. Depending on the discount rate that is perceived by the parties, and depending on their risk aversion, the expected acceleration of private actions and judgments may constitute a substantial expected cost of settlement. To be weighed against this would be the firm’s settlement-related savings (in the form of avoided legal fees, reduced management distraction, reduced uncertainty, and the statutory 10 percent reduction in fines, for example). Whether these costs of settlement are outweighed by the benefits, or whether the parties would do better for themselves by refusing settlement, pushing back follow-on actions until after the ordinary procedure and the appeals process is complete (or until the time limit for appeal has expired, in cases where the Commission’s decision is not appealed) is a question that must be approached on a case-by-case basis. Economic analysis does allow us, however, to gain some general insights as to whether the Commission’s new Legislation will encourage many firms to settle. In what follows we develop a simple economic model of the potential effects of settlements, taking into account how these effects may influence firms’ incentive to settle. Our principal conclusion is that the effects of settlements on the timing of private actions may be very significant from an economic and financial point of view, and that the 10% discount awarded by the Commission to settling firms often may not be sufficient to preserve firms’ incentives to settle.

III. A more formal analysis of defendants’ settlement incentives In order to analyze firms’ incentives to settle, we need to consider defendants’ anticipated costs and benefits from settling. These include the defendant’s

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The Interaction between Settlements and Private Litigation 695 expectations regarding (i) the effects of settlement on the timing of future private actions; (ii) the levels of damages awards in those private actions; and (iii) the cost savings from settlement resulting from truncation of the Commission and/or European investigation and appeals process. In addition, the defendant will take into account (iv) the extent to which it gains from the fact that a settlement resolves uncertainty as to the magnitude of the fine it must pay the Commission, as well as (v) the fact that settlement results in a 10 percent reduction in fines (or “settlement discount”). Timing: to the extent that settlements accelerate follow-on private actions, they can also bring forward the points in time in which legal expenses, damages, and other costs associated with the private actions must be dealt with by the parties. When a party perceives a significant opportunity cost of money— that is, to the extent that it perceives a euro spent tomorrow as being worth less than one euro spent today—it will stand to lose as the result of settlementaccelerated costs.15 The higher the rate at which future outlays are discounted by the defendant, and the longer the delay to the disbursement of private damages that occurs when the Commission’s investigation and the appeals process are allowed to run their course, the higher will be the defendant’s perceived opportunity cost of settlement. The rate at which the parties will discount future payments is affected by: (i) the party’s cost of capital; (ii) the legal pre-judgment interest rate; and (iii) psychological factors affecting the parties’ time horizon. Cost of capital: Suppose, for instance, that the defendant’s cost of capital is 7 percent (reflecting the cost for it to raise capital and thus his opportunity cost, or “time value” of money) and expects, once private actions are decided, that it will be required to pay damages of €10 million. If the damages were payable immediately upon its decision to settle, the cost to the defendant at that time would (of course) be €10 million. But suppose that the defendant expected that if it instead declined to settle and fought on to the end of the appeals process, it could delay this expected payment by four years. Under these assumptions, the decision to fight would reduce its expected damages, in present value terms, by about €2.4 million.16 Note that different firms in 15 This opportunity cost of money is also known as the “time value of money.” Market interest rates are frequently used as measures of the time value of money. Assuming competitive money markets, the amount that borrowers will pay lenders will be the lender’s (opportunity) cost of not using that money themselves, i.e. the lender’s time value of money. 16 The present value of a payment t years hence is given by the formula PV = (1/(1+r)t), where r is the defendant’s discount rate (representing his time value, or opportunity cost, of money). Assuming a payment of €10 million would be made four years hence (i.e., t = 4) and a discount rate (r) of seven percent, we get PV = (1/(1.07)4) = €7.63 million, which would be €2.37 million less than if the amount were paid by the defendant immediately (i.e., when in the present value formula t is set to zero, in which case the present value of the payment would be €10 million). It should be noted that the time value of money faced by any particular firm will depend upon its individual circumstances. Different firms, in different financial situations, can be expected to have different time values of money, and thus will be associated with different discount rates.

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different financial situation will have different cost of capital and thus different time value of money. Pre-judgment interest on damage awards: Unlike in the US, where the Sherman Act does not allow pre-judgment interest,17 European countries allow for the possibility of applying interest to the damage award, to account for the time between the loss and the judgment. If interest were charged at exactly the same level as the cost of capital of the defendant, then—from a commercial perspective—the defendant should be indifferent between delaying the damage award through an appeal and bringing forward the damage award via settlement. However, in practice, pre-judgment interest is unlikely to be sufficient to balance the “cost of capital” effect described above. In civil law countries, the pre-judgment rate is generally fixed by statute (often at around 5%), at a level which is often lower than the cost of capital of most firms. In the UK, courts have discretion in the rate they charge in competition cases, but the practice seems to be either the central bank base rate + 1%, or 8%. While the former is typically lower than companies’ cost of capital, the latter is sometimes lower, sometimes higher. However, the lack of compound interest in UK pre-judgment interest awards tends to make the interest rate awarded by the court insufficient to eliminate the “cost of capital” incentive of firms to delay damages awards. Psychological factors: Other reasons beyond the pure time value of money may make a company more (or less) willing to pursue settlements. On the one hand, the desire to “close the book” on the investigation may make companies less likely to value the ability to defer private damages awards, and thus they may be more willing to settle. On the other hand, the managers of the defendant company may be disinclined to settle if they think they could postpone the point at which private damages claims are paid to a time when others are running the company, or if, by doing so, they would simply be delaying the day of reckoning when they can no longer deny that the firm, under their control, had engaged in illegal cartel behaviour. Magnitude of damages awards: While settlements are likely to change the timing, and, via the effects of the time value of money, the present value of damages payments by the defendant in its follow-on private lawsuits, there is less reason to believe that they would meaningfully influence the nominal money value of such damages awards. This is because such damages awards are based on the effect of the cartel on market prices (i.e., the “cartel overcharge”), a metric that generally is not developed in the context of 17 See, e.g., Robert Lande, “Are Antitrust ‘Treble’ Damages Really Single Damages”, 54 Ohio State Law Journal 115, 171 (1993). We understand that pre-judgment interest may be available in certain circumstances under the Clayton Act, but that pre-judgment interest is rarely awarded in the US: see Christian Miege, “Modernisation and Enforcement Pluralism—The Role of Private Enforcement of Competition Law in the EU and the German Attempts in the 7th Amendment of the GWB”, http://www.cms.uva.nl/template/ downloadAsset.cfm?objectid=8344CB9B-5AF8-4AD6-A116B8663C85743A, at p. 10.

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The Interaction between Settlements and Private Litigation 697 Commission enforcement actions. If indeed the nominal magnitude of damages does not depend on the settlement decision, then of course this magnitude should not be considered by defendants when they decide whether to settle with the Commission. However, it is often the case that certain information that would be produced in a full Commission decision (e.g., on the scope of the alleged conduct) might prove useful to plaintiffs as an input in their own calculations of the cartel overcharge. To the extent that the streamlined settlement decision redacts such information, it might be possible that the claimants would become less able to develop a robust damages estimate without considerable delays (or at all). This might reduce the amount of damages defendants expect to pay, thereby strengthening their incentive to settle. Direct costs of litigation: Settlements have the benefit of reducing the cost incurred by firms. Not only will settling reduce the required legal (and economists’) fees, which could be substantial if one considers the cost of appeals to the CFI and, possibly, to the ECJ; it will also reduce the cost in terms of distraction of management from other pressing business. Resolution of uncertainty: By its nature, a settlement will resolve uncertainties associated with the Commission’s investigation. It will eliminate uncertainties regarding the timing and outcome of the case, and in particular it will resolve uncertainty as to the levels of the Commission’s fines. Each of these factors in turn could be expected to reduce the effects of case-related uncertainties on the firm’s share price. Each of these factors provides the defendant with an incentive to settle. Less obvious is the fact that settlements can reduce the uncertainties associated with follow-on litigation. Settlement amounts might be used by private plaintiffs and defendants as a signal of the seriousness of the infringement and of the effect of the cartel on the market. If this is the case, then settlements with the Commission might increase the incentive of risk-averse firms— including the private plaintiffs as well as the defendant—to settle in private litigation as well. The interplay of these factors means that the defendant’s net incentive to settle will depend on the strength of the various effects. We illustrate this in the following section by means of a simple model of the firm’s settlement decision problem.

a. The model One can describe decision-making process of a firm that is considering a settlement with the Commission as follows. At the time when a settlement is contemplated, the firm can choose between the following two strategies:

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Agree to settle: By settling, the defendant may avail itself of the reduction in fines (specified in the Legislation as 10 percent) offered by the Commission as an inducement to settle (the “settlement discount”). In addition, by settling, the defendant can avoid the ongoing legal costs associated with the appellate process, and other costs associated with delayed resolution of the Commission matter. On the other hand, settling defendants would effectively give up the chance for a reduction of the fine imposed by the Commission that it would have if it opted for the ordinary procedure and then appealed to the CFI. It is possible that these reductions would exceed the settlement discount offered by the Commission. Other potential drawbacks of settling are the acceleration of private claims, as discussed above, and the possibility that a more full and detailed Commission decision might help private claimants obtain a larger damages award. Continue to Fight: Under this strategy, the defendant waits for the Commission decision with the expectation of appealing the decision to the CFI and potentially receiving a court-ordered reduction of the fines. The main benefits of this strategy are that: the fines faced by the defendant may ultimately be reduced by the CFI; full litigation can result in delayed payment of damages associated with private litigation (because settlement-related accelerations of follow-on private actions would be avoided); and damages might be reduced due to the relatively scant information in the streamlined Commission decision. On the other hand, in foregoing the opportunity for a settlement, the defendant will relinquish the possibility of obtaining a reduced fine from the Commission; and it will also bear the ongoing legal costs of an appeal and other costs associated with delayed resolution of the matter. The key ideas can be formalized in terms of a very simple model. Let the cost to the defendant under a “settlement” outcome be, as of the time the settlement decision is made, be given by , where:  = F (1 – ) +

1

1 + r

t

De

1+ C + 

 111 –L 

in which: is the fine expected by defendants to be imposed following a completed Commission action (expressed as a percentage of the volume of commerce);  is the anticipated “settlement discount” to be granted by the Commission (again expressed as a percentage of the fines); 1  1+r  is the defendant’s discount factor for money outlays at time , net of any pre-judgment interest available in the national courts where the action is taken; De is the expected damages from follow-on private actions (expressed as a percentage of the volume of commerce); F

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The Interaction between Settlements and Private Litigation 699 CL are the legal costs of the follow-on private actions (expressed, for simplicity, as a percentage of the expected amount of damages). Follow-on actions are assumed to occur irrespective of whether settlement occurs. However, as explained above, it is assumed that settlement causes these actions to occur earlier than otherwise (at period  rather than the later period  +T during which they would occur absent settlement, under the assumption that the complete Commission and EC appellate process would require another T periods).  is the expected percentage decrease in damages awards in follow-on actions made available to private claimants because of the reduced information in the Commission decision pursuant to a settlement; and  is the “risk premium” summarizing the firm’s risk aversion. This is defined as the difference between the expected present value of future costs or benefits and their “certainty equivalent” values, divided by the “certainty equivalent” value). In this formulation, the costs to the defendant associated with a settlement would be the fine it would expect to pay to the Commission (net of a “settlement discount”) of F (1 – )plus the present value of the defendant’s expected 1 t e 1+ CL +  . damages and legal costs from follow-on actions, D 1+r 111 –  It is assumed that the effect of settling is to lead to follow-on actions that occur (and, for the sake of mathematical simplicity are concluded in) period . When instead the defendant elects to adopt a “fighting” strategy, its costs would be given by , such that:





=F 1–

Ae 1 (1 – CA) + 1+ 1+r

 

 

T+t



De



1+ C

11 – L

Components F, De, CL and  and retain the same meanings as before. The other elements of this expression are defined as follows: Ae is the expected discount on fines from appealing the Commission’s decision (expressed as a percentage of the amount of the fines); CA is the expected present value of the legal costs of appealing the Commission’s decision (expressed—for simplicity—as a percentage of the expected reduction in fines); and T,t are the number of years that it takes to go through the appeals process and the private actions, respectively. In this formulation, the cost of fighting on, evaluated as of the time that decision is taken, is made up of two components. The first cost element, e F 1 – A (1 – CA) , includes the expected Commission fine and legal costs 1–





associated with subsequent appeals, taking into account that the “settlement discount” is forfeited but that there is the potential for a later court-ordered

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reduction in penalties, and that there are uncertainties regarding the magnitude of the discount. 1 T+t e 1+ CL The second cost element, D , is the risk-adjusted 11 –  1+r present value of future private damages claims and legal costs associated with the private actions, under the assumption that the failure to settle causes private litigants to wait until the full Commission procedure (taking an additional T periods) is complete before their own damages claims are resolved. The necessary condition for a firm to settle will be    (the sufficient condition for this outcome is the strict inequality  ). In our simple model, the only way the Commission can influence this decision is by reference to the settlement discount , as this is the only variable in its control.18 The minimum settlement discount  * which provides the defendant with the incentive to settle will depend on a number of factors. In order to isolate the effect of those factors on the likelihood and cost of private litigation and their feedback effects on the firm’s incentive to settle, it is useful to identify the minimum settlement discount in the absence of any effect of settlements on follow-on private litigation. Setting D = 0 in the equations above, the Ae (1 – CA). minimum value of consistent with settlement condition    is  * = 111(1 – )11 In words, this result says that when there are no effects of settlement on the defendant’s costs from subsequent private litigation, the minimum settlement discount would equal the certainty equivalent of the expected fine reduction from appealing the Commission’s decision to the European courts, net of litigation costs. For example, if the expected reduction in the defendant’s fine from appealing the Commission decision is 25%, and if about 30% of that reduction is spent on legal costs (or 7.5% of total fines) and the firm applies a risk premium of 40%, then—assuming no implications of the settlement for later private actions—the minimum discount the Commission should offer would be 12.5% (or 25% (1–30%) / 140%). More interesting is the case where settlement does change the defendant’s exposure to private follow-up claims (and their associated costs). If the settlement is perceived to increase the amount of the damages payments to private litigants, then the Commission would need to increase the settlement discount to a level necessary to outweigh this additional cost. The settlement condition would again provide the value for the minimum settlement discount. Assuming, for purposes of simplifying the presentation only, that firms









18 The Commission can be expected to exploit its ability to adjust the value of the settlement discount as a means to encourage settlements, much as prosecutors exploit their abilities to secure reduced sentences for criminals by offering plea bargains. In both instances, the ability to offer what amounts to a “reduced sentence” allows the government enforcer to secure desired prosecutorial objectives at reduced cost.

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The Interaction between Settlements and Private Litigation 701 do not discount future outlays (i.e., ), the minimum settlement discount would then be: * =

Ae (1 – CA) De  + F(1 – ) 111111 – 

Effect of Expected Reduction in Fines in the Commission Action

Effect of Expected Increase in Damages in Follow-on Private Actions

For instance, if the (certainty equivalent) of the expected damages is at the same level as fines—i.e., De/F(1 – )= 1, and the expected increase in damages from the settlement is 10%, then, extending the previous example, the Commission should provide a discount of at least 22.5% (i.e., 12.5% + 10%). The value of the minimum discount calculated above (in the case r = 0 and  0) highlights that the firm’s risk aversion may have an ambiguous effect on the minimum discount necessary to preserve the incentive to settle. On the one hand, risk aversion tends to reduce the benefit of “fighting”, as the expected reduction in fines by the CFI that might be granted following an adverse Commission decision would be discounted by a risk-averse firm because the magnitude of such a reduction in the fine will inherently be uncertain (i.e., risk aversion—represented by   0—tends to decrease the e opportunity cost of the expected reduction in fines, A (1 – CA) ). This makes 11(1 – )11 fighting less appealing and settling more appealing, and thus the required settlement discount would be lower. On the other hand, risk aversion increases the effect of the expected increase in damages in follow-on private litigation that may result as a consequence of a settlement with the Commission, as such an increase is uncertain De  would be higher and thus the perceived cost associated with it (1 – )





than that of an equivalent—but certain—outlay. This makes settlement less appealing and makes the required settlement discount higher. Using the values of the previous examples (including  = 40%), we found an illustrative value for the minimum required settlement discount of 22.5%. If the firm were completely risk neutral ( = 0%), then the minimum required settlement discount would be slightly higher at 23.5%. If the firm were significantly more risk averse ( = 80%), the minimum required settlement discount would be significantly higher, i.e. 39.7%. Finally, a firm that discounts future costs and so considers one euro spent tomorrow to be worth less than one euro spent today will tend to find fighting more appealing than a firm which does not discount future costs. This means that the higher the discount rate applied by a firm and the longer the

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time it takes to resolve appeals, the higher the settlement discount the Commission should offer in order to preserve the firm’s incentive to settle.19 As the table below shows, the effect of an increase in the rate the firm uses to discount future outlays can be dramatic, meaning that the effect of a higher discount rate on the minimum effective settlement discount can also be dramatic. Also very significant can be the effects on defendants’ willingness to settle of the firm’s risk aversion or the expected change in damages as a result of the settlement.20 Risk Aversion ()

Discount Rate (r)

Increase in Minimum Expected Required Damages Discount ()

Effect from Effect from Expected Expected Reduction Increase in in Fines Damages

Impact of Increase in Discount Rate 20% 20% 20%

0% 3% 7%

0% 0% 0%

5.8% 19.8% 32.4%

5.8% 5.8% 5.8%

0.0% 14.0% 26.6%

Impact of Increase in Expected Damages 20% 20% 20%

3% 3% 3%

–10% 0% 10%

8.4% 19.8% 31.3%

5.8% 5.8% 5.8%

2.6% 14.0% 25.5%

Impact of Increase in Risk Aversion 0% 20% 50%

3% 3% 3%

0% 0% 0%

18.2% 19.8% 27.2%

7.0% 5.8% 4.7%

11.2% 14.0% 22.5%

Assuming: T = 4; t = 3; F = 10%; Ae = 10%; De = 10%; CA = 30%; CL = 10%

This analysis suggests that, on the basis of credible parameters, the settlement discount the Commission is entitled to offer under the Legislation is too low. This is especially the case in light of the fact that the Commission is not ready to accept hybrid settlements (i.e., situations in which some cartel members settle while others do not). The likelihood that different firms will vary 19 Measures of the defendant’s time value of money may be hard to find. However, it is not uncommon for firms to specify relevant measures, such as “hurdle rates”, in their documents. 20 In the table, we have assumed that: a private follow-on action can take three years to be resolved; an appeal to the CFI can delay that process by four years; the fine and the damages together amount to about 10% of the volume of commerce; the average discount as a result of an appeal is 10%; the legal cost of appeal amounts to 30% of the discount awarded; and the legal costs of litigation amount to 10% of the amount of the damages.

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The Interaction between Settlements and Private Litigation 703 significantly in their discount rates, in their expectations on future appeal discounts and damage awards, and in their risk aversion, suggests the possibility that a single firm may block a settlement for all the other cartel participants if it finds the 10% reduction to be inadequate. The foregoing analysis shows that the probability of this happening is very significant. In sum, our analysis suggests that—rather than identifying a single, low level of settlement discount—the Commission should have maintained the flexibility to offer different discounts to different firms, on the basis of the following factors: 1. The average expected reduction in fines that can be obtained through the appeals process, and the cost of such appeal; 2. The increase (or decrease) in private damages that settling might entail; and 3. The degree to which firms tend to discount future costs, their degree of risk aversion, and the length of the appeals process.

b. Implications for redress, deterrence and leniency The model above focuses on the incentive of firms to settle. It does not directly address the issues of redress or deterrence. With respect to deterrence, settlements may have two opposite effects. On the one hand, a settlement discount reduces cartelists’ penalties and therefore deterrence. On the other hand, if settlements make it easier to bring private actions, and if they allow the Commission to redirect more enforcement resources to uncover cartels, then settlements may also increase deterrence. The Commission seems inclined to consider fines as the main instrument to achieve optimal deterrence, and it considers the primary objective of private litigation to be compensation, not deterrence. However, private litigation can act as a deterrent to future cartel behaviour to the extent that it gives rise to expected penalties that exceed the amounts required to make cartel victims simply “whole”. By construction, the model discussed in the previous section determines the minimum settlement discount in a way that maintains the current level of deterrence, and so it is “deterrence neutral”. Thus, because the discount calculated in this paper is such that a firm is indifferent between settling or appealing, the punishment of a firm which chooses to settle is the same as that of a firm which chooses not to settle. As the punishment is unchanged, so is deterrence. If the Commission has strong reasons to believe that current policy leads to an optimal level of deterrence, the Commission could maintain optimal deterrence by setting its settlement discount with reference to the effects discussed in the previous section, without having to concern itself explicitly with the mechanics of cartel deterrence.

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As to redress, the Commission’s White Paper on private damages actions21 states that the primary aim of private litigation is to redress harm, and that there is a deficit of private litigation. So, to some extent, characteristics of settlements that encourage private actions should be welcomed by the Commission. As far as redress is concerned, the Commission might consider itself justified in not being concerned about the potential for settlements to increase the value of damages that result from private follow-on lawsuits (i.e., that  > 0 in the model above). Such a view would be appropriate only within limits because private litigation might, if excessively encouraged by a Commission settlements policy, cause cartelists to pay more than what would be justifiable to compensate claimants for past harms. Moreover, the greater the (positive) effect of Commission settlements on private damages awards, the higher the settlement discount needed to preserve firms’ incentive to settle. Finally, the Commission has voiced concerns that discounts which are too high may have an effect on firms’ incentive to apply for leniency, as firms would be able to obtain large discounts (by settling) even without applying for leniency. However, it is hard to see why this should be the case, provided that the settlement discount is additional to the leniency discount, as having two discounts is always better than having only one.

IV. Conclusion While as a matter of principle settlements may increase or reduce the likelihood, frequency, and timeliness of private actions, it may well be that the introduction of settlements in EC cartel proceedings could encourage private litigation. This would serve a primary policy objective of private litigation: the redress of consumer harm. However, in determining the level of the settlement discount the Commission should be careful to consider the implications of more likely private litigation on firms’ incentive to settle. This paper has shown how the relatively low and inflexible settlement discount the Commission is entitled to offer under the Legislation (10%) is most likely insufficient to provide firms with an incentive to settle, in light of the likely impact on private follow-on damages. Thus, we do not expect to see a significant number of settlements in the near future. Under the current rules, the Commission might be tempted to incentivize firms to settle by limiting the exposure of settling firms to private damages (for instance, by removing any substantive information on the functioning of 21

COM(2008) 165 of 2 April 2008.

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The Interaction between Settlements and Private Litigation 705 the cartel or its effect on the market from its streamlined settlement decisions). However, by doing this the Commission would further reduce the likelihood of private litigation. If the Commission is concerned that there is insufficient private litigation and compensation of consumer harm, then it should make sure that it does not interfere with that process in order to incentivize firms to settle. It would be better—from a policy point of view—if the Commission decided to offer higher settlement discounts, sufficient to provide firms with adequate incentives to settle.

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Miege, Christian, “Modernisation and Enforcement Pluralism”, 2005, http://www. cms.uva.nl/template/downloadAsset.cfm?objectid=8344CB9B-5AF8-4AD6A116B8663C85743A Monbiot, George, The Captive State: the corporate takeover of Britain, Macmillan, 2000 Motta, Massimo, “On Cartel Deterrence and Fines in the European Union”, 29(4) European Competition Law Review 209 (2008) Motta, Massimo and Michele Polo, “Leniency Programs and Cartel Prosecution”, 21 International Journal of Industrial Organization 347 (2003) Nazzini, Renato, Concurrent Proceedings in Competition Law, OUP, 2004 O’Donoghue, Robert and Jorge Padilla, The Law and Economics of Article 82 EC, Hart Publishing, 2006 Ortiz Blanco, Luis, ed., EC Competition Procedure, 2nd edition, OUP, 2006 Ostrow, Eleanor, “The Case for Preplea Disclosure”, 90 Yale Law Journal 1581 (1981) Pace, Lorenzo, European Antitrust Law, Edward Elgar, 2007 Parker, Christine, “Restorative Justice in Business Regulation? The Australian Competition and Consumer Commission’s Use of Enforceable Undertakings”, 67 Modern Law Review 209 (2004) Parker, Christine, “The ‘Compliance’ Trap: The Moral Message in Responsive Regulatory Enforcement’, 40 Law and Society Review 591 (2006) Parker, Christine, John Braithwaite and Natalie Stepanenko, Working Paper on ACCC Compliance Education & Liaison Strategies, http://cccp.anu.edu.au/ projects/compliancereportapril2004.pdf Pate, Hewitt, “The Thirteenth Chime of the Clock”, 4(1) Competition Policy International 50 (2008) Perloff, Jeffrey, Dan Rubinfeld and Paul Ruud, “Antitrust Settlements and Trial Outcomes”, 78 Review of Economics and Statistics 401 (1996) Petit, Nicolas, “The Guidelines on the Application of Article 81(3) EC: A Critical Review”, IEJE Working Paper No 4/2009 Platt Majoras, Deborah, “Convergence, Conflict, and Comity: The Search for Coherence in International Competition Policy,” speech, Fordham Competition Law Institute, New York, 27 September 2007 Polinsky, A. Mitchell and Daniel L. Rubinfeld, “The Deterrent Effects of Settlements and Trials”, 8 International Review of Law and Economics 109 (1988) Polinsky, A. Mitchell and Daniel L. Rubinfeld, “A Note on Optimal Public Enforcement with Settlements and Litigation Costs,” 12 Research in Law and Economics 1 (1989) Polinsky, A. Mitchell and Daniel L. Rubinfeld, “A Model of Optimal Fines for Repeat Offenders,” 46 Journal of Public Economics 291 (1991) Polinsky, A. Mitchell and Steven Shavell, “The Optimal Tradeoff Between the Probability and Magnitude of Fines,” 69 American Economic Review 880 (1979) Polinsky, A. Mitchell and Steven Shavell, “The Economic Theory of Public Enforcement of Law,” 38 Journal of Economic Literature 45 (2000) Polverino, Fabio, “Procedure ‘Negoziate’ in Materia Antitrust: Impegni e Accordi Transattivi”, in 16 Mercato Concorrenza Regole 411 (2009) Posner, Richard “An economic approach to legal procedure and judicial administration”, 2 Journal of Legal Studies 399 (1973) Posner, Richard, Antitrust Law, 2nd edition, University of Chicago Press, 2001

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Rasmussen, Eric, “Mezzanatto and the Economics of Self-Incrimination”, 19 Cardozo Law Review 1541 (1998) Reinhart, Tara, Nathan Muyskens and Christopher Tierney, “The Business of Sentencing: Facing the Facts After Blakely, Booker, and Fanfan”, The Antitrust Source (January 2005) Rodger, Barry, “Private Enforcement of Competition Law, The Hidden Story: Competition Litigation Settlements in the United Kingdom, 2000–2005”, 29(2) European Competition Law Review 96 (2008) Rose, Richard, Learning from Comparative Public Policy: a practical guide, Routledge, 2004 Roundtable, “Settlements of Government Civil Proceedings and Private Actions”, Barry Hawk, ed., International Antitrust Law and Policy: Fordham Corporate Law 2005, Juris Publishing, 2006, chapter 15 Roundtable, “Criminal Enforcement of Antitrust Laws”, in Barry Hawk, ed., International Antitrust Law & Policy: Fordham Competition Law 2006, Juris Publishing, 2007, chapter 7 Roux, Catherine and Thomas von Ungern-Sternberg, “Leniency Programs in a Multimarket Setting: Amnesty Plus and Penalty Plus”, CESifo Working Paper No 1995 (2007) Rubinfeld, Daniel L., “Maintenance of Monopoly: U.S. v. Microsoft”, in John Kwoka and Lawrence White, eds., The Antitrust Revolution (4th ed.), OUP, 2004, pp. 476 et seq. Rubinfeld, Daniel L., “An Empirical Perspective on Legal Process: Should Europe Introduce Private Antitrust Enforcement?” in Peter Nobel and Marina Gets, eds., New Frontiers of Law and Economics, Schulthess, 2006, pp. 141 et seq. Schapiro, Peter, “German Law against Restraints of Competition—Comparative and International Aspects”, Part I, 62 Columbia Law Review 1 (1962); and Part II, 62 Columbia Law Review 201 (1962) Schulhofer, Stephen, “Criminal Justice Discretion as a Regulatory System”, 17 Journal of Legal Studies 43 (1988) Schulhofer, Stephen, “Plea Bargaining as Disaster”, 101 Yale Law Journal 1979 (1992) Schwartz, Ivo, “Antitrust Legislation and Policy in Germany—A Comparative Study”, 105 University of Pennsylvania Law Review 617 (1957) Scott, Robert E. and William J. Stuntz, “Plea Bargaining as Contract”, 101 Yale Law Journal 1909 (1992) Scott, Sheridan, “Speaking notes” on internationalization of competition law, merger control, cartels and international cooperation, Federation of Industries of São Paulo State, 12 May 2008, http://www.competitionbureau.gc.ca/epic/site/cb-bc. nsf/en/02678e.html Seerden, René and Frits Stroink, “Administrative Law in the Netherlands”, in Seerden and Stroink, eds., Administrative Law of the European Union, its Member States and the United States: A Comparative Analysis, 2nd edition, Intersentia, 2007 Shavell, Steven, “The Level of Litigation: Private Versus Social Optimality of Suit and of Settlement”, 19 International Review of Law and Economics 99 (1999) Sigman, Shayna, “An Analysis of Rule 11 Plea Bargaining Options”, 66 University of Chicago Law Review 1317 (1999) Starek, Roscoe, III, “International Cooperation in Antitrust Enforcement,” speech,

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Annual Conference of the American Corporate Counsel Association, European Chapter, 29 September 1997, http://www.ftc.gov/speeches/starek/londspch.shtm Stephan, Andreas, “Survey of Attitudes to Price Fixing and Cartel Enforcement in Britain”, 5(1) Competition Law Review 123 (2008) Stephan Andreas, “Beyond the cartel law handbook: how corruption, social norms and collectivist business cultures can undermine conventional enforcement tools”, CCP Working Paper 08–19 Norwich, UEA (2008) Stephan, Andreas, “The Direct Settlement of EC Cartel Cases”, 58(3) International and Comparative Law Quarterly 627 (2009) Sufrin, Brenda, “The Evolution of Article 81(3) of the EC Treaty”, 51 Antitrust Bulletin 915 (2006) Temple Lang, John, “Commitments decisions under regulation 1/2003: Legal aspects of a new kind of competition decision”, 24 European Competition Law Review 347 (2003) Temple Lang, John, “Commitment Decisions and Settlements with Antitrust Authorities and Private Parties under European Antitrust Law”, in Barry Hawk, ed., International Antitrust Law and Policy: Fordham Corporate Law 2005, Juris Publishing, 2006, chapter 13 Temple Lang, John, “Commitment Decisions under Regulation 1/2003”, in Gheur, Charles and Nicolas Petit, eds., Alternative Enforcement Techniques in EC Competition Law, Bruylant, 2009, pp. 121 et seq. Tierno Centella, Maria Luísa and Eric Cuziat, “La procédure de transaction communautaire”, Concurrences, No 2 (2008), pp. 76 et seq. Tyler, Tom, Why People Obey the Law, Yale University Press, 1990 Vallery, Anne, “Les procédures de règlement négocié de la Commission européenne en matière de concurrence : entre flexibilité et securité juridique”, in Aline De Walsche and Laure Levi, eds., Mélanges en hommage à Georges Vandersanden : Promenades au sein du droit européen, Bruylant, 2008, pp. 735 et seq. Van Bael & Bellis, Competition Law of the European Community, 5th edition, Kluwer Law International, forthcoming 2010 Van Bergeijk, Peter, “On the Allegedly Invisible Dutch Construction Sector Cartel”, 3 Journal of Competition Law and Economics 1 (2007) Van Cayseele, Patrick, Peter Camesasca and Kristian Hugmark, “The EC Commission’s 2006 Fine Guidelines reviewed from an economic perspective: Risking overdeterrence”, 53 Antitrust Bulletin 1083 (2008) Van Den Heuvel, Grat, “The Parliamentary Enquiry on Fraud in the Dutch Construction Industry Collusion as Concept Between Corruption and StateCorporate Crime”, 44 Crime, Law and Social Change 133 (2005) Van der Esch, Bastian, Loyauté fédérale et subsidiarité, in 30 Cahiers de Droit Européen 523 (1994) Vesterdorf, Bo, “The Court of Justice and Unlimited Jurisdiction: What Does it Mean in Practice?”, in GCP: The Online Magazine for Global Competition Policy, June 2009, No 2 Vickers, John, “A Tale of Two EC Cases: IBM and Microsoft”, 4(1) Competition Policy International 2 (2008) Vogel, David, Fluctuating Fortunes: the Political Power of Business in America, Basic Books, 1989

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Vogelaar, Floris, “Plea Bargaining—The Balancing of Workload, Transparency, Effectiveness and Efficiency”, presentation at the EU Cartel Enforcement: Practice and Policy conference, Brussels, 19 October 2006 Von Finckenstein, Konrad, “Section 45 at the Crossroads”, speech, 2001 Invitational Forum on Competition Law, 12 October 2001, http://www.cb-bc.gc.ca/eic/site/ cb-bc.nsf/eng/01187.html Von Wiese, Irina, “Private Actions, Vitamins and the Passing-on Defence— Turnaround in the German Courts?”, 3 Competition Law Journal 247 (2004) Waelbroeck, Denis, “Le développement en droit européen de la concurrence des solutions négociées (engagements, non-contestations des faits et transactions): que va-til rester aux juges?”, GCLC Working Paper 1/08 Waelbroeck, Denis, “The development of a new ‘settlement procedure’ in competition cases: What is left to the Courts?”, in Gheur, Charles and Nicolas Petit, eds., Alternative Enforcement Techniques in EC Competition Law, Bruylant, 2009, pp. 221 et seq. Waelbroeck, Michel, “La Constitution européenne et les interventions des Etatsmembres en matière économique”, in In Orde: Liber Amicorum Pieter VerLoren van Themaat, Deventer, 1982, pp. 331 et seq. Walsh, Declan “We say competition, you say antitrust: can diverging policy objectives be met by uniform enforcement policies?”, paper presented at the EUSA Conference, Montreal, 17–19 May 2007 Whish, Richard, Competition Law, 5th edition, OUP, 2003 Whish, Richard, “Commitment Decisions under Article 9 of the EC Modernisation Regulation: Some Unanswered Questions”, in Martin Johansson, Nils Wahl and Ulf Bernitz, eds., Liber Amicorum in Honour of Sven Norberg—A European for All Seasons, Bruylant, 2006, pp. 555 et seq. Whish, Richard, Competition Law, 6th edition, OUP, 2008 Wigger, Angela and Andreas Nölke, “Enhanced Roles of Private Actors in EU Business Regulation and the Erosion of Rhenish Capitalism: The Case of Antitrust Enforcement”, 45(2) Journal of Common Market Studies 45 (2007) Wilks, Stephen with Ian Bartle, “The unanticipated consequences of creating independent competition agencies”, 25(1) West European Politics 148 (2002) Wils, Wouter, “The Commission Notice on the Non-Imposition or Reduction of Fines in Cartel Cases”, 22 European Law Review 125 (1997) Wils, Wouter, The Optimal Enforcement of EC Antitrust Law, Kluwer Law International, 2002 Wils, Wouter, “The Principle of Ne Bis in Idem in EC Antitrust Enforcement: A Legal and Economic Analysis”, 26 World Competition 131 (2003) Wils, Wouter, “Self-incrimination in EC Antitrust Enforcement: A Legal and Economic Analysis”, 26 World Competition 567 (2003) Wils, Wouter, “The Combination of the Investigative and Prosecutorial Function and the Adjudicative Function in EC Antitrust Enforcement: A Legal and Economic Analysis”, 27 World Competition 201 (2004) Wils, Wouter, Principles of European Antitrust Enforcement, Hart Publishing, 2005 Wils, Wouter, “Optimal Antitrust Fines: Theory and Practice’ ”, 29 World Competition 183 (2006) Wils, Wouter, “Settlements of EU Antitrust Investigations: Commitment Decisions under Article 9 of Regulation No 1/2003”, 29(3) World Competition 345 (2006)

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Wils, Wouter, “Leniency in Antitrust Enforcement: Theory and Practice”, 30 World Competition 64 (2007) Wils, Wouter, “The European Commission’s 2006 Guidelines on Fines: A Legal and Economic Analysis”, 30 World Competition 197 (2007) Wils, Wouter, Efficiency and Justice in European Antitrust Enforcement, Hart Publishing, 2008 Wils, Wouter, “The Relationship between Public Antitrust Enforcement and Private Actions for Damages”, 32(1) World Competition 3 (2009) Winkler, Warrant and Sharon Matthews, “Caught in A Trap: Ethical Considerations for the Plaintiff ’s Lawyer in Class Proceedings”, presentation, 5th Annual Symposium on Class Actions, 11 April 11 2008 Wurmnest, Wolfgang, “A New Era for Private Antitrust Litigation in Germany? A Critical Appraisal of the Modernized Law against Restraints of Competition”, 6 German Law Journal 1173 (2005) Wright, Ronald and Marc Miller, “The Screening/Bargaining Tradeoff”, 55 Stanford Law Review 29 (2002) Wright, Charles and Linda Visser, “Partial Settlements in Price-Fixing Cartel Cases”, presentation, CBA Conference on Competition, Crime and Punishment: The Practice, Procedure and Substance of Criminal Competition Law, Toronto, 28-29 April 2008 Yeung, Karen, “Private Enforcement of Competition Law”, in Christopher McCrudden, ed., Regulation and Deregulation, Clarendon, 1999 Yeung, Karen, Securing Compliance: A Principled Approach, Hart Publishing, 2004 Zingales, Nicolo, “European and American Leniency Programme: Two Models Towards Convergence,” European Policy Centre, Brussels, 2008 Zivy, Fabien, “La procédure de non contestation des griefs en droit français de la concurrence : chronique d’un retour en force”, Revue juridique de l’économie publique (mars 2008) Zivy, Fabien, “Bonnes pratiques procédurales du Conseil de la concurrence : premier aperçu de six mois de mise en œuvre”, Concurrences, No 2 (2008)

II. Legislation, proposed legislation and soft law A. The European Union European legislation Commission Decision on the terms of reference of hearing officers in certain competition proceedings, 2001 OJ L162/21 Directive 2004/48/EC of the European Parliament on the enforcement of intellectual property rights, OJ L157/45 Council Regulation 17/62, 1962 JO 13/204, Eng. Spec. Ed. 1959-1962, at 87 Council Regulation (EC) No 1206/2001 of 28 May 2001 on cooperation between the courts of the Member States in the taking of evidence in civil or commercial matters, 2001 OJ L174/1

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Regulation (EC) No 1049/2001 of the European Parliament and the Council of 30 May 2001 regarding public access to the European parliament, Council and Commission documents, 2001 OJ L145/43 Commission Regulation 1400/2002 on the application of Article 81(3) of the Treaty to categories of vertical agreements and concerted practices in the motor vehicle sector, 2002 OJ L203/30 Regulation (EC) No 1/2003 of the Council of 16 December 2002 relating to the implementation of the rules on competition laid down in Articles 81 and 82 of the EC Treaty, 2003 OJ L1/1, last amended by Council Regulation 1419/2006 of 25 September 2006, 2006 OJ L269/1 Commission Regulation No 773/2004 of 7 April 2004 on the conduct of proceedings by the Commission pursuant to Articles 81 and 82 of the EC Treaty, 2004 OJ L123/18, last amended by Commission Regulation (EC) No 622/2008 of 30 June 2008, 2008 L171/3 Commission Regulation (EC) No 622/2008 of 30 June 2008 amending Regulation (EC) No 773/2004, as regards the conduct of settlement procedures in cartel cases, 2008 OJ L171/3

European proposed legislation Proposal for a Commission Regulation amending Regulation 773/2004, as regards the conduct of settlement procedures in cartel cases, 2007 OJ C255/48 Proposal for a Regulation of the European Parliament and of the Council regarding public access to European Parliament, Council and Commission documents, COM(2008) 229 final of 30 April 2008

European soft law Commission Notice on cooperation within the Network of Competition Authorities, 2004 OJ C101/43 Notice on informal guidance relating to novel questions concerning Articles 81 and 82 of the EC Treaty that arise in individual cases (guidance letters), 2004 OJ C101/06 Notice on the rules for access to the Commission file in cases pursuant to Articles 81 and 82 of the EC Treaty, 2005 OJ C325/7 Guidelines on the method of setting fines imposed pursuant to Article 23(2)(a) of Regulation No 1/2003, 2006 OJ C210/2 Commission Notice on Immunity from fines and reduction of fines in cartel cases, 2008 OJ C298/17 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 1/003 in cartel cases, 2008 OJ C167/1

Draft guidelines Draft Commission Notice on the conduct of settlement proceedings, 2007 OJ C255/51

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B. National jurisdictions Canada Competition Bureau Information Bulletin on the Immunity Program under the Competition Act, Competition Bureau, October 2007 Competition Bureau, Draft Information Bulletin on Sentencing and Leniency in Cartel Cases, 28 April 2008 France Communiqué de procédure du Conseil de la concurrence relatif aux engagements en matière de concurrence, 3 April 2008, http://www.conseil-concurrence.fr/user/ standard.php?id_rub=255&id_article=901 Draft Law on the modernisation of the economy, http://www.assembleenationale.fr/13/dossiers/modernisation_economie.asp Law No 2008-776 of 4 August 2008 on the modernisation of the economy, http://www. legifrance.gouv.fr/affichTexte.do?cidTexte=JORFTEXT000019283050&dateTexte Germany Law Against Restraints of Competition, http://www.bundeskartellamt.de/wEnglisch/ download/pdf/GWB/0712_GWB_mitInhaltsverzeichnisE.pdf United Kingdom OFT Enforcement Guidelines (407), December 2004, http://www.oft.gov.uk/shared_ oft/business_leaflets/ca98_guidelines/oft407.pdf OFT Informant Reward Program, http://www.oft.gov.uk/advice_and_resources/ resource_base/cartels/rewards OFT Recommendation, “Private actions in competition law: effective redress for consumers and business”, OFT916rsp, November 2007, http://www.oft.gov.uk/ shared_oft/reports/comp_policy/oft916resp.pdf United States Alternative Fine Statute, 18 USC § 3571 (d) Antitrust Civil Process Act, 15 U.S.C. § 1312 Antitrust Criminal Penalty Enhancement and Reform Act (“ACPERA”), Pub. L. No. 108–237, § 213, 118 Stat. 661 Federal Rules of Civil Procedure, http://www.uscourts.gov/rules/civil2007.pdf Federal Rules of Criminal Procedure, http://www.uscourts.gov/rules/crim2007.pdf Federal Rules of Evidence, http://www.uscourts.gov/rules/EV2008.pdf Foreign Trade Antitrust Improvements Act, 15 U.S.C. § 6a Federal Trade Commission Act, 15 U.S.C. § 49 Hart-Scott-Rodino Antitrust Improvements Act of 1976, 15 U.S.C. § 18a Tunney Act, 15 U.S.C. § 16 U.S. Sentencing Commission Guidelines Manual (1 November 2007), http://www. ussc.gov/2007guid/GL2007.pdf U.S. Department of Justice, Memo from Attorney General John Ashcroft to All Federal Prosecutors, Department Policies and Procedures Concerning Sentencing Recommendations and Sentencing Appeals (28 July 2003),

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http://www.nacdl.org/public.nsf/legislation/ci_03_32/$FILE/AG_Guidance_Stcg_Re cs.pdf U.S. Department of Justice, Memo from Attorney General John Ashcroft to All Federal Prosecutors, Memo Regarding Policy On Charging Of Criminal Defendants (22 September 2003), http://www.usdoj.gov/opa/pr/2003/September/ 03_ag_516.htm U.S. Department of Justice, Principles of Federal Prosecution, U.S. Attorney’s Manual, http://www.usdoj.gov/usao/eousa/foia_reading_room/usam/title9/27 mcrm.htm U.S. Department of Justice, Antitrust Division, An Antitrust Primer for Federal Law Enforcement Personnel (August 2003, revised April 2005), http://www.usdoj.gov/ atr/public/guidelines/209114.htm U.S. Department of Justice, Antitrust Division, Corporate Leniency Policy (10 August 1993), http://www.usdoj.gov/atr/public/guidelines/0091.htm U.S. Department of Justice, Antitrust Division Manual, http://www.usdoj.gov/atr/ foia/divisionmanual/ch4.htm#e U.S. Department of Justice, Antitrust Division, Model Annotated Corporate Plea Agreement (updated 19 December 2006), http://www.usdoj.gov/atr/public/ guidelines/220671.htm U.S. Department of Justice, Antitrust Division, Sherman Act Violations Yielding a Corporate Fine of $10 Million or More (1 August 2007), www.usdoj.gov/atr/ public/criminal/225540.htm U.S. Department of Justice, Antitrust Division Workload Statistics, FY 1998–2007, http://www.usdoj.gov/atr/public/workstats.pdf U.S. Federal Sentencing Guidelines, http://www.ussc.gov/2008guid/GL2008.pdf U.S. Federal Trade Commission Operating Manual, http://www.ftc.gov/foia/ch06 consents.pdf U.S. Federal Trade Commission Rules of Practice, 16 C.F.R. § 2.34 (consent order procedure) Federal Trade Commission, Summary of Bureau of Competition Activity, Fiscal Year 2004 Through February 29, 2008, http://www.ftc.gov/reports/aba/abaspring2008. pdf

III. Official and unofficial reports, newsletters, studies, discussion papers, etc. A. The European Union Commission, Annual Reports on Competition Policy XIVth Report on Competition Policy, 1984 XXIVth Report on Competition Policy, 2004 XXXIst Report on Competition Policy, 2001 XXXIInd Report on Competition Policy, 2002 XXXVIth Report on Competition Policy, 2006

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Commission, Competition Policy Newsletter Bachour, Kirsten, Giuseppe Conte, Peter Eberl, Clémentine Martini, Alessando Paolicchi, Philippe Redondo, Augustijn van Haasteren and Geert Wils, “Gaz de France/Suez: Keeping energy markets in Belgium and France open and contestable through far-reaching remedies”, Competition Policy Newsletter No 1—2007, pp. 83 et seq. Becker, Rainer, Nicolas Bessot and Eddy De Smijter, “The White Paper on damages actions for breach of the EC antitrust rules”, Competition Policy Newsletter No 2— 2008, pp. 5 et seq. Clark, John and Anna Nykiel-Mateo, “Four decisions bind DaimlerChrysler, Fiat, Toyota and General Motors to commitments to give independent repairers proper access to repair information”, Competition Policy Newsletter No 3—2007, pp. 50 et seq. Gasparon, Philipp and Blaˇz Viˇsnar, “Coca-Cola: Europe-wide remedies in fizzy drinks”, Competition Policy Newsletter No 3—2005, pp. 60 et seq. Lowe, Philip, “Preserving and Promoting Competition: A European Response”, Competition Policy Newsletter No 2—2006 (and speech, St. Gallen, 11 May 2006) Tierno Centella, María Luisa, “The new settlement procedure in selected cartel cases”, Competition Policy Newsletter No 3—2008, pp. 30 et seq. Commission, Communications and other reports Commission, Evaluation Report on the operation of Regulation 1400/2002 concerning motor vehicle distribution and servicing, 28 May 2008, http://ec.europa.eu/ comm/competition/sectors/motor_vehicles/documents/evaluation_report_en.pdf Commission, Green Paper on damages actions for breach of the EC antitrust rules, COM(2005) 672 final of 19 December 2005, http://ec.europa.eu/comm/competition/ antitrust/actionsdamages/documents.html Commission Staff Working Paper, Annex to the Green Paper, Damages Actions for Breach of the EC Antitrust Rules, SEC(2005) 1732 of 19 December 2005, http://ec. europa.eu/comm/competition/antitrust/actionsdamages/sp_en.pdf Commission, White Paper on Damages actions for breach of the EC antitrust rules, COM(2008) 165 of 2 April 2008, http://ec.europa.eu/competition/antitrust/actions damages/files_white_paper/whitepaper_en.pdf Staff Working Paper accompanying the White Paper on Damages actions for breach of the EC competition rules, SEC(2008) 404 of 2 April 2008, http://ec.europa.eu/ comm/ competition/antitrust/actionsdamages/documents.html Waelbroeck, Denis, Donald Slater and Gil Even-Shoshan (Ashurst), “Study on the condition of claims for damages in case of infringement of EC Competition rules”, 31 August 2004, http://ec.europa.eu/competition/antitrust/actionsdamages/comparative_report_clean_en.pdf European Parliament European Parliament resolution of 26 March 2009 on the White Paper on damages actions for breach of the EC antitrust rules, 2008/2154(INI), http://www.europarl. europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+TA+P6-TA-2009-0187+0+ DOC+XML+V0//EN

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B. National jurisdictions Canada Canadian Competition Bureau, Annual Report, year ending 31 March 1997 Canadian Competition Bureau, Annual Report, year ending 31 March 1999 Canada Government, “Discussion Paper: Options for Amending the Competition Act: Fostering a Competitive Marketplace”, 20 June 2003, http://www.competition bureau.gc.ca/eic/site/cb-bc.nsf/eng/01711.html Uniform Law Conference of Canada, Civil Law Section, “Report of the Uniform Law Conference of Canada’s Committee on the National Class and Related Interjurisdictional Issues: Background, Analysis, and Recommendations”, 9 March 2005, http://www.ulcc.ca/en/poam2/National_Class_Actions_Rep_En.pdf France Conseil de la concurrence, Rapport annuel 2005 Germany German delegation, Competition Committee, OECD, Annual Report on Competition Developments in Germany (July 2007–June 2008), DAF/COMP(2008)18/01 of 8 October 2008, http://www.olis.oecd.org/olis/2008doc.nsf/ENGREFCORPLOOK/ NT00005B86/$FILE/JT03252306.PDF United Kingdom Hammond, Anthony and Roy Penrose, “Proposed criminalisation of cartels in the UK”, report prepared for the OFT, November 2001, http://www.oft.gov.uk/ shared_oft/reports/comp_policy/oft365.pdf OFT, Annual Report and Resource Accounts 2006-07, London, TSO, HC532, 2007 United States Antitrust Modernization Commission, Report and Recommendations, April 2007, http://govinfo.library.unt.edu/amc/report_recommendation/amc_final_report.pdf

C. International agreements and international organizations International agreements Convention on the Taking of Evidence Abroad in Civil or Commercial Matters of 18 March 1970, http://www.hcch.net/index_en.php?act=conventions.pdf&cid=82

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