Efficiency and Justice in European Antitrust Enforcement 9781472560193, 9781841130170

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JOBNAME: Wouter Wils PAGE: 5 SESS: 5 OUTPUT: Tue Jan 22 09:57:38 2008

Introduction and Acknowledgements In the last few years, the public enforcement of Articles 81 and 82 EC has been thoroughly transformed. As a result of the decentralisation brought about by Regulation 1/2003 and of the enlargement of the EU from 15 to 27 Member States, the competition authorities of the Member States now play an important role in the enforcement of Articles 81 and 82 EC, alongside the European Commission in the European Competition Network (ECN).1 Meanwhile the European Commission has to a significant extent focused its resources on the fight against cartels, adopting recently between five and 10 major cartel decisions per year, with total amounts of fines running into billions of euros.2 One of the main factors contributing to this success has been the progressive refinement of the Commission’s leniency policy. The question remains, however, whether cartels can be effectively deterred with only financial penalties on companies, or whether criminal penalties should be added, as has recently been done in some Member States. The overall trend towards more and stronger enforcement of Articles 81 and 82 EC has also rekindled discussion on the old question of how to strike the right balance between efficient enforcement and adequate protection of the rights of the defence.3 This book brings together six essays which analyse many of the main legal, economic and policy issues arising from the recent growth and transformation of the public enforcement of Articles 81 and 82 EC, and from the continuing need to reconcile efficient enforcement with adequate protection of the rights of the defence. The essays are all based on papers which have been published previously, but have been updated to varying degrees so as to include recent developments as well as the evolution of my thinking. Tables have been added to the preliminary pages and a subject index at the end of the book. Chapter 1 deals with the powers of investigation of the European Commission and of the competition authorities of the Member States for the enforcement of Articles 81 and 82 EC, and with the procedural rights and guarantees that circumscribe or limit these powers. It focuses in particular on the question of which law governs these matters (EC or EU law, national law, and the European Convention on Human Rights), and by whom or how the content of this law is

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See the enforcement statistics at http://ec.europa.eu/comm/competition/ecn/statistics.html. See the statistics at http://ec.europa.eu/comm/competition/cartels/statistics/statistics.pdf. See, inter alia, the Opinions of AG Geelhoed of 19 Jan 2006 and 12 Sept 2006, and the subsequent Judgments of the ECJ of 29 June 2006 and 25 Jan 2007 in Case C–301/04 P Commission v SGL Carbon [2006] ECR I–5915 and in Case C–411/04 P Salzgitter Mannesmann v Commission, not yet reported. 2 3

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determined (by European and national legislation, and case law of the European Court of Justice and Court of First Instance, national courts, and the European Court of Human Rights). This chapter is based on a paper presented at the First Lisbon Conference on Competition Law and Economics (Lisbon, 3–4 November 2005), organised by the Portuguese Competition Authority, and published at (2006) 29 World Competition 3 and in AM Mateus and T Moreira (eds), Competition Law and Economics—Advances in Competition Policy and Antitrust Enforcement (Alphen aan den Rijn, Kluwer Law International, 2007). Chapter 2 focuses on one of the novelties under Regulation 1/2003, namely its Article 9, which provides for formal settlement of investigations by the European Commission into suspected infringements of Article 81 or 82 EC. The analysis covers the origin and optimal use of this provision, the procedure for the adoption of commitment decisions, the content and effect of such decisions, and the scope for judicial review. This chapter is based on a paper prepared for a public lecture at the Centre of European Law, King’s College London on 24 May 2006, and published at (2006) 29 World Competition 345. Chapter 3 discusses, in general and from a legal and economic perspective, the use of fines imposed on companies or other corporate entities to enforce antitrust or competition law prohibitions such as Articles 81 and 82 EC or sections 1 and 2 of the Sherman Act. The chapter addresses more specifically the questions in what ways these fines contribute to competition law enforcement, on the basis of which factors the amounts of antitrust fines should be fixed in theory, and whether it is feasible in practice to calculate or measure such optimal fines. An earlier version of this chapter, based on lectures at the Finnish Competition Authority on 7 March 2003, at the University of Bologna on 28 November 2003 and at King’s College London on 21 October 2004, was published at (2006) 29 World Competition 183. Chapter 4 focuses on the European Commission’s 2006 Guidelines on antitrust fines. It discusses what the purpose is of guidelines, and how foreseeable the amount of fines should be, and analyses the method set out in the 2006 Guidelines in the light of the Commission’s past practice, the case law of the Community Courts and the theory on optimal fines. This chapter is based on a paper prepared for a public lecture at the Centre of European Law, King’s College London on 15 February 2007, and published at (2007) 30 World Competition 197. Chapter 5 discusses the theory and practice of leniency in antitrust enforcement, ie the granting of immunity from penalties or the reduction of penalties for antitrust violations in exchange for cooperation with the antitrust enforcement authorities. After a description of the practice of leniency in the US and in Europe, and of its history, the chapter analyses the positive effects and the possible negative effects of leniency on optimal antitrust enforcement, and the extent to which these effects can be measured. Objections of principle and institutional problems that may constitute obstacles to the introduction of leniency policies are discussed, as well as some further issues, namely the impact on the effectiveness of leniency of criminal penalties on individuals, of follow-on

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private damages actions, and of penalties in other jurisdictions, ‘Amnesty Plus’, and positive financial rewards or bounties. This chapter is based on a paper presented at the 25th Conference on New Political Economy (Saarbrücken, 12–14 October 2006), and published at (2007) 30 World Competition 64, and in M Albert, D Schmidtchen and S Voigt (eds), Frontiers of EC Antitrust Enforcement: The More Economic Approach, Conferences on New Political Economy 25 (Tübingen, Mohr Siebeck 2007). Finally, Chapter 6 addresses five questions concerning the criminalisation of European antitrust enforcement: First, what do we mean by ‘criminalisation’, or ‘criminal’ enforcement (as opposed to public enforcement of a ‘civil’ or ‘administrative’ nature)? Secondly, is there a tendency in the EU Member States to criminalise antitrust enforcement (in comparison with US antitrust enforcement and with antitrust enforcement at the level of the EU institutions)? Thirdly, is criminal antitrust enforcement, more specifically imprisonment, desirable (in general, irrespective of whether it takes place at the level of the Member States or of the EU institutions, or whether it is harmonised at EU level)? Fourthly, is it problematic that antitrust enforcement is criminalised at the level of individual EU Member States without parallel criminalisation at the level of the EU institutions or without EU harmonisation? Fifthly, would it be legally possible to criminalise antitrust enforcement at the level of the EU institutions, or to have EU harmonisation of criminal antitrust enforcement in the Member States? This chapter is based on papers presented at the Amsterdam Center of Law and Economics (ACLE) Conference Remedies and Sanctions in Competition Policy (Amsterdam, 17–18 February 2005), at the 11th European University Institute (EUI) Competition Law and Policy Workshop Enforcement of Prohibition of Cartels (Florence, 2–3 June 2006) and at the Forschungsinstitut für Wirtschaftsverfassung und Wettbewerb (FIW) XXXV Brüsseler Informationstagung (Brussels, 21–22 September 2006), and published at (2005) 28 World Competition 117, at [2005]Revue Lamy de la Concurrence (August/October 2005) 139 (with French translation), in KJ Cseres, MP Schinkel and FOW Vogelaar (eds), Criminalization of Competition Law Enforcement: Economic and Legal Implications for the EU Member States (Cheltenham, Edward Elgar, 2006) and in C-D Ehlermann and I Atanasiu (eds), European Competition Law Annual 2006: Enforcement of Prohibition of Cartels (Oxford, Hart Publishing, 2007). I am grateful to Margaret Bloom, Giuseppe Dari Mattiacci, Claus-Dieter Ehlermann, Ferdinand Hermanns, Kirsi Leivo, Pietro Manzini, Abel Mateus, Teresa Moreira, Maarten Pieter Schinkel, Dieter Schmidtchen, Floris Vogelaar and Richard Whish for having invited me to the conferences and lectures which prompted me to write the earlier versions of the essays brought together in this book, to Filippo Amato, François Arbault, David Bailey, Margaret Bloom, André Bouquet, Hubert de Broca, Fernando Castillo de la Torre, Fanis Christoforou, Leo Flynn, Céline Gauer, Damien Geradin, Eric Gippini Fournier, Joe Harrington, Erling Hjelmeng, Nicholas Khan, Bill Kovacic, Clemens Ladenburger, Xavier Lewis, Kirti Mehta, Walter Mölls, Oke Odudu, Peter Oliver, Luc Peeperkorn,

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Michele Polo, Andreas Reindl, Peter Roth, Anthony Whelan, Richard Whish and Geert Wils for their stimulating comments on earlier versions of these essays, and to Jose Rivas and Kluwer Law International, editor and publisher of World Competition, as well as to all the editors and publishers of the journals and books in which earlier versions of the essays brought together in this book were published, for having allowed me to use (the updated versions of) these essays for this book. All views expressed in this book are strictly personal, and should not be construed as reflecting the opinion of the European Commission, its Legal Service, or any of the persons mentioned above. Comments are always welcome at [email protected]. Wouter PJ Wils Brussels, 30 April 2007

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Table of Cases European Court of Justice Judgments Case 29/69 Stauder v Stadt Ulm, 12 November 1969 [1969] ECR 419: paragraph 52 (footnote 61) Case 41/69 ACF Chemiefarma v Commission, 15 July 1970 [1970] ECR 661: paragraphs 209 (footnote 74), 257 (footnote 19) Case 6/72 Europemballage and Continental Can v Commission, 21 February 1973 [1973] ECR 215: paragraph 188 (footnote 47) Case 37/79 Anne Marty v Estée Lauder, 10 July 1980 [1980] ECR 2481: paragraph 89 (footnote 11) Case 136/79 National Panasonic v Commission, 26 June 1980 [1980] ECR 2056: paragraphs 11 (footnote 17), 512 (footnote 57) Case 155/79 AM&S v Commission, 18 May 1982 [1982] ECR 1575: paragraph 45 (footnote 53) Joined Cases 100/80 etc. Musique Diffusion Française v Commission, 7 June 1983 [1983] ECR 1825: paragraphs 268 (footnote 42), 279 (footnote 70), 299 (footnote 101), 339 (footnote 176) Case 60/81 IBM v Commission, 11 November 1981 [1981] ECR 2639: paragraph 107 (footnote 22) Case 170/83 Hydrotherm Gerätebau GmbH v Compact del Dott. Ing. Mario Andreoli & C Sas, 12 July 1985 [1985] ECR 3016: paragraphs 27 (footnote 31), 502 (footnote 41) Joined Cases 89/85 etc. Ahlström Osakeyhtiö and Others v Commission, 31 March 1993 [1993] ECR I-1575: paragraphs 114 (footnote 29), 269 (footnote 43) Case 246/86 Belasco and Others v Commission, 11 July 1989 [1989] ECR 2191: paragraph 323 (footnote 152) Case 85/87 Dow Benelux v Commission, 17 October 1989 [1989] ECR 3137: paragraph 460 (footnote 198) Joined Cases 133/87 etc. Nashua Corporation and Others v Commission and Council, 14 March 1990 [1990] ECR I-767: paragraph 151 (footnote 53) Case 374/87 Orkem v Commission, 18 October 1989 [1989] ECR 3343: paragraph 44 (footnote 50) Case 68/88 Commission v Greece, 21 September 1989 [1989] ECR 2965: paragraph 22 (footnote 27) Case C-36/92 P SEP v Commission, 19 May 1994 [1994] ECR I-1932: paragraph 44 (footnote 49) Case C-51/92 P Hercules v Commission, 8 July 1999 [1999] ECR I-4235: paragraph 233 (footnote 98) Case C-60/92 Otto v Postbank, 10 November 1993 [1993] ECR I-5707: paragraph 64 (footnote 85) Case C-199/92 P Hüls v Commission, 8 July 1999 [1999] ECR I-4383: paragraphs 55 (footnote 65), 488 (footnote 16)

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Opinion 2/94 Accession to the ECHR, 28 March 1996 [1996] ECR I-1759: paragraph 55 (footnote 64) Case C-137/95 P SPO and Others v Commission, 25 March 1996 [2006] ECR I-1627: paragraph 321 (footnote 147) Case C-185/95 P Baustahlgewebe v Commission, 17 December 1998 [1998] ECR I-8417: paragraph 53 (footnote 63) Case C-219/95 P Ferriere Nord v Commission, 17 July 1997 [1997] ECR I-4440: paragraph 321 (footnote 147) Case C-231/96 Edilizia Industriale Siderurgica Srl (Edis) v Ministero delle Finanze, 15 September 1998 [1998] ECR I-4990: paragraphs 22 (footnote 27), 523 (footnote 69) Case C-309/96 Daniele Annibaldi v Sindaco del Comune di Guidonia and Presidente Regione Lazio, 18 December 1997 [1997] ECR I-7493: paragraph 53 (footnote 63) Case C-7/97 Bronner v Mediaprint, 26 November 1998 [1998] ECR I-7819: paragraph 168 (footnote 8) Case C-70/97 P Kruidvat v Commission, 17 November 1998 [1998] ECR I-7213: paragraph 153 (footnote 54) Case C-292/97 Kjell Karlsson and Others, 13 April 2000 [2000] ECR I-2760: paragraph 64 (footnote 84) Case C-279/98 P Cascades v Commission, 16 November 2000 [2000] ECR I-9709: paragraphs 27 (footnote 31), 503 (footnote 43) Case C-297/98 P SCA Holding v Commission, 16 November 2000 [2000] ECR I-10101: paragraphs 217 (footnote 84), 330 (footnote 162) Case C-298/98 P Metsä-Serla (Finnboard) v Commission, 16 November 2000 [2000] ECR I-10171: paragraphs 161 (footnote 61), 440 (footnote 165) Joined Cases C-238/99 P etc. Limburgse Vinyl Maatschappij (LVM) and Others v Commission (PVC II), 15 October 2002 [2002] ECR I-8618: paragraph 55 (footnote 66) Case C-354/99 Commission v Ireland, 18 October 2001 [2001] ECR I-7657: paragraph 22 (footnote 27) Case C-453/99 Courage v Crehan, 20 September 2001 [2001] ECR I-6314: paragraphs 138 (footnote 42), 139 (footnote 43), 140 (footnote 45) Case C-94/00 Roquette Frères SA v Directeur général de la concurrence et de la répression des fraudes, and EC Commission, 22 October 2002 [2002] ECR I-9039: paragraphs 57 (footnote 71), 363 (footnote 27) Joined Cases C-204/00 P etc. Aalborg Portland and Others v Commission, 7 January 2004 [2004] ECR I-123: paragraphs 279 (footnote 70), 294 (footnote 91), 305 (footnotes 126 and 127), 326 (footnote 156) Case C-253/00 Antonio Muñoz e Cia SA and Superior Fruticola SA v Frumar Ltd and Redbridge Product Marketing Ltd, 17 September 2002 [2002] ECR I-7289 paragraph 139 (footnote 43) Case C-198/01 Consorzio Industriale Fiammiferi (CIF) v Autorità Garante della Concorrenza del Mercato, 9 September 2003 [2003] ECR I-8055: paragraph 332 (footnote 164) Case C-481/01 P(R) NDC Health v Commission, 11 April 2002 [2002] ECR I-3401: paragraph 188 (footnote 47) Case C-60/02 Criminal proceedings against X, 7 January 2004 [2004] ECR I-651: paragraph 40 (footnote 44)

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Joined Cases C-65/02 P etc. ThyssenKrupp Stainless and Others v Commission, 14 July 2005 [2005] ECR I-6773: paragraph 439 (footnote 164) Case C-141/02 P Commission v T-Mobile Austria, 22 February 2005 [2005] ECR I-1283: paragraph 56 (footnote 67) Joined Cases C-189/02 P etc. Dansk Rørindustri and Others v Commission, 28 June 2005 [2005] ECR I-5425: paragraphs 244 (footnote 2), 262 (footnote 29), 267 (footnote 39), 278 (footnote 69), 299 (footnote 101), 306 (footnote 128), 308 (footnote 131), 337 (footnote 173), 428 (footnote 145) Case C-263/02 P Commission v Jégo-Quéré, 1 April 2004 [2004] ECR I-3425: paragraph 56 (footnote 67) Case C-304/02 Commission v France, 12 July 2005 [2005] ECR I-6263: paragraph 22 (footnote 28) Joined Cases C-387/02 etc. Criminal proceedings against SilvioBerlusconi and Others, 3 May 2005 [2005] ECR I-3565: paragraph 40 (footnote 44) Case C-176/03 European Commission v Council of the European Union, 13 September 2005 [2005] ECR I-7879: paragraphs 367 (footnote 32), 624 (footnote 192) Case C-397/03 P Archer Daniels Midland v Commission, 18 May 2006 [2006] ECR I-4429: paragraphs 267 (footnote 40), 278 (footnote 69) Case C-540/03 European Parliament v Council of the European Union, 27 June 2006 [2006] ECR I-5769: paragraphs 56 (footnotes 67 and 70), 112 (footnote 28) Case C-552/03 P Unilever v Commission, 28 September 2006, not yet reported in ECR: paragraph 95 (footnote 15) Case C-167/04 P JCB Service v Commission, 21 September 2006, not yet reported in ECR: paragraph 269 (footnote 43) Case C-289/04 P Showa Denko v Commission, 29 June 2006 [2006] ECR I-5859: paragraphs 268 (footnote 41), 335 (footnotes 167 and 168) Case C-295/04 Vincenzo Manfredi v Lloyd Adriatico Assicurazioni SpA, 13 July 2006 [2006] ECR I-6619: paragraph 454 (footnote 190) Case C-301/04 P Commission v SGL Carbon, 29 June 2006 [2006] ECR I-5915: paragraphs 55 (footnote 66), 59 (footnote 76), 305 (footnotes 123, 124 and 126), 399 (footnote 89), 428 (footnote 145) Case C-308/04 P SGL Carbon v Commission, 29 June 2006 [2006] ECR I-5977: paragraphs 166 (footnote 5), 280 (footnote 71), 292 (footnote 89), 307 (footnote 129), 343 (footnote 181), 455 (footnote 191) Case C-3/06 P Groupe Danone v Commission, 8 February 2007, not yet reported in ECR: paragraphs 244 (footnote 2), 262 (footnote 29), 268 (footnote 41), 294 (footnote 91), 294 (footnote 92), 300 (footnote 102), 301 (footnote 112), 303 (footnotes 120 and 121) Opinions Case 26/75 General Motors v Commission, 29 October 1975 [1975] ECR 1389 (Advocate-General Mayras): paragraph 323 (footnote 152)

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Case C-36/92 P SEP v Commission, 15 December 1993 [1994] ECR I-1914 (Advocate-General Jacobs): paragraph 44 (footnote 49) Case C-298/98 P Finnboard v Commission, 18 May 2000 [2000] ECR I-10159 (Advoacte-General Mischo): paragraph 400 (footnote 90) Case C-253/00 Antonio Muñoz y Cia SA and Superior Fruticola SA v Frumar Ltd and Redbridge Produce Marketing Ltd, 13 December2001 [2002] ECR I-7289 (Advocate-General Geelhoed): paragraph 139 (footnote 43) Joined Cases C-246/01 etc. AOK Bundesverband v Ichthyol-Gesellschaft Cordes, 22 May 2003 [2004] ECR I-2493 (Advocate-General Jacobs): paragraph 140 (footnote 45) Joined Cases C-65/02 P etc. ThyssenKrupp Stainless and Others v Commission, [2005] ECR I-6773 (Advocate-General Léger): paragraph 439 (footnote 164) Case C-189/02 P Dansk Rorindustri v Commission, 8 July 2004 [2005] ECR I-5425 (Advocate-General Tizzano): paragraphs 234 (footnote 100) , 235 (footnote 102) Case C-289/04 P Showa Denko v Commission, 19 January 2006 [2006] ECR I-5859 (Advocate-General Geelhoed): paragraphs 231 (footnote 95), 274 (footnote 57), 285 (footnote 79), 336 (footnotes 169 and 170), 337 (footnote 171) Case C-301/04 P Commission v SGL Carbon, 19 January 2006 [2006] ECR I-5915 (Advocate-General Geelhoed): paragraphs 55 (footnote 66), 59 (footnote 74), 399 (footnote 89) Case C-308/04 P SGL Carbon v Commission, 19 January 2006 [2006] ECR I-5977 (Advocate-General Geelhoed): paragraph 455 (footnote 191) Case C-328/05 P SGL Carbon v Commission, 18 January 2007, not yet reported in ECR (Advocate-General Mazák): paragraphs 311 (footnote 134), 343 (footnote 181) Case C-3/06 P Groupe Danone v Commission, 16 November 2006, not yet reported in ECR (Advocate-General Poiares Maduro): paragraph 295 (footnote 93) Case C-76/06 P Britannia Alloys v Commission, 1 March 2007, not yet reported in ECR (Advocate-General Bot): paragraph 269 (footnote 43) Court of First Instance Judgments Case T-6/89 Enichem Anic v Commission, 17 December 1991 [1991] ECR II-1695: paragraphs 27 (footnote 31), 294 (footnote 91), 503 (footnote 43) Case T-147/89 Société Métallurgique de Normandie v Commission, 6 April 1995 [1995] ECR II-1061: paragraph 265 (footnote 36) Case T-148/89 Tréfilunion v Commission, 6 April 1995 [1995] ECR II-1119: paragraph 265 (footnote 36) Case T-151/89 Société des Treillis et Paneaux Soudés v Commission, 6 April 1995 [1995] ECR II-1195: paragraph 265 (footnote 36)

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Case T-24/90 Automec v Commission (Automec II), 18 September 1992 [1992] ECR II-2250: paragraph 84 (footnote 4) Case T-141/94 Thyssen Stahl v Commission, 11 March 1999 [1999] ECR II-347: paragraph 301 (footnotes 111 and 113) Joined Cases T-305/94 etc. Limburgse Vinyl Maatschappij and Others v Commission, 20 April 1999 [1999] ECR II-987: paragraphs 27 (footnote 31), 503 (footnote 42) Case T-327/94 SCA Holding v Commission, 14 May 1998 [1998] ECR II-1373: paragraphs 217 (footnote 84), 330 (footnote 162) Joined Cases T-25/95 etc. Cimenteries CBR and Others v Commission (Cement), 15 March 2000 [2000] ECR II-700: paragraphs 111 (footnote 26), 491 (footnote 18) Joined Cases T-213/95 and T-18/96 SCK and FNK v Commission, 22 October 1997 [1997] ECR II-1764: paragraph 88 (footnote 10) Case T-87/96 Assicurazioni Generali and Unicredito v Commission, 4 March 1999 [1999] ECR II-206: paragraph 111 (footnote 27) Case T-9/97 Elf Atochem v Commission, 9 June 1997 [1997] ECR II-919: paragraphs 11 (footnote 17), 512 (footnote 57) Case T-241/97 Stork Amsterdam v Commission, 17 February 2000 [2000] ECR II-309: paragraph 85 (footnote 6) Joined Cases T-45/98 etc. Krupp Thyssen Stainless and Others v Commission, 13 December 2001 [2001] ECR II-3765: paragraphs 233 (footnote 97), 236 (footnote 105), 269 (footnote 43), 429 (footnote 149) Case T-65/98 Van den Bergh Foods v Commission, 23 October 2003 [2003] ECR II-4653: paragraph 168 (footnote 8) Case T-112/98 Mannesmannröhren-Werke v Commission, 20 February 2001 [2001] ECR II-732: paragraph 53 (footnote 63) Joined Cases T-191/98 etc. Atlantic Container Line and Others v Commission, 30 September 2003 [2003] ECR II-3275: paragraph 180 (footnote 35) Case T-248/98 KPN v Commission, 16 November 2000 [2000] ECR I-9641: paragraph 265 (footnote 36) Case T-9/99 HFB and Others v Commission, 20 March 2002 [2002] ECR II-1530: paragraphs 27 (footnote 31), 308 (footnote 131), 504 (footnote 44) Case T-31/99 ABB Asea Brown Boveri v Commission, 20 March 2002 [2002] ECR II-1884: paragraph 218 (footnote 86) Case T-54/99 max.mobil v Commission, 30 January 2000 [2002] ECR II-313: paragraph 56 (footnote 67) Case T-219/99 British Airways v Commission, 17 December 2003 [2003] ECR II-5917: paragraph 188 (footnote 47) Case T-44/00 Mannesmannröhren-Werke v Commission, 8 July 2004 [2004] ECR II-2223: paragraph 317 (footnote 142) Joined Cases T-67/00 etc. JFE Engineering Corp v Commission, 8 July 2004 [2004] ECR II-2501: paragraph 513 (footnote 60) Case T-213/00 CMA CGM and Others v Commission, 19 March 2003 [2003] ECR II-913: paragraph 280 (footnote 71)

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Case T-224/00 Archer Daniels Midland v Commission, 9 July 2003 [2003] ECR II-2597: paragraphs 218 (footnote 86), 302 (footnote 119) Case T-177/01 Jégo-Quéré v Commission, 3 May 2002, [2002] ECR II-5137: paragraph 56 (footnote 67) Case T-203/01 Michelin v Commission, 30 September 2003 [2003] ECR II-4071: paragraphs 298 (footnote 99), 301 (footnotes 111 and 114) Joined Cases T-236/01 etc. Tokai Carbon and Others v Commission, 29 April 2004 [2004] ECR II-1181: paragraphs 246 (footnote 4), 280 (footnote 71), 310 (footnote 133) Case T-241/01 SAS v Commission, 18 July 2005 [2005] ECR II-2917: paragraph 429 (footnote 148) Case T-322/01 Roquette Frères v Commission, 27 September 2006, not yet reported in ECR: paragraph 280 (footnote 72) Case T-329/01 Archer Daniels Midland v Commission, 27 September 2006, not yet reported in ECR: paragraphs 244 (footnote 2), 272 (footnote 51), 274 (footnote 57), 317 (footnote 142) Case T-15/02 BASF v Commission, 15 March 2006 [2006] ECR II-497: paragraphs 114 (footnote 29), 271 (footnote 50), 280 (footnote 72), 310 (footnote 133), 425 (footnote 140), 429 (footnote 149), 439 (footnote 164) Case T-26/02 Daiichi Pharmaceutical v Commission, 15 March 2006 [2006] ECR II-713: paragraph 325 (footnote 155) Case T-28/02 First Data v Commission, 17 October 2005 [2005] ECR II-4119: paragraph 142 (footnote 47) Case T-33/02 Britannia Alloys & Chemicals v Commission, 29 November 2005 [2005] ECR II-4973: paragraph 339 (footnote 176) Case T-38/02 Groupe Danone v Commission, 25 October 2005 [2005] ECR II-4407: paragraphs 270 (footnotes 44 and 47), 288 (footnote 84), 292 (footnote 89), 295 (footnote 94), 298 (footnote 99), 300 (footnote 102), 301 (footnote 112) Case T-43/02 Jungbunzlauer v Commission, 27 September 2006, not yet reproted in ECR: paragraphs 262 (footnote 29), 271 (footnote 50), 272 (footnote 52) Joined Cases T-49/02 etc. Brasserie nationale and Others v Commission, 27 July 2005 [2005] ECR II-3033: paragraphs 231 (footnote 95), 323 (footnote 151) Case T-52/02 SNCZ v Commission, 29 November 2005 [2005] ECR II-5005: paragraph 340 (footnote 178) Case T-59/02 Archer Daniel Midland v Commission, 27 September 2006, not yet reported in ECR: paragraphs 182 (footnote 39), 413 (footnote 114), 454 (footnote 190) Joined Cases T-259/02 etc. Raiffeisen Zentralbank Österreich and Others v Commission, 14 December 2006, not yet reported in ECR: paragraph 288 (footnote 84) Case T-279/02 Degussa v Commission, 5 April 2006 [2006] ECR II-897: paragraphs 262 (footnote 29), 272 (footnotes 51 and 52) Joined Cases T-71/03 etc. Tokai Carbon and Others v Commission, 15 June 2005 [2005] ECR II-10: paragraphs 246 (footnote 4), 317 (footnote 142), 339 (footnote 176) Case T-340/03 France Télécom v Commission, 30 January 2007, not yet reproted in ECR: paragraph 330 (footnote 161)

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Case T-201/04 R Microsoft v Commission, 22 December 2004 [2004] ECR II-4463: paragraph 238 (footnote 106) Opinion Case T–1/89 Rhône-Poulenc v Commission, 10 July 1991 [1991] ECR II–867 (Judge Vesterdorf) paragraphs 27 (footnote 31), 272 (footnote 52), 503 (footnote 42) European Court of Human Rights 8 June 1976, Engel and Others v Netherlands, Series A No 22: paragraph 485 (footnote 12) 27 February 1980, Deweer v Belgium, Series A No 35: paragraph 162 (footnote 63) 23 June 1981, Le Compte, Van Leuven and De Meyere v Belgium, Series A No 43: paragraph 491 (footnote 17) 1 February 1983, Albert and Le Compte v Belgium, Series A No 58: paragraph 491 (footnote 17) 21 February 1984, Öztürk v Gremany, Series A No 73: paragraph 485 (footnote 12) 24 February 1994, Bendenoun v France, Series A No 284: paragraphs 485 (footnote 12), 491 (footnote 17) 26 October 1984, De Cubber v Belgium, Series A No 86: paragraph 491 (footnote 19) 25 February 1997, Findlay v United Kingdom, Reports 1997-I: pargaraph 491 (footnote 19) 10 March 2004, Senator Lines v the 15 Member States of the European Union, Application 56672/00: paragraph 486 (footnote 13) 3 June 2004, OOO Neste St Petersburg and Others v Russia, Applications 69042/01 etc.: paragraphs 55 (footnote 65), 487 (footnote 15) 28 April 2005, Buck v Germany, Application 41604/98: paragraph 16 (footnote 20) 30 June 2005, Bosphorus v Ireland, Application 45036/98: paragraph 55 (footnote 64)

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Table of Legislation European Convention on Human Rights Article 5: paragraph 623 (footnote 190) Article 6: paragraphs 55, 484 to 491, 623 (footnote 190) Article 7: paragraph 262 (footnote 29) Charter of Fundamental Rights of the EU Article 41: paragraph 112 Article 49: paragraph 208 EU Treaty Article 6: paragraph 54 Article 29: paragraph 619 Article 30: paragraph 473 Article 31: paragraph 473 Article 47: paragraph 619 EC Treaty (Articles 81 and 82 of the EC Treaty are not included, as they are discussed throughout the whole book) Article 10: paragraphs 42, 114 Article 83: paragraphs 255, 520, 581 (footnote 149), 619 to 624 Article 135: paragraph 619 Article 220: paragraph 52 Article 226: paragraphs 22, 40 (footnote 44), 42 (footnote 47) Article 229: paragraph 623 Article 253: paragraph 265 Article 256: paragraph 23 Article 280: paragraph 619 Article 308: paragraphs 6??, 624 Council Regulation 1/2003 [2003] OJ L1/1 Recital 8: paragraphs 472, 532 Recital 11: paragraph 92 (footnote 13) Recital 12: paragraphs 124, 136 Recital 13: paragraphs 80, 102, 106, 125, 141, 145, 148 (footnote 49), 160 Recital 16: paragraph 70 Recital 22: paragraphs 81, 141, 145, 148 (footnote 49) Recital 23: paragraphs 44, 57 to 59 Recital 37: paragraph 56 Article 3: paragraphs 150, 522 to 532 Article 5: paragraphs 32, 157, 515 to 518, 604 Article 7: paragraphs 91 to 105, 107, 114, 118, 122 to 124, 161, 162 Article 9: paragraphs 76 to 160 Article 11(6): paragraph 49 Article 12: paragraphs 27, 41, 43, 67 to 75, 517, 605 to 608, 611, 613 Article 14: paragraph 119 Article 16: paragraphs 81, 143 Article 18: paragraphs 7 to 10, 26, 44, 49, 51 Article 19: paragraph 7 (footnote 12) Article 20: paragraphs 11 to 15, 18, 19 to 22, 24, 25, 50, 57, 512 Article 21: paragraphs 16 to 18, 19 to 22, 24, 25, 36 to 39, 44, 49 Article 22: paragraphs 24, 25, 41, 42

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Article 23(1): paragraphs 8 to 10, 13, 14, 18, 23, 308, 512 Article 23(2): paragraphs 78, 87, 92, 132, 180 (footnote 35), 212, 232, 251, 256, 262, 321, 338, 339, 502 to 505 Article 23(5): paragraphs 472, 506, 507 Article 24: paragraphs 9, 10, 14, 18, 23, 79, 87, 132 Article 27: paragraphs 107, 117, 153 Article 30: paragraphs 87, 121 Article 35: paragraph 38 (footnote 43) Commission Regulation 773/2004 [2004] OJ L123/18 Article 2: paragraph 106 Article 4: paragraph 50 Article 7: paragraph 118 Article 8: paragraph 118 Article 15: paragraph 109

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1 Powers of Investigation and Procedural Rights and Guarantees: The Interplay between European and National Legislation and Case Law 1.1 POWERS OF INVESTIGATION

1.1.1

Different Ways of Gathering Intelligence and Evidence

1. Under Regulation 1/2003,1 the European Commission (hereafter also ‘the Commission’) and the competition authorities of the Member States (hereafter also ‘the national competition authorities’), together forming a network of competition authorities (hereafter also ‘the competition authorities’ and ‘the European Competition Network’),2 have the task of detecting and punishing violations of Articles 81 and 82 EC.3 To fulfil this task, they need intelligence and evidence of such violations. 2. The competition authorities may collect the necessary information (intelligence and evidence) from various sources. Information could be obtained in particular from complainants or other third parties. For certain types of antitrust 1 Council Reg 1/2003 of 16 Dec 2002 on the implementation of the rules on competition laid down in Arts 81 and 82 of the Treaty [2003] OJ L1/1, last amended by Council Reg 1419/2006 [2006] OJ L269/1. According to its Arts 43 and 45, this Reg replaces Council Regulation 17 [1962] JO 13/204, [1959–62] OJ Spec Ed 87, last amended by Council Reg 1216/1999 [1999] OJ L148/5, with effect from 1 May 2004. On Reg 1/2003 generally see L Idot, Droit communautaire de la concurrence—Le nouveau système communautaire de mise en oeuvre des articles 81 et 82 CE (Brussels, Bruylant, 2004); L Garzaniti, J Gudofsky and J Muffat, ‘Dawn of a New Era? Powers of Investigation and Enforcement Under Regulation 1/2003’ (2004) 72 Antitrust Law Journal 159; D Geradin (ed), Modernisation and Enlargement: Two Major Challenges for EC Competition Law (Antwerp, Intersentia, 2004); D Cahill and JD Cooke (eds), The Modernisation of EU Competition Law Enforcement, Reports for the XXI FIDE Congress, Dublin 2004 (Cambridge, Cambridge University Press, 2004); WPJ Wils Principles of European Antitrust Enforcement (Oxford, Hart Publishing, 2005); CS Kerse and N Khan, EC Antitrust Procedure, 5th edn (London, Sweet & Maxwell, 2005); and L Ortiz Blanco (ed), EC Competition Procedure, 2nd edn (Oxford, Oxford University Press 2006). 2 See rec 15 and Art 11 of Reg 1/2003, above n 1, and the European Commission’s Notice on cooperation within the Network of Competition Authorities [2004] OJ C101/03. 3 The authorities also have other tasks, but those are not considered here. As to the role of private enforcement see Ch 4, as well as nn 62 and 79 in Ch 5 of Wils, above n 1.

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violations, in particular exclusionary practices, but also non-covert exploitative practices, the competition authorities may be able relatively easily to obtain the necessary intelligence and evidence through interested third parties.4 The best information will however usually be in the hands of the undertakings that have committed the violations and their staff. For some types of violations, in particular for secret price cartels, the undertakings that committed the violations and their staff may be the only ones holding the information which the competition authorities need to detect and punish these violations. 3. Three (types of) methods could conceivably be used by the competition authorities in order to collect intelligence and evidence of violations of Article 81 or 82 EC from the undertakings that have committed these violations (or are suspected of having committed them)5 or from their staff.6 First, the competition authorities could try directly to get hold of the information in the hands of the undertakings and their staff by using direct physical force (‘dawn raids’) or covert intrusion. Secondly, they could use compulsion in the form of threatened sanctions for refusal to cooperate in order to make the undertakings and their staff provide the necessary information. Thirdly, instead of using the ‘stick’ of threatened sanctions for non-cooperation, they could also create incentives to cooperate by using the ‘carrot’ of a promise of immunity or reduced punishment in the event of cooperation (‘leniency’). It would appear that a combination of all three methods is required for effective and efficient antitrust enforcement.7 4. This chapter deals with only the first and second methods of collecting intelligence and evidence of antitrust infringements, not with leniency.8 While, in Scott Hammond’s words, ‘leniency programs are the greatest investigative tool ever designed to fight cartels’,9 the use of leniency does not make it possible to dispense with the other two methods of obtaining information from antitrust violators; rather to the contrary. Indeed, leniency can work only if cartel

4 These third parties have an incentive to help the competition authorities, so as to bring to an end violations from which they suffer. The possibility of obtaining damages following the establishment of the violation by the competition authorities may provide an additional incentive. See further Wils, above n 1, Ch 5, n 62, as well as Ch 5 below, sect 5.4.5.3. 5 I will not repeat this qualification throughout the text, the legal presumption of innocence being of course fully recognised. 6 Some of these methods may also be used to collect information from third parties, but that aspect is not further considered here. 7 For a detailed analysis see paras 530–553 of Wils, above n 1; see also below, Ch 5, in particular sect 5.2.2.1. 8 On leniency see Ch 5 below; Ch 3 of WPJ Wils, The Optimal Enforcement of EC Antitrust Law (The Hague, Kluwer Law International, 2002); and Ch 5 of Wils, above n 1. 9 SD Hammond, ‘Cornerstones of an Effective Leniency Program’, paper presented before the ICN Workshop on Leniency Programs (Sydney, 22–23 Nov 2004), available at www.usdoj.gov/atr/public/ speeches/206611.htm, at 2.

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participants perceive a risk that the competition authorities may detect the antitrust violation without recourse to leniency.10

1.1.2

Cases Dealt with by the European Commission

5. If the European Commission deals with a case,11 it can itself collect the necessary information or it can rely on the competition authorities of the Member States to do so on its behalf. 1.1.2.1 Information-gathering by the Commission Itself 6. The Commission’s powers of investigation are set out in Chapter V of Regulation 1/2003, the two main instruments being requests for information (Article 18) and inspections (Articles 20 and 21).12 7. Under Article 18 of Regulation 1/2003, the Commission can require undertakings and associations of undertakings to provide all necessary information (ie either to hand over existing documents or to provide answers to questions) specified in the request within the time-limit fixed in the request. 8. The Commission can choose either of two forms for its request: a simple request or a decision.13 An undertaking or association of undertakings is not obliged to respond to a simple request. Only if the undertaking or association, intentionally or negligently, provides incorrect or misleading information can it be penalised by the Commission under Article 23(1)(a) of Regulation 1/2003 with a fine of up to 1 per cent of its total turnover in the preceding business year. 9. On the other hand, requests made by decision are binding. Under Article 23(1)(b) of Regulation 1/2003, the Commission can impose a fine of up to 1 per cent of their total turnover in the preceding business year on undertakings or associations which, intentionally or negligently, supply incorrect, incomplete or 10 See below, Ch 5, in particular sect 5.2.3.2; paras 549 to 553 of Wils, above n 1; and Hammond, above n 9, at 5, listing a (perceived) high risk of detection as one of the 3 indispensable components of an effective leniency programme. 11 On the allocation of cases within the European Competition Network see the European Commission’s Notice on cooperation within the Network of Competition Authorities [2004] OJ C101/03, sect 2; D Schnichels, ‘The Network of Competition Authorities: How Will It Work in Practice?’, in Geradin, above n 1, at 99; and Wils, above n 1, sect 1.2.5. 12 ‘Inspections’ is the new term in Reg 1/2003 for what Reg 17 called ‘investigations’. Under Art 19 of Reg 1/2003, the Commission may also interview any natural or legal person who consents to be interviewed for the purpose of collecting information relating to the subject-matter of the investigation, but this ‘power to take statements’ is not much of a power, in the absence of any obligation or any penalties, not even for providing misleading information: see further B Vesterdorf, ‘Legal Professional Privilege and the Privilege Against Self-Incrimination in EC Law: Recent Developments and Current Issues’ in BE Hawk (ed), 2004 Annual Proceedings of the Fordham Corporate Law Institute—International Antitrust Law and Policy (Huntington, NY, Juris Publishing, 2005) 701 at 727. 13 Under Art 11 of Reg 17, the Commission could use a decision only after the undertaking had refused to answer a simple request. This limitation on the Commission’s choice of instrument has been removed in Reg 1/2003.

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misleading information or do not supply information within the required time-limit, and under Article 24(1)(d), the Commission can impose periodic penalty payments of up to 5 per cent of the average daily turnover in the preceding business year per day in order to compel undertakings or associations to supply complete and correct information which it has requested by decision.14 10. Requests for information under Article 18 of Regulation 1/2003 can be addressed only to undertakings or associations of undertakings. Article 18(4) provides: ‘[t]he owners of undertakings or their representatives and, in the case of legal persons, companies or firms, or associations having no legal personality, the persons authorised to represent them by law or by their constitution shall supply the information requested on behalf of the undertaking or the association of undertakings concerned. Lawyers duly authorised to act may supply the information on behalf of their clients. The latter shall remain fully responsible if the information supplied is incomplete, incorrect or misleading.’ The fines and periodic penalty payments provided for in Articles 23 and 24 of Regulation 1/2003 can be imposed only on undertakings or associations of undertakings.15 11. Under Article 20 of Regulation 1/2003, the Commission may conduct ‘all necessary inspections of undertakings and associations of undertakings’. The officials and other persons authorised by the Commission to conduct the inspection have the power to enter any premises of the undertaking or association of undertakings, to examine all business-related records and to take or obtain copies or extracts. Article 20(2)(d) allows the Commission inspectors ‘to seal any business premises and books or records for the period and to the extent necessary for the inspection’.16 Under Article 20(2)(e), they are also empowered ‘to ask any representative or member of staff of the undertaking or association of undertakings for explanations on facts or documents relating to the subjectmatter and purpose of the inspection and to record the answers’.17 12. Article 20(5) of Regulation 1/2003 provides that ‘officials of as well as those authorised or appointed by the competition authority of the Member State in whose territory the inspection is to be conducted shall, at the request of that

14 The maximum amounts of these penalties are new compared to those under Reg 17, where the maximum fine was €5,000 and the maximum amount for periodic penalty payments €1,000 per day. 15 See below n 31 on the notion of ‘undertaking’. 16 This latter power was not provided for in Reg 17. 17 Under Reg 17, the Commission officials could only seek explanations relating to the books and records under examination: see Judgment of the ECJ of 26 June 1980 in Case 136/79 National Panasonic v Commission [1980] ECR 2056, para 15, and the Order of the CFI of 9 June 1997 in Case T–9/97 Elf Atochem v Commission [1997] ECR II–919, para 23. It should immediately be pointed out, however, that Reg 1/2003 does not provide for any sanction to be imposed on the members of staff for failing to provide answers or for providing incorrect, incomplete or misleading answers. Penalties can only be imposed on the undertaking that fails to correct within a time-limit set by the Commission an incorrect, incomplete or misleading answer given by a member of staff: see paras 13 and 14 below, and further Vesterdorf, above n 12, at 727–9.

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authority or of the Commission, actively assist the officials and other accompanying persons authorised by the Commission. To this end, they shall enjoy the [same] powers’. 13. The Commission can again choose either of two forms of inspection: on the basis of a simple authorisation or on the basis of a decision. If the inspection is based on a simple authorisation, the undertaking or association of undertakings is not obliged to submit to it. However, under Article 23(1)(c) and (d) of Regulation 1/2003, the Commission can impose on the undertaking or association a fine of up to 1 per cent of the total turnover in the preceding business year where, intentionally or negligently, it produces the required business-related records in incomplete form or where, in response to a question asked under Article 20(2)(e), it gives an incorrect or misleading answer or fails to correct within a time-limit set by the Commission an incorrect, incomplete or misleading answer given by a member of staff.18 14. If the inspection is based on a decision, the undertaking or association is required to submit to it. In addition to the penalties which can be imposed in case of an inspection based on a simple authorisation, the Commission can also, under Article 23(1)(c) and (d) of Regulation 1/2003, impose fines of the same amount where the undertaking or association refuses to submit to the inspection, or where, in response to a question asked under Article 20(2)(e), it fails or refuses to provide a complete answer on facts relating to the subject-matter and purpose of the inspection. Under Article 24(1)(e) of Regulation 1/2003, the Commission can also impose periodic penalty payments of up to 5 per cent of the average daily turnover in the preceding business year per day in order to compel undertakings or associations to submit to an inspection ordered by decision.19 15. Moreover, Article 20(6) of Regulation 1/2003 provides that, where the Commission officials conducting the inspection find that an undertaking opposes an inspection ordered by decision, the Member State concerned shall afford them the necessary assistance of the police or of an equivalent enforcement authority, so as to enable them to conduct their inspection. 16. Under Article 21 of Regulation 1/2003, the Commission also has the power to order by decision an inspection of ‘any other premises …, including the homes of directors, managers and other members of staff of the undertakings and associations of undertakings concerned’ if ‘a reasonable suspicion exists that books or other records related to the business and to the subject-matter of the inspection, which may be relevant to prove a serious violation of Article 81 or Article 82 of the Treaty, are being kept in [those premises]’.20 17. Like in the case of an inspection at business premises, the officials and other persons authorised by the Commission to conduct the inspection have the

18

No sanctions can be imposed by the Commission on the member of staff: see above n 17. See above n 14. 20 This power is new compared to Reg 17; see in this context App 41604/98, Buck v Germany, ECtHR judgment. 19

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power to examine all business-related records and to take or obtain copies or extracts, but they have no power to put seals on premises or documents or to ask for explanations.21 18. Article 20(6) of Regulation 1/2003, which provides for assistance by the national authorities, including the police, in case of opposition, also applies to inspections under Article 21 of Regulation 1/2003,22 but the powers of the Commission to impose fines or periodic penalty payments under Articles 23 and 24 of Regulation 1/2003 are not applicable.23

1.1.2.2

Assistance by the (Competition) Authorities of the Member States

19. As already indicated above,24 when the Commission conducts an inspection either of business premises under Article 20 or of private homes under Article 21 of Regulation 1/2003, its inspectors can receive the ‘active assistance’ of inspectors designated by the competition authority of the Member State in whose territory the inspection is conducted. Article 20(5) of Regulation 1/2003 provides that the Commission can request such assistance, or—interestingly—the national competition authority has the right to provide such assistance at its own request. The assisting national inspectors have the same powers as the Commission inspectors, as set out in Articles 20 and 21 of Regulation 1/2003. 20. As also already indicated above,25 Article 20(6) of Regulation 1/2003 provides that, where the Commission officials conducting the inspection find that an undertaking opposes an inspection ordered by decision, the Member State concerned shall afford them the necessary assistance of the police or of an equivalent enforcement authority, so as to enable them to conduct their inspection. 21. Apart from the ability of the Commission itself to impose fines or periodic penalty payments to compel undertakings to submit to an inspection,26 the Commission thus relies on the authorities of the Member State in whose territory the inspection takes place to overcome opposition to its inspections. The Commission inspectors cannot themselves use any force. 22. In the application of the principles of effectiveness and of equivalence— general principles of Community law, developed in the case law of the Court of Justice and applicable to all instances where Community law entrusts Member States with a role in the enforcement of Community law27—the assistance which 21

See above, paras 11 and 12. The provisions of Art 20(5) also apply: see above, paras 15 and 12. 23 See above, paras 13 and 14. 24 Above n 22 and para 12. 25 Above, paras 15 and 18. 26 See above, para 14. 27 See, inter alia, Judgments of the ECJ of 21 Sept 1989 in Case 68/88 Commission v Greece [1989] ECR 2965, paras 23–25, of 15 Sept 1998 in Case C–231/96 Edis [1998] ECR I–4990, paras 34 and 36–37, and of 18 Oct 2001 in Case C–354/99 Commission v Ireland [2001] ECR I–7657, para 46; see 22

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the Member States provide to overcome opposition to Commission inspections must be effective, and at least equivalent to what the Member State would provide for in comparable situations of enforcement of its own national law. If a Member State were to fail to provide the necessary assistance to Commission inspections, the Commission could bring an action against that Member State before the Court of Justice under Article 226 EC.28 23. Ultimately the effectiveness of the fines and periodic penalty payments which the Commission can impose under Articles 23 and 24 of Regulation 1/2003 to compel undertakings to submit to inspections or to answer requests for information, and to punish the provision of incorrect, incomplete or misleading information,29 also depends on assistance by the Member States. Indeed, if the company were to refuse to pay the fine or penalty payment, the Commission would make use of Article 256 EC, which provides that a national authority designated for this purpose by the Member State in the territory of which the Commission decision imposing the financial penalty is to be executed shall append an order for its enforcement to the Commission decision, allowing that decision to be enforced in accordance with the rules of civil procedure in force in that Member State. 24. Apart from obtaining assistance from the Member States for the inspections which it conducts itself, the Commission can also request the competition authorities of the Member States to conduct inspections on its behalf. Article 22(2) of Regulation 1/2003 provides as follows: At the request of the Commission, the competition authorities of the Member States shall undertake the inspections which the Commission considers to be necessary under Article 20(1) or which it has ordered by decision pursuant to Article 20(4). The officials of the competition authority of the Member States who are responsible for conducting these inspections as well as those authorised or appointed by them shall exercise their powers in accordance with their national law.

25. The powers of the national inspectors conducting inspections under Article 22(2) of Regulation 1/2003 are thus not those set out in Articles 20 and 21, but those provided for in the national law of the Member State concerned. However, it follows again from the principles of effectiveness and equivalence30 that these powers must be effective, and at least equivalent to what the Member State would provide for in comparable situations of enforcement of its own national law.

further, for a detailed and very interesting discussion of the application of the principles of equivalence and effectiveness in the application of Arts 81 and 82 EC, P Oliver, ‘Le règlement 1/2003 et les principes d’efficacité et d’équivalence’ [2005] Cahiers de droit européen 343. 28 And if the problem were to persist after the ECJ had found against the Member State in the action under Art 226 EC, the Commission could bring a further action under Art 228 EC, in which the ECJ could impose a fine and/or periodic penalty payment on the Member State: see generally Judgment of the ECJ of 12 July 2005 in Case C–304/02 Commission v France [2005] ECR I–6263. 29 See above, paras 8, 9, 13 and 14. 30 See above, para 22.

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26. Another power for the Commission is provided for in Article 18(6) of Regulation 1/2003: ‘[a]t the request of the Commission the governments and competition authorities of the Member States shall provide the Commission with all the necessary information to carry out the duties assigned to it by this Regulation’. 27. Finally, Article 12(1) of Regulation 1/2003 provides that ‘[f]or the purpose of applying Articles 81 and 82 of the Treaty the Commission and the competition authorities of the Member States shall have the power to provide one another with and use in evidence any matter of fact or of law, including confidential information’.31 Even without a request from the Commission, the national competition authorities could thus provide the Commission with information which the Commission could subsequently use both as intelligence and as evidence for the enforcement of Articles 81 and 82 EC.

31 As explained below at paras 69–73, Art 12(3) of Reg 1/2003 limits the ability to use exhanged information in evidence to impose sanctions on natural persons. This limitation is however of very limited practical importance where the Commission is the authority receiving the information, as the Commission can impose sanctions only on undertakings. Neither the EC Treaty nor Reg 1/2003 contains any definition of the term ‘undertaking’. The ECJ has held that ‘in competition law, the term “undertaking” must be understood as designating an economic unit … even if in law that economic unit consists of several persons, natural or legal’: Judgment of 12 July 1985 in Case 170/83 Hydrotherm v Compact del Dott Ing Mario Andreoli [1985] ECR 3016 at para 11. In practice the Commission does not simply impose fines on undertakings thus defined as economic units. For reasons of enforceability, it rather addresses its fining decisions to entities possessing legal personality, typically companies, to which the violation committed by the undertaking is imputed: Opinion of Judge Vesterdorf, acting as AG, in Case T–1/89 Rhône-Poulenc v Commission [1991] ECR II–869 at 916, Judgment of the CFI of 20 Apr 1999 in Joined Cases T–305/94 etc Limburgse Vinyl Maatschappij and Others v Commission [1999] ECR II–945 at para 978. As to the choice of the person or persons to whom a violation is to be imputed, the general rule formulated by the Community Courts is that ‘when … a violation is found to have been committed, it is necessary to identify the natural or legal person who was responsible for the operation of the undertaking at the time when the violation was committed, so that it can answer for it’: (Judgment of the CFI of 17 Dec 1991 in Case T–6/89 Enichem Anic v Commission [1991] ECR II–1695 at para 236, and Judgment of the ECJ of 16 Nov 2000 in Case C–279/98 P Cascades v Commission [2000] ECR I–9709 at para 78. If the undertaking found to have committed a violation were found to consist of an unincorporated business (a single trader, with or without employees, who had not incorporated his or her business, or a professional exercising his or her profession alone and unincorporated, or several natural persons operating a single business without any employment relationship between them and without any form of legal person), the Commission would necessarily have to address its fining decision to the natural person or persons operating the business. However, in the more than 100 decisions in which the Commission has imposed fines under Regs 17 and 1/2003 hitherto, this situation has never occurred: hitherto, all fines have been imposed on companies or other legal persons. Indeed, the undertakings found to have committed violations of Art 81 or 82 EC invariably either coincided with a single company or other legal person which was the obvious addressee of the fining decision, or consisted of a group of companies in which case fines were imposed on one or more of the companies in the group. In Pre-Insulated Pipes, one of the undertakings was controlled and managed by a natural person, Dr W Henss, but the Commission appears to have made an effort (for reasons unexplained) to avoid imposing the fine on him, identifying instead a collection of companies which it held jointly and severally liable for the fine; see recs 157–160 and Art 3(d) of the Decision of 21 Oct 1998, Pre-Insulated Pipe Cartel [1999] OJ L24/1, and para 105 of the judgment of the CFI of 20 Mar 2002 in Case T–9/99 HFB and Others v Commission [2002] ECR II–1530, in which the Court found that the European Commission had ‘intentionally’ not established Dr Henss’s liability.

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1.1.3

9

Cases Dealt with by a Competition Authority of a Member State

28. If a competition authority of a Member State deals with a case, it can either itself collect the necessary information or it may receive assistance from competition authorities of other Member States.

1.1.3.1 Information-gathering by the National Competition Authority Itself 29. The powers of investigation of a competiion authority of a Member State are in principle those provided for in the national law of that Member State. Regulation 1/2003 has not harmonised the powers of investigation of the national competition authorities.32 30. In many Member States, the powers of the national competition authorities for the enforcement of Articles 81 and 82 EC are similar to the Commission’s powers of investigation under Regulation 1/2003, including requests for information and inspections.33 31. In some Member States, the powers of investigation of the national competition authorities appear to be stronger than the Commission’s powers under Regulation 1/2003. 32. In some Member States, these stronger powers of investigation reflect stronger sanctions for violations of Article 81 or 82 EC or related offences.34 Whereas Regulation 1/2003 allows the Commission to impose fines only on undertakings and associations of undertakings for violations of Article 81 or 82 EC, Article 5 allows national authorities to impose ‘any other penalty provided for in their national law’, including in particular prison sanctions for directors or managers responsible for their companies’ violation of Article 81 or 82 EC.35 Some Member States may even be under a Community law obligation to criminalise their enforcement of Articles 81 and 82 EC. Indeed, it follows from the principle of equivalence that, if a Member State provides, for instance, imprisonment sanctions to enforce a cartel prohibition under national law, it must also provide for such sanctions to enforce the cartel prohibition in Article 81 EC.36 33. In those Member States where such criminal sanctions are provided for, or where criminal sanctions can be imposed not directly for violations of Article 81

32 See however below, paras 37–40, as to the consequences flowing from the principles of equivalence and effectiveness. 33 See above, paras 6–18. 34 The stronger sanctions mean that the offences are considered as more serious, which justifies more means being deployed to detect and punish such offences. 35 On the need for prison sanctions to deter effectively the most serious violations of Art 81 EC see below, Ch 6, in particular sect 6.3. 36 See above,para 22, and sect 6.2.3.2 below.

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or 82 EC but for a related offence,37 it can be expected that correspondingly stronger criminal powers of investigation are also provided for, including for instance powers to carry out directed surveillance and to use covert human intelligence sources.38 34. Even in the absence of stronger sanctions for violations of Articles 81 and 82 EC or related offences, the national laws of several Member States give their national competition authorities stronger powers to investigate violations of Articles 81 and 82 EC than Regulation 1/2003 gives to the Commission, for instance in that not only undertakings and associations of undertakings but also individual members of staff can be required to produce specified documents and information, and that failure to cooperate with investigations is a criminal offence, with directors, managers or other officers of companies or other bodies corporate being liable to punishment if they have consented to or connived at an offence or an offence results from neglect on their part.39 35. On the other hand, in some Member States the national competition authorities’ powers of investigation appear to be weaker than those of the Commission under Regulation 1/2003. 36. For instance, in at least one Member State there has been discussion as to whether the national competition authority, when conducting inspections at business premises, has the power to examine and take copies not only of business records on paper but also of electronically stored information. In a few Member States, the national competition authorities do not have a power comparable to the Commission’s power under Article 21 of Regulation 1/2003 to conduct inspections at private homes, but can only inspect business premises. 37. If the national competition authorities concerned lack these powers not only for the enforcement of Articles 81 and 82 EC but also for the enforcement of their national competition laws, and if the laws of the Member States concerned do not allow for the inspection of electronically stored information or for searches at private homes in relation to other offences under national law of a similar nature and importance to violations of Articles 81 and 82 EC, the absence of such powers is not problematic under the principle of equivalence.40 38. It can, however, be questioned under the principle of effectiveness.41 Even if Regulation 1/2003 provides for parallel competences of the Commission and the competition authorities of the Member States, and any ineffectiveness of 37 On the relationship between the cartel offence in s 188 of the Enterprise Act 2002 in the UK and Reg 1/2003, see below, paras 527–532. 38 See for instance in the UK, the powers for investigating criminal cartels under the Enterprise Act 2002, described in OFT Guidance Powers for Investigating Criminal Cartels (London, OFT, Jan 2004); see also OFT Codes of practice Covert surveillance in cartel investigations and Covert human intelligence sources in cartel investigations (London, OFT, Aug 2004), all available at www.oft.gov.uk. 39 See for instance in the UK, the powers of investigation of the OFT under the Competition Act 1998, described in OFT Guideline 404 Powers of Investigation (London, OFT, Dec 2004), available at www.oft.gov.uk. 40 See above, para 22. 41 Ibid.

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enforcement in any Member State due to weak powers of investigation could thus be parried by increased enforcement by the Commission in that Member State, it is clear from the whole of Regulation 1/2003 that its purpose is fully to involve all national competition authorities in the enforcement of Articles 81 and 82 EC.42 It can thus be argued that Regulation 1/2003 and the principle of effectiveness impose on Member States the obligation to provide their competition authorities with effective powers of investigation.43 39. It appears rather obvious that powers of investigation which are limited to paper documents and do not cover electronically stored information cannot be effective in the twenty-first century. The Commission’s power to conduct inspections at private homes is based on the following reasoning in recital 26 of Regulation 1/2003: ‘[e]xperience has shown that there are cases where business records are kept in the homes of directors or other people working for an undertaking. In order to safeguard the effectiveness of inspections, therefore, officials and other persons authorised by the Commission should be empowered to enter any premises where business premises may be kept, including private homes’. It is not apparent why this need for powers to search private homes so as to safeguard the effectiveness of inspections would be any different in the case of investigations by national competition authorities. 40. It can thus be argued that all Member States are under an obligation to provide their national competition authorities with the power, when conducting inspections at business premises, to examine and copy not only business records on paper but also all relevant electronically stored information, as well as with a power to conduct inspections at private homes.44

1.1.3.2

Assistance by the Competition Authorities of Other Member States

41. Article 22(1) of Regulation 1/2003 provides as follows: The competition authority of a Member State may in its own territory carry out any inspection or other fact-finding measure under its national law on behalf and for the account of the competition authority of another Member State in order to establish 42 See also the Joint Statement of the Council and the Commission on the functioning of the network of competition authorities, Council Doc 15435/02 ADD 1 of 10 Dec 2002. 43 See also Art 35(1), first sentence, of Reg 1/2003: ‘[t]he Member States shall designate the competition authority or authorities responsible for the application of Articles 81 and 82 of the Treaty in such a way that the provisions of this regulation are effectively complied with’. 44 It does not follow that, in those Member States that have not (yet) provided for a power to inspect private homes in their legislation, the competition authorities could today claim to have such power by virtue of (the primacy of) Community law. This would be contrary to the principle of legal certainty, which is a general principle of Community law: see Judgments of the ECJ of 7 Jan 2004 in Case C–60/02 X [2004] ECR I–651 at para 61 and of 3 May 2005 in Joined Cases C–387/02 etc Berlusconi [2005] ECR I–3565 at para 74. But the Commission could bring an action against the Member State before the ECJ under Art 226 EC, and if necessary subsequently under Art 228 EC, to make the Member State enact the necessary legislation.

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whether there has been an infringement of Article 81 or Article 82 of the Treaty. Any exchange and use of the information collected shall be carried out in accordance with Article 12.45

42. This provision creates a possibility for national competition authorities to use their own powers of investigation to help each other, not an obligation to do so, unlike Article 22(2) of Regulation 1/2003 which obliges national competition authorities to undertake inspections on behalf of the Commission at the latter’s request.46 However, it can be argued that the obligation of loyalty of the Member States towards the Community under Article 10 EC, read together with Regulation 1/2003, would not be respected by a Member State whose competition authority unreasonably refused reasonable requests for assistance from other national competition authorities.47 43. Even if this possibility is not expressly mentioned in Regulation 1/2003, nothing prevents the Commission from using its powers of investigation on behalf of a national competition authority. The transmission of the information thus collected and its subsequent use by the national competition authority would again be governed by Article 12 of Regulation 1/2003.48

1.2 PROCEDUR AL RIG HTS AND GUAR ANTEES

1.2.1 Procedural Rights and Guarantees Circumscribing or Limiting Powers of Investigation 44. A number of procedural rights and guarantees circumscribe or limit the competition authorities’ (use of) powers of investigation. To give just a few examples: Article 18 of Regulation 1/2003 stipulates that the Commission can make requests for information only ‘[i]n order to carry out the duties assigned to it by this Regulation’, and that the request or decision ‘shall stipulate the legal basis and purpose of the request’. The Court of Justice has clarified that this implies that the request must identify, ‘with reasonable precision’, the suspected infringement of Article 81 or 82 EC, and that it can be made only if ‘the Commission could reasonably suppose, at the time of the request, that the document [or other information requested] would help it to determine whether

45

On Art 12 of Reg 1/2003, see paras 67–75 below. See above, para 24 above; see also above, paras 12, 15, 19, 20 and 26 on the obligations for national (competition) authorities to assist the Commission under Arts 18(6) and 20(5) and (6) of Reg 1/2003. 47 Respect for this obligation could be ensured by actions before the ECJ against the uncooperative Member State either by the Commission under Art 226 EC or by other Member States under Art 227 EC, and, if necessary, subsequently by the Commission under Art 228 EC. 48 On Art 12 of Reg 1/2003 see sect 1.2.4 below. 46

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the alleged infringement had taken place’.49 According to the Orkem judgment of the Court of Justice,50 as well as recital 23 of Regulation 1/2003, the Commission cannot use its powers under Article 18 to compel undertakings to admit that they have committed an infringement of Article 81 or 82 EC, but companies are obliged to answer factual questions and to provide documents, even if this information may be used to establish against them the existence of an infringement. As to inspections in private homes, Article 21(3) of Regulation 1/2003 provides that a Commission decision ordering such inspection ‘cannot be executed without prior authorisation from the national judicial authority of the Member State concerned’. 45. These procedural rights and guarantees appear to be based to a large extent on considerations of principle.51 For instance, in Orkem, the Court of Justice based its holding that the Commission cannot use requests for information to compel undertakings to admit that they have committed an infringement of Articles 81 and 82 EC on the need to safeguard the rights of the defence.52 Similarly, the Court of Justice based its ruling in AM&S that the Commission cannot use its powers of investigation to take or to compel the production of certain lawyer–client communications (legal professional privilege) on the need to respect the rights of the defence.53 Considerations of principle, such as the need to safeguard the rights of the defence, thus limit the available use of investigative powers, possibly leading to less effective or less efficient antitrust enforcement, as these considerations of principle are given precedence over the objective of effective and efficient antitrust enforcement.54 46. Apart from considerations of principle, procedural rights and guarantees may also be based on utilitarian or instrumental considerations, in that they are

49 Opinion of AG Jacobs of 15 Dec 1993 in Case C–36/92 P SEP v Commission [1994] ECR I–1914 (explicitly endorsed by the ECJ in its judgment of 19 May 1994 in the same case at paras 30 and 21. 50 Judgment of 18 Oct 1989 in Case 374/87 Orkem v Commission [1989] ECR 3343, paras 35–40. 51 I am using here the term ‘principle’, as opposed to ‘policy’, in the sense given by Ronald Dworkin, who in his book Taking Rights Seriously (Princeton, NJ, Harvard University Press, 1978), defines ‘policy’ as the kind of standard ‘that sets out a goal to be reached, generally an improvement in some economic, political, or social feature of the community’ and ‘principle’ as a standard ‘that is to be observed, not because it will advance or secure an economic, political, or social situation deemed desirable, but because it is a requirement of justice or fairness or some other dimension of morality’. 52 Above n 50, paras 32–34. 53 Judgment of 18 May 1982 in Case 155/79 AM&S v Commission [1982] ECR 1575, in particular paras 18, 20, 21 and 23; for a thorough analysis of this judgment, and more generally of legal professional privilege, see E Gippini-Fournier, ‘Legal Professional Privilege in Competition Proceedings Before the European Commission: Beyond the Cursory Glance’ in BE Hawk (ed), 2004 Annual Proceedings of the Fordham Corporate Law Institute—International Antitrust Law and Policy (Huntington, NY, Juris Publishing, 2005) 587. 54 In the language of Ronald Dworkin’s Taking Rights Seriously, above n 51, individual rights thus ‘trump’ utilitarian concerns. As argued by RH Pildes, ‘Why Rights Are Not Trumps: Social Meanings, Expressive Harms, and Constitutionalism’ (1998) 27 Journal of Legal Studies 725 at 729, the actual practice of courts’ protection of fundamental rights shows that rights are however ‘not general trumps against appeals to the common good or anything else; instead, they are better understood as channelling the kinds of reasons government can invoke when it acts in certain arenas’.

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considered to enhance the effectiveness and efficiency of antitrust enforcement. For instance, the privilege against self-incrimination could at least in part be explained by concerns relating to the reliability of the information collected.55 It is also often claimed that legal professional privilege would lead to increased compliance with the law.56 47. The remainder of this chapter does not attempt to list all the existing procedural rights and guarantees circumscribing or limiting the powers of investigation of the Commission and the national competition authorities,57 but to describe generally which law governs these matters (EC or EU law, national law, or the European Convention on Human Rights), and by whom or how the content of this law is determined (by European and national legislation, and case law of the European Court of Justice and Court of First Instance, national courts, and the European Court of Human Rights). A distinction is made between three situations: first, that where information is collected and used by the Commission; secondly, that where information is collected and used by the same national competition authority; and, thirdly, that where information is exchanged through the European Competition Network58 to be used by a different competition authority from the one that collected it.

1.2.2

Information Collected and Used by the Commission

48. As to information collected and used by the Commission, the applicable procedural rights and guarantees are essentially those provided for in Regulation 1/2003, in Commission Regulation 773/2004, and in the case law of the Community Courts. 49. A number of procedural rights and guarantees are provided for in Regulation 1/2003. For instance, as already mentioned above, Article 18 stipulates that the Commission can make requests for information only ‘[i]n order to carry out the duties assigned to it by this Regulation’ and that the request or decision ‘shall stipulate the legal basis and purpose of the request’. As to inspections in private homes, Article 21(3) provides that a Commission decision ordering such 55

See Wils, above n 1, paras 545–548, and Vesterdorf, above n 12, at 703. This claim is however highly questionable: see L Kaplow and S Shavell, ‘Legal Advice About Information to Present in Litigation: Its Effects and Social Desirability’ (1989) 102 Harvard Law Review 565; L Kaplow and S Shavell, ‘Legal Advice About Acts Already Committed’ (1990) 10 International Review of Law and Economics 149; S Shavell, ‘Legal Advice’ in P Newman (ed), New Palgrave Dictionary of Economics and the Law (Basingstoke, Palgrave Macmillan, 1998), ii, 516–520; E Gippini-Fournier, above n 53, atb596–606; and I Baum, ‘The Corporate Lawyer Client Privilege: A Comparative Law Analysis from Law & Economics Perspective’ [2006] German Working Papers in Law and Economics, Paper 13. 57 See further K Dekeyser and C Gauer, ‘The New Enforcement System for Articles 81 and 82 EC and the Rights of Defence’ in BE Hawk (ed), 2004 Annual Proceedings of the Fordham Corporate Law Institute—International Antitrust Law and Policy (Huntington, NY, Juris Publishing, 2005) 549–85; and the works referred to in n 1 above. 58 See above, nn 2 and 11, and para 1. 56

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inspection ‘cannot be executed without prior authorisation from the national judicial authority of the Member State concerned’. 50. Some further procedural rights and guarantees are set out in Regulation 773/2004, the Commission’s implementing regulation based on Article 33 of Regulation 1/2003.59 For instance, Article 4(3) of Regulation 773/2004 provides that: In cases where [pursuant to Article 20(2)(e) of Regulation 1/2003] a member of staff of an undertaking who is not or was not authorised by the undertaking or by the association of undertakings to provide explanations on behalf of the undertaking or association of undertakings has been asked for explanations, the Commission shall set a time-limit within which the undertaking or the association of undertakings may communicate to the Commission any rectification, amendment or supplement to the explanations given by such member of staff. The rectification, amendment or supplement shall be added to the explanations as recorded.

51. The case law of the Community Courts is clearly very important in determining the procedural rights and guarantees applicable to information collected and used by the Commission. First, the Community Courts interpret, and thus clarify the full meaning of, the regulatory provisions. For instance, the provisions of Article 18 of Regulation 1/2003, which stipulate that the Commission can make requests for information only ‘[i]n order to carry out the duties assigned to it by this Regulation’ and that the request or decision ‘shall stipulate the legal basis and purpose of the request’, have been interpreted by the Court of Justice as implying that the request must identify, ‘with reasonable precision’, the suspected infringement of Article 81 or 82 EC, and that it can be made only if ‘the Commission could reasonably suppose, at the time of the request, that the document [or other information requested] would help it to determine whether the alleged infringement had taken place’.60 52. Secondly, the Community Courts find procedural rights and guarantees on the basis of general principles of Community law. According to the case law of the Court of Justice, fundamental rights are part of the general principles of Community law, and the Court of Justice and the Court of First Instance thus ensure respect for these rights on the basis of Article 220 EC.61 Examples already mentioned above are the Orkem rule that the Commission cannot use requests for information to compel undertakings to admit that they have committed an infringement of Articles 81 and 82 EC, and the AM&S rule that the Commission cannot use its powers of investigation to take or to compel the production of certain lawyer–client communications (legal professional privilege).62

59 Commission Reg 773/2004 of 7 April 2004 relating to the conduct of proceedings by the Commission pursuant to Arts 81 and 82 of the EC Treaty [2004] OJ L123/18. 60 See above n 49. 61 Judgment of 12 Nov 1969 in Case 29/69 Stauder v Stadt Ulm [1969] ECR 419, para 7. 62 See above nn 50 and 53 and paras 41 and 45.

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53. In defining and applying fundamental rights, the Community Courts draw from the constitutional traditions common to the Member States and from international treaties on which Member States have collaborated and to which they are signatories. In that respect the Community Courts have accorded particular significance to the European Convention on Human Rights.63 54. The core of this case law is now enshrined in Article 6(2) EU: The Union shall respect fundamental rights, as guaranteed by the European Convention for the Protection of Human Rights and Fundamental Freedoms signed in Rome on 4 November 1950 and as they result from the constitutional traditions common to the Member States, as general principles of Community law.

55. The Court of Justice has also made it clear in its case law that, in thus ensuring respect for the fundamental rights laid down in the European Convention on Human Rights, the Community Courts must take into account the case law of the European Court of Human Rights.64 For instance, in Hüls the Court of Justice referred to two judgments of the European Court of Human Rights concerning the notion of ‘criminal’ within the meaning of the European Convention on Human Rights (ECHR) to conclude that the presumption of innocence as set out in Article 6(2) ECHR applies to procedures relating to infringements of Articles 81 and 82 EC that may result in the imposition of fines or periodic penalty payments.65 In PVC II, concerning the right not to give evidence against oneself, the Court of Justice confirmed that further developments in the case law

63 Convention for the Protection of Human Rights and Fundamental Freedoms, available at www.echr.coe.int/Eng/basicTexts.htm; see eg Judgments of the ECJ of 18 Dec 1997 in Case C–309/96 Annibaldi [1997] ECR I–7493 and of 17 Dec 1998 in Case C–185/95 P Baustahlgewebe [1998] ECR I–8417 and Judgment of the CFI of 20 Feb 2001 in Case T–112/98 Mannesmannröhren-Werke [2001] ECR II–732. 64 Whereas the ECHR and the case law of the ECtHR thus play an important role in determining the procedural rights and guarantees applicable to information collected and used by the Commission, via the case law of the Community Courts, the possibilities for the undertakings concerned to bring a claim of alleged violation of their fundamental rights directly before the ECHR appear extremely limited. As the EC or the EU is not a signatory to the ECHR (and could not become so under the current Treaties; see Opinion 2/94 (Accession to the ECHR) of the ECJ of 28 Mar 1996, [1996] ECR I–1759; Art I-9 of the signed but unratified Treaty establishing a Constitution for Europe [2004] OJ C310/1, would make accession of the EU to the ECHR possible and indeed mandatory), it is not possible to bring an action against the Community or its institutions before the ECtHR. In its judgment of 30 June 2005 in App 45036/98 Bosphorus v Ireland, the ECtHR has clarified that acts of Community institutions, to the extent that they are implemented through Member States’ acts (which is almost always the case; see also above, paras 20–23), are not per se exempted from scrutiny by the Court when it considers applications against Member States concerning such implementing acts. The ECtHR, considering that the Community protects fundamental rights in a manner equivalent to the system of the ECHR, accords a presumption of ECHR compatibility to Community acts and their implementation by Member States; that presumption can however be rebutted if, in the circumstances of the case, it appears that the fundamental rights protection at the Community level were manifestly deficient; see further S Douglas-Scott, ‘A Tale of Two Courts: Luxembourg, Strasbourg and the Growing European Human Rights Acquis’ (2006) 43 CML Rev 629. 65 Judgment of 8 July 1999 in Case C–199/92 P Hüls v Commission [1999] ECR I–4383, paras 149–150; see however the Admissibility Decision of the ECtHR of 3 June 2004 in Apps 69042/01 etc OOO Neste St Petersburg and Others v Russia.

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of the European Court of Human Rights since the Orkem judgment must be taken into account by the Community Courts.66 56. Whereas the European Convention on Human Rights thus plays an important role in the case law, some judgments of the Community Courts also mention the Charter of Fundamental Rights of the European Union.67 This document was ‘solemnly proclaimed’ by the European Parliament, the Council and the Commission on 7 December 2000.68 The signed but unratified Treaty establishing a Constitution for Europe comprises this Charter (slightly modified) and would thus make it legally binding.69 In the absence of such Treaty incorporation, the legal status of the Charter remains somewhat unclear. Recital 37 of Regulation 1/2003, however, provides that ‘[t]his Regulation respects the fundamental rights and observes the principles recognised in particular by the Charter of Fundamental Rights of the European Union. Accordingly, this Regulation should be interpreted and applied with respect to those rights and principles’.70 57. With regard to some procedural rights and guarantees, Regulation 1/2003 codifies the case law of the Community Courts. For instance, Article 20(8), which defines the role of national courts in granting authorisation for assistance by national authorities in case of opposition to an inspection ordered by the Commission, restates the Roquette judgment of the Court of Justice.71 The second sentence of recital 23 of Regulation 1/2003 restates the Orkem case law concerning self-incrimination.72

66 Judgment of 15 Oct 2002 in Joined Cases C–238/99 P etc Limburgse Vinyl Maatschappij (LVM) and Others v Commission [2002] ECR I–8616, para 274. It does not necessarily follow however that the Orkem judgment would no longer be good law. Indeed, as I have argued in detail elsewhere (Wils, above n 1, sects 5.1.2 and 5.2.2), it is not at all clear that the ECtHR would grant a wider scope of protection under the privilege against self-incrimination to legal persons in proceedings such as those under Reg 1/2003, to the extent that these proceedings can only lead to the imposition of fines on legal persons, than the protection granted under Orkem. It should also be pointed out that in several jurisdictions only natural persons, not legal persons, can invoke the privilege against selfincrimination: see the Judgment of the US Sup Ct in Braswell v United States 487 US 99 (1988) and the Judgment of the German Const Ct of 26 Feb 1997, 1 BvR 2172/96, and the Opinion of AG Geelhoed of 19 Jan 2006 in Case C–301/04 P Commission v SGL Carbon [2006] ECR I–5915, paras 62–67, and the Judgment of the ECJ of 29 June 2006 in the same case, paras 43 and 49. 67 See for instance the Judgment of the ECJ of 27 June 2006 in Case C–540/03 European Parliament v Council of the European Union [2006] ECR I–5769, para 38, concerning the validity of Dir 2003/86/EC on the right to family reunification. The CFI relied to some extent on the Charter in its Judgment of 30 Jan 2000 in Case T–54/99 max.mobil v Commission [2002] ECR II–313, para 48, and in its Judgment of 3 May 2002 in Case T–177/01 Jégo-Quéré v Commission [2002] ECR II–5137, paras 45–51, but both these judgments were annulled on appeal: by the ECJ; see Judgments of 22 Feb 2005 in Case C–141/02 P Commission v T-Mobile Austria [2005] ECR I–1283 and of 1 Apr 2004 in Case C–263/02 P Commission v Jégo-Quéré [2004] ECR I–3425. 68 [2000] OJ C364/1. 69 [2004] OJ C310/1; see further L Ortega, ‘Fundamental Rights in the European Constitution’ (2005) 11 European Public Law 363. 70 Cf Judgment of the ECJ of 27 June 2006 in Case C–540/03 European Parliament v Council of the European Union [2006] ECR I–5769, para 38. 71 Judgment of 22 Oct 2002 in Case C–94/00 Roquette [2002] ECR I–9011. 72 See above n 50 and para 44.

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58. Such legislative codification of case law raises the question to what extent the Community Courts, in later cases where they may be asked by litigants to go further in granting procedural rights and guarantees than in their earlier case law, should defer to the legislative codification or to the views expressed in the legislative process. In my view the answer should be different depending on whether the proposed extension of procedural rights is based on considerations of principle or rather on utilitarian or instrumental considerations.73 59. If, for instance, the Community Courts were to come to the view that fundamental rights of the defence required a broader right not to give evidence against oneself than recognised under the current Orkem case law,74 the fact that recital 23 of Regulation 1/2003 reflects the current case law should not prevent the Community Courts from reaching such a conclusion. Indeed, in the hierarchy of norms general principles of Community law take precedence over legislative acts, and it is the Courts’ task to find, interpret and apply these principles. 60. The situation is different, however, when proposed extensions of procedural rights or guarantees are based on utilitarian or instrumental considerations relating to the effectiveness and efficiency of antitrust enforcement. A topical example is the question whether the ruling in AM&S that the Commission cannot use its powers of investigation to take or to compel the production of certain lawyer–client communications (legal professional privilege)75 should be extended to cover not only independent lawyers, as is the current state of the law, but also in-house legal counsel.76 As already mentioned above,77 the Court of Justice based its ruling in AM&S on the need to respect the rights of the defence. I personally cannot see how one could consider that the ability to consult in confidence an independent lawyer would not be sufficient to guarantee the rights of the defence, thus creating a need to extend legal professional privilege to in-house counsel. Indeed, there is a wide choice of independent lawyers undertakings could turn to, and those undertakings which can afford to have in-house counsel can undoubtedly also afford to pay an independent lawyer. In fact the extension of legal professional privilege to in-house lawyers may lead to less protection of the fundamental rights of the defence, in that it may lead large undertakings to use only in-house counsel, thus reducing the availability of independent lawyers to the detriment of smaller companies that cannot afford in-house counsel. Not surprisingly then, a large number of the arguments used by advocates of extending the AM&S ruling to in-house counsel are not based on considerations of principle, but rather on utilitarian or instrumental considerations relating to the effectiveness and efficiency of antitrust enforcement. It is in 73

See above, paras 45–47. This is unlikely to happen, for good reasons: see Opinion of AG Geelhoed of 19 Jan 2006 in Case C–301/04 P Commission v SGL Carbon [2006] ECR I–5915, paras 62–67, and the Judgment of the ECJ of 29 June 2006 in the same case, at paras 43 and 49; and above n 66. 75 See above n 53 and para 45. 76 See Cases T–125/03 and T–253/03 Akzo Nobel Chemicals v Commission, pending. 77 See above n 53 and para 45. 74

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particular often argued that legal professional privilege for in-house counsel would lead to better compliance with Articles 81 and 82 EC.78 These arguments were also brought up in the legislative process leading to the adoption of Regulation 1/2003. Indeed, the Economic and Monetary Committee of the European Parliament initially adopted an amendment providing for the extension of legal professional privilege to in-house counsel,79 but this amendment, which was strongly opposed by the Commission, was subsequently rejected in a plenary session of the Parliament by 404 votes to 69.80 The Council also declined to include any such extension in Regulation 1/2003. The European Parliament, Council and Commission thus rejected the arguments that the extension of legal professional privilege to in-house counsel would be beneficial for the enforcement of Articles 81 and 82 EC. Given that the assessment of what is beneficial for effective and efficient antitrust enforcement belongs to these three institutions rather than the Community Courts, this should in my view lead the Community Courts to dismiss any arguments relating to the effectiveness and efficiency of antitrust enforcement which may be raised before them in support of claims to extend legal professional privilege to in-house counsel.81

1.2.3 Information Collected and Used by the Same National Competition Authority 61. For information collected and used by the same national competition authority, the applicable procedural rights and guarantees are primarily those provided for in the legislation of the Member State concerned and the case law of the national courts of that Member State. 62. In those Member States where criminal sanctions are provided for violations of Article 81 or 82 EC,82 correspondingly stronger procedural rights and guarantees will exist. 63. Given that all Member States are signatories to the European Convention on Human Rights, the procedural rights and guarantees resulting from its provisions, as interpreted by the European Court of Human Rights, are applicable in all Member States.83 64. Moreover, according to the case law of the Court of Justice, ‘the requirements flowing from the protection of fundamental rights in the Community legal 78

See above n 56. Amendment No 10 contained in the Evans Report, EP Session document of 21 June 2001, PE 296.005. 80 Plenary Session of 6 Sept 2001, PE 308.749, at 35. 81 See also Gippini-Fournier, above n 53, at 606. 82 See above, para 32. 83 It is possible for the national courts of a Member State to interpret the ECHRs more generously than the ECtHR. The interpretation given by the ECtHR functions as a minimum, given that the undertakings or individuals concerned can bring an action before it after exhaustion of domestic remedies. 79

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order are also binding on the Member States when they implement Community rules’.84 Given that national competition authorities when investigating violations of Articles 81 and 82 EC are implementing Community rules, it follows that they must respect all procedural rights and guarantees which, according to the case law of the Court of Justice, flow from the protection of fundamental rights in the Community legal order.85 65. For example, the AM&S rule that powers of investigation cannot be used to take or to compel the production of certain communications with independent lawyers, which the Court of Justice deduced from the need to protect the rights of the defence,86 thus applies not only to the European Commission but also to the national competition authorities when investigating violations of Article 81 or 82 EC. 66. National law could of course provide for wider procedural rights and guarantees than those flowing from the protection of fundamental rights in the Community legal order. For instance, in four of the 25 Member States,87 legal professional privilege covers not only independent lawyers but also in-house counsel.

1.2.4

Information Exchanged through the European Competition Network

67. When information is collected by one competition authority (the Commission or a national competition authority) and exchanged through the network to be used by another competition authority, regard should be had to Article 12(1) and (3) of Regulation 1/2003. 68. As already mentioned above, Article 12(1) of Regulation 1/2003 reads as follows: For the purpose of applying Articles 81 and 82 of the Treaty the Commission and the competition authorities of the Member States shall have the power to provide one another with and use in evidence any matter of fact or of law, including confidential information.

69. This rule is however limited by the following exception in Article 12(3) of Regulation 1/2003: 84

Judgment of 13 Apr 2000 in Case C–292/97 Karlsson and Others [2000] ECR I–2760, para 37. This conclusion is not contradicted by the ECJ Judgment of 10 Nov 1993 in Case C–60/92 Otto v Postbank [1993] ECR I–5707, in which the Court held that Community law does not require that the Orkem rule (see above n 50 and para 44) be applied by a national court in private litigation based on Art 81 or 82 EC. As is clear from paras 14 and 15 of Otto v Postbank, the Court came to this conclusion not on the ground that the requirements flowing from the protection of fundamental rights in the Community legal order would not apply in national proceedings (on the contrary, it reaffirmed their applicability), but on the ground that the necessary procedural guarantees in civil litigation are not the same as those in administrative proceedings. 86 See above, para 45. 87 Belgium, Greece, Ireland and the UK. 85

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Information exchanged pursuant to paragraph 1 can only be used in evidence to impose sanctions on natural persons where: —the law of the transmitting authority foresees sanctions of a similar kind in relation to an infringement of Article 81 or Article 82 of the Treaty or, in the absence thereof, —the information has been collected in a way which respects the same level of protection of the rights of defence of natural persons as provided for under the national rules of the receiving authority. However, in this case, the information exchanged cannot be used by the receiving authority to impose custodial sanctions.88

70. Some additional clarification is provided for in the first, third and fourth sentences of recital 16 of Regulation 1/2003: Nothwithstanding any national provision to the contrary, the exchange of information and the use of such information in evidence should be allowed between the members of the network even where the information is confidential. … When the information exchanged is used by the receiving authority to impose sanctions on undertakings, there should be no limit to the use of the information than the obligation to use it for the purpose for which it was collected given the fact that the sanctions imposed on undertakings are of the same type in all systems. The rights of defence enjoyed by undertakings in the various systems can be considered as sufficiently equivalent.

71. Finally, the three last sentences of paragraph 27 of the Commission Notice on cooperation within the Network of Competition Authorities89 explain further: Article 12 of [Regulation 1/2003] takes precedence over any contrary law of a Member State. The question whether information was gathered in a legal manner by the transmitting authority is governed on the basis of the law applicable to this authority. When transmitting information the transmitting authority may inform the receiving authority whether the gathering of the information was contested or could still be contested.

72. When information is collected by one competition authority (the transmitting authority) and exchanged through the European Competition Network to be used by another competition authority (the receiving authority), this information can thus always be used as intelligence by the receiving authority. As to its use in evidence, a distinction is made between the use to impose sanctions on natural persons and the use to impose sanctions on legal persons. The receiving authority can use the information in evidence to impose custodial sanctions only if the law of the transmitting authority provides for such sanctions in relation to violations of Article 81 or 82 EC. As regards other kinds of sanctions against natural persons (such as fines or director disqualification), the receiving authority can use the exhanged information in evidence if either the law of the transmitting authority provides for the same kind of sanctions or the information has been collected in a way which respects the same level of protection of the 88 89

See also the last sentence of Art 22(1) of Reg 1/2003, quoted above in para 41. Above n 2.

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rights of the defence of natural persons as provided for under the national rules of the receiving authority. As regards sanctions on legal persons, the receiving authority can always use the exchanged information in evidence if it has been lawfully collected according to the law applicable to the transmitting authority, even if the receiving authority could not itself have collected it or could not have used it if it had collected it, in accordance with its own national law. 73. This means for instance that the Office of Fair Trading, which itself under United Kingdom law could not use its powers of investigation to take or compel undertakings to give certain correspondence with in-house legal counsel, could receive and use in evidence such information if collected by the European Commission or the German or French competition authorities, given that in EC law and in the national laws of Germany, France, and indeed most other Member States, legal professional privilege does not cover in-house lawyers.90 74. This ability of a receiving authority to use in evidence exchanged information which it could not itself have collected, or could not have used if so collected, has been criticised by Marcos Araujo as an ‘unacceptable’ ‘circumvention’ of procedural rights and guarantees ‘that may erode fundamental rights’.91 75. I would consider such fears to be wholly unwarranted. First, the problem concerns only legal persons, not natural persons.92 Secondly, as also explained above,93 all members of the European Competition Network must respect the procedural rights and guarantees flowing from the European Convention on Human Rights, as interpreted by the European Court of Human Rights, as well as all procedural rights and guarantees which, according to the case law of the Court of Justice, flow from the protection of fundamental rights in the Community legal order.94 The ‘eroded fundamental rights’ can thus only be rights of legal persons which are recognised neither in the case law of the European Court of Human Rights nor in the fundamental rights case law of the Court of Justice. Indeed, it is difficult to find any example other than the already mentioned example of legal privilege for in-house counsel.95 As argued above, the arguments for extending legal professional privilege to in-house lawyers appear quite weak.96

90 See above, paras 41, 6- and 66; OFT Guideline 404, above n 39, para 6.3 (‘Whilst UK privilege rules would apply to cases being investigated in the UK by the OFT on its own behalf, the OFT could be sent the communications of in-house lawyers … by an NCA from another Member State where the communication of such lawyers are not privileged. Under those circumstances, the OFT may use the documentation received from the other NCA in its investigation.’); and Vesterdorf, above n 12, at 721–3. 91 M Araujo, ‘The Respect of Fundamental Rights Within the European Network of Competition Authorities’ in BE Hawk (ed), 2004 Annual Proceedings of the Fordham Corporate Law Institute— International Antitrust Law and Policy (Huntington, NY, Juris Publishing, 2005) 511, at 528 and 530. 92 See above, paras 69 and 72. 93 See above, paras 52–55 and 63–65. 94 Including eg the Orkem and AM&S case law: see above, paras 44, 45 and 65. 95 See above, para 73. In earlier publications, I have mentioned an example concerning the privilege against self-incrimination (see, inter alia, Wils, above n 1, para 207); see however the judgment of the German Const Ct, of 26 Feb 1997 referred to above in n 66. 96 See above n 56 and para 60.

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Finally, if an ‘erosion of fundamental rights’ were ever seen to be happening, one could safely expect the Community Courts and the courts of the Member States with a lower level of protection to react by increasing procedural rights and guarantees.97

97 See Wils, above n 1, para 208, n 282, and Vesterdorf, above n 12, at 722–3 (‘Regulation No 1/2003 therefore sets the stage for a comprehensive interpenetration of the national procedural laws. It must be stressed that it will not necessarily level down the national laws: nothing in Regulation No 1/2003 prevents a Member State from increasing the current level of protection granted in its jurisdiction for the collection of evidence’).

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2 Settlements of Antitrust Investigations: Commitment Decisions under Article 9 of Regulation No 1/2003 2.1 TEXT, OR IG IN AND OPTIMAL USE

2.1.1 Text 76. Regulation 1/2003 is the main implementing regulation governing the enforcement of Articles 81 and 82 EC.1 It sets out in particular the powers of the European Commission for the purpose of applying Articles 81 and 82 EC. 77. Article 9, which is part of Chapter III, ‘Commission decisions’, reads as follows: Article 9 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: 1 Council Reg 1/2003 of 16 Dec 2002 on the implementation of the rules on competition laid down in Arts 81 and 82 of the Treaty [2003] OJ L1/1, last amended by Council Reg 1419/2006 [2006] OJ L269/1. According to its Arts 43 and 45, this reg replaces Council Reg 17 [1962] JO 13/204, [1959–62] OJ Spec Ed 87, last amended by Council Reg 1216/1999 [1999] OJ L148/5, with effect from 1 May 2004. On Reg 1/2003 generally see L Idot, Droit communautaire de la concurrence—Le nouveau système communautaire de mise en oeuvre des articles 81 et 82 CE (Brussels, Bruylant, 2004); D Geradin (ed), Modernisation and Enlargement: Two Major Challenges for EC Competition Law (Antwerp, Intersentia, 2004); D Cahill and JD Cooke (eds), The Modernisation of EU Competition Law Enforcement, Reports for the XXI FIDE Congress, Dublin 2004 (Cambridge, Cambridge University Press, 2004); WPJ Wils, Principles of European Antitrust Enforcement (Oxford, Hart Publishing, 2005); CS Kerse and N Khan, EC Antitrust Procedure, 5th edn (London, Sweet & Maxwell, 2005); and L Ortiz Blanco (ed), EC Competition Procedure, 2nd edn (Oxford, Oxford University Press, 2006).

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(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; (c) where the decision was based on incomplete, incorrect or misleading information provided by the parties.

78. Article 23(2)(c) of Regulation 1/2003 provides that the Commission ‘may by decision impose fines [not exceeding 10 per cent of the total turnover in the preceding business year] on undertakings … where, intentionally or negligently … they fail to comply with a commitment made binding by a decision pursuant to Article 9’. 79. Article 24(1)(c) provides that the Commission ‘may, by decision, impose on undertakings … periodic penalty payments not exceeding 5 % of the average daily turnover in the preceding business year per day and calculated from the date appointed by the decision, in order to compel them … to comply with a commitment made binding by a decision pursuant to Article 9’. 80. Recital 13 of Regulation 1/2003—the recital directly corresponding to Article 9—reads as follows: 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 the 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.

81. The last sentence of recital 22—the recital corresponding to Article 16, which deals with the impact of Commission decisions on national courts and competition authorities—repeats: 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.

2.1.2 Origin 82. Regulation 17,2 which governed the enforcement of Articles 81 and 82 EC from 1962 until its replacement as from 1 May 2004 by Regulation 1/2003, did not contain a provision similar to Article 9 of Regulation 1/2003. Settlements of investigations by the Commission into suspected infringements of Article 81 or 82 EC did however occur. 2

See above n 1.

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83. As regards Article 82 EC, the general enforcement system under Regulation 17 was not very different from the current system under Regulation 1/2003. The Commission would normally start an investigation only if it suspected an infringement, and with a view to adopting a decision finding such infringement, ordering its termination and/or imposing a fine. In a number of cases, however, including some well-known ones, such as the IBM case,3 the Commission did not proceed up to the adoption of a decision, but rather closed the case after the undertaking concerned had offered an agreed remedy. 84. Even if Regulation 17 was silent in this respect, there did not appear to be any legal obstacle to such informal settlements. Indeed, the Commission had under Regulation 17—as it still has today under Regulation 1/2003—a broad discretion as to which infringements it chooses to pursue, depending on its enforcement priorities.4 This discretion logically also entails the discretion to close a case under investigation where the Commission considers that the interest in further pursuing the case has disappeared as a result of an agreed remedy having been offered by the undertaking concerned. 85. Under the silence of Regulation 17, such informal settlements had only those legal consequences that flow from general principles of Community law. In application of the principle of protection of legitimate expectations,5 the informal settlement would normally prevent the Commission from reopening the case, except on the basis of a material change in the facts, or if the undertaking did not respect its commitments, or if the undertaking had misled the Commission during the settlement talks.6 This broadly corresponds to what is now explicitly provided for in Article 9(2) of Regulation 1/2003. 86. The practice of informal settlements under Regulation 17 was however perceived to have at least two defects. First, apart from (using the threat of) reopening the case, the Commission did not have any means to ensure that the undertaking respected the commitments it had offered and on the basis of which the case had been closed. Secondly, the informal settlement practice lacked transparency towards directly interested third parties (who might benefit from the commitments and whose vigilance might be of help in monitoring the respect of the commitments) as well as towards the wider business and legal community (who might learn from the precedent). Settlements were usually

3 Commission’s XIVth Report on Competition Policy (Brussles, EC Commission, 1984), pts 94–95. For a list of further examples see R Whish, Competition Law, 5th edn (London, Lexis Nexis Butterworth, 2003) at 210. 4 See Judgment of the CFI of 18 Sept 1992 in Case T–24/90 Automec II [1992] ECR II–2250, and Commission Notice on the handling of complaints by the Commission under Arts 81 and 82 of the EC Treaty [2004] OJ C101/65. 5 See KPE Lasok and T Millett, Judicial Control in the EU: Procedures and Principles (Richmond, Richmond Law & Tax, 2004) at 353–64. 6 The exact scope of the legitimate expectations would of course depend on the specific assurances given or not given by the Commission, in particular the wording of the letter or other document informing the undertaking of the closure of the case; compare with Judgment of the CFI of 17 Feb 2000 in Case T–241/97 Stork Amsterdam [2000] ECR II–309.

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described in the Commission’s annual Report on Competition Policy, but often without much detail. Only in one case, SWIFT, were the commitments published in the Official Journal.7 87. The introduction of Article 9 into Regulation 1/2003 addresses these defects. First, Articles 23(2)(c) and 24(1)(c) of Regulation 1/2003 allow the Commission to impose fines and periodic penalty payments in the event of failure to comply with commitments made binding pursuant to Article 9.8 Secondly, decisions pursuant to Article 9, like all other decisions provided for in Chapter III of Regulation 1/2003, must be published in accordance with Article 30.9 88. As regards Article 81 EC, the general enforcement system under Regulation 17 was quite different from the current system. Regulation 17 provided for an opportunity for undertakings to notify their agreements to the Commission so as to obtain a negative clearance or exemption decision, and the Commission was in principle under an obligation to act upon such notifications.10 In cases where the Commission had started an investigation with a view to finding an infringement, ordering its termination and/or imposing fines, but where the undertakings concerned had offered an agreed remedy, the settlement could thus be formalised through an exemption decision. Article 8(1) of Regulation 17 explicitly provided for the ability to attach conditions and obligations to exemption decisions, and Article 15(2)(a) allowed the Commission to impose fines in case of failure o respect such obligations. 89. It is interesting to note that, nothwithstanding this availability of a formal instrument to close cases, the Court of Justice also accepted the legality of the Commission’s practice of closing cases informally by way of so-called ‘comfort letters’.11 90. Finally, Article 9 of Regulation 1/2003 is also inspired by the US example of the consent decrees or consent orders through which investigations by the Department of Justice or the Federal Trade Commission can be closed.12

7

[1997] OJ C335/3. See below, para 132. 9 See below, para 121. 10 Judgment of the CFI of 22 Oct 1997 in Joined Cases T–213/95 and T–18/96 SCK and FNK v Commission [1997] ECR II–1746; see further WPJ Wils, The Optimal Enforcement of EC Antitrust Law (Kluwer Law International, 2002) at 111–13. 11 Judgment of the ECJ of 10 July 1980 in Case 37/79 Marty v Lauder [1980] ECR 2481. 12 See DP Ducor, ‘Settlement of Competition Conduct Violations at the United States Antitrust Agencies and at the European Commission—Some Observations’ and JR Atwood, ‘Observations on Negotiating Government Antitrust Settlements in the United States’, both in BE Hawk (ed), Annual Proceedings of the Fordham Corporate Law Institute 2005 (Huntington, NY, Juris, 2006), and Wils, above n 10, at 160–1. 8

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2.1.3 Optimal Use 91. As is apparent from the first part of the text of Article 9, commitment decisions are conceived as substitutes for infringement decisions under Article 7 of Regulation 1/2003. 92. An infringement decision under Article 7 of Regulation 1/2003 normally contains a finding of an infringement of Article 81 or 82 EC and an order to bring the infringement to an end, which may include any behavioural or structural remedies which are proportionate to the infringement found and necessary to bring it effectively to an end.13 In the same decision the Commission may also, on the basis of Article 23(2)(a) of Regulation 1/2003, impose fines. 93. Such infringement decisions can thus contribute in six ways to the enforcement of Articles 81 and 82 EC:14 (1) the finding of the infringement can contribute to clarifying the content of the prohibitions laid down in Article 81 or 82 EC, thus allowing better respect for these prohibitions in the future; (2) the termination order helps bringing 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 those who already respect the prohibitions of Articles 81 and 82 EC 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 gain 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. 94. Whereas infringement decisions can thus contribute much to the enforcement of Articles 81 and 82 EC, these results are usually obtained only at the end of relatively long and costly procedures. Indeed, the Commission can only adopt an infringement decision after having fully heard the undertakings concerned, and the undertakings can bring an application for annulment of the decision before the Court of First Instance, as well as a further appeal, limited to points of law, before the Court of Justice.

13 According to the last sentence of Art 7(1) and the second sentence of rec 11 of Reg 1/2003, an infringement decision can also consist only of a finding of a past infringement, if the Commission has a legitimate interest in making such a finding. 14 For a systematic discussion of the objectives of the enforcement of Arts 81 and 82 EC and the different ways in which these objectives can be reached see sect 3.1.1 below.

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95. For instance, in the Irish Ice Cream case, the Commission in March 1998, after an administrative procedure which had taken several years, adopted a decision finding that the practice of Unilever’s Irish subsidiary in providing its distributors with freezer cabinets for free but under the condition that they could only be used to store Unilever’s ice cream products, constituted, in the circumstances of the Irish market at the time, an infringement of Articles 81 and 82 EC, and ordered Unilever to put an end to this practice. Unilever brought an application for annulment of the decision before the Court of First Instance and obtained from its President an order staying the execution of the Commission’s decision while the case was pending. The order to terminate the infringement thus became effective only after the Court of First Instance rejected the application for annulment in October 2003.15 96. To the extent that the case requires a clarification of the law—as was probably the case in Irish Ice Cream—it may very well be unavoidable to go through these relatively long and costly procedures, as an authoritative clarification of the law can only be obtained by bringing the case before the courts. 97. In other cases, however, where the main concern is to bring a current infringement to an end, it would appear to be in the public interest to obtain this result in a quicker way, so that the infringement can no longer cause its effects and that the resources which both the authorities and the companies concerned would spend on longer proceedings are saved. Commitment decisions as provided for in Article 9 of Regulation 1/2003 are the instrument which makes this possible. 98. 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 clarification of the law, public censure, deterrence, disgorgement of illicit gains and punishment, and facilitation of follow-on actions for compensation. 99. Having thus established the optimal use of commitment decisions, the next question is whether one can assume that settlement decisions will be used when optimal, and only in those cases, or whether there are any discernible risks of insufficient or excessive use. 100. Given that both the Commission and the undertakings concerned directly benefit from the cost savings resulting from the avoidance of the longer infringement proceedings, there would not appear to be much risk of insufficient use of commitment decisions. On the other hand, one could identify three possible sources of risk of excessive use of commitment decisions.

15 Unilever subsequently brought an appeal against the judgment of the CFI, which was rejected by the ECJ by Order of 28 Sept 2006: Case C–552/03 P Unilever v Commission, not yet reported, but Unilever did not seek a further suspension of the execution of the termination order while its appeal before the ECJ was pending.

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101. The first source of risk of more than optimal use of commitment decisions relates to the fact that most of the benefits of infringement decisions for the enforcement of Articles 81 and 82 EC, namely the public censure, deterrence, disgorgement of illicit gains and punishment, and facilitation of follow-on actions for compensation, are strictly negative from the perspective of the undertakings that are the addressees of the infringement decisions.16 The undertakings concerned will thus have a systematic bias in favour of commitment decisions rather than infringement decisions. 102. In order to ensure that the benefits of infringement decisions in terms of clarification of the law, public censure, deterrence, disgorgement of illicit gains and punishment and facilitation of follow-on actions for compensation are adequately weighed in the choice between commitment decisions and infringement decisions, and that commitment decisions are thus not used more often than optimal, it is essential that the undertakings concerned are not given any right to a commitment decision. The Commission should instead have very broad discretion to choose between commitment decisions and infringement decisions, allowing it to weigh up all the benefits and disadvantages of the two courses of action. The text of Article 9 of Regulation 1/2003 supports such a discretion, in that it states that the Commission ‘may’ adopt a commitment decision where the undertakings concerned offer commitments. The last sentence of recital 13 of Regulation 1/2003, according to which ‘[c]ommitment decisions are not appropriate in cases where the Commission intends to impose a fine’, also reflects the concern for the benefits of infringement decisions to be weighed by the Commission before it agrees to close a case by way of a commitment decision. 103. The second risk of undesirable use of commitment decisions relates to the abolition of the notification system. As already mentioned above, Regulation 17 provided for the ability of undertakings to notify their agreements to the Commission so as to obtain a negative clearance or exemption decision, to which conditions and obligations could be attached. This notification system was abolished by Regulation 1/2003. One of the reasons for this reform was that the notification system distorted the Commission’s enforcement priorities, making it spend its resources on notifications, which tended to involve only minor infringements, if any, instead of detecting and pursuing the most serious infringements of Articles 81 and 82 EC.17 For the same reason, it would be inopportune if the mechanism of settlement decisions could be used to make the Commission spend its resources on cases which involved only minor, if any, infringements. The text of Article 9 of Regulation 1/2003 reflects this concern, in that it restricts the use of commitment decisions to cases ‘[w]here the Commission intends to adopt a decision requiring that an infringement be brought to an end’, and only on the basis of ‘concerns expressed … by the Commission in its preliminary 16

Only the clarification of the law may also be beneficial for the undertakings concerned. For a detailed analysis of this and the other reasons for abolishing the notification system see Wils, above n 1, at 3–21. 17

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assessment’. It is thus ensured that commitment decisions are only used in cases which involve a sufficiently serious (suspected) infringement, justifying in principle the adoption of an infringement decision by the Commission. 104. The third risk of excessive use of commitment decisions relates to the possible temptation for competition authorities, or their staff, to try to obtain desired results beyond the scope of their legal powers. With regard to the use of consent decrees in the USA, Douglas Melamed observed in 1995 that these ‘enable government officials to address issues that are politically or economically important but legally ambiguous’, and that ‘some consent decree remedies appear to go beyond what the government could realistically anticipate as a remedy in a contested case’.18 In a system governed by the rule of law, it is important that public authorities do not act beyond their legal powers, however useful that action may otherwise also appear. Regulation 1/2003, which is based on Article 83 EC, only grants powers to the Commission to implement the prohibitions laid down in Articles 81 and 82 EC. Commitment decisions should thus only be used for commitments that are proportionate and necessary to bring effectively to an end a suspected infringement of Article 81 or 82 EC, ie the type of remedies which the Commission would be able to impose if it proceeded to adopt an infringement decision. 105. In the case of infringement decisions, the (frequently used) possibility of bringing an application for annulment of the decision before the Court of First Instance guarantees that no remedies are imposed that go beyond what is proportional and necessary to bring the infringement of Article 81 or 82 EC effectively to an end. In the case of commitment decisions, this control mechanism is in practice removed. Indeed, the saving of the cost and delay of judicial review is precisely one of the benefits justifying the use of commitment decisions. The requirement that the undertakings concerned must consent to the adoption of the commitment decision, which can only include commitments offered by the undertakings, acts instead as guarantee that no disproportionate or unnecessary remedies are imposed. This guarantee is however an imperfect one, to the extent that, faced with the alternative of long and costly infringement proceedings, in particular risk-averse undertakings may at the margin still be prepared to offer commitments that go beyond what is proportional and necessary to enforce Articles 81 and 82 EC. The risk of this happening could be reduced to some extent by ensuring that the undertakings’ consent is informed consent, by giving the undertakings the right of access to the Commission’s file,19 but some risk will remain. It thus remains important for the Commission to exercise some selfrestraint in this respect. In the USA, Douglas Melamed suggested in 1995 that ‘the antitrust agencies could announce and adhere to a policy of seeking consent decrees only if they have decided to litigate in the event that the defendant balks,

18 19

AD Melamed, ‘Antitrust: The New Regulation’ (Fall 1995) 10 Antitrust 13, at 13–14. See below, para 115.

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and to seek by consent decree only remedies that they believe they would obtain if the case were litigated. Second, the agencies should consider a policy of refusing to enter into a consent decree if the complaint alleges conduct that, if proven, would not fairly certainly be illegal; in other words, the agencies could endeavor to make new law or advance new theories only by litigation’.20

2.2 PROCEDURE

2.2.1 Initiation of Proceedings and Preliminary Assessment 106. According to the text of 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’, and that the undertakings offer commitments ‘to meet the concerns expressed to them by the Commission in its preliminary assessment’. Article 2(1) of Regulation 773/2004 clarifies that this requires that proceedings have been initiated.21 The last sentence of recital 13 of Regulation 1/2003, which states that ‘[c]ommitment decisions are not appropriate in cases where the Commission intends to impose a fine’, further indicates that Article 9 proceedings are entered into at a stage where the Commission has already made up its mind about whether or not the infringement warrants the imposition of a fine. All this indicates that the ‘preliminary assessment’ follows an investigation of the case, sufficiently serious to have allowed 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. 107. In cases where the Commission has already sent a statement of objections, as it is required to do under Article 27(1) of Regulation 1/2003 before taking an infringement decision pursuant to Article 7, this statement of objections could function as preliminary assessment. This is however not the only possibility. Indeed, a preliminary assessment could be adopted and communicated to the undertakings concerned in a different form, shorter and less detailed than a statement of objections. The preliminary assessment in any event constitutes a formal act of the Commission,22 which must be adopted either by the 20

Melamed, above n 18, at 14–15. Commission Reg 773/2004 of 7 Apr 2004 relating to the conduct proceedings by the Commission pursuant to Arts 81 and 82 of the EC Treaty [2004] OJ L123/18. 22 The fact that the preliminary assessment constitutes an act of the Commission does however not imply that it can be subject to an action for annulment before the CFI. Indeed, as the ECJ has held in its judgment of 11 Nov 1981 in Case 60/81 IBM v Commission [1981] ECR 2639, concerning the possibility of bringing an action for annulment against a statement of objections, ‘it is clear from the case-law that in principle an act is open to review only if it is a measure definitively laying down the position of the Commission … on the conclusion of that procedure, and not a provisional measure to pave the way for a final decision’ (point 10 of the judgment). 21

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Commission (College) itself or, on the basis of an empowerment, by one or more of its Members in the name of the Commission and under the Commission’s responsibility.23

2.2.2 Access to the File 108. As has been pointed out recently by Richard Whish, whether there is a right of access to the file in Article 9 proceedings constitutes one of the ‘unanswered questions’ concerning commitment decisions.24 109. Article 15(1) of Regulation 773/2004 provides that, ‘[i]f so requested, the Commission shall grant access to the file to the parties to whom it has addressed a statement of objections’. There is thus clearly a right of access to the file in those Article 9 proceedings in which the preliminary assessment takes the form of a statement of objections. But what if the preliminary assessment does not take this form? 110. The Commission’s recent Notice on access to the file does not answer the question. Indeed, according to its first paragraph, it deals with access to the file only in proceedings leading to decisions on the basis of Articles 7, 8, 23 and 24(2) of Regulation 1/2003, and ‘does not cover the possibility of the provision of documents in the context of other proceedings’.25 111. According to consistent case law of the Community Courts, ‘[a]ccess to the file is … one of the procedural guarantees intended to protect the rights of defence and to ensure, in particular that the right to be heard … can be exercised effectively’,26 and ‘observance of the rights of defence constitutes a fundamental principle of Community law … and must therefore be observed prior to the adoption of any decision likely to have an adverse effect on the undertakings concerned’.27

23 The Commission has currently empowered its Member in charge of Competition matters to determine and issue the preliminary assessment within the meaning of Art 9 of Reg 1/2003. As with all other empowerments, its exercise requires the prior approval of the Commission’s Legal Service. The same Member is also empowered to determine and issue statements of objections, but the exercise of this latter empowerment further requires the agreement of the President of the Commission. 24 R Whish, ‘Commitment Decisions under Article 9 of the EC Modernisation Regulation: Some Unanswered Questions’ in M Johansson, N Wahl and U Bernitz (eds), Liber Amicorum in Honour of Sven Norberg—A European for All Seasons (Brussels, Bruylant, 2007). 25 Commission Notice on the rules for access to the Commission file in cases pursuant to Arts 81 and 82 EC, Arts 53, 54 and 57 of the EEA Agreement and Council Reg 139/2004 [2005] OJ C325/7. 26 Judgment of the CFI of 15 Mar 2000 in Joined Cases T–25/95 etc Cimenteries CBR and Others v Commission [2000] ECR II–508, para 142. 27 Judgment of the CFI of 4 Mar 1999 in Case T–87/96 Assicurazioni Generali and Unicredito v Commission [1999] ECR II–206, para 88.

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112. Article 41 of the Charter of Fundamental Rights of the European Union,28 entitled ‘Right to good administration’, reaffirms the right of access to the file in the following terms: Every person has the right to have his or her affairs handled impartially, fairly and within a reasonable time by the institutions and bodies of the Union. This right includes: (a) the right of every person to be heard, before any individual measure which would affect him or her adversely is taken; (b)the right of every person to have access to his or her file, while respecting the legitimate interests of confidentiality and of professional and business secrecy; ….

113. Commitment decisions pursuant to Article 9 of Regulation 1/2003 clearly have an adverse effect on the undertakings concerned, as they make the commitments binding on them, and expose them to the risk of fines and periodic penalty payments in case of failure to comply with the commitments. 114. The fact that the undertakings concerned assent to the commitment decision by offering the commitments does not alter this. The voluntary element only relates to the choice between an infringement decision pursuant to Article 7 of Regulation 1/2003 and a commitment decision pursuant to Article 9. Indeed, as is clear from the text of Article 9, commitments are only offered ‘[w]here the Commission intends to adopt a decision requiring that an infringement be brought to an end’. The undertaking is thus the object of proceedings which have been initiated against it, and only has a degree of choice as to two possible final decisions, both of which have an adverse effect.29

28 This document was ‘solemnly proclaimed’ by the European Parliament, the Council and the Commission on 7 Dec 2000 [2000] OJ C364/1. The signed but unratified Treaty establishing a Constitution for Europe comprises this Charter (slightly modified) and would thus make it legally binding [2004] OJ C310/1; see further L Ortega, ‘Fundamental Rights in the European Constitution’ (2005) 11 European Public Law 363. Without such Treaty incorporation, the legal status of the Charter remains somewhat unclear. recital 37 of Reg 1/2003, however, provides that ‘[t]his Regulation respects the fundamental rights and observes the principles recognised in particular by the Charter of Fundamental Rights of the European Union. Accordingly, this Regulation should be interpreted and applied with respect to those rights and principles’; cf Judgment of the ECJustice of 27 June 2006 in Case C–540/03 European Parliament v Council of the European Union [2006] ECR I–5769, para 38. 29 Cf Judgment of the ECJ of 31 Mar 1993 in Joined Cases 89/85 etc Ahlström Osakeyhtiö and Others v Commission [1993] ECR I–1625, para 181, and with Judgment of the CFI of 15 Mar 2006 in Case T–15/02 BASF v Commission [2006] ECR II–497, para 58. The choice between two possible decisions is of course only available to the extent that the Commission is willing to close the case through a settlement decision. As argued above (in para 102), there can be no right to a commitment decision, the Commission having a very broad discretion to choose between commitment decisions and infringement decisions, allowing it to weigh all the benefits and disadvantages of the two courses of action for the optimal enforcement of Arts 81 and 82 EC.

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115. As argued above,30 the recognition of a right of access to the file would also appear useful in that it tends to reduce the risk of imposition of commitments that go beyond the Commission’s powers to enforce the prohibitions laid down in Articles 81 and 82 EC. 116. The recognition of a right of access to the file does of course not preclude the ability of for undertakings to waive the exercise of their right in individual cases.

2.2.3 Consultation, Adoption and Publication 117. Article 27(4) of Regulation 1/2003 provides that ‘[w]here the Commission intends to adopt a decision pursuant to Article 9 …, 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’. 118. Third parties that are opposed to the case being closed by a commitment decision, or that would at least want stronger commitments, could strengthen their procedural position by lodging a complaint within the meaning of Article 7(1) of Regulation 1/2003. This requires that they ‘can show a legitimate interest’ within the meaning of Article 7(2) and that they use Form C annexed to Regulation 773/2004.31 If the Commission is not convinced by the complaint, Articles 7 and 8 of Regulation 773/2004 require it to inform the complainant of its reasons, give the complainant access to the documents on which it bases its assessment (expunged of business secrets and other confidential information),32 and, eventually, take a reasoned decision rejecting the complaint. 119. Article 14(1) of Regulation 1/2003 provides that the Commission shall consult the Advisory Committee on Restrictive Practices and Dominant Positions, which is composed of representatives of the competition authorities of the Member States, prior to the taking of a commitment decision. 120. Commitment decisions are adopted by the Commission (College) itself. 121. Finally, Article 30 of Regulation 1/2003 provides that the Commission shall publish commitment decisions taken pursuant to Article 9. The publication shall state the names of the parties and the main content of the decision, having regard to the legitimate interest of undertakings in the protection of their business secrets. 30

Above para 105. See Art 5 of Reg 773/2004, and Commission Notice on the handling of complaints, above n 4. 32 In accordance with Art 8(2) of Reg 773/2004, the complainant may (only) use the documents to which it has thus had access for the purposes of judicial or administrative proceedings for the application of Arts 81 and 82 EC. 31

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2.3 CONTENT AND EFFECTS

2.3.1 Type of Commitments 122. As already argued above,33 the type of commitments that could be the object of commitment decisions pursuant to Article 9 of Regulation 1/2003 corresponds to the type of remedies which the Commission could have imposed in an infringement decision pursuant to Article 7 if it had continued its infringement proceedings and found the infringement of Article 81 or 82 EC which it suspected. 123. This follows from the text of Article 9, according to which commitment decisions can only be taken ‘[w]here the Commission intends to adopt a decision requiring that an infringement be brought to an end’ and the commitments are offered by the undertakings concerned ‘to meet the concerns expressed to them by the Commission in its preliminary assessment’, and from the fact that Regulation 1/2003 has its legal basis in Article 83 EC which concerns (only) the enforcement of Articles 81 and 82 EC. 124. Article 7(1) of Regulation 1/2003 specifies that the Commission may impose in infringement decisions ‘any behavioural or structural remedies which are proportionate to the infringement committed and necessary to bring the infringement 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’. According to the last sentence of recital 12 of Regulation 1/2003, ‘[c]hanges to the structure of an undertaking as it existed before the infringement was committed would only be proportionate where there is a substantial risk of a lasting or repeated infringement that derives from the very structure of the undertaking’.

2.3.2 ‘No longer grounds for action by the Commission without concluding whether or not there has been or still is an infringement’ 125. According to the second sentence of Article 9(1) of Regulation 1/2003, commitment decisions ‘shall conclude that there are no longer grounds for action by the Commission’. According to the second sentence of recital 13, ‘[c]ommitment 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’. 126. Commitment decisions thus leave open the questions whether or not the past conduct of the undertakings concerned (the agreement or practice without 33

Above, para 104.

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the commitments) constituted a violation of Articles 81 and 82 EC, and whether or not the future conduct of the undertakings concerned (assuming that they comply with the commitments) constitutes a violation of Articles 81 and 82 EC. 127. The logic behind this is that, even if the Commission must have had serious doubts about the compatibility of the undertakings’ past conduct with Articles 81 and 82 EC (otherwise it could not have ‘intend[ed] to adopt a decision requiring that an infringement be brought to an end’, as the text of Article 9 of Regulation 1/2003 requires), it has not gone through the full proceedings (statement of objections, hearing, etc) required reliably to make a finding of an infringement, and the undertakings’ offer of commitments as provided for in Article 9 does not constitute a recognition of the existence of a past infringement. As the Commission has not gone through the full proceedings which would have enabled it to make a reliable finding of a past infringement, it is equally unable to make a reliable finding that compliance with the commitments makes the agreement or practice compatible with Articles 81 and 82 EC. 128. The absence of a finding that compliance with the commitments makes the agreement or practice compatible with Articles 81 and 82 EC does not prevent the Commission from concluding that ‘there are no longer grounds for action by [it]’, because the Commission is under no obligation to act against all infringements of Articles 81 and 82 EC. Indeed, as already mentioned above,34 the Commission has a broad discretion as to which infringements it chooses to pursue. 129. The adoption of a commitment decision does therefore not imply that the Commission must have considered that compliance with the commitments makes the agreement or practice compatible with Articles 81 and 82 EC.35 It rather implies that the Commission must have considered that either there would no longer be an infringement, or action against the remaining infringement would not have fitted in its enforcement priorities, while saving the resources which it would have had to spend to decide which of the two was the case. 130. Article 9(2) of Regulation 1/2003 specifies that 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 (c) where the decision was based on incomplete, incorrect or misleading information provided by the parties’. Following such a reopening, the proceedings could then again be closed either by an infringement decision, finding an infringement of Article 81 or 82 EC, imposing remedies for its termination, and imposing a fine

34

Above, para 84. Cf J Temple Lang, ‘Commitment Decisions and Settlements with Antitrust Authorities and Private Parties under EU Antitrust Law’ in Hawk (ed), above n 12, and CJ Cook, ‘Commitment Decisions: the Law and Practice Under Article 9’ (2006) 29 World Competition 211 at 228. 35

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for this infringement (and/or for failure to comply with the commitments), or by another commitment decision, or simply by the withdrawal of the first commitment decision.

2.3.3 ‘Binding on the undertakings’: Enforcement of Commitment Decisions 131. According to the text of Article 9(1) of Regulation 1/2003, commitment decisions make the commitments ‘binding on the undertakings’ that have offered them. 132. Regulation 1/2003 explicitly provides for three possible actions the Commission could take to enforce commitment decisions: — Article 24(1)(c) allows the Commission to impose periodic penalty payments of up to 5 per cent of the average daily turnover in the preceding business year per day to compel the undertakings to comply with the commitments; — Article 23(2)(c) empowers the Commission to impose fines on the undertakings concerned, up to 10 per cent of their turnover in the preceding business year, in case of intentional or negligent non-compliance; and — Article 9(2)(b) allows the Commission to reopen proceedings where the undertakings act contrary to their commitments, possibly leading to the adoption of an infringement decision, finding an infringement of Article 81 or 82 EC, imposing remedies for its termination, and imposing fines for this infringement. 133. Another unanswered question concerning commitment decisions is whether they can also be enforced by private parties before national courts.36 If the undertakings that are the addressees of a commitment decision fail to comply with the commitments, could a private third party that claims to be harmed by this failure obtain in a national court an injunction ordering the first undertakings to comply with the commitments, or damages to compensate for the harm caused to it by the failure to comply? 134. There is certainly no obstacle in Community law to national law providing for the possibility of such actions. Less obvious is the question whether Community law requires that such actions can be brought. 135. In those Member States where national law has empowered the national competition authority to adopt commitment decisions for the enforcement of Articles 81 and 82 EC or for the enforcement of the equivalent provisions of national competition law, similar to the commitment decisions provided for in Article 9 of Regulation 1/2003,37 and where national law has provided for the 36 See J Davies and M Das, ‘Private Enforcement of Commission Commitment Decisions: a Steep Climb not a Gentle Stroll’ in Hawk (ed), above n 12 and Whish, above n 24. 37 As the national law of many Member States indeed does: see below, para 158.

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possibility of private enforcement of these commitment decisions, alongside the possibility for the national competition authority to enforce its commitment decision through fines, periodic penalty payments and reopening of proceedings comparable to the enforcement possibilities provided to the Commission for the enforcement of Article 9 decisions under Regulation 1/2003, it probably follows from the principle of equivalence, a general principle of Community law which requires equal treatment of comparable situations of Community and of purely national origin,38 that Community law also requires a possibility for private enforcement of the Commission’s commitment decisions. But what if national law does not provide for private enforcement of comparable commitment decisions adopted by national competition authorities? 136. In its initial proposal for what has become Regulation 1/2003,39 the Commission had explicitly envisaged the possibility of private enforcement of settlement decisions. Indeed, recital 12 of the proposed regulation stated that the Commission should be able to adopt decisions making commitments binding ‘so that the commitments can be relied upon by third parties before national courts and failure to comply with them can be punished by the imposition of fines and periodic penalty payments’. This wording was however removed by the Council, leaving Regulation 1/2003 silent on the subject. 137. In its Notice on cooperation with national courts,40 the Commission has affirmed that ‘[a]part from the application of Articles 81 and 82 EC, national courts are also competent to apply acts adopted by EU institutions in accordance with the EC Treaty or in accordance with the measures adopted to give the Treaty effect. National courts may thus have to enforce Commission decisions [footnote: E.g. a national court may be asked to enforce a Commission decision taken pursuant to Articles 7 to 10, 23 and 24 of [Regulation 1/2003]]’. In a memorandum posted on the Commission’s website,41 it is stated even more firmly that ‘national courts must enforce the commitments by any means provided for by national law, including the adoption of interim measures’. 138. It is certainly correct that the silence of Regulation 1/2003 does not rule out that Community law may require the possibility of private enforcement of commitment decisions. Indeed, according to the case law of the Court of Justice, ‘the Treaty has created its own legal order, which is integrated into the legal systems of the Member States and which their courts are bound to apply. The subjects of that legal order are not only the Member States but also their nationals. Just as it imposes burdens on individuals, Community law is also intended to give rise to rights which become part of their legal assets. Those

38 See generally P Oliver, ‘Le règlement 1/2003 et les principes d’efficacité et d’équivalence’ [2005] Cahiers de droit européen 343, and para 22 above. 39 COM(2000)582 final of 27 Sept 2000; see further Wils, above n 10, at 161. 40 Commission Notice on the co-operation between the Commission and the courts of the EU Member States in the application of Arts 81 and 82 EC [2004] OJ C101/54, para 7 and n 15. 41 MEMO/04/217 dated 17 Sept 2004.

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rights arise not only where they are expressly granted by the Treaty but also by virtue of obligations which the Treaty imposes in a clearly defined manner both on individuals and on the Member States and the Community institutions’.42 139. The question appears to be in essence whether the nature and the function of commitment decisions, as provided for in Regulation 1/2003, are such that commitment decisions are to be considered as creating individual rights for third parties, and that it must be considered that the full effectiveness of Articles 81 and 82 EC, or more specifically of Article 9 of Regulation 1/2003, requires private enforcement of commitment decisions alongside the enforcement by the Commission explicitly provided for in Regulation 1/2003.43 140. It is not obvious that the answer to this question must be positive. Indeed, given that a commitment decision leaves open whether or not there has been or still is an infringement,44 failure to comply with a commitment decision does not necessarily imply that Article 81 or 82 EC is being infringed. In any event, whether or not the commitment decision is being complied with, third parties can always bring an action for damages or for injunctive relief in case of infringement of Article 81 or 82 EC.45 The possibilities of enforcement by the Commission itself, through fines, periodic penalty payments and reopening of proceedings, would appear quite effective to ensure compliance with commitment decisions. The fact that the Council did not follow the Commission’s initial proposal to refer to the possibility of private enforcement in the recitals of Regulation 1/2003 tends to confirm this appreciation. Finally, as has been pointed out by John Davies and Manish Das, given that ‘the Commission will already be seized of the facts and familiar with the underlying objectives of its commitment decision in any given instance’, the Commission may indeed be ‘the most appropriate enforcer’ of ‘what are, after all, its own decisions’.46

2.3.4 Further Proceedings in National Courts or by National Competition Authorities Concerning Past Behaviour 141. Recitals 13 and 22 of Regulation 1/2003 clearly state that commitment decisions do not conclude ‘whether or not there has been … an infringement. Commitment decisions are without prejudice to the powers of the competition authorities and courts of the Member States to make such a finding and decide upon the case’. 42 Judgment of the ECJ of 20 Sept 2001 in Case C–453/99 Courage and Crehan [2001] ECR I–6314, para 19. 43 Cf the Judgment of the ECJ of 17 Sept 2002 and the Opinion of AG Geelhoed in Case C–253/00 Muñoz [2002] ECR I–7289, and Courage v Crehan, above n 42. 44 See above, paras 126–128. 45 See Courage v Crehan, above n 42; Opinion of AG Jacobs of 22 May 2003 in Joined Cases C–246/01 etc AOK Bundesverband [2004] ECR I–2493, para 104; and below, para 146. 46 Davies and Das, above n 36.

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142. The fact that the Commission has closed its proceedings through a commitment decision does therefore not in any way prevent interested 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 EC. Of course, as the infringement decision does not conclude that there has been an infringement, the existence of the infringement remains to be proven. That the Commission had initially ‘intend[ed] to adopt a decision requiring that an infringement be brought to an end’, as the text of Article 9 of Regulation 1/2003 requires, and must thus have had serious doubts about the compatibility of the undertakings’ past conduct with Articles 81 and 82 EC, is however a fact which the national courts may take into account in their assessment.47 143. Neither a finding by a national court that there has been no infringement nor a finding that there has been an infringement in any way undermines the full effect of (the operative part of) the Commission’s commitment decision. There can thus be no question of the decision of the national court ‘running counter’ to the Commission’s decision within the meaning of Article 16(1) of Regulation 1/2003. For the same reason, neither the one finding nor the other would go against Article 10 EC. 144. Similarly, the fact that the Commission has closed its proceedings through a commitment decision does not in any way prevent a national competition authority from finding 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 EC, and possibly also imposing a fine for this infringement. The finding of an infringement and the imposition of a fine by a national competition authority would not ‘run counter’ to the Commission’s decision within the meaning of Article 16(2) of Regulation 1/2003, nor go against Article 10 EC, because it would not in any way undermine the full effect of (the operative part of) the commitment decision.

2.3.5 Further Proceedings in National Courts or by National Competition Authorities Concerning Future Conduct 145. Recitals 13 and 22 of Regulation 1/2003 state no less clearly that commitment decisions do not conclude ‘whether or not there … still is an infringement. Commitment decisions are without prejudice to the powers of the competition authorities and courts of the Member States to make such a finding and decide upon the case’. 47 Cf the Order of the CFI of 17 Oct 2005 in Case T–28/02 First Data v Commission [2005] ECR II–4119, para 50.

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146. The fact that the Commission has closed its proceedings through a commitment decision does not therefore in any way prevent interested private 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 Article 81 or 82 EC. Indeed, as explained above,48 the adoption of a commitment decision does not imply that the Commission must have considered that compliance with the commitments makes the agreement or practice compatible with Articles 81 and 82 EC, but merely that the Commission must have considered that either there would no longer be an infringement, or action against the remaining infringement would not have fitted into its enforcement priorities, while saving the resources which it would have had to spend to decide which of the two it was. 147. On the basis of its own full analysis, a national court can thus find that there is still an infringement, and grant injunctive relief. Such a decision would not ‘run counter’ to the Commission’s decision within the meaning of Article 16(1) of Regulation 1/2003, nor go against Article 10 EC, unless the injunction would make it impossible for the undertaking concerned to comply (also) with the commitments made binding by the Commission’s decision. 148. Similarly, there is no legal obstacle to a national competition authority finding, on the basis of its own full analysis, that there is still an infringement of Article 81 or 82 EC, and imposing further remedies to bring this infringement to an end, or indeed accepting further commitments to that effect. For the same reasons as in the case of national courts, such action by a national competition authority would not ‘run counter’ to the Commission’s decision within the meaning of Article 16(2) of Regulation 1/2003, nor go against Article 10 EC, as long as the additional remedies do not make it impossible to comply with the commitments made binding by the Commission’s decision.49 149. In practice, it would seem unlikely that national authorities which are closely involved in the adoption of the commitment decision by the Commission, in particular through the Advisory Committee,50 would often want to take such action.51

48

Above, paras 126–128. As regards Art 11(6) of Regulation 1/2003, which provides that the initiation of proceedings by the Commission relieves national authorities of their competence to apply Arts 81 and 82 EC, it must be considered that this relieving of competence is transitory and comes to an end with the adoption of the commitment decision which closes the Commission’s proceedings. Any opposite reading of Art 11(6) would be incompatible with the clear statement in recs 13 and 22 that national competition authorities can make a finding that there still is an infringement. 50 See above, para 119. 51 See the example of the Spanish competition authority closing its parallel investigation in the Coca-Cola case after the Commission had accepted commitments, decsribed by H Brokelman, ‘ECN Enforcement Practice in Selected Member States: Spain and Portugal’, paper presented at the 14th Annual Brussels IBC Conference on ‘Advanced EC Competition Law’, 17–18 Nov 2005. 49

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150. In the light of the second sentence of Article 3(2) of Regulation 1/2003, national competition authorities (like national courts) may of course also intervene to enforce on their territory national laws which prohibit or sanction unilateral conduct engaged in by undertakings and which are stricter than Article 82 EC.

2.4 JUDICIAL RE V IEW

151. The undertakings concerned cannot challenge before the Court of First Instance the Commission’s preliminary assessment, because, like a statement of objections, it constitutes merely a preliminary measure (for either a later infringement decision or a later commitments decision).52 They cannot challenge either any rejection by the Commission of an offer of commitments, as again this rejection constitutes merely a preliminary measure (for a later infringement decision).53 152. There can be no doubt that the undertakings concerned can bring an application for annulment of the commitment decision, given that they are the addressees of it and that it adversely affects their legal position, in that it makes the commitments binding on them. There would however not appear to be many grounds on which one could imagine such a challenge being brought in practice and having a chance of success. One possible ground would be the inclusion by the Commission in its decision of commitments that go beyond what the undertakings have offered. 153. Member States could always bring an application for annulment of the commitment decision before the Court of First Instance, and other interested third parties could do so if they were directly and individually concerned by the decision. Participation in the administrative proceedings, by submitting observations in response to the publication pursuant to Article 27(4) of Regulation 1/2003, may distinguish a potential applicant individually for this purpose.54 However, the grounds on which successful challenges could be brought appear to be relatively limited here as well. One possibility would be procedural grounds, for instance inadequate consultation of the Advisory Committee or inadequate publication pursuant to Article 27(4) of Regulation 1/2003. Given that a commitment decision leaves open the question whether or not there still is an infringement of Article 81 or 82 EC, the existence of such an infringement could not be a ground for annulment. 52

See above n 22. Cf Judgment of the ECJ of 14 Mar 1990 in Joined Cases 133/87 and 150/87, Nashua Corporation and Others v Commission [1990] ECR 767 concerning the rejection of an offer in an anti-dumping case. 54 Cf Judgment of the ECJ of 17 Nov 1998 in Case C–70/97 P Kruidvat v Commission [1998] ECR I–7213. 53

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2.5 OTHER SETTLEMENTS

2.5.1 Informal Settlements 154. The existence of Article 9 of Regulation 1/2003 does not prevent the Commission from otherwise informally closing cases. Indeed, given that the Commission has a wide discretion whether or not to pursue specific cases of suspected infringements of Articles 81 and 82, depending on its enforcement priorities, it also has the freedom to close an investigation it has started when the undertakings concerned have altered their conduct or have committed themselves to do so, with the result that the case no longer appears to have any priority. 155. As already mentioned above, under Regulation 17, which provided for a notification system and formal exemption decisions, the Court of Justice also accepted the legality of the Commission’s practice of closing cases informally by way of ‘comfort letters’.55 156. Of course informal settlements have the disadvantage that the Commission has no means of enforcing compliance with any commitments, apart from reopening proceedings or threatening to do so.56

2.5.2

Commitment Decisions by National Competition Authorities

157. Article 5 of Regulation 1/2003 states that ‘[t]he competition authorities of the Member States shall have the power to apply Articles 81 and 82 of the Treaty in individual cases. For this purpose, acting on their own initiative or on a complaint, they may take the following decisions: —requiring that an infringement be brought to an end, …, —accepting commitments, …’. 158. On the basis of this provision and following the example of Article 9 of Regulation 1/2003, most Member States have in their national law empowered their national competition authorities to adopt commitment decisions comparable to those which the Commission can adopt.57 As long as the national competition authorities have the power to adopt infringement decisions, and that the effectiveness of the enforcement of Articles 81 and 82 EC by the national

55

Above n 11. See above, paras 85–87. 57 See for instance for the UK s 31D(1) of the Competition Act 1988; see further OFT, ‘Enforcement, Incorporating the Office of Fair Trading’s guidance as to the circumstances in which it may be appropriate to accept commitments’ (London, OFT, Dec 2004), available at www.oft.gov.uk/, and Judgment (Observations on procedure and binding commitment) of the Competition Appeals Tribunal of 29 Nov 2004 in Case 1026/2/3/04 Wanadoo v Ofcom [2004] CAT 20. 56

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authority is thus ensured, it would however not appear that Community law requires that the national competition authority can also adopt commitment decisions.58

2.5.3 Settlements Including the Payment of a Fine 159. Contrary to the situation in the USA, where antitrust investigations can be settled by consent decrees including payment of fines, and indeed even imprisonment, settlements of Commission investigations pursuant to Article 9 of Regulation 1/2003 cannot include the payment of a fine. 160. The last sentence of recital 13 of Regulation 1/2003 clearly states that commitment decisions ‘are not appropriate in cases where the Commission intends to impose a fine’. This is related to the fact (recalled just before in the same recital) that commitment decisions leave open the question whether an infringement of Article 81 or 82 EC has been committed. Indeed, in those cases where the infringement is of such a nature that a fine is indicated, it would normally also be indicated to make a finding of an infringement, for reasons of public censure, and to facilitate follow-on private actions for compensation.59 161. It would however not appear impossible to construct a system of settlements involving fines on the basis of Article 7 of Regulation 1/2003. Under an earlier version of its Leniency Notice,60 the European Commission also granted a reduction of the fine (typically of 10 per cent) where, after receiving a statement of objections, the undertaking informed the Commission that it did not substantially contest the facts on which the European Commission based its allegations.61 The European Commission is currently considering introducing a new settlement policy further along this line, offering a fine reduction in exchange for not merely non-contestation of the facts, but rather a recognition of the infringement and a commitment to pay the fine.62 162. Provided that the fine reduction is not disproportionately large, such a mechanism would not appear incompatible with fundamental rights.63 The proceedings would still be closed by decision pursuant to Article 7 of Regulation 58

Cf Wils, above n 38. See above, paras 93–98. 60 Commission Notice on the non-imposition or reduction of fines in cartel cases [1996] OJ C207/4. This notice was replaced in 2002; see below, para 362 and, n 26. 61 The legality of the 1996 Leniency Notice has been confirmed by the ECJ; see, inter alia, Judgment of 16 Nov 2000 in Case C–298/98 P Metsä-Serla (Finnboard) v Commission [2000] ECR I–10171, paras 56–58. 62 See speech by Commissioner N. Kroes, ‘Reinforcing the fight against cartels and developing private antitrust damage actions: two tools for a more competitive Europe’ (Commission/IBA Joint Conference on EC Competitiona Policy, 8th March 2007), available at http://ec.europa.eu/ commission_barroso/kroes/speeches_en.html ; see also below, paragraphs 377 and 409 to 412. 63 Compare with Judgment of the European Court of Human Rights of 27 Feb 1980, Deweer v Belgium, A/35. 59

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1/2003, but the decision would require less reasoning, and it would be much less likely to be challenged before the Court of First Instance.

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3 Optimal Antitrust Fines: Theory and Practice 163. This chapter discusses the use of fines imposed on companies or other corporate entities (hereafter also ‘corporate fines’) to enforce antitrust or competition law prohibitions such as Articles 81 and 82 of the EC Treaty or sections 1 and 2 of the Sherman Act. I will particularly focus on the enforcement of Articles 81 and 82 EC,1 not only because these prohibitions are the ones I am most familiar with, but also because corporate fines play a particularly important role in EU antitrust enforcement.2 164. The chapter addresses more specifically the questions in what ways corporate fines contribute to competition law enforcement, on the basis of which factors the amount of antitrust fines should be fixed in theory, and whether it is feasible in practice to calculate or measure such optimal fines. 165. Throughout most of the chapter, I assume that corporate fines are the only sanctions used to deter antitrust violations, ie that they are not combined with fines on individuals, imprisonment or other individual sanctions, nor with private damages. This assumption is still broadly realistic for the existing situation in the EU.3 The chapter does not address the question whether it would be desirable to combine corporate fines with such other sanctions,4 nor whether or how the presence of these other sanctions should affect the fixing of the amount of fines on companies. 1 Art 81 EC prohibits agreements or concerted practices which restrict competition and lack redeeming virtue, whereas Art 82 prohibits abuse of a dominant position: see generally R Whish, Competition Law, 5th edn (London, Lexis Nexis Butterworth, 2003). 2 See RH Pate, ‘Antitrust in a Transatlantic Context—From the Cicada’s Perspective’, address to the ‘Antitrust in a Transatlantic Context’ Conference (Brussels, 7 June 2004), available at www.usdoj.gov/ atr/public/speeches/203973.htm, at 3: ‘[i]t is a fact I do not like to advertise that, during Commissioner Monti’s tenure, the EC has surpassed the United States in terms of monetary penalties levied against cartelists’; see also immediately below as to the limited importance of other penalties or sanctions (fines on individuals, imprisonment, private damages) in the enforcement of EU competition law. 3 On individual sanctions see D Cahill (ed) and JD Cooke (General Rapporteur), The Modernisation of EU Competition Law Enforcement in the EU—FIDE 2004 National Reports (Cambridge, Cambridge University Press, 2004); on private actions for damages, see Ashurst (a firm), Study on the Conditions of Claims for Damages in Case of Infringement of EC Competition Rules (Aug 2004), available at http://europa.eu.int/comm/competition/antitrust/others/private_enforcement/ index_en.html#damages. 4 On the question whether individual sanctions should be added see Ch 6 below; on the question whether private actions for damages should be encouraged in Europe see WPJ Wils, ‘Should Private

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166. I also assume throughout the chapter that fines are imposed in only one jurisdiction. The article does therefore not deal with any questions related to the simultaneous or successive imposition of fines in different jurisdictions.5

3.1 THE ROLE OF FINES IN ANTIT R UST ENFORCEMENT

3.1.1 The Three Tasks of Competition Law Enforcement 167. Considered broadly,6 the enforcement of antitrust prohibitions such as Articles 81 and 82 EC could be said to entail three tasks: (1) clarifying the content of the prohibitions, (2) preventing violations of these prohibitions, and (3) dealing with the consequences when violations have nevertheless happened. 3.1.1.1 Clarifying the Content of the Prohibitions 168. The first task of antitrust enforcement is to clarify the content of the antitrust prohibitions. Indeed, Articles 81 and 82 EC, like sections 1 and 2 of the Sherman Act, contain only generally worded standards.7 Their content is clarified through judgments or decisions in individual cases,8 as well as through guidelines issued by the competition authorities.9 This also allows the content of the Antitrust Enforcement Be Encouraged in Europe?’ (2003) 26 World Competition 473, reprinted in WPJ Wils, Principles of European Antitrust Enforcement (Oxford, Hart Publishing, 2005) 111–27. 5 On the relevance of fines imposed in the US for the imposition of fines in the EU see the Judgment of the ECJ of 29 June 2006 in Case C–308/04 P SGL Carbon v Commission [2006] ECR I–5977, paras 26–39. On the imposition of fines by several competition authorities or courts within the EU see WPJ Wils, ‘The Principle of Ne Bis in Idem in EC Antitrust Enforcement: A Legal and Economic Analysis’ (2003) 26 World Competition 131, and ch 1, sects 1.2.5 and 1.2.6, and 3 of Wils, Principles, above n 4. 6 In this broad sense, ‘enforcement’ of Arts 81 and 82 EC covers the whole of the ‘implementation’ of these provisions, the latter being the term used in the title of Council Reg 1/2003 of 16 Dec 2002 on the implementation of the rules on competition laid down in Arts 81 and 82 of the Treaty [2003] OJ L1/1, last amended by Council Reg 1419/2006 [2006] OJ L269/1, the basic reg laying down the rules on the enforcement of Arts 81 and 82 EC. 7 On the economics of rules versus standards see generally I Ehrlich and RA Posner, ‘An Economic Analysis of Legal Rulemaking’ (1974) 3 Journal of Legal Studies 257 and L Kaplow, ‘Rules versus Standards’ (1992) 42 Duke Law Journal 557. 8 For examples of such judgments and decisions clarifying the content of Arts 82 and 81 EC see: Judgment of the ECJ of 26 Nov 1998 in Case C–7/97 Bronner v Mediaprint [1998] ECR I–7817, and Dec 98/531/EC of the European Commission of 11 Mar 1998 in Case IV/34.073 Van den Bergh Foods [1998] OJ L246/1 and Judgment of the CFI of 23 Oct 2003 in Case T–65/98 Van den Bergh Foods v Commission, [2003] ECR II–4653; see also Art 10 of Reg 1/2003, above n 6, and European Commission Notice on informal guidance relating to novel questions concerning Arts 81 and 82 of the EC Treaty that arise in individual cases (guidance letters) [2004] OJ C101/78. 9 See for instance the European Commission’s Guidelines on vertical restraints [2000] OJ C291/1, and Guidelines on the applicability of Art 81 EC to horizontal co-operation agreements [2001] OJ C3/2.

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prohibitions to evolve over time, following the development of economic theory,10 and the fluctuations of political or societal preferences as to the bounds of legitimate private and public power.11 3.1.1.2 Preventing Violations 169. The second and central task of antitrust enforcement is to prevent violations of the antitrust prohibitions. To see the different ways in which one could try to prevent violations from occurring, one could start by asking under what conditions companies, or the individuals taking the decision within the companies, are likely to commit antitrust violations.12 The first condition is that they need an opportunity to commit a violation. Secondly, they need to be willing to commit a violation. Corporate managers are not necessarily just maximisers of profits for themselves and their principals. They may feel a moral responsibility to live within the law whether or not they are likely to be caught, and this normative commitment could trump their interest calculus.13 Indeed, psychological research suggests that normative commitment is generally an important factor explaining compliance with the law.14 Thirdly, the companies or individual decision-makers need incentives to commit violations, in that the expected benefits to them of the violations exceed the expected costs. One could thus try to prevent antitrust violations by influencing any of these three conditions. 3.1.1.2.1 Reducing the Opportunities to Commit Violations 170. First, one could try to reduce the opportunities to commit violations. This can be done through anticipatory (ex ante) intervention. Under the EC Merger Regulation,15 the prohibition of concentrations which significantly impede effective competition is enforced through a system of mandatory prior notification and authorisation.16 Most jurisdictions have similar ex ante enforcement mechanisms 10 A good example is the evolution of economic thought on predatory pricing: see United States v AMR Corporation, 335 F 3d 1109 (10th Cir, 2003). 11 See G Amato, Antitrust and the Bounds of Power (Oxford, Hart Publishing, 1997). 12 See WPJ Wils, The Optimal Enforcement of EC Antitrust Law (the Hague, Kluwer Law International, 2002), sect 8.2. 13 CD Stone, ‘Sentencing the Corporation’ (1991) 71 Boston University Law Review 383 at 389. 14 See TR Tyler, Why People Obey the Law (Princeton, NJ, Yale University Press, 1990). 15 Council Reg 139/2004 of 20 Jan 2004 on the control of concentrations between undertakings (the EC Merger Reg) [2004] OJ L24/1. 16 Legally speaking, the EC Merger Reg does not contain a prohibition of concentrations which significantly impede effective competition. It rather contains an obligation to notify proposed concentrations and a prohibition to put them into effect before the notification, during the Commission procedure and thereafter if the procedure results in a decision finding that the concentration will significantly impede effective competition. These obligations are the reflection of the choice of an enforcement system based on mandatory prior notification and advance clearance, to enforce the underlying substantive prohibition of concentrations which significantly impede effective competition.

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for mergers.17 Before 1 May 2004, a (half-hearted) system of prior notification also existed for Article 81 EC, but this proved unworkable and has therefore been abolished by Regulation 1/2003.18 Injunctions ordering impending or current violations to be stopped are also a form of anticipatory intervention.19 3.1.1.2.2 Reducing Business People’s Willingness to Commit Violations 171. Secondly, one could try to prevent antitrust violations by reducing business people’s willingness to commit violations through a strengthening of their normative commitment to the antitrust rules.20 Competition authorities could try to do this through competition advocacy. The imposition of punishment for violations also plays an important role. Indeed, the public punishment of those who violate the antitrust prohibitions not only has a deterrent effect, in that it helps create a credible threat of punishment for those who would be willing to commit violations on the basis of a profit calculation,21 but also has moral effects, in that it sends a message to the spontaneously law-abiding, reinforcing their moral commitment to the rules.22 3.1.1.2.3 Altering the Balance of Expected Benefits and Costs of Violations 172. Thirdly, one can try to prevent antitrust violations by altering the balance of expected benefits and expected costs of violations. This can be done by prosecuting and punishing violations, and creating a credible threat of penalties which weighs sufficiently in the balance of expected costs and benefits to deter calculating companies from committing antitrust violations. Apart from such deterrence, other methods could also be used to alter the balance of expected costs and benefits. Setting up and maintaining a successful cartel requires effort. The cartel members have to select and coordinate their behaviour on mutually 17

On the economics of ex ante versus ex post enforcement see Wils, above n 12, ch 5 and sect 6.2.2. See ch 1 of Wils, Principles, above n 4. Prohibitions such as Arts 81 and 82 are by their nature unsuited for ex ante enforcement, because of the very high number of agreements and business decisions the legality of which would have to be checked, and because of the ease of concealing violations: see ch 5 and sect 6.2.2 of Wils, above n 12. 19 See below n 28. 20 See generally KG Dau-Schmidt, ‘An Economic Analysis of the Criminal Law as a PreferenceShaping Policy’ [1990] Duke Law Journal 1; CR Sunstein, ‘On the Expressive Function of the Law’ (1996) 144 University of Pennsylvania Law Review 2021, DM Kahan, ‘Social Influence, Social Meaning, and Deterrence’ (1997) 83 Virginia Law Review 349, NK Katyal, ‘Deterrence’s Difficulty’ (1997) 95 Michigan Law Review 2385, GE Lynch, ‘The Role of Criminal Law in Policing Corporate Misconduct’ (1997) 60 Law and Contemporary Problems 23, DM Kahan, ‘Social Meaning and the Economic Analysis of Crime’ (1998) 27 Journal of Legal Studies 609, and KG Dau-Schmidt, ‘Preference Shaping by the Law’ in P Newman (ed), The New Palgrave Dictionary of Economics and the Law (London, Macmillan, 1998) 84. 21 See below, para 172. 22 See J Adenaes, ‘The Moral or Educative Influence of Criminal Law’ (1971) 27 Journal of Social Issues 17, and ‘General Prevention Revisited: Research and Policy Implications’ (1975) 66 Journal of Criminal Law & Criminology 338, at 341–3, Lynch, above n 20, at 46–7, and the other literature referred to in n 20 above. 18

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consistent, collusive strategies, allowing the cartel participants as a group to increase profits, and providing for a fair distribution of profits between them. They also need to develop mechanisms to discourage cheating, involving monitoring, rewards and punishments. In a dynamic economy, successful cartels may have to develop an organisational structure that allows them to solve these problems continuously.23 Antitrust enforcement can increase the cost of setting up and running cartels in different ways. One very important measure is to make cartel agreements legally unenforceable, as Article 81(2) EC does. As will be explained further in this chapter,24 the cost of setting up and running cartels can also be increased through leniency policies and through the use of other aggravating or attenuating circumstances affecting the amount of the penalty imposed on those violations which are detected and punished. Finally, the possible use of injunctions to stop continuation of violations which are detected when still in progress also has an impact on the expected benefits of violations.25

3.1.1.3 Dealing with the Consequences of Violations 173. Attempts to prevent violations of antitrust prohibitions such as Articles 81 and 82 EC are unlikely ever to lead to the total elimination of all violations. The reasons for this are both economic and psychological. 174. The economic reason is that the enforcement measures to prevent violations are normally not without cost. The detection, prosecution and punishment of violations has a significant administrative cost, which includes both the cost borne by the public sector (cost of competition authorities, prosecutors and courts) and that borne by the businesses and individuals concerned (cost of lawyers and experts, management time). Apart from administrative costs, the pursuit of deterrence could also have undesirable side-effects. For instance, errors or the risk of errors in the imposition of sanctions could lead to lawful and economically desirable conduct being deterred. Given the existence of these costs, it is unlikely to be optimal to pursue full prevention of antitrust violations. Depending on the one hand on the cost of achieving different degrees of prevention, and on the other hand on how much value society attaches to the avoidance of antitrust violations, the optimum will be to pursue a certain degree of prevention, which in all likelihood will be less than 100 per cent.26

23 MC Levenstein and VY Suslow, ‘What Determines Cartel Success?’ (2006) 44 Journal of Economic Literature 43 at 44–5; see also JE Harrington, ‘How Do Cartels Operate?’ (June 2006), available at www.econ.jhu.edu/People/Harrington/CartelOperations-6.28.06.pdf. 24 See paras 223–228 below; see also Ch 5. 25 See below n 28. 26 See generally, with regard to deterrence, GJ Stigler, ‘The Optimum Enforcement of Laws’ (1970) 78 Journal of Political Economy 526 and KG Elzinga and W Breit, The Antitrust Penalties: A Study in Law and Economics (Princeton, NJ, Yale University Press, 1976) at 9–15.

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175. The psychological reason, which is further explained below,27 is that, in the probability estimates they make, people tend to rely disproportionately on those incidents which can easily be brought to mind. This implies that, even if the competition authorities managed at some point in time to detect so many violations and to impose such high fines that all companies will be deterred from committing new violations, this situation will not last, as over time the memory of those successful prosecutions will fade, and violations will thus again be committed. 176. If it is thus unrealistic to achieve total prevention of all violations of the antitrust prohibitions, there can be a further task for antitrust enforcement in dealing with the consequences of violations that have taken place. 177. In cases where the anti-competitive harm caused by the violation is still unfolding, it may be possible to limit or mitigate the harm through the use of injunctions.28 178. Even if the harm has fully unfolded, there could still be a task for antitrust enforcement in the pursuit of corrective justice. Two (partly overlapping) aspects could be distinguished. First, corrective justice could be pursued through disgorgement, by taking from the antitrust violator any benefits from the violation.29 Secondly, corrective justice could be pursued through compensation, by making the party which wrongfully committed the violation compensate other parties who innocently suffered the consequences of the violation.30 179. If one takes the view that the sole goal of antitrust is to enhance total economic efficiency,31 the pursuit of corrective justice is by assumption a waste of resources. However, if one considers that antitrust is, at least in part, concerned with avoiding wealth transfers from consumers to firms with market power, as I do and I believe most people do,32 the pursuit of corrective justice through compensation can be a legitimate task for antitrust enforcement. The pursuit of this goal, like the pursuit of the goal of preventing antitrust violations, is of course again not without cost.33 How much compensation is worth the cost of obtaining it depends on the one hand on how high the cost is, and on the other hand on how much value society attaches to the pursuit of corrective justice through compensation in this area.34

27

Below, paras 195–196. As indicated above, paras 170 and 172, injunctions can also be an instrument of ex ante prevention, and their possible use may also effect the expected benefits of contemplated infringements. 29 See US Federal Trade Commission, Policy Statement on Monetary Equitable Remedies in Competition Cases (25 July 2003), available at www.ftc.gov/os/2003/07/disgorgementfrn.htm. 30 See K Roach and MJ Trebilcock, ‘Private Enforcement of Competition Laws’ (1996) 34 Osgoode Hall Law Journal 461 at 496. 31 See below, para 187. 32 See below, para 188. 33 See above, para 174. 34 In Wils, ‘Should Private Antitrust Enforcement Be Encouraged in Europe?’, above n 4, I argued at 486–8 that, because there does not appear to be a clear social need, and because truly achieving 28

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3.1.2 The Role of Fines 180. With regard to the first task of clarifying the content of the antitrust prohibitions, fines do not appear to play a significant role.35 181. Fines are however an important instrument in the prevention of violations. As already indicated,36 the imposition of fines on companies that are found to have breached the antitrust prohibitions could in three ways contribute to preventing such violations. First, it may have a deterrent effect by creating a credible threat of being prosecuted and fined which weighs sufficiently in the balance of expected costs and benefits to deter calculating companies from committing antitrust violations. Secondly, it may at the same time have a moral effect, in that it sends a message to the spontaneously law-abiding, reinforcing their moral commitment to the antitrust prohibitions. Thirdly, through leniency policies and through the use of other aggravating or attenuating circumstances affecting the amount of the fine imposed, the cost of setting up and running cartels can be raised. These different effects will be analysed in more detail below.37 182. Finally, whereas fines will normally have disgorgement of the unjust enrichment as one of their effects,38 the proceeds of fines normally go into the public budget rather than to the victims of the antitrust violations, and fines could thus at most be said to contribute to the pursuit of corrective justice through compensation in an abstract and indirect way.39 corrective justice in the antitrust context is in practice a very difficult task, an increased focus of EC antitrust enforcement on compensation may be difficult to justify. 35 Indeed, in those cases where a competition authority took a decision or brought a prosecution so as to clarify that a certain behaviour, the illegality of which was previously not clear, violated the antitrust prohibitions, the imposition of a fine would legally not be possible. In the case of fines imposed by the European Commission for violation of Art 81 or 82 EC, the ‘intent or negligence’ required by Art 23(2) of Reg 1/2003, above n 6, would be lacking; see also Judgment of the CFI of 30 Sept 2003 in Joined Cases T–191/98 etc Atlantic Container Line and Others v Commission [2003] ECR II–3275, paras 1611–1633, and the European Commission Decision of 24 June 2004 in Case COMP/38.549 Belgian Architects’ Association [2005] OJ L4/10, para 137. Requiring intent or negligence also makes perfect economic sense. Fining companies for conduct they cannot avoid at reasonable cost will have no deterrent effect, while it may generate wasteful expense: see R Posner, The Economics of Justice (Cambridge, Mass, Harvard University Press, 1983) at 225; R Posner, ‘An Economic Theory of the Criminal Law’ (1985) 85 Columbia Law Review 1193 at 1221–3; and Wils, above n 12, at 30. 36 See above, paras 171 and 172. 37 Corporate fines are of course not unique in having these effects, which may also, and maybe even better, be obtained through or in combination with other types of penalties: see above n 4. 38 Indeed, as explained below, in para 184, in order to deter, fines must exceed the expected gain from the violation, multiplied by the inverse of the probability that a fine will be imposed. Fines thus set will therefore normally exceed the unjust enrichment, and will thus automatically have disgorgement as one of their effects. 39 See however Decs of the European Commission of 21 Oct 1998, Pre-Insulated Pipe Cartel [1999] OJ L24/1, rec and of 30 Oct 2002, Nintendo [2003] OJ L255/33, recs 440 and 441, granting reductions of the fines imposed on ABB and Nintendo respectively for violations of Art 81 EC in recognition of the fact that ABB had paid ‘substantial compensation to Powerpipe and its previous owner’ and that Nintendo had ‘offered substantial financial compensation to third parties identified

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183. In order to examine on the basis of which factors the amount of fines should be fixed, it may be useful to concentrate first on the relatively simple case of fines for antitrust violations committed by a single offender, such as abuses of a dominant position within the meaning of Article 82 EC committed by a single dominant company. The case of fines for collective violations, such as pricefixing or market-sharing cartels, will be examined afterwards.

3.2.1 The Basic Logic of Deterrence 184. The idea of deterrence is to create a credible threat of penalties which weighs sufficiently in the balance of expected costs and benefits to deter calculating companies from committing antitrust violations. Deterrence through the use of fines will work if, and only if, from the perspective of the company contemplating whether or not to commit a violation the expected fine exceeds the expected gain from the violation. The expected fine equals the nominal amount of the fine discounted by the probability that a fine is effectively imposed. Certain types of violations are more easily detectable than others. Some companies may also be better at avoiding apprehension than others, possibly because they are more experienced.40 The probability of actually being fined obviously also depends on the competition authorities’ enforcement priorities and their available resources. If, for instance, the probability of detection and punishment is one in five, the expected fine is only one fifth of the nominal amount. In order to deter, the nominal amount of the fine must then be at least five times larger than the expected gain. The minimum fine for deterrence to work thus equals the expected gain from the violation multiplied by the inverse of the probability of a fine being effectively imposed.41

3.2.1.1 The Deterrence Approach as Opposed to the Internalisation Approach 185. Under the deterrence approach set out just above, the optimal fine should exceed the expected gain from the violation multiplied by the inverse of the in the Statement of Objections as having suffered financial harm as a result of [Nintendo]’s violation’. The European Commission has refused to grant such reductions in other cases, and the CFI has recently confirmed that addressees of fining decisions have no right to obtain such reductions: see paras 349–355 of the judgment of 27 Sept 2006 in Case T–59/02 Archer Daniels Midland v Commission, not yet reported. 40 See LA Bebchuk and L Kaplow, ‘Optimal Sanctions and Differences in Individuals’ Likelihood of Avoiding Detection’ (1993) 13 International Review of Law and Economics 217. 41 Interest should also be added to the fine to cover the delay between the point in time at which the gain was (expected to be) obtained and the point in time at which the fine is paid.

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probability of a fine being effectively imposed, so as to eliminate all violations.42 A different approach has been advocated by Gary Becker and by William Landes.43 Under their internalisation approach, the optimal fine equals the net harm caused to persons other than the offender, again multiplied by the inverse of the probability of a fine being effectively imposed. The optimal fine thus set makes the offender internalise all the costs and benefits of the violation, thus leading the offender to commit the ‘efficient violations’ the total benefits of which exceed the total costs, while deterring ‘inefficient violations’ the total costs of which exceed the total benefits. 186. The difference between the deterrence approach and the internalisation approach to antitrust fines mainly reflects, I believe, a difference in views about the primary goal of the antitrust prohibitions. 187. The internalisation approach to antitrust fines fits the Chicago School view that the primary goal of the antitrust prohibitions is to maximise total economic welfare or total economic efficiency, ie the sum of the economic welfare of both buyers and sellers (consumers and producers).44 If one adheres to this view about the primary purpose of antitrust, one would logically also embrace the internalisation approach to antitrust fines, as it ensures that the welfare of antitrust violators and that of their victims are given equal weight. 188. The internalisation approach to antitrust fines appears however unsuitable if one has a different or broader view about the primary purpose of antitrust, as I do and I believe most people do. If one takes the view that the primary goal of the antitrust prohibitions is to prevent extractions of consumers’ wealth by firms with market power, ie to prevent wealth transfers from consumers to producers,45 one would naturally opt for the deterrence approach to antitrust fines, as it aims at deterring all antitrust violations, irrespective of whether the offender’s gain exceeds the harm caused to consumers. If one

42 See however above, paras 173–175 as to the economic and psychological reasons why deterrence is unlikely ever to be complete. 43 GS Becker, ‘Crime and Punishment: An Economic Approach’ (1968) 76 Journal of Political Economy 169 and WM Landes, ‘Optimal Sanctions for Antitrust Violations’ (1983) 50 The University of Chicago Law Review 652. 44 As has been pointed out by RH Lande, ‘Chicago’s False Foundation: Wealth Transfers (Not Just Efficiency) Should Guide Antitrust’ (1989) 58 Antitrust Law Journal 631 at 638, this view has been somewhat deceptively presented in terms of maximising ‘consumer welfare’, a term which rather corresponds to the view, mentioned just below, that the primary goal of antitrust is to prevent wealth transfers from consumers to producers. For a recent example of this confusing use of the term ‘consumer welfare’ see KN Hylton, Antitrust Law—Economic Theory and Common Law Practice (Cambridge, Cambridge University Press, 2003) at 43–4. 45 See RH Lande, ‘Wealth Transfers as the Original and Primary Concern of Antitrust: The Efficiency Interpretation Challenged’ (1982) 34 Hastings Law Journal 67, and ‘Chicago’s False Foundation’, above n 44; see also the European Commission’s Guidelines on the application of Art 81(3) of the [EC] Treaty [2004] OJ C101/97, at para 43: ‘[n]egative effects on consumers in one geographical market or product market cannot normally be balanced against and compensated by positive effects for consumers in another unrelated geographic market or product market’, such compensation only being possible ‘provided that the group of consumers affected by the restriction and benefitting from the efficiency gains are substantially the same’.

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considers that the primary goal of the antitrust prohibitions is more broadly to protect consumer choice or consumer sovereignty,46 or to preserve competitive structure and open market values,47 the deterrence approach to fines would similarly be indicated. 189. The difference between the deterrence approach and the internalisation approach to antitrust fines also reflects a difference in views as to the degree of moral condemnation to be attached to antitrust violations. Borrowing terms used by Robert Cooter and by John Coffee,48 the internalisation approach merely seeks to ‘price’ antitrust violations, whereas the deterrence approach seeks to ‘sanction’ or ‘prohibit’ such violations. Under the deterrence approach, the antitrust fine is ‘a sanction for doing what is forbidden’, whereas it is ‘the price of doing what is permitted’ under the internalisation approach. 190. The difference between the deterrence approach and the internalisation approach to antitrust fines not only reflects philosophical differences as to the primary goal of the antitrust prohibitions and the degree of moral condemnation to be attached to antitrust violations. It also makes a practical difference for the administrative cost and the effectiveness of antitrust enforcement. 191. First, the internalisation approach appears more difficult to apply in practice.49 Indeed, to determine the optimal fine in a concrete case, one has to quantify the harm to parties other than the offender, which includes not only the monopoly transfer but also the portion of the deadweight loss borne by consumers,50 as well as the probability of a fine being imposed. These factors are very hard to quantify in practice,51 which means that the imposition of fines will be administratively costly and/or that errors will be made which will weaken deterrence. On the other hand, the deterrence approach also requires some

46 See RH Lande, ‘Consumer Choice as the Ultimate Goal of Antitrust’ (2001) 62 University of Pittsburgh Law Review 503 and NW Averitt and RH Lande, ‘Consumer Sovereignty: A Unified Theory of Antitrust and Consumer Protection Law’ (1997) 65 Antitrust Law Journal 713. 47 See EM Fox, ‘What is Harm to Competition? Exclusionary Practices and Anticompetitive Effect’ (2002) 70 Antitrust Law Journal 371; see also Judgment of the ECJ of 21 Feb 1973 in Case 6/72 Europemballage and Continental Can v Commission [1973] ECR 215, para 26: ‘[Article 82 EC] is not only aimed at practices which may cause damage to consumers directly, but also at those which are detrimental to them through their impact on an effective competition structure’; Order of the President of the ECJ of 11 Apr 2002 in Case C–481/01 P(R) NDC Health v Commission [2002] ECR I–3401, para 84: ‘the reasoning … cannot be accepted without reservation, in so far as it could be understood as excluding protection of the interests of competing undertakings from the aim pursued by Article 82 EC, even though such interests cannot be separated from the maintenance of an effective competition structure’; and Judgment of the CFI of 17 Dec 2003 in Case T–219/99 British Airways v Commission [2003] ECR II–5917, para 311: ‘Article 82 is aimed at penalising even an objective detriment to the structure of competition itself ’. 48 R Cooter, ‘Prices and Sanctions’ (1984) 84 Columbia Law Review 1523 and JC Coffee, ‘Paradigms Lost: The Blurring of the Criminal and Civil Law Models—And What Can Be Done About It’ (1992) 101 Yale Law Journal 1875. 49 See also E David, Les sanctions des pratiques anticoncurrentielles en droit comparé, Doctoral Dissertation (Université Robert Schuman, Strasbourg III, 10 Dec 2004), para 1732. 50 See Landes, above n 43, and Hylton, above n 44, at 44–5. 51 See below, para 239.

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quantification of the expected gain and of the probability of a fine being imposed, but the need for precision is much lower, because it is only required that the fine exceed the expected gain discounted by the probability of a fine being imposed.52 192. Secondly, the deterrence approach also appears more effective because the imposition of fines under this approach is likely to have stronger moral effects. As explained above,53 the imposition of punishment for antitrust violations has not only a deterrent effect, in that it helps to create a credible threat of punishment for those who would be willing to commit violations on the basis of a profit calculation, but also has a moral effect, in that it sends a message to the spontaneously law-abiding, reinforcing their moral commitment to the rules. This moral effect is weakened, or even eliminated, under the internalisation approach, because the antitrust fine is not presented as ‘a sanction for doing what is forbidden’, but rather as the ‘price for doing what is permitted’.54 193. For all these reasons, the deterrence approach appears to me the better one, and I will thus primarily focus on this approach in the remainder of this chapter.55

3.2.1.2 Subjective Estimates of the Gain, the Probability of Detection and Punishment and the Amount of the Fine 194. For deterrence to work, it is necessary that, from the perspective of the company (or the individual decision-maker deciding for the company) contemplating a possible antitrust violation, the expected fine exceed the expected gain. What thus counts is the potential offender’s subjective estimate of the gain, of the probability of detection and punishment, and of the amount of the fine in case of detection and punishment. These subjective estimates are not necessarily accurate. Indeed, cognitive psychology suggests two reasons why this may not be the case.

3.2.1.2.1 Availability Bias 195. To predict accurately the probability of detection and punishment, and the amount of the fine, potential offenders would have to consider all existing information about the probability of detection and the amount of fines in general, and adjust the statistical probability thus derived with any particularised information about their specific situation. In practice, people tend to rely 52

See however paras 203–212 below as the limits on very high fines. Above, paras 169 and 171. 54 See para 189 above. 55 See however below, nn 61 and 83 and para 239, where the internalisation approach is also considered. 53

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disproportionately on those incidents which can easily be brought to mind, because they are recent, happened close to them, or were well publicised.56 196. This phenomenon has several implications for the use of fines to deter antitrust violations. First, it confirms the importance for competition authorities to give maximum publicity to the cases in which they successfully discover and punish violations, in particular the cases with the highest fines.57 Secondly, it implies that it will never be possible to achieve complete deterrence. Indeed, even if the competition authorities managed at some point in time to detect so many violations and to impose such high fines that all companies were deterred from committing new violations, this situation would not last, as over time the memory of those successful prosecutions would fade, and violations would thus again be committed.58 Thirdly, for the same reason, it also implies that the fact that violations are still discovered does not necessarily justify the conclusion that the level of the fines imposed in the past was insufficient and should thus be raised.

3.2.1.2.2 Over-confidence Bias 197. It appears that people consistently tend to overestimate the probability of good things happening to them, and underestimate the probability of bad things happening to them, in particular when the event in question is perceived to be controllable.59 198. Applied to deterrence through antitrust fines, this suggests that companies and individual decision-makers within them will tend to overestimate the gain from the antitrust violation and to underestimate the probability of being caught.60 Ex post estimates of the gain obtained from the violation will thus tend to be systematically below the ex ante expectations of potential offenders, and ex post estimates of the probability of a fine being imposed will systematically tend to exceed the probability as perceived ex ante by potential offenders. If fines are

56 See RB Korobkin and TS Ulen, ‘Law and Behavioral Science: Removing the Rationality Assumption from Law and Economics’ (2000) 88 California Law Review 1051 at 1085–90 and A Tversky and D Kahneman, ‘Availability: A Heuristic for Judging Frequency and Probability’ in D Kahneman, P Slovic and A Tversky (eds), Judgment under Uncertainty: Heuristics and Biases (Cambridge, Cambridge University Press, 1982) at 163. 57 Such publicity is also desirable because of the moral effects of punishment: see above, paras 169 and 171; see however below, paras 208–212 as to the requirements of proportional justice. 58 See above, para 175. 59 See ND Weinstein, ‘Optimistic Biases About Personal Risks’ (1989) 246 Science 1232 and Korobkin and Ulen, above n 56, at 1091–5. 60 See also ML Denger, ‘Too Much or Too Little’, American Bar Association, Section of Antitrust Law, Antitrust Remedies Forum, available at www.abanet.org/antitrust/remedies, at 5: ‘most cartel participants don’t think they will get caught’.

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calculated on the basis of ex post estimates of gain and probability, they will thus systematically tend to be too low to deter, unless an upward adjustment is made to counter this effect.61

3.2.2 The Trade-off between the Level of Fines and the Probability of Detection and Punishment 3.2.2.1 The Standard Economic Argument and its Limits 199. Given that deterrence requires that, from the perspective of the company contemplating whether or not to commit a violation, the expected fine exceed the expected gain from the violation, and given that the expected fine equals the nominal amount of the fine discounted by the probability that a fine is effectively imposed, deterrence can be achieved through different combinations of the level of fines and of the probability of detection and punishment. The same result could be achieved either with very high fines and a low probability of such fines being imposed, or with lower fines and a high probability of detection and punishment. 200. Given that the detection and punishment of antitrust violations have a significant administrative cost, including not only the costs borne by the competition authorities and courts but also those borne by the companies concerned (cost of lawyers and other experts, as well as lost management time), basic economic reasoning would plead for a strategy of very high fines which are only rarely imposed.62 201. There are however two (sets of) reasons why this strategy may not be optimal, or could at least not be carried too far. The first possible reason relates to the availability bias discussed above.63 If companies or individual decisionmakers are biased in their estimates of the probability of detection and punishment and of the amount of the fine, in that they rely disproportionately on those incidents which can easily be brought to mind because they are recent, happened close to them, or were well publicised, a strategy of very high fines which are rarely imposed may on the one hand make sense, in that the very high amounts of the fines imposed may give them more publicity and thus make them more memorable. On the other hand, a sufficient frequency of punishment would seem more efficient, assuming that if a company (or the individual decisionmaker within the company) knows or knows of a company which has been fined

61 See below, para 240 . It should be noted that the same problem arises under the internalisation approach: see above, paras 187–193. 62 See Becker, above n 43. 63 See above, paras 195 and 196.

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for a comparable antitrust violation, this information is likely to be available and thus to cause an overestimate of the probability of being fined.64 202. The second set of reasons why a strategy of very high fines combined with a low probability of detection and punishment may not be optimal, or could at least not be carried too far, is that very high fines may be problematic in several respects, in particular because they risk exceeding the ceiling of companies’ ability to pay, because high fines, even if they do not exceed ability to pay, may have substantial social and economic costs, and because they may be unacceptable from the perspective of proportional justice.65 3.2.2.2 The Limits to High Fines 3.2.2.2.1 Inability to Pay 203. For several types of antitrust violations, it would not appear abnormal for the company that is contemplating committing the violation to expect as gain from the violation extra profits of 5 per cent of turnover in the products concerned over five years. In this example, if only one out of 10 such violations is detected and punished, the fine required for deterrence would have to exceed 250 per cent of the annual turnover in the products concerned. If only one out of 20 violations is punished, the fine will have to exceed 500 per cent of annual turnover. 204. Even if the company had retained the extra profits until the fine was imposed, these profits would pay for only one tenth or one twentieth respectively of the fine. It is more likely that these profits would not have been retained but rather would have been paid out in taxes, dividends, salaries and wages.66 Even liquidating the assets of the company concerned will often be unlikely to generate 64

Korobkin and Ulen, above n 56, at 1089. Apart from these 3 main problems, which are discussed further immediately below, riskbearing cost also argues against increasing fines and lowering probability of punishment: see AM Polinsky and S Shavell, ‘The Optimal Tradeoff between the Probability and Magnitude of Fines’ (1979) 69 American Economic Review 881, L Kaplow, ‘The Optimal Probability and Magnitude of Fines for Acts that Definitely Are Undesirable’ (1992) 12 International Review of Law and Economics 3, and also MK Block and JG Sidak, ‘The Cost of Antitrust Deterrence: Why Not Hang a Price Fixer Now and Then?’ (1990) 68 Georgetown Law Journal 1131. The question could also be raised whether a strategy of very high fines and low probability of punishment would not pose problems for marginal deterrence, in that antitrust violators, once they are committing the violation, could no longer be deterred from making the violation worse, by expanding its scope, duration or intensity, because there would be no possibility left for threatening them with an ever higher fine if they did so. However, this concern may not be of much practical importance, as the expansion of the scope, duration or intensity would increase the risk of detection and punishment, all the more so if one (reasonably) assumed that competition authorities would, in selecting which violations to prosecute, give priority to the most serious ones: see generally S Shavell, ‘A Note on Marginal Deterrence’ (1992) 12 International Review of Law and Economics 345. 66 GJ Werden and MJ Simon, ‘Why price fixers should go to prison’ [1987] The Antitrust Bulletin 917 at 928 n 35, referring to empirical estimates that unions are able to capture most of the monopoly profits earned by US manufacturing firms. 65

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enough revenues to pay the fine. Indeed, many companies’ annual turnover exceeds their assets. A fine of 250 or 500 per cent of annual turnover in the products concerned by the violation could thus only be paid out of the assets of large, diversified companies or companies with very high asset-to-sales ratios.67 205. What would thus really happen if one were to adopt a policy of detecting and punishing only one out of 10 or one out of 20 violations and impose correspondingly high fines? If such high fines were really imposed, many of the companies concerned would be forced into bankruptcy. This would, however, entail undesirable social costs, because, in the absence of perfect markets, it would hurt not only managers and shareholders, on whom the bankruptcy may be considered to have a desirable deterrent effect, but also all other stake-holders in the firm: employees, suppliers, customers, creditors and tax authorities.68 206. Because of the social costs of bankruptcy, the more likely outcome is that the high fines will not be imposed, but rather lower ones, corresponding to the firms’ ability to pay. Indeed, both the European Commission and the US Department of Justice take into account ability to pay when setting the amount of fines.69 But this means that the fines really imposed thus end up being lower than those required to deter.70

3.2.2.2.2 The Social and Economic Costs of High Fines 207. Even if high fines stay below the level of inability to pay, their imposition is likely to be costly. High fines may have undesirable side-effects. In the absence of perfect markets, high fines imposed on companies will have an incidence on all the stake-holders in the firm. Bondholders and other creditors will suffer a diminution in the value of their securities. Employees may suffer from costcutting campaigns induced by the need to pay the fine. Tax receipts will be reduced. Finally, consumers may end up suffering. Indeed, if the firm competes in

67

Ibid at 928–9. RH Kraakman, ‘Corporate Liability Strategies and the Costs of Legal Controls’ (1984) 93 Yale Law Journal 857 at 882. 69 The European Commission’s guidelines on the method of setting fines mentions the undertaking’s ‘inability to pay in a specific social and economic context’ as a factor to be taken into account in setting the amount of the fine: see Guidelines on the method of setting fines imposed pursuant to Art 23(2)(a) of Reg 1/2003 [2006] OJ C210/2; see further below, Ch 4, in particular paras 341–343. 70 It should be noted that even if the social costs of bankruptcy were disregarded and companies were penalised into bankruptcy, effective deterrence would not be at all guaranteed. Indeed, the firm’s inability to pay the fine means that its shareholders can externalise part of the fine risk, as their liability is limited to their shareholding. The managers’ exposure is similarly limited by the ease with which they can find alternative employment. If the probability of detection and punishment is sufficiently low, shareholders and managers may thus decide to run the risk of their firms being fined into bankruptcy. 68

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a product market characterised by imperfect competition (as will often be the case), the fine may be partly recovered from consumers in the form of higher prices.71

3.2.2.2.3 Proportional Justice 208. A strategy of very high fines combined with a low probability of detection and punishment risks being unacceptable in the light of the principle of proportionality of penalties. This principle has been restated recently in Article 49(3) of the Charter of Fundamental Rights of the European Union, which provides that ‘the severity of penalties must not be disproportionate to the criminal offence’.72 209. The principle of proportionality of penalties reflects the retributive view of punishment. Indeed, the utilitarian conception of punishment, which justifies fines being set at the level required for optimal deterrence at the lowest cost, competes for the allegiance of the legal system with the retributive view of punishment. Under the latter view, punishment is not justified by its future consequence of deterring harmful conduct, but rather on the ground that it is morally fitting that a person who does wrong should suffer in proportion to his wrongdoing.73 The law generally reflects a mixture of both conceptions. This is visible in the Court of Justice’s affirmation that the fines imposed by the European Commission for violations of Articles 81 and 82 EC ‘have as their object to punish illegal conduct as well as to prevent it being repeated’.74 The retributive view imposes a constraint on the pursuit of optimal deterrence in the form of the principle of proportionality of penalties.75 71 JC Coffee, ‘”No Soul to Damn: No Body to Kick”: an Unscandalized Inquiry into the Problem of Corporate Punishment’ (1981) 79 Michigan Law Review 387 at 401–2. 72 [2000] OJ C364/1 at 20; see above, para 56. The Charter has since been incorporated as Part II in the (signed but not ratified) Treaty establishing a Constitution for Europe [2004] OJ C310/41. Art II-109(3) of this Treaty is the (identical) equivalent of Art 49(3) of the Charter. See also D van Zyl Smit and A Ashworth, ‘Disproportionate Sentences as Human Rights Violations’ (2004) 67 MLR 541. 73 J Rawls, ‘Two Concepts of Rules’ (1955) 64 Philosophical Review 3 at 4–5. 74 Judgment of 15 July 1970 in Case 41/69 ACF Chemiefarma [1970] ECR 661, para 173 (author’s translation of the French ‘ont pour but de réprimer des comportements illicites aussi bien que d’en prévenir le renouvellement’). Similarly, the Commission has stated that ‘the purpose of fines is twofold: to impose a pecuniary sanction on the undertaking for the violation and prevent a repetition of the offence, and to make the prohibition in the Treaty more effective’: Thirteenth Report on Competition Policy 1983 (Brussels, EC Commission, 1984) at para 62. 75 See further HLA Hart, Punishment and Responsibility—Essays in the Philosophy of Law (Oxford, Clarendon Press, 1968), J Adenaes, ‘The Morality of Deterrence’ (1970) 37 University of Chicago Law Review 649. JS Parker, ‘Criminal Sentencing Policy for Organizations: The Unifying Approach of Optimal Penalties’ (1989) 26 American Criminal Law Review 513 at 563–6, defends the view that there is no real conflict between deterrence and proportionality, because the probability of detection would reflect a second dimension of harm directly related to the offender’s culpability. By choosing an offence with a lower probability of detection, the offender would deserve a higher penalty. Parker’s argument appears unconvincing to the extent that the low probability of detection results from a policy choice, justified by the saving of administrative costs, to adopt an enforcement strategy of high penalties and low probability of punishment.

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210. Respect for the principle of proportionality of penalties may in fact also make sense within a utilitarian conception of optimal law enforcement. Indeed, as explained above,76 the imposition of penalties on antitrust violators not only has a deterrent effect, in that it helps create a credible threat of punishment for those who would be willing to commit violations on the basis of a profit calculation, but also has a moral effect, in that it sends a message to the spontaneously law-abiding, reinforcing their moral commitment to the rules. The strength of this moral effect is likely to depend on whether the punishment is perceived as just, and in particular not disproportionate.77 211. If for instance only one antitrust violation out of 10 or only one out of 20 is detected and punished, the deterrent fine has to exceed the expected gain from the violation by a factor of 10 or 20 respectively. Such a large multiplication, justified not solely by the need to achieve effective deterrence but also by a desire to save administrative costs, risks being unacceptable from a proportional justice perspective.78 212. The maximum of twice the gross gain as provided for in the US under the Criminal Fines Improvement Act79 may reflect the limit of what multiplication is considered acceptable from a proportional justice perspective. In the EU, Regulation 1/2003 provides that fines imposed by the European Commission cannot exceed 10 per cent of the total (consolidated) turnover of the company concerned in the preceding business year.80 This ceiling appears to reflect more generally concerns with very high fines, not just from the perspective of proportional justice but also as to the risk of inability to pay, and the social and economic costs of high fines.

3.2.3 Rewarding Cooperation and Efforts at Compliance 213. As explained above, antitrust fines should in principle exceed the expected gain from the violation multiplied by the inverse of the probability of a fine being effectively imposed, but the amount may in some cases have to be limited to a lower level because of the economic and social costs of very high fines and because of the requirements of proportional justice. The question I now turn to is whether the amount of the fine should also be affected by the company’s 76

At paras 169 and 171. On the importance of the perception of punishment being just see Tyler, above n 14. See further also CR Sunstein, D Schkade and D Kahneman, ‘Do People Want Optimal Deterrence?’ (2000) 29 Journal of Legal Studies 237, providing empirical evidence that people reject law-enforcement policies that increase or decrease penalties because of the probability of detection. 78 See also E David, ‘La détermination du montant des amendes sanctionnant les infractions complexes: régime commun ou régime particulier?’ (2000) 36 Revue Trimestrielle de Droit européen 511 at 526–7, and J Waldfogel, ‘Criminal Sentences as Endogenous Taxes: Are They “Just” or “Efficient”?’ (1993) 36 Journal of Law and Economics 139. 79 18 USC § 3571(d) (1984) (as amended in 1987). 80 Art 23(2), second subpara, of Reg 1/2003, above n 6; see further below, paras 338–339 , . 77

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cooperation with the competition authority’s investigation or by the company’s efforts at complying with the antitrust prohibitions.

3.2.3.1 Cooperation with the Competition Authority’s Investigation 214. When the competition authority investigates an antitrust violation, the extent to which the company concerned cooperates with the investigation can make a big difference. If the company does not cooperate at all, the competition authority will have to use its compulsory powers of investigation to collect the evidence of the violation, and will have to go through the entire administrative and judicial proceedings to establish the violation, bring it to an end if it is still continuing, and impose the fine. At the other extreme, if the company cooperates fully, it will at the outset of the investigation terminate the violation, provide the competition authority with all available evidence and admit the violation, thus dispensing with the need to go through the entire administrative and judicial proceedings.81 215. Cooperation with the competition authority’s investigation can thus in two ways be advantageous for antitrust enforcement: first, it reduces the administrative cost as well as the duration of the investigation and prosecution. Secondly, if the violation was still continuing at the outset of the investigation, the cooperation brings the violation to an end earlier. 216. Both of these effects justify a lowering of the fine. Indeed, the saving of administrative cost will allow the competition authority to redeploy the resources saved to other investigations, thus increasing the overall probability of detection and punishment, and allowing a corresponding lowering of the general level of fines. The shortening of the delay between the time of the violation and the time of the imposition of the fine reduces the amount of the fine required for deterrence, because of the lesser need for interest to cover the delay.82 The shorter duration of the violation itself correspondingly reduces the gain from the violation, and thus also lowers the required fine.83

81 On the law and economics of the collection of intelligence and evidence of antitrust violations see WPJ Wils, ‘Self-incrimination in EC Antitrust Enforcement: A Legal and Economic Analysis’ (2003) 26 World Competition 567 and ch 5 of Principles, above n 4; see also Ch 5 below. 82 See above n 41. 83 Under the internalisation approach (see paras 185–193), a similar result is achieved through a different reasoning. Under that approach, the fine should in principle equal the net harm to persons other than the offender. One of the components of this harm is the competition authority’s and the courts’ costs of investigating and punishing the violation. A lowering of these costs because of cooperation thus automatically lowers the optimal fine. To the extent that the cooperation also limits the duration of the violation, the optimal fine will also correspondingly go down, as the harm to consumers will be lower.

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217. Lowering the fine because of cooperation is of course only justified if and to the extent that the cooperation has the beneficial effects described just above.84 3.2.3.2 Compliance Programmes 218. Should antitrust fines also be reduced to reward companies that put in place or have put in place compliance programmes? In the US, a well-designed compliance programme may, in some circumstances, help the company qualify for sentence mitigation under the sentencing guidelines, so long as the employees who committed the violation were not ‘high-level personnel’ of the company.85 In the EU, ‘the [European] Commission considers that it is not appropriate to take the existence of a compliance programme into account as an attenuating circumstance for a cartel infringement, whether committed before or after the introduction of such a programme’.86 219. If they reflect a genuine commitment to antitrust compliance at the highest levels within the company, and are well-designed, compliance programmes can no doubt be very useful both to prevent antitrust violations and to detect such violations as early as possible. 220. It is not obvious, however, that this should translate into reduced fines. If fines are set at the level required for deterrence, namely above the expected gain from the violation multiplied by the inverse of the probability that a fine will be imposed, companies will already have all the necessary incentives to prevent the commitment of antitrust violations. 221. Moreover, as Stephen Calkins has pointed out, A company has a wide array of ways to increase its compliance with various laws. It can emphasize the quality of its people, by hiring honest employees, encouraging them to lead healthy lives, and taking care of them in times of need. It can create good incentives, by tying compensation to long-term results, by refraining from exerting undue pressure, and by paying supra-competitive wages employees will not want to risk 84 See Judgment of the ECJ of 16 Nov 2000 in Case C–-297/98 P SCA Holding v Commission [2000] ECR I–10101, para 36, confirming the Judgment of the CFI of 14 May 1998 in Case T–327/94: ‘[t]he Court of First Instance correctly held in that regard, in paragraph 156 of the contested judgment, that a reduction in the fine on grounds of cooperation during the administrative procedure is justified only if the conduct of the undertaking in question enabled the Commission to establish the existence of an infringement more easily and, where relevant, to bring it to an end’; see also JM Connor, Global Price Fixing: Our Customers are the Enemy (Boston, Mass, Kluwer Academic Publishers, 2001), at 387–9, on the risk of unnecessarily generous concessions. 85 US Sentencing Commission, Guidelines Manual (Nov 2005), available at www.ussc.gov/ 2005guid/TABCON05.htm, §§ 8B2.1 and 8C2.5; and WJ Kolasky, ‘Antitrust Compliance Programs: The Government Perspective’, address to the Corporate Compliance 2002 Conference (San Francisco, 12 July 2002), available at www.usdoj.gov/atr/public/speeches/11534.pdf. 86 Dec of 3 Dec 2003 in Case COMP/E-23/38.359 Electrical and mechanical carbon and graphite products; see also Judgments of the CFI of 20 Mar 2002 in Case T–31/99 ABB Asea Brown Boveri v Commission [2002] ECR II–1884, para 221, and of 9 July 2003 in Case T–224/00 Archer Daniels Midland v Commission [2003] ECR II–2597, paras 280–281.

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losing. It can teach and remind. It can monitor and audit. And it can threaten with whatever draconian consequences are in its powers …. Some companies will be better at one approach, some at another, most at some mix; but it would be surprising were the same approach right for all. Accordingly, it would seem self-evident that government should set out penalties for violating the law and leave it to firms to determine how best to respond to those penalties.87

3.3 OPTIMAL FINES FOR COLLECTIVE VIOLATIONS

222. Most of the above analysis concerning fines for single offenders applies equally to fines for collective antitrust violations such as price-fixing or marketsharing cartels. The case of collective violations is however different in some important respects.

3.3.1 Additional Possibilities for Using Fines to Prevent Violations 223. As explained above, in the case of a single offender, the necessary condition for deterrence to work is that, from the perspective of the company contemplating whether or not to commit a violation, the expected fine (being the nominal amount of the fine discounted by the probability that it is effectively imposed) must exceed the expected gain from the violation. How should this be transposed to the case of collective infringements such as price-fixing or market-sharing cartels? Should this condition be fulfilled for each of the offenders? Or for the group of all the offenders taken together? It appears that neither of the two conditions is necessary, but each is sufficient. If for each member of the contemplated cartel the expected fine exceeds the expected gain, the cartel will obviously be deterred. But given that the success of the cartel is likely to require the participation of most, if not all, of the members, it may be sufficient for deterrence to work that for some of them the expected fine exceed the expected gain. On the other hand, if for the group of prospective cartel members taken together the sum of expected fines exceeds the expected gain, the cartel will also be deterred, as it will be impossible to distribute the fine risk and the expected gain between the different cartel members in a way which makes participation profitable for all of them. But again, deterrence may even work in some situations where collectively the excepted gain exceeds the sum of expected fines, if for a sufficient number of participants the expected fine exceeds the expected gain and the cartel members do not manage to organise the necessary transfers between them so as to make participation profitable for all prospective participants. Deterrence is thus conceptually more complicated in the case of collective 87 S Calkins, ‘Corporate Compliance and the Antitrust Agencies’ Bi-Modal Penalties’ (1997) 60 Law and Contemporary Problems 127 at 147.

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violations than in the case of single offenders, but may already be effective at lower overall fine levels, if the added complication of the internal dynamics of the group of violators is well exploited.

3.3.1.1 Raising the Cost of Setting Up and Running Cartels 224. Setting up and running a successful cartel takes effort and requires the participation of the different cartel members in various respects. A number of tasks have to be performed: the agreed price or other factors must be determined; the joint profit must be allocated through quotas or otherwise; and measures have to be taken to prevent cheating, by developing a sufficiently strong sense of solidarity and mutual trust and/or by monitoring and punishing deviations. For all these tasks to be carried out, someone has to take the initiative and someone has to do the job: someone has to convene the meeting, someone has to make the price or quota calculations, someone has to do the monitoring and someone has to do the punishing.88 225. The setting up and running of cartels can be made more difficult (and hence more costly, and cartels thus less profitable, which means they can be deterred at lower overall fine levels) by threatening higher fines for those cartel members who play active roles in setting up and running them, while offering the perspective of reduced fines for those cartel members who are exclusively passive. This makes the setting up and functioning of cartels more difficult, because, faced with the prospect of higher fines, there will be fewer volunteers to play active roles. Those who nevertheless agree to do so are likely to want compensation in the form of a larger part of the gain, which is likely to be difficult to agree on, and to weaken the sense of solidarity and mutual trust within the group.89 226. Fines are indeed used in this way in the different antitrust jurisdictions. In the EU, for instance, it is well-established in the case law of the Court of Justice and the Court of First Instance and in the practice of the European Commission that the role of ringleader or instigator, or the fact of having taken retaliatory measures against recalcitrant or deviating cartel members, is taken into account in determining the amount of the fine as aggravating circumstances, regularly resulting in increases of 50 per cent for ringleaders, whereas an exclusively passive role is treated as an attenuating circumstance.90

88 To some extent these tasks can be outsourced to specialist service providers. Hence the need for the activity of such service providers to be covered by the antitrust prohibitions and to be subject to the threat of sufficiently deterrent fines; see eg the role of AC Treuhand in the organic peroxides cartel: European Commission Dec of 10 Dec 2003 in Case COMP/E-2/37.857 Organic Peroxides; an appeal against this decision is pending before the CFI as Case T–99/04. 89 See NK Katyal, ‘Conspiracy Theory’ (2003) 112 Yale Law Journal 1307 at 1341–6 and 1363–7. 90 See sects 4.5.1.3 and 4.5.2.3 below.

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3.3.1.2 Leniency 227. The group dynamics of collective violations can be further exploited through a well-designed leniency policy. Following the example of the US Antitrust Division Corporate Leniency Policy,91 the European Commission’s leniency notice92 promises immunity from fines to the cartel member that is the first to provide the Commission with evidence allowing the Commission to start a formal investigation or to prove the violation of Article 81 EC, for which the Commission has not yet got sufficient evidence, and that continues to cooperate fully with the Commission throughout the whole procedure leading to the imposition of fines on the other cartel members. The Commission’s leniency notice also promises fine reductions to those other cartel members who start cooperating later during the procedure and provide additional valuable evidence, the percentage of the fine reduction depending on whether they are the first to do so (reduction of 30 to 50 per cent), the second (20 to 30 per cent) or subsequent (up to 20 per cent). 228. As in the case of violations committed by a single offender, cooperation with the competition authority’s investigation is advantageous for antitrust enforcement, in that it reduces the administrative cost as well as the duration of the investigation and punishment, and may bring the violation to an earlier end, if the violation is still continuing. Leniency moreover makes the setting up and running of cartels more difficult, in that it fractures trust within the cartel, thus raising the need for costly monitoring and reducing the cartel members’ willingness to share with each other information which could later be used to obtain leniency.93

3.3.2 Additional Aspects to Consider 3.3.2.1 The Impact of High Fines on the Market Structure 229. Concerning fines for single offenders, it has already been pointed out above94 that fines which exceed the company’s ability to pay would lead to bankruptcy, and that, even below the level of inability to pay, the imposition of high fines may entail substantial social and economic costs. A dimension is added to this possible problem in the case of collective violations for which fines are simultaneously imposed on all or most of the companies competing in a given market. 91 US Department of Justice, Corporate Leniency Policy (10 Aug 1993); see further sect 5.1.2.1 below. 92 Commission notice on immunity from fines and reduction of fines in cartel cases [2006] OJ C298/17; see further sect 5.1.2.2 below. 93 See Katyal, above n 89, at 1346–55 and 1382–4, and Ch 5 below, in particular paras 393–408. 94 See above, paras 204–207.

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230. Imagine by way of illustration that a cartel which has been functioning very profitably for many years is discovered in some local market, on which five companies with comparable market shares are active, four of which are not active in other markets and have limited financial reserves, whereas the fifth is a subsidiary of a large, financially strong, international group. All five companies have been equally active in the cartel, and none has cooperated with the competition authority’s investigation. If one were to focus exclusively on deterrence, one would advocate in such a case the imposition of high fines on all five cartel participants. The risk, however, is that this could lead to the elimination of the four smaller competitors and the domination of the market by the fifth, stronger company. 231. In a variation on the same example, it could also be that the fifth, stronger company is the one which disclosed the existence of the cartel to the competition authority, and for that reason qualifies for immunity from fines.95 232. To avoid a deterioration in the market structure as a result of the imposition of the fines, one should thus, in all cases where high fines are imposed and where there is a significant difference in the ability to pay of the various cartel members, differentiate the amount of the fines imposed on the different companies so as to reflect their respective ability to pay. This can be done either by reducing the fines imposed on the companies with the lower ability to pay, or by imposing generally lower fines but then increasing them for the companies with a higher ability to pay. In EC fining practice, such differentation is indeed made, through the capping of fines at the statutory ceiling of 10 per cent of overall consolidated turnover of the firms concerned, and also through the use of so-called ‘multipliers’ to increase the fines imposed on companies whose size far exceeds that of the other cartel members.96

3.3.2.2 Equal Treatment 233. According to well-established case law of the Court of Justice and Court of First Instance, the European Commission, when imposing fines, ‘is not entitled to disregard the principle of equal treatment, a general principle of Community law 95 This was roughly the situation with the Luxembourg beer cartel: see European Commission Dec of 5 Dec 2001 in Case COMP/37.800/F3 Luxembourg Brewers [2002] OJ L253/21, and judgment of the CFI of 27 July 2005 in Joined Cases T–49/02 etc Brasserie nationale and Others v Commission [2005] ECR II–3033; see also para 336 below, referring to the Opinion of AG Geelhoed of 19 Jan 2006 in Case C–289/04 P Showa Denko v Commission (Graphite electrodes) [2006] ECR I–5859, para 61 and n 16. 96 On the 10% ceiling see para 212 above and paras 338 and 339 below; on the ‘multipliers’, see paras 334–336 below. In the Luxembourg Brewers case, above n 95, only low fines were imposed (without much explanation). Obviously such low fines pose a problem for deterrence. The good solution would have been to send a few managers of the Luxembourg brewing companies to prison, which would have allowed strong deterrence without causing harm to the structure of the Luxembourg beer market, but this option was not available, since prison sanctions are currently not provided for in EC law: see above, para 165 and Ch 6 below.

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which is infringed … where comparable situations are treated differently or different situations are treated in the same way, unless such difference is objectively justified’.97 With respect to collective violations, it is thus necessary to examine ‘the relative gravity of the participation of each [company]’.98 234. This requirement of equal justice is a variation on the requirement of proportional justice discussed above.99 Indeed, equal treatment is the ‘”relative” aspect of the test of proportionality’.100 As already argued above, respect for the principle of proportionality, including the principle of equal treatment, not only reflects the retributive view of punishment, but also makes sense within a utilitarian conception of optimal law enforcement, in that the strength of part of the effects of punishment is likely to depend on whether the punishment is perceived as just, including non-discriminatory.101 235. The principle of equal treatment could be considered not only in the case of collective violations, but also in the case of violations committed by a single offender, by comparison between several violations. In practice, however, the issue of respect for the principle of equal treatment arises primarily in cases of collective violations, as the treatment of the different members of the same cartel provides an obvious base for comparison.102 236. Whereas the ‘absolute’ aspect of proportional justice discussed above may constitute a real constraint in the determination of the amount of fines, in that it excludes fines which exceed by a high multiple the gain derived from the violation or the harm caused by it, to compensate for a low probability of detection and punishment,103 my impression is that the need to respect the principle of equal treatment when determining the amounts of the fines for a collective violation does not usually modify the outcome which one would anyway reach when modulating the relative amounts of the fines in function of the more or less active role played by the different cartel members, with a view to raising the cost of setting up and running cartels,104 and in function of the relative ability to pay of the different companies, with a view to avoiding a detrimental impact on the market structure.105

97 Judgment of the CFI of 13 Dec 2001 in Joined Cases T–45/98 and T–47/98 Krupp Thyssen Stainless and Acciai Speciali Terni v Commission [2001] ECR II–3765, para 237. 98 Judgment of the ECJ of 8 July 1999 in Case C–51/92 P Hercules Chemicals v Commission [1999] ECR I–4235, para 110. 99 Above, paras 208–212. 100 See Opinion of AG Tizzano of 8 July 2004 in Case C–189/02 P Dansk Rorindustri v Commission [2005] ECR I–5425, paras 107–109. 101 See above, paras 210 and 211. 102 See also the Opinion of AG Tizzano, above n 100, para 108. 103 See above, paras 202–212. 104 See above, paras 224–226. 105 See above, paras 229–232. As regards leniency, the granting of immunity and reductions of fines strictly on the basis of the timing of the cooperation (immunity only for the first; diminishing reductions for the second, third and following) is not contrary to the principle of equal treatment, as all cartel members have equal chances to be the first depending on their own initiative, and as this practice is in any event objectively justified in order to create a race to cooperate and thus fracture the

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3.4 CAN THE OPTIMAL FINE BE CALCULATED IN PR ACTICE?

237. Would it be possible in practice for a competition authority or a court, with the help of the best experts trained in econometrics, to measure or estimate reliably the optimal fine for a given antitrust violation on the basis of the theory explained above? 238. Consider first an offence committed by a single offender, for instance the abuses of a dominant position committed by Microsoft in that it refused to supply interoperability information and allow its use for the purpose of developing and distributing work group server operating system products, and made the availability of the Windows Client PC Operating System conditional on the simultaneous acquisition of Windows Media Player.106 According to the theory, in this relatively simple case, where there is no issue of rewarding cooperation with the investigation or of limiting the amount of the fine because of inability to pay, the fine should be set so as to exceed the gain which Microsoft expected, at the time it decided to commit the violation, to obtain from the violation, multiplied by the inverse of what Microsoft at that time expected to be the probability that a fine would be imposed. If Microsoft had itself quantified its estimates at the time and these calculations had been discovered in the investigation, these could be used. Otherwise it does not appear possible to measure this econometrically. 239. The task would not be any easier if one adopted the internalisation approach rather than the deterrence approach.107 Indeed, under the internalisation approach, the optimal fine would be equal to the net harm caused by the violation to all persons other than Microsoft (or rather Microsoft’s subjective estimate of this at the time it decided to commit the infringement), again multiplied by the inverse of what Microsoft, at the time it decided to commit the violation, expected to be the probability that a fine would be imposed. The main component of this net harm is the consumer welfare forgone as a result of the innovation which was blocked by Microsoft’s violation. It would not seem less difficult to measure this econometrically. 240. One might argue that it would be easier to calculate the optimal fine for other types of violations, for example price cartels.108 Unfortunately this does not appear to be the case. It may be true that for a price cartel it is not impossible

trust within the cartel. The competition authority would however violate the principle of equal treatment if it somehow interfered with the race to be the first, thus altering the time ranking from what it would have been if based only on the cooperating companies’ own initiative: see Judgment of the CFI of 13 Dec 2001 in Joined Cases T–45/98 and T–47/98 Krupp Thyssen Stainless and Acciai Speciali Terni v Commission [2001] ECR II–3765, paras 237 to 249; see also Ch 5 below, in particular paras 429 and 437. 106 See Dec of the European Commission of 24 Mar 2004 in Case COMP/C-3/37.792 Microsoft, and Order of the President of the CFI of 22 Dec 2004 in Case T–201/04 R Microsoft v Commission [2004] ECR II–4463. 107 See above, paras 185 –192. 108 See Hylton, above n 44, at 47.

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(though no doubt difficult and thus costly) to provide reliable estimates of the harm caused by the cartel, or the gain for all the cartel members taken together, but this is not the theoretically correct measure. Indeed, neither the actual harm nor the actual gain is the relevant measure, but the subjectively expected harm or gain, discounted by the subjectively expected probability that a fine would be imposed. Moreover, the fine thus calculated would only be the correct measure if one could assume that the collectivity of all cartel members could be assimilated to a single decision-maker with a single, undivided self-interest, which is manifestly not a realistic assumption. As explained above, cartels are the result of a dynamic interaction between different self-interested cartel members, and there is, even at the level of theory, no single formula of what fines for the different cartel members are optimal to deter the cartel.109 Regard should be had to the economics and psychology of setting up and running cartels, and fines should correspondingly be modulated, in particular so as to discourage companies from playing an active role in the setting up and running of the cartel.110 There is again no way to measure all this econometrically. 241. Even if it thus appears unfeasible in practice to measure econometrically the theoretically optimal fine for a given antitrust violation, the theory on optimal fines certainly remains useful as general guidance for the practice of fixing the amount of antitrust fines. 242. In some cases, it may happen that at least some of the factors which determine the theoretically optimal fine, or some reasonably close proxy, can in fact be measured. When such information is available, it should of course be taken into account in fixing the amount of the fine. One should however beware of the risk of giving excessive weight to whatever factor happens to be measurable, while ignoring other equally relevant, but less measurable factors. A clear example of this risk is the one decision in the past 40 years in which the European Commission was able to measure exactly the profit derived from the antitrust violation, and then impose this exact figure as the fine, thus disregarding completely the need to take into account the less than certain probability of detection and punishment.111 243. One should in my view also avoid any system in which the fixing of the amount of the fine is based upon the quantification of the gain obtained by the offender or the harm caused by the antitrust violation. In such a system, the burden of proof will always be on the competition authority or prosecutor.112

109

See above, para 223. See above, paras 224–226. 111 Commission Dec of 25 Mar 1992 in Case IV/30.717-A Eurocheque: Helsinki Agreement [1992] OJ L95/5. 112 In the EU, according to well-established case law, the European Commission is not obliged to prove any actual impact on the market in order to be able to impose the necessary fines for antitrust violations such as price cartels which are anti-competitive by object, but if it chooses to refer to such effects in setting the amount of the fine, it must prove what it claims: see judgments of the CFI of 15 Mar 2000 in Joined Cases T–25/95 etc Cimenteries CBR and Others v Commission [2000] ECR 110

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Given the inherent difficulty in measuring these quantities, and thus also in proving them to the requisite legal standard, and given also the informational disadvantage which the authority or prosecutor is likely to have in this regard as compared to the defendant companies, what can be proven is likely to be systematically below reality, with fines which are too low and hence underdeterrence as a result.113 Even assuming that account will also be taken of the probability of detection and punishment, fixing the amount of the fine on the basis of ex post values of the gain or harm and probability of punishment is also likely to lead to under-deterrence because, as explained above, prospective antitrust violators are likely to overestimate the gain and underestimate the probability of detection and punishment, as well as the harm.114

II–1570, paras 4862–3; of 19 Mar 2003 in Case T–213/00 CMA CGM and Others v Commission [2003] ECR II–913, para 280; and of 9 July 2003 in Case T–224/00 Archer Daniels Midland v Commission [2003] ECR II–2597, paras 148–171. Similarly, the Commission is not required, in order to determine fines, to establish that the infringement brought an unlawful advantage for the undertakings concerned, but if it chooses to refer to such gain in setting the amount of the fine, it must prove what it claims: see Judgments in Joined Cases T–25/95 etc, paras 4881–2; and Case T–213/00, paras 340–3. 113 See also J Davidow, ‘Recent US Antitrust Developments of International Relevance’ (2004) 27 World Competition 407 at 412, commenting at the increase in the US of the maximum antitrust fine from $10 million to $100 million by the Antitrust Criminal Penalty Enhancement and Reform Act of 2003: ‘[a]t first glance, it is difficult to see why the enforcers need higher fines, since they have imposed fines of up to $500 million already, by using a “double the damage” approach already set out in US law. Fines such as those, however, were negotiated. Litigation to prove such large figures would be expensive and uncertain of being sustained, so the enforcers wish to obtain authority to set a high fine based on discretion or generalised standards.’ 114 See above, paras 197 and 198.

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4 The European Commission’s 2006 Guidelines on Fines 4.1 SUMMAR Y OF THE GUIDELINES

244. On 1 September 2006, the European Commission published new Guidelines on the method it will use when setting fines to be imposed on undertakings for violations of the prohibitions on restrictive agreements and abuse of a dominant position laid down in Articles 81 and 82 of the EC Treaty and Articles 53 and 54 of the EEA Agreement (‘the 2006 Guidelines’, ‘the Guidelines’ or ‘the new Guidelines’).1 These new guidelines replace earlier guidelines dating from 1998 (‘the 1998 Guidelines’).2 245. The Guidelines set out a two-step methodology for the setting of fines.3 First, the Commission will determine a basic amount for each undertaking. Secondly, it may adjust that basic amount upwards or downwards. 246. The basic amount will be set as a percentage of the value (before tax) of the undertaking’s sales of goods or services to which the infringement directly or 1 Guidelines on the method of setting fines imposed pursuant to Art 23(2)(a) of Reg 1/2003 [2006] OJ C210/2; see H de Broca, ‘The Commission Revises its Guidelines for Setting Fines in Antitrust Cases’ [Autumn 2006] Competition Policy Newsletter 1. The Guidelines also deal with fines imposed on associations of undertakings, but these are not analysed here. On the notion of ‘undertaking’ see below, paras 502–504; WPJ Wils, ‘The Undertaking as Subject of EC Competition Law and the Imputation of Infringements to Natural and Legal Persons’ (2000) 25 European Law Review 99; ch 7 of WPJ Wils, The Optimal Enforcement of EC Antitrust Law (The Hague, Kluwer Law International, 2002); and A Montesa and A Givaja, ‘When Parents Pay for their Children’s Wrongs: Attribution of Liability for EC Antitrust Infringements in Parent–Subsidiary Scenarios’ (2006) 29 World Competition 555. 2 Guidelines on the method of setting fines imposed pursuant to Art 15(2) of Reg 17 and Art 65(5) of the ECSC Treaty [1998] OJ C9/3. On these earlier guidelines see WPJ Wils, ‘The Commission’s New Method for Calculating Fines in Antitrust Cases’ (1998) 23 European Law Review 252, and chr 4 of Wils, The Optimal Enforcement, above n 1. According to point 38 of the 2006 Guidelines, the latter apply in all cases where a statement of objections is notified after 1 Sept 2006; on the transitional question see Judgment of the ECJ of 28 June 2005 in Joined Cases C–189/02 P etc Dansk Rorindustri and Others v Commission (Pre-insulated pipes) [2005] ECR I–5425, paras 198–233; Judgment of the ECJ of 8 Feb 2007 in Case C–3/06 P Danone v Commission (Belgian beer), not yet reported, paras 87–92; and Judgment of the CFI of 27 Sept 2006 in Case T–329/01 Archer Daniels Midland v Commission (Sodium gluconate), not yet reported, paras 374–381; H de Broca, ‘Les nouvelles Lignes directrices de la Commission en matière d’amendes’ [2006] 4 Concurrences 37, pts 40–47; and E Barbier de la Serre, ‘Les lignes directrices de 2006 pour le calcul des amendes’ [2006] 9 Revue Lamy de la concurrence 14, pts 53–55. 3 Guidelines, above n 1, pts 9–11.

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indirectly relates in the relevant geographic area within the EEA.4 The Commission will normally take the sales made by the undertaking during the last full business year of its participation in the infringement.5 247. The percentage to be applied to the value of sales will depend on the gravity of the infringement.6 The assessment of gravity will be made on a case-by-case basis for all types of infringement, taking into account all the relevant circumstances of the case. As a general rule, the percentage applied on account of gravity will be up to 30 per cent. To determine the percentage within this scale, the Commission will have regard to a number of factors, such as the nature of the infringement, the combined market share of all the undertakings concerned, the geographic scope of the infringement and whether or not the infringement has been implemented. For hard-core cartels (horizontal pricefixing, market-sharing and output-limitation agreements) the percentage will generally be set at the higher end of the scale.7 248. To take into account the duration of the infringement, the amount thus determined will be multiplied by the number of years of participation in the infringement.8 In addition, irrespective of the duration of the undertaking’s participation in the infringement, the Commission will, for hard-core cartels, include in the basic amount a sum of between 15 and 25 per cent of the value of sales. The Commission may also apply such an additional amount in the case of other infringements.9 249. Once the basic amount of the fine is determined, the Commission may make adjustments upwards or downwards for a number of reasons. First, the basic amount may be increased or decreased on account of aggravating or extenuating circumstances. The Guidelines contain a non-exhaustive list of aggravating circumstances (recidivism, obstruction of investigations, and role of leader or instigator of the infringement) and of extenuating circumstances (including negligence, and authorisation or encouragement by public authorities

4 Ibid, pts 12, 13 and 17. In the case of world-wide market-sharing cartels or other infringements with a wider geographic scope than the EEA and involving several undertakings, the Commission may determine the share of the sales of each undertaking in this wider geographic market and apply this share to the aggregate sales within the EEA, so as better to reflect the relative weight of each undertaking in the infringement: ibid, pt 18. On this last point see de Broca, above n 1, at 3, and Judgments of the CFI of 29 Apr 2004 in Joined Cases T–236/01 etc Tokai Carbon and Others v Commission (Graphite electrodes) [2004] ECR II–1181, paras 196–204, and of 15 June 2005 in Joined Cases T–71/03 etc Tokai Carbon and Others v Commission (Specialty graphite) [2005] ECR II–10, paras 180–189. 5 Guidelines, above n 1, pt 13. 6 Ibid, pt 19. 7 Ibid, pts 20–23. 8 Ibid, pt 24. Periods of less than 6 months will be counted as half a year; periods of between 6 months and one year will be counted as one year. 9 Ibid, pt 25. In the press release and memorandum issued when the Commission adopted the 2006 Guidelines, this additional amount independent of duration is called an ‘entry fee’: IP/06/857 and MEMO/06/256 of 28 June 2006.

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or by legislation).10 Whereas the increase or decrease on account of other aggravating or mitigating circumstances is not specified, it is stated that the increase on account of recidivism will be by up to 100 per cent of the basic amount for each earlier finding of the same or a similar infringement.11 250. Secondly, the Commission may apply a specific increase for deterrence in the case of undertakings which have a particularly large turnover beyond the sales of goods or services to which the infringement relates and/or to ensure that the fine exceeds the amount of gains improperly made as a result of the infringement where it is possible to estimate that amount.12 251. Thirdly, whenever the amount thus set exceeds the statutory maximum of 10 per cent of the total turnover in the preceding business year of the undertaking concerned, as laid down in Article 23(2) of Regulation 1/2003,13 it will be capped at that ceiling.14 252. Fourthly, the Commission will apply its Leniency Notice, under which immunity from fines or reduction of fines is granted in cartel cases to undertakings that have cooperated with the Commission by voluntarily providing intelligence and/or evidence of the infringement, in accordance with the criteria set out in that notice.15 253. Fifthly, in exceptional cases, the Commission may reduce the fine on account of the undertaking’s inability to pay in a specific social and economic context, on the basis of objective evidence that imposition of the normal fine would irretrievably jeopardise the economic viability of the undertaking concerned and cause its assets to lose all their value.16 254. Finally, the particularities of a given case or the need to achieve deterrence in a particular case may justify departing from the methodology set out in the Guidelines.17

4.2 THE PUR POSE OF FINES

255. Article 83(1) of the EC Treaty instructs the Council to lay down ‘the appropriate regulations and directives to give effect to the principles set out in Articles 81 and 82’. Article 83(2)(a) adds that these regulations or directives shall be designed in particular ‘to ensure compliance with the prohibitions laid down in Article 81(1) and in Article 82 by making provision for fines’. 10

Guidelines, above n 1, pts 28 and 29. Ibid, pt 28. Ibid, pts 30 and 31. 13 Council Reg 1/2003 of 16 Dec 2002 on the implementation of the rules on competition laid down in Arts 81 and 82 of the Treaty [2003] OJ L1/1, as last amended by Council Reg 1419/2006 of 25 Sept 2006 [2006] OJ L269/1. 14 Guidelines, above n 1, pt 32. 15 Ibid, pt 34; see further below, para 340 and Ch 5. 16 Ibid, pt 35. 17 Ibid, pt 37. The Commission may, in certain cases, impose a symbolic fine: ibid, pt 36. 11 12

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256. The Council has done so through Regulation 1/2003, Article 23(2) of which empowers the Commission to impose fines on undertakings that, either intentionally or negligently, infringe Article 81 or Article 82 of the EC Treaty.18 257. The Court of Justice has held that such fines ‘have as their objective to suppress illegal conduct as well as to prevent it being repeated’.19 Similarly, the Commission has stated that ‘the purpose of the fines is twofold: to impose a pecuniary sanction on the undertaking for the infringement and prevent a repetition of the offence, and to make the prohibition in the Treaty more effective’.20 258. As argued in more detail above,21 the imposition of fines on undertakings that are found to have breached the antitrust prohibitions can in several ways contribute to the enforcement of these prohibitions. First, the imposition of fines may have a deterrent effect, in that it creates a credible threat of prosecution and punishment which weighs sufficiently in the balance of expected costs and benefits to deter calculating undertakings from committing antitrust violations.22 259. Secondly, in the case of collective violations such as cartels, the differentiation of penalties according to the role played by the different conspirators can have the effect of raising the cost of setting up and running cartels. Setting up and maintaining a successful cartel requires effort. The cartel members have to select 18 See above n 13. Reg 1/2003 replaced as of 1 May 2004 the earlier Council Reg 17 of 6 Feb 1962 [1962] JO 13/204, [1959–62] OJ Spec Ed 87, Art 15(2) of which had basically the same content. Art 5 of Reg 1/2003 also provides for fines imposed by the competition authorities of the Member States for violations of Art 81 or 82 EC: see chs 1 and 4 of WPJ Wils, Principles of European Antitrust Enforcement (Oxford, Hart Publishing, 2005). 19 Judgment of 15 July 1970 in Case 41/69 Chemiefarma v Commission [1970] ECR 661, para 173 (my translation of the French ‘ont pour objet de réprimer des comportements illicites aussi bien que d’en prévenir le renouvellement’). 20 EC Commission, Thirteenth Report on Competition Policy 1983 (Brussels, EC Commission, 1983) para 62. 21 At sect 3.1. 22 ’Deterrence’ is here understood in the usual sense of trying to eliminate all violations. Another strand of the economic literature, following GS Becker, ‘Crime and Punishment: An Economic Approach’ (1968) 76 Journal of Political Economy 169 and WM Landes, ‘Optimal Sanctions for Antitrust Violations’ (1983) 50 University of Chicago Law Review 652, and including more recently KN Hylton, Antitrust Law—Economic Theory and Common Law Evolution (Cambridge, Cambridge University Press, 2003) ch 2, and C Veljanovski, ‘Cartel Fines in Europe: Law, Practice and Deterrence’, forthcoming in (2007) 30 World Competition 65, uses the term ‘deterrence’ to denote something else, which I would rather call ‘internalisation’. Whereas under the deterrence approach, the optimal fine should exceed the expected gain from the violation multiplied by the inverse of the probability of a fine being effectively imposed, so as to eliminate all violations, under the internalisation approach, the optimal fine equals the net harm caused to persons other than the offender, again multiplied by the inverse of the probability of a fine being effectively imposed. The optimal fine thus set makes the offender internalise all the costs and benefits of the violation, thereby leading the offender to commit the ‘efficient violations’ the total benefits of which exceed the total costs while deterring ‘inefficient violations’ the total costs of which exceed the total benefits. See sect 3.2.1.1 above for the reasons why I believe that the deterrence approach is the better one as far as antitrust fines are concerned; see also in that sense the study of the French Competition Council: Conseil de la Concurrence, Rapport annuel 2005, Etude thématique ‘Sanctions, injonctions, engagements, transaction et clémence: les instruments de la mise en oeuvre du droit de la concurrence’ (Paris, 2006), available at www.conseilconcurrence.fr/doc/etude_thematique05.pdf, at 103–5.

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and coordinate their behaviour according to mutually consistent, collusive strategies, allowing the cartel participants as a group to increase profits, and providing for a fair distribution of profits between them. They also need to develop mechanisms to discourage cheating, involving monitoring, rewards and punishments. In a dynamic economy, successful cartels may have to develop an organisational structure that allows them to solve these problems continuously.23 A well-designed fining policy can make these tasks more difficult by imposing higher penalties for cartel members that play active roles in setting up and running the cartel, and lower penalties for cartel members that remain exclusively passive, and by offering deviators the opportunity of applying for leniency.24 260. Thirdly, the public punishment of those who violate the antitrust prohibitions may also have a moral effect, by sending a message to the spontaneously law-abiding, reinforcing their moral commitment to the antitrust prohibitions.25 Indeed, corporate managers are not necessarily just maximisers of profits for themselves and their principals. They may feel a moral responsibility to live within the law whether or not they are likely to be caught, and this normative commitment could trump their interest calculus.26 Psychological research suggests that normative commitment is generally an important factor explaining compliance with the law.27 261. Finally, the imposition of penalties may contribute to corrective justice, in the form of disgorgement of unjust enrichment.28 4.3 THE PUR POSE OF GUIDELINES, AND THE QUESTION OF FORESEEABILIT Y

4.3.1

What are Guidelines For?

262. The fines imposed by the Commission on undertakings that have infringed Article 81 or 82 EC have as their sole legal basis Article 23(2) of Regulation 23 MC Levenstein and VY Suslow, ‘What Determines Cartel Success?’ (2006) 44 Journal of Economic Literature 43 at 44–5; see also JE Harrington, ‘How Do Cartels Operate?’ (June 2006), available at www.econ.jhu.edu/People/Harrington/CartelOperations-6.28.06.pdf. 24 See above, paras 223–228,309–313, and Ch 5, paras 324–327. 25 See J Adenaes, ‘The Moral or Educative Influence of Criminal Law’ (1971) 27 Journal of Social Issues 17, and ‘General Prevention Revisited: Research and Policy Implications’ (1975) 66 Journal of Criminal Law & Criminology 338 at 341–3; KG Dau-Schmidt, ‘An Economic Analysis of the Criminal Law as a Preference-shaping Policy’ [1990] Duke law Journal 1; CR Sunstein, ‘On the Expressive Function of the Law’ (1996) 144 University of Pennsylvania Law Review 2021; DM Kahan, ‘Social Influence, Social Meaning, and Deterrence’ (1997) 83 Virginia Law Review 349; NK Katyal, ‘Deterrence’s Difficulty’ (1997) 95 Michigan Law Review 2385; GE Lynch, ‘The Role of Criminal Law in Policing Corporate Misconduct’ (1997) 60 Law and Contemporary Problems 23; DM Kahan, ‘Social Meaning and the Economic Analysis of Crime’ (1998) 27 Journal of Legal Studies 609; and KG Dau-Schmidt, ‘Preference Shaping by the Law’ in P Newman (ed), The New Palgrave Dictionary of Economics and the Law (London, Macmillan, 1998) 84. 26 CD Stone, ‘Sentencing the Corporation’ (1991) 71 Boston University Law Review 383 at 389. 27 See TR Tyler, Why People Obey the Law (Princeton, NJ, Yale University Press, 1990). 28 See above, paras 178 and 182, and below, paras 413 and 414.

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1/2003, which only specifies that, for each undertaking, ‘the fine shall not exceed 10 % of its total turnover in the preceding business year’, and that, ‘in fixing the amount of the fine, regard shall be had both to the gravity and to the duration of the infringement’.29 263. Regulation 1/2003 does not impose any obligation on the Commission to publish further guidance on the amount or method of setting fines.30 264. Indeed, for three decades, from the imposition of the first fines in 196931 to the publication of the 1998 Guidelines,32 the Commission imposed fines without having published any guidance. In its decisions imposing fines the Commission always listed a number of factors which it had taken into account in fixing the amount of the fine, but never explained how these factors had brought it to reach the precise figure of the fine imposed.33 Some information on the method which the Commission used could be found in judgments of the Community Courts, as the Commission sometimes revealed details of its calculation during the appeal procedure, or was obliged by the Courts to do so.34 Sometimes additional information was also provided in the press release or at the press conference which, at least in major cases, followed the adoption of the decision by the Commission.35 265. Some addressees of fining decisions claimed before the Community Courts that this situation amounted to a breach of the requirement, laid down in Article 253 EC, for Commission decisions to state the reasons on which they are based. Even if this argument was rejected, the Court of First Instance nevertheless observed in 1995 in three judgments concerning the Welded Steel Mesh cartel that it would be ‘desirable’ for the Commission to make more transparent its method for setting fines.36 29 See Judgment of the ECJ of 28 June 2005 in Joined Cases C–189/02 P etc Dansk Rorindustri and Others v Commission (Pre-insulated pipes) [2005] ECR I–5425, paras 211–214, and Judgment of the ECJ of 8 Feb 2007 in Case C–3/06 P Danone v Commission (Belgian beer), not yet reported, paras 24–28. The absence of further precision as to the amount or method of calculation of the fines is not contrary to the principle that penalties must be defined by law, as contained in Art 7 of the European Convention on Human Rights (ECHR); see Judgment of the CFI of 5 Apr 2006 in Case T–279/02 Degussa v Commission (Methionine) [2006] ECR II–897, paras 34–98, appeal pending as Case C–266/06 P Degussa v Commission (Methionine), and Judgment of the CFI of 27 Sept 2006 in Case T–43/02 Jungbunzlauer v Commission (Citric acid), not yet reported, paras 69–92. 30 By way of comparison, in the UK s 38 of the Competition Act 1998 requires the Office of Fair Trading to publish guidance as to the appropriate amount of fines: see OFT’s Guidance as to the Appropriate Amount of a Penalty (London, OFT, Dec 2004), para 1.7. 31 Commission Decs of 16 July 1969 in Quinine [1969] OJ L192/5 and of 24 July 1969 Dyestuffs [1969] OJ L195/11. 32 See above, text to n 2. 33 For a more detailed discussion of the situation before the 1998 Guidelines see Wils, above n 1, chs 2 and 4. 34 See for instance Judgment of 7 June 1983 in Joined Cases 100–103/80 Musique Diffusion française v Commission [1983] ECR 1825, para 103. 35 For instance, press release IP/94/1108 of 30 Nov 1994 concerning the Cement cartel explained that ‘calculation is normally based on the Community turnover in the products concerned’. 36 Judgments of 6 April 1995 in Cases T–148/89 Tréfilunion v Commission (Welded Steel Mesh) [1995] ECR II–1119 para 142; T–147/89 Société Métallurgique de Normandie v Commission (Welded

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266. Those judgments led to the publication by the Commission of its 1998 Guidelines.37 According to their first paragraph, to which the 2006 Guidelines also refer,38 the principles outlined in those guidelines ‘should ensure the transparency and impartiality of the Commission’s decisions, in the eyes of the undertakings and of the Court of Justice alike, while upholding the discretion which the Commission is granted under the relevant legislation to set fines within the limit of 10 % of overall turnover. This discretion must, however, follow a coherent and non-discriminatory policy which is consistent with the objectives pursued in penalizing infringements of the competition rules’. 267. The Court of Justice has held that, ‘in adopting [guidelines] and announcing by publishing them that they will henceforth apply to the cases to which they relate, [the Commission] imposes a limit on the exercise of its discretion and cannot depart from those rules under the pain of being found, where appropriate, to be in breach of the general principles of law, such as equal treatment or the protection of legitimate expectations’.39 While the Guidelines ‘may not be regarded as rules of law which [the Commission] is always bound to observe, they nevertheless form rules of practice from which [the Commission] may not depart in an individual case without giving reasons that are compatible with the principle of equal treatment’.40 268. According to settled case law, the EC Treaty and Regulation 1/2003 leave the Commission ‘a particularly wide discretion as regards the choice of factors to be taken into account for the purposes of determining the amount of the fines, …, without the need to refer to a binding or exhaustive list of criteria which must be taken into account’.41 A degree of discretion is indeed inevitable, given the diversity of cases and the wide range of factors relevant for setting optimal fines.42

Steel Mesh) [1995] ECR II–1061 and T–151/89 Société des Treillis et Paneaux Soudés v Commission (Welded Steel Mesh) [1995] ECR II–1195. In the Judgment of 14 May 1998 in Case T–309/94 KPN v Commission (Cartonboard) [1998] ECR II–1007, paras 77–78, the CFI appeared to go further, implying an obligation for the Commission fully to set out its calculation method in its decisions, but this was reversed on appeal by the ECJ in the Judgment of 16 Nov 2000 in Case C–248/98 P KPN v Commission (Cartonboard) [2000] ECR I–9641, paras 44–48. 37 See above n 2. 38 2006 Guidelines, above n 1, pt 3. 39 Judgment of the ECJ of 28 June 2005 in Joined Cases C–189/02 P etc Dansk Rorindustri and Others v Commission (Pre-insulated pipes) [2005] ECR I–5425, para 211. 40 Judgment of the ECJ of 18 May 2006 in Case C–397/03 P Archer Daniels Midland v Commission (Amino acids) [2006] ECR I–4429, para 91. 41 Judgment of the ECJ of 29 June 2006 in Case C–289/04 P Showa Denko v Commission (Graphite electrodes) [2006] ECR I–5859, para 36, and Judgment of the ECJ of 8 Feb 2007 in Case C–3/06 P Danone v Commission (Belgian beer), not yet reported, para 37. 42 See Judgment of the ECJ of 7 June 1983 in Joined Cases 100–103/80 Musique Diffusion Française [1983] ECR 1825, paras 105 and 106; Ch 3 above; and Aristotle, Politics, Bk III, Ch 17: ‘[s]ome things can, and others cannot, be comprehended under the law, and this is the origin of the vexed question whether the best law or the best man should rule. For matters of detail about which men deliberate cannot be included in legislation.’

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269. The Commission’s discretion is however not unlimited. According to equally settled case law of the Community Courts, the Commission, when imposing fines, ‘is not entitled to disregard the principle of equal treatment, a general principle of Community law which is infringed … where comparable situations are treated differently or different situations are treated in the same way, unless such difference is objectively justified’.43 270. The Guidelines can be useful in ensuring respect for the principle of equal treatment. As the Court of First Instance has stated, ‘while the method of calculating the amount of fines contained in the Guidelines is, admittedly, not the only permissible method, it is capable of ensuring a coherent decision-making practice in relation to the imposition of fines, which in turn guarantees equality of treatment for undertakings which are penalised for infringements of the rules of competition law’.44 The Guidelines make it easier for the Commission itself to follow a consistent fining policy, and to resist pressure for unjustified special treatment in individual cases. It makes it easier for the addressees of fining decisions to understand why the fine was set at the level it was, thus possibly reducing the number of appeals.45 The fact that fines are seen to be imposed in a consistent way may also reinforce the moral effects of their imposition.46 Finally, it facilitates the task of the Community Courts in verifying the respect of the principle of equal treatment by the Commission.47 271. However, because of the diversity of cases and the wide range of factors relevant to setting optimal fines,48 and because the principle of equal treatment also requires different cases to be treated differently,49 a degree of discretion has to be retained, and guidelines cannot provide full foreseeability of the exact

43 Judgment of the CFI of 13 Dec 2001 in Joined Cases T–45/98 and T–47/98 Krupp Thyssen Stainless and Acciai Speciali Terni v Commission (Alloy surcharge) [2001] ECR II–3765, para 237; see further Judgment of the ECJ of 31 Mar 1993 in Joined Cases C–89/85 etc Ahlström Osakeyhtiö and Others v Commission (Wood Pulp) [1993] ECR I–1629, paras 196–197; Judgment of the ECJ of 21 Sept 2006 in Case C–167/04 P JCB Service v Commission, not yet reported, para 205; and Opinion of AG Bot of 1 Mar 2007 in Case C–76/06 P Britannia Alloys v Commission (Zinc phosphate), not yet reported, paras 99–100 and 176–180; see also below, nn 89 and 119, the text to n 101, and sect 2.3.2.2 above. 44 Judgment of the CFI of 25 Oct 2005 in Case T–38/02 Groupe Danone v Commission (Belgian Beer) [2005] ECR II–4407, para 523. 45 See JRM Killick, ‘Viewpoint: The 2006 Fining Guidelines: Two Steps Forward but One Step Back?’ (Nov 2006), available at http://eccp.esapience.org/index.php?&id=60&action=907, at 9, and the Welded Steel Mesh judgments, above n 36. In the same logic, it may lead more undertakings to accept settlements if, as is currently being studied, the Commission were to introduce a settlement mechanism for antitrust cases involving fines: see above, paras 159–162 above and below, paras 376 and 377. 46 See above, para 260, and Tyler, above n 27 above. 47 See Judgment in Case T–38/02, above n 44. 48 See above, text to nn 41–42. 49 See above, text to n 43.

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amount or level of fines. As the Court of First Instance has stated, ‘[t]he objective of the Guidelines is therefore transparency and impartiality, and not the foreseeability of the level of the fines’.50

4.3.2

How Foreseeable Should the Amount of Fines Be?

272. There appears to be a wide divergence of opinion as to how foreseeable or predictable fines should be. It is often argued, or implied, that the more predictable fines are, the better.51 On the other hand, enforcement officials, authorities and courts have often warned against the risk of too high a degree of foreseeability.52 273. As already mentioned, the diversity of cases and the wide range of factors relevant for setting optimal fines make it impossible to draft guidelines which lead simultaneously to appropriate amounts of fines and to full predictability of these amounts in all cases.53 Attempts to achieve full foreseeability would thus inevitably lead to under-deterrence in some instances and/or disproportionately high fines in other instances.54 274. Even if this problem were not to arise, the relationship between the foreseeability of fines and their deterrent and other enforcement effects would not be entirely straightforward.55 At a first level of analysis, it would appear that the logic of deterrence through fines is to induce undertakings to refrain from committing antitrust violations by altering the potential offender’s balance of expected cost and benefit, and it should thus be fully foreseeable that fines would 50 Judgment of the CFI of 15 March 2006 in Case T–15/02 BASF v Commission (Vitamins) [2006] ECR II–497, para 250; see also Judgment of the CFI of 27 Sept 2006 in Case T–43/02 Jungbunzlauer v Commission (Citric acid), not yet reported, para 84. 51 See for instance the arguments of Degussa, as reported in paras 34 ff of the Judgment of the CFI of 5 Apr 2006 in Case T–279/02 Degussa v Commission (Methionine), not yet reported, appeal pending as Case C–266/06 P Degussa v Commission (Methionine), and those of Archer Daniels Midland, as reported in para 49 of the Judgment of the CFI of 27 Sept 2006 in Case T–329/01 Archer Daniel Midland (Sodium gluconate), not yet reported; and Killick, above n 45. 52 See for instance L Gyselen, ‘The Commission’s Fining Policy in Competition Cases—“Questo è il catalogo’’’ in PJ Slot and A McDonnell (eds), Procedure and Enforcement in E.C. and U.S. Competition Law (London, Sweet & Maxwell, 1993) 63 at 64; House of Lords, Select Committee on the European Communities, Enforcement of Community Competition Rules, Session 1993–94, 1st Report, at 23, para 62; Opinion of Judge Vesterdorf acting as AG in Case T–1/89 Rhône-Poulenc v Commission (Polypropylene) [1991] ECR II–869 at 1027; Judgment of the CFI of 5 Apr 2006 in Case T–279/02 Degussa v Commission (Methionine), not yet reported, para 83, appeal pending as Case C–266/06 P Degussa v Commission (Methionine), and Judgment of the CFI of 27 Sept 2006 in Case T–43/02 Jungbunzlauer v Commission (Citric acid), not yet reported, para 84. 53 See above, text to nn 41–42 and 48–50. 54 See also G Des Rosiers, ‘Hear No Evil, See No Evil, Speak No Evil? The Effects of Guidelines Sentencing on the Behavior of Corporations and their Insiders’ (1997) 18 Research in Law and Economics 65 at 70 and CS Diver, ‘The Optimal Precision of Administrative Rules’ (1983) 93 Yale Law Journal 65 at 78; on the requirement to respect the principle of proportionality see above, paras 208–212 and 233–236. 55 On the different enforcement effects of fines see above, paras 258–261.

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have this effect.56 There are however reasons to qualify this conclusion. First, deterrence does not require that the expected fine (discounted for the probability of detection and punishment) equals the expected illicit gain, but rather that the expected fine exceeds the expected gain by a sufficient safety margin.57 Secondly, because the marginal hurtfulness of fines increases with their amount, especially when bankruptcy or severe financial distress becomes a possibility, undertakings (or the individuals taking the decisions inside them) tend to be risk averters. This implies that a less determinate structure for setting fines generates more deterrence.58 Thirdly, to the extent that fines may not be high enough fully to deter,59 precision as to the amount of fines to be expected may lead some undertakings that would otherwise have been law-abiding without making any calculations to make a cost-benefit calculation and to conclude that they have an interest in committing antitrust violations.60 More generally, excessive precision as to the amount of the fines is likely to weaken the moral effects of the imposition of fines.61 Fourthly, in the case of cartels, differentiation of penalties depending on the role played by each of the conspirators has the effect of raising the cost of creating and maintaining cartels.62 Uncertainty as to the precise amount of the fines increases this effect, as it becomes more difficult for the conspirators to come to an agreement on who should bear what risks and for what reward.63

56

See Wils, above n 1, at 73. See Opinion of AG Geelhoed of 19 Jan 2006 in Case C–289/04 P Showa Denko v Commission (Graphite electrodes), not yet reported, para 58; Judgment of the CFI of 27 Sept 2006 in Case T–329/01 Archer Daniels Midland v Commission (Sodium gluconate), not yet reported, para 49; see also above n 22, concering the distinction between the deterrence approach and the internalisation approach to fines; and Wils, above n 1, at 22–24. 58 JC Coffee, ‘Corporate Crime and Punishment: A Non-Chicago View of the Economics of Criminal Sanctions’ (1980) 17 American Criminal Law Review 419 at 430–1, who also points out that the opposite is to true for sentences of imprisonment. 59 On the question to what extent deterrence can be achieved by imposing only fines on undertakings see below, Ch 6, and Wils, above n 1, ch 8. 60 See Des Rosiers, above n 54, at 72; CS Diver, above n 54, at 78; F Arbault, ‘La politique de la Commission en matière d’amendes antitrust: récents développements, perspectives d’avenir’ (Summer 2003) Competition Policy Newletter 1 at 6. 61 See C Harding, ‘Effectiveness of Enforcement and Legal Protection’, paper presented at the EUI 2006 EU Competition Law and Policy Workshop, forthcoming in C-D Ehlermann and I Atanasiu, European Competition Law Annual 2006: Enforcement of Prohibition of Cartels (Oxford, Hart Publishing, 2007), available at www.iue.it/RSCAS/Research/Competition/2006(papers).shtml, at 4–5; Wils. ‘Optimal Antitrust Fines: Theory and Practice’, Ch 3 above, n 00, at 193; and above, text to nn 25–27. 62 See above, para 259, and below, paras 309–313 and 324–327. 63 NK Katyal, ‘Conspiracy Theory’ (2003) 112 Yale Law Journal 1307 at 1342–3. 57

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4.4 BASIC AMOUNT OF THE FINE

4.4.1 The New Method 275. As described above,64 the Guidelines contain a two-step methodology for the setting of fines. The first step consists in the determination of a basic amount for each undertaking. The basic amount is set as a percentage of the value (before tax) of the undertaking’s sales of goods or services to which the infringement directly or indirectly relates in the relevant geographical area within the EEA.65 The Commission will normally take the sales made by the undertaking during the last full business year of its participation in the infringement. The percentage to be applied to the value of sales will depend on the gravity of the infringement and on its duration. The assessment of gravity will be made on a case-by-case basis for all types of infringement, taking into account all the relevant circumstances of the case. As a general rule, the percentage applied on account of gravity will be up to 30 per cent. To determine the percentage within this scale, the Commission will have regard to a number of factors, such as the nature of the infringement, the combined market share of all the undertakings concerned, the geographical scope of the infringement and whether or not the infringement has been implemented. For hard-core cartels (horizontal price-fixing, market-sharing and output-limitation agreements) the percentage will generally be set at the higher end of the scale. To take into account the duration of the infringement, the amount thus determined will be multiplied by the number of years of participation in the infringement. In addition, irrespective of the duration of the undertaking’s participation in the infringement, the Commission will, for hard-core cartels, include in the basic amount a sum of between 15 and 25 per cent of the value of sales. The Commission may also apply such an additional amount in the case of other infringements.

4.4.2 Comparison with Earlier Methods 276. Although the Commission had not published any guidance before 1998,66 it had in fact progressively developed a method of calculating fines as a percentage (varying between two and nine, depending on the gravity and the duration of the infringement) of the annual turnover in the product and geographical market concerned by the infringement.67 64 65 66 67

Above, paras 245–248. See above n 4. See above, para 264. See Wils, above n 1, at 31–4 and 70–2.

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277. Under the 1998 Guidelines,68 the determination of the basic amount of the fine required as a first step that the infringement be classified as either minor, serious, or very serious, depending on its nature, its actual impact on the market, where this could be measured, and the size of the relevant geographical market. ‘Likely fines’ were between €1,000 and €1 million for minor infringements, between €1 and €20 million for serious infringements, and ‘above 20 million €’ for very serious infringements. Within these ranges, the basic amount of the fine was set, taking into account ‘the nature of the infringement’ and the need to ensure ‘a sufficiently deterrent effect’. For infringements involving several undertakings, such as cartels, there was a possibility of differentiating between these undertakings to reflect ‘considerable disparity between the sizes of the undertakings’. Except for infringements of ‘short duration (in general, less than one year)’, the basic amounts thus determined were then increased on account of duration, up to 50 per cent in the case of ‘medium duration (in general, one to five years)’, and ‘up to 10 % per year’ in the case of ‘long duration (in general, more than five years)’. 278. The 1998 Guidelines were contested before the Community Courts with the argument that they violated the principle of equal treatment in that they were not based on the turnover in the affected market. The Court of Justice has strongly rejected this argument, stating that: since the calculation method recommended by the Guidelines envisages that numerous factors will be taken into account in assessing the gravity of the infringement for the purpose of determining the amount of the fine, including in particular the profits secured by the infringement or the need to ensure the deterrent effect of the fines, it seems to correspond better with the principles laid down by [Regulation 1/2003] as interpreted by the Court of Justice, notably in its judgment in Musique Diffusion française and Others v Commission, than what was alleged to be the Commission’s earlier practice, referred to by the applicants, in which the relevant turnover played a predominant and relatively mechanical role.69

279. Indeed, in Musique Diffusion française, the Court of Justice held that: in assessing the gravity of an infringement regard must be had to a large number of factors, the nature and importance of which vary according to the type of infringement in question and the particular circumstances of the case. These factors may, depending on the circumstances, include the volume and value of the goods in respect of which the infringement was committed and the size and economic power of the undertaking and, consequently, the influence which the undertaking was able to exert on the market. It follows that, on the one hand, it is permissible, for the purpose of fixing the fine, to

68

Above n 2. Judgment of the ECJ of 28 June 2005 in Joined Cases C–189/02 P etc Dansk Rorindustri and Others v Commission (Pre-insulated Pipes) [2005] ECR I–5425, para 260; see also Judgment of 18 May 2006 in Case C–397/03 P Archer Daniels Midland v Commission (Amino acids), not yet reported, para 101: ‘Community law contains no principle that the penalty be proportionate to the undertaking’s size on the product market in respect of which the infringement was committed’. 69

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have regard both to the total turnover of the undertaking, which gives an indication, albeit approximate and imperfect, of the size of the undertaking and of its economic power, and to the proportion of that turnover accounted for by the goods in respect of which the infringement was committed, which gives an indication of the scale of the infringement. On the other hand, it follows that it is important not to confer on one or the other of these figures an importance disproportionate in relation to the other factors.70

280. In practice, the Commission made extensive and increasing use of the ability under the 1998 Guidelines to differentiate between the different undertakings involved in the same cartel, because of significant disparity in their size, so as to make the starting amounts of the fines for each undertaking roughly proportional to its respective turnover in the affected market. This practice of ‘groupings’ (undertakings being grouped into categories of comparable turnover) has been accepted by the Courts.71 It also appears that, at least to some extent, the Commission in fact took into account the size of the product market in the determination of the basic amount of the fine on account of gravity.72 281. It would thus appear that, leaving aside the way in which duration is taken into account, the new method for determining the basic amount of the fine is not very different from the way in which the Commission has come to apply the 1998 Guidelines in practice.73 282. It is also interesting to compare the new method for determining the basic amount of fines with the method set out in the Guidelines for the Setting of Fines published by the Netherlands Competition Authority on 21 December 2001.74 In their introduction, these Dutch guidelines state that ‘the [1998] Guidelines drawn up by the European Commission cannot be taken as the point 70 Judgment of the ECJ of 7 June 1983 in Joined Cases 100–103/80 Musique Diffusion française v Commission [1983] ECR 1825, paras 120–121. In its Judgment of 7 Jan 2004 in Joined Cases C–204/00 P etc Aalborg Portland and Others v Commission (Cement) [2004] ECR I–123, para 91, the ECJ has stated more positively that ‘objective factors such as … the extent of the market affected … must be taken into account’ in setting the fine. ‘The analysis must also take into account the relative importance and market share of the undertakings responsible’. 71 See, inter alia, Judgments of the CFI of 19 Mar 2003 in Case T–213/00 CMA CGM and Others v Commission (FETTCSA) [2003] ECR II–913, para 385, and of 29 Apr 2004 in Joined Cases T–236/01 etc Tokai Carbon and Others v Commission (Graphite electrodes) [2004] ECR II–1181, para 217, and Judgment of the ECJ of 29 June 2006 in Case C–308/04 P SGL Carbon v Commission (Graphite electrodes), not yet reported, paras 54–56. 72 See for instance Commission Decision of 21 Nov 2001 in Vitamins [2003] OJ L6/1, para 675: ‘[t]he Commission, moreover, for the purposes of determining the starting amounts of the fines, takes into consideration the size of each of the different vitamin markets’; see also Judgments of the CFI of 15 Mar 2006 in Case T–15/02 BASF v Commission (Vitamins) [2006] ECR II–497, para 134, and of 27 Sept 2006 in Case T–322/01 Roquette Frères v Commission, not yet reported, paras 147–150. 73 This impression of continuity is reinforced by pt 26 of the 2006 Guidelines, above n 1, which states that, ‘where the value of sales by undertakings participating in the infringement is similar but not identical, the Commission may set for each of them an identical basic amount. Moreover, in determining the basic amount of the fine, the Commission will use rounded figures’. See further Barbier de la Serre, above n 2, pts 1–23. 74 Available at www.nmanet.nl/Images/14_10518_tcm16–75169.pdf, and analysed in M van Oers and B van der Meulen, ‘The Netherlands Competition Authority and its Policy on Fines and Leniency’

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of departure without adaptation. The European Commission uses categories of infringements, in accordance with the [1998] Guidelines, to which fixed fines apply. A disadvantage of a system of fixed fines is that small undertakings are affected relatively more harshly than larger undertakings.’ Instead the Dutch guidelines provide that the basic amount of the fine is calculated as a percentage of the turnover of the undertaking in the affected market and throughout the entire duration of the infringement. The percentage depends on the seriousness of the infringement, with a value of between 15 and 30 per cent for very serious infringements. This appears in effect very similar to the Commission’s new method in the 2006 Guidelines.75

4.4.3

Analysis

283. The 2006 Guidelines themselves explain the choice of the new method for determining the basic amount of the fine as follows: ‘[t]he combination of the value of sales to which the infringement relates and of the duration of the infringement is regarded as providing an appropriate proxy to reflect the economic importance of the infringement as well as the relative weight of each undertaking in the infringement’.76 284. As I have argued in more detail above,77 deterrence, at least in the case of antitrust violations committed by a single undertaking,78 requires that, from the (2003) 26 World Competition 25; see also Opinion of AG Tizzano of 8 July 2004 in Case C–189/02 P Dansk Rorindustri v Commission (Pre-insulated Pipes) [2005] ECR I–5425, n 59. 75 There are 3 relatively minor differences between the Commission’s new method and the Dutch method for determining the basic amount: (1) the Commission’s new method no longer bothers with classifying infringements as either minor, serious or very serious; as has been pointed out by de Broca, above n 1, at 1, this classification appears to be a largely unnecessary step in practice; (2) whereas the Netherlands Competition Authority takes as a starting point the relevant turnover throughout the entire duration of the infringement, the Commission will normally take the sales in the last full business year of the undertaking’s participation in the infringement, and multiply this figure by the number of years of the infringement: see further below, para 289; (3) at least for hard-core cartels, the Commission will also add an amount of between 15 and 25% of annual turnover, irrespective of the duration of the infringement: see further below, para 290. 76 Above n 1, pt 6. 77 Ch 3, in particular para 184. 78 In the case of collective violations such as cartels, the situation is more complicated: if for each member of the contemplated cartel the expected fine exceeds the expected gain, the cartel will obviously be deterred. But given that the success of the cartel is likely to require the participation of most, if not all, of the members, it may be sufficient for deterrence to work that for some of them the expected fine exceeds the expected gain. On the other hand, if for the group of prospective cartel members taken together the sum of expected fines exceeds the expected gain, the cartel will also be deterred, as it will be impossible to distribute the fine risk and the expected gain between the different cartel members in a way which makes participation profitable for all of them. But again, deterrence may even work in some situations where collectively the excepted gain exceeds the sum of expected fines, if for a sufficient number of participants the expected fine exceeds the expected gain and the cartel members do not manage to organise the necessary transfers between them so as to make participation profitable for all prospective participants. Deterrence is thus conceptually more complicated in the case of collective violations than in the case of single offenders, but may already be

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perspective of the undertaking contemplating whether or not to commit a violation, the expected fine, discounted by the probability that a fine is effectively imposed, exceeds the expected gain from the violation. For deterrence to work, fines should thus in principle be set at a level exceeding the expected gain from the violation multiplied by the inverse of the probability of a fine being effectively imposed. 285. It would not appear possible in practice for a competition authority or a court, even with the help of the best experts trained in econometrics, to measure or estimate reliably this theoretically correct minimum fine for a given antitrust violation.79 The first problem is that the potential offender’s subjective ex ante estimates of the gain and the probability of detection and punishment do not necessarily correspond to what is objectively measurable ex post.80 As for the probability of detection and punishment, its ex post estimation would anyway appear extremely difficult, if not impossible, because by definition only the detected antitrust violations are known to the authorities, not the undetected ones. As for the gain from the violation, its ex post estimation may in principle be possible, but quantification of the gain in each case is administratively costly and likely to lead to under-deterrence. Indeed, the burden of proof will always be on the competition authority, and, given the inherent difficulty in quantifying the gain and thus also in proving it to the requisite legal standard, and given also the informational disadvantage which the authority is likely to have in this regard as compared to the defendant undertakings, what can be proven is likely to remain systematically below reality.81 286. If it would thus not be a good idea to try to estimate the theoretically correct minimum fine for each given antitrust violation, the insight that, for deterrence to work, fines should in principle be set at a level exceeding the expected gain from the violation multiplied by the inverse of the probability of a fine being effectively imposed, may still be helpful in finding a workable method of setting fines. The expected gain from the violation can safely be assumed to be positively correlated with the undertaking’s turnover in the affected market throughout the duration of the infringement. The turnover is of course not the only relevant factor. In the paradigmatic case of a price cartel, the illicit gain of the cartel as a whole will depend not only on the size of the affected market and the duration of the cartel, but also on how much the cartel has been able to raise the price, and the extent to which this price rise has depressed demand for the

effective at lower overall fine levels, if the added complication of the internal dynamics of the group of violators is well exploited: see further Ch 3 above, in particular para 223. 79 See also Opinion of AG Geelhoed of 19 Jan 2006 in Case C–289/04 P Showa Denko v Commission (Graphite electrodes) [2006] ECR I–5859, paras 57–60. 80 See Ch 3 above, in particular paras 194–198 and 237–243. 81 Ibid, in particular para 243.

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cartel members’ products or services. Moreover, not only the gain but also the probability of detection and punishment should be taken into account in setting the fine. 287. The Guidelines allow for these other factors to be taken into account within the wide range of ‘up to 30%’ for the proportion taken of the affected turnover.82 The Guidelines provide that, ‘in order to decide whether the proportion of the value of sales to be considered in a given case should be at the lower end or at the higher end of that scale, the Commission will have regard to a number of factors, such as the nature of the infringement, the combined market share of all the undertakings concerned, the geographic scope of the infringement and whether or not the infringement has been implemented’. For hard-core cartels, ‘which are usually secret’, the percentage ‘will generally be set at the higher end of the scale’.83 288. The ‘nature of the infringement’ is obviously relevant for assessing both its profitability and its likelihood of detection. The combined market share of all the undertakings concerned and the geographical scope of the infringement are both relevant for the ability of, for instance, a price cartel to raise prices without losing too much custom to outsiders. Whether the infringement has been implemented will obviously affect its profitability.84 Finally, it also makes perfect sense to set higher fines for secret infringements, as their probability of detection and punishment is lower. 289. As already pointed out above,85 the Commission’s 2006 Guidelines, unlike the guidelines of the Netherlands Competition Authority, do not calculate the basic amount of the fine as a percentage of the value of the relevant sales

82 In this respect the new method for determining the basic amount of the fine in the 2006 Guidelines is very different from, and a huge improvement over, the method which the Commission used before 1998, under which a narrow range of 2 to 9% was applied to the relevant turnover during one business year only (thus not multiplied by the number of years of duration of the infringement), thereby not allowing for duration and other relevant factors other than the size of the affected market to be taken duly into account: see above, para 276, and Wils, above n 1, at 32–4. 83 Above n 1, pts 21–23. 84 In the 1998 Guidelines, one of the criteria for assessing the gravity of the infringement and determining the basic amount of the fine was the ‘actual impact [of the infringement] on the market, where this can be measured’: see above, para 277. Basing the setting of the fine on an assessment of its actual impact on the market is not a good idea, for the same reason as basing it on an assessment of the actual illicit gain is not a good idea: see above, para 285. Indeed, given that such an assessment is inherently difficult, that the burden of proof will always be on the competition authority, and that the authority will be at an informational disadvantage compared to the defendant undertaking, such a system is administratively expensive and bound to lead to assessments below reality, and thus to under-deterrence: see above, paras 237–243. The CFI has however held that the Commission can presume, in cartel cases, that the agreement had an actual impact on the market if it can establish that the agreement has been implemented: see Judgment of the CFI of 25 Oct 2005 in Case T–38/02 Groupe Danone v Commission (Belgian Beer) [2005] ECR II–4407, para 148 and Judgment of the CFI of 14 Dec 2006 in Joined Cases T–259/02 etc Raiffeisen Zentralbank Österreich v Commission (Austrian banks—‘Lombard Club’), not yet reported, paras 283–288. This then leads in practice to the same result as now under the 2006 Guidelines, where the stated criterion is ‘whether or not the infringement has been implemented’. 85 Above n 75.

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throughout the duration of the infringement, but rather as a percentage of the value of sales in one year (’normally’ the last full business year of the undertaking’s participation in the infringement) multiplied by the number of years of participation in the infringement. This approach makes the determination of the basic amount easier for the Commission, reduces the scope for manipulation by the defendant undertakings (which are of course in this matter at an informational advantage compared to the Commission), and for unproductive litigation before the Court of First Instance. The Guidelines state that the Commission will ‘normally’ take the last full business year of the undertaking’s participation in the infringement, as it cannot be ruled out that in some special cases the figure for that year could be particularly unrepresentative. 290. Finally, the Guidelines also provide that, irrespective of the duration of the undertaking’s participation in the infringement, the Commission will, for hard-core cartels, include in the basic amount a sum of between 15 and 25 per cent of the value of sales, and may also do so for other infringements.86 As the Guidelines themselves explain, the rationale is ‘to deter companies from even entering into illegal practices’.87

4.5 ADJUST MENTS TO THE BASIC AMOUNT

291. Once the basic amount of the fine has been determined, the second step in the methodology set out in the Guidelines allows for the Commission to take into account ‘circumstances that result in an increase or decrease in the basic amount of the fine’, ‘on the basis of an overall assessment which takes account of all the relevant circumstances’.88

4.5.1 Aggravating Circumstances 292. The basic amount may be increased where the Commission finds that there are aggravating circumstances, of which the Guidelines give three examples.89 86

See above, para 248. Above n 1, pt 7. 88 Guidelines, above n 1, pt 27. 89 Ibid, pt 28. In its Judgment of 29 June 2006 in Case C–308/04 P SGL Carbon v Commission (Graphite electrodes), not yet reported, para 71, the ECJ held that, ‘whereas the basic amount of the fine is set according to the infringement, its gravity is determined by reference to numerous factors, in respect of which the Commission has a wide discretion. To take into account aggravating circumstances when setting the fine is consistent with the Commission’s task of ensuring compliance with the competition rules.’ According to settled case law, ‘the mere fact that the Commission has found in its previous decisions that certain factors did not constitute an aggravating circumstance for the purpose of determining the amount of the fine does not mean that it is obliged to do so also in a 87

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4.5.1.1 Repeated Infringement 293. The first example of an aggravating circumstance listed in the Guidelines is ‘where an undertaking continues or repeats the same or a similar infringement after the Commission or a national competition authority has made a finding that the undertaking infringed Article 81 or 82; the basic amount will be increased by up to 100% for each such infringement established’.90 294. The Court of Justice has held that, in setting the amount of the fine, ‘[t]he analysis must … take into consideration … any repeated infringement’,91 and that the circumstance of repeated infringement is ‘not only a relevant factor but also a particularly important factor and a very significant indication of the gravity of the infringement for the purpose of assessing the amount of the fine in the context of effective deterrence’.92 295. The 1998 Guidelines also listed ‘repeated infringement of the same type by the same undertaking(s)’ as an aggravating circumstance. Out of the 74 cases in which the Commission applied the 1998 Guidelines up to the end of 2006, 17 cases involved a finding of repeated infringement by at least one undertaking, making a total of 28 findings of repeat offending.93 Almost invariably, such finding led to an increase by 50 per cent of the basic amount of the fine.94

subsequent decision’: see, inter alia, Judgment of the CFI of 25 Oct 2005 in Case T–38/02 Groupe Danone v Commission (Belgian Beer) [2005] ECR II–4407, para 57. 90 Ibid, pt 28, first indent. 91 Judgment of the ECJ of 7 Jan 2004 in Joined Cases C–204/00 P etc Aalborg Portland and Others v Commission (Cement) [2004] ECR I–123, para 91, and Judgment of the ECJ of 8 Feb 2007 in Case C–3/06 P Danone v Commission (Belgian Beer), not yet reported, para 26. The CFI had already held earlier in its Judgment of 17 Dec 1991 in Case T–6/89 Enichem Anic v Commission (Polypropylene) [1991] ECR II–1707, para 295, that ‘the fact that the Commission in the past already found an undertaking guilty of infringing the competition rules and penalized it for that infringement may be treated as an aggravating factor as against that undertaking but the absence of any previous infringement is a normal circumstance which the Commission does not have to take into account as a mitigating factor’. 92 Judgment of the ECJ of 8 Feb 2007 in Case C–3/06 P Danone v Commission (Belgian Beer), not yet reported, para 47. 93 Above n 2, sect 2, first indent. Also before the 1998 Guidelines, the Commission took repeated infringement into account as an aggravating factor in several decisions: see Opinion of AG Poiares Maduro of 16 Nov 2006 in Case C–3/06 P Groupe Danone v Commission (Belgian Beer), not yet reported, para 25. In a number of cases under the 1998 Guidelines, the repeat offenders had been condemned already several times and/or the same group of undertakings had been involved both in the earlier and in the new infringement; see for instance the Synthetic rubber case (Commission Decision of 29 November 2006, IP/06/1647), in which Eni, Shell and Bayer received a fine increase of 50 % because all three had been earlier condemned by the Commission for cartels in the polypropylene, PVC and citric acid sectors; see also notes 98 and 106 below. 94 In the Belgian beer case, the increase for Danone was only of 40 %; see Judgment of the CFI of 25 Oct 2005 in Case T-38/02 Groupe Danone v Commission (Belgian beer) [2005] ECR II–4407, paras 312–313. In British Sugar, an increase of 75% was imposed jointly for the aggravating circumstances of British Sugar having been the instigator of the infringement, and having acted contrary to a compliance programme for the introduction of which it had received a fine reduction for an earlier infringement: see Commission Dec of 14 Oct 1998, [1999] OJ L76/1, paras 206–210, and below, n 119.

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296. As has been pointed out by Christopher Harding and Alun Gibbs, these figures indicate an ‘awesome level of recidivism on the part of major companies who appear as usual suspects in the world of business cartels. In short, this suggests a confirmed culture of business delinquency’.95 297. The 2006 Guidelines appear to differ in three respects from (the practice under) the 1998 Guidelines.96 First, not only are earlier findings by the European Commission of similar infringements of Article 81 or 81 EC now taken into account, but also such findings by the competition authorities of the EU Member States. This is a logical evolution, following the establishment by Regulation 1/2003 of the European Competition Network (ECN), in which the European Commission and the competition authorities of the EU Member States share the task of investigating and prosecuting infringements of Articles 81 and 82 EC.97 Secondly, whereas the practice under the 1998 Guidelines was to increase the basic amount by 50 per cent on account of repeated infringements, the 2006 Guidelines provide for an increase ‘by up to 100%’. Thirdly, this increase applies ‘for each [earlier] infringement established’.98 298. As regards the justification for imposing higher fines in case of repeated infringement, the Court of First Instance has held that: it must be recalled to mind that, for the purpose of determining the amount of the fine, the Commission must ensure that its action has the necessary deterrent effect …. Recidivism is a circumstance which justifies a significant increase in the basic amount of the fine. Recidivism constitutes proof that the sanction previously imposed was not sufficiently deterrent.99

299. It would indeed appear that the fact that an undertaking continues or repeats an infringement not very long after it has been fined for a similar infringement shows that the first fine has not been sufficiently deterrent. One

95 C Harding and A Gibbs, ‘Why Go to Court in Europe? An Analysis of Cartel Appeals 1995–2004’ (2005) 30 European Law Review 349 at 369. Further statistics for cartels discovered throughout the world in the period 1990–2005, with rankings of top cartel recidivists (mostly European), can be found in JM Connor and CG Helmers, ‘Statistics on Modern Private International Cartels, 1990–2005’, Purdue University Dept. of Agricultural Economics Working Paper # 06–11 (Nov 2006), available at www.agecon.purdue.edu/working_papers/workingpaper.connor.11.10.06.pdf, at 23–5. 96 See also de Broca, above n 1, at 4–5. 97 See above n 13; Wils, Principles, above n 18, ch 1; and the ECN’s website at http://ec.europa.eu/ comm/competition/ecn/index_en.html. 98 In the Synthetic rubber case, see above n 93, application of the 2006 instead of the 1998 Guidelines could thus have led to an increase in the basic amount of the fines for Eni, Shell and Bayer by up to 300% instead of by 50%. 99 Judgment of the CFI of 30 Sept 2003 in Case T–203/01 Michelin v Commission [2003] ECR II–4071, para 293; see also Judgment of the CFI of 25 Oct 2005 in Case T–38/02 Groupe Danone v Commission (Belgian Beer) [2005] ECR II–4407, para 348 (using in the English version the weaker term ‘evidence’ instead of ‘proof’; this appears to be a translation error, the original French version of both judgments using the term ‘preuve’). In the original French version of both judgments, the terms corresponding to ‘a significant increase’ are ’une augmentation considérable’ (a considerable increase), which appears stronger; see also above, text to n 92.

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may however wonder whether the solution to this problem should be to raise the second fine specifically for the repeat offender, or rather to increase the fine level generally for all offenders. If the first fine was insufficient to deter the specific undertaking, could one not assume a general problem of insufficient deterrence for all undertakings?100 Indeed, according to settled case law of the Court of Justice, the Commission can at any time raise the level of fines so as to reinforce their deterrent effect when it finds that practices that have long been established as being unlawful are still relatively frequent.101 300. There are several reasons why a finding of repeated infringement may justify an increased fine specifically for the repeat offender rather than (or in addition to) a general increase in the level of fines. First, as has been pointed out by the Community Courts, the fact of the repeated infringement may reveal ‘a characteristic specific to the perpetrator of the infringement, namely its propensity to commit such infringements’.102 Indeed, some undertakings may have a higher propensity to commit antitrust violations than others, because they, or rather the individuals taking the decisions inside them, have a weaker moral commitment to respect the law, or are more willing to take legal risks, or differ in some other relevant aspect from the average undertaking.103 To deter such undertakings from committing infringements (not only repeated ones, but also first infringements), higher fines would be required for them than for other undertakings. At the time of a first infringement, it may however not be possible for a competition authority or a court to observe these specific characteristics with an acceptable degree of accuracy or at a reasonable cost, allowing a differentiation in fines between the undertakings with these specific characteristics and the others. It may not be possible either, in particular for reasons of proportional justice, to set the level of fines for all undertakings at the higher level which would be required to deter the undertakings with a higher propensity

100 One could even argue that the problem of insufficient deterrence could be greater for the other undertakings, as their subjective estimate of the probability that they will be caught and punished may be lower than that of the undertaking which has already been fined; see the discussion on subjective estimates and availability bias above in paras 194–198, and DA Dana, ‘Rethinking the Puzzle of Escalating Penalties for Repeat Offenders’ (2001) 110 Yale Law Journal 733 at 743–53 and 759–72. 101 Judgment of the ECJ of 7 June 1983 in Joined Cases 100–103/80 Musique Diffusion française v Commission [1983] ECR 1825, paras 108–109, and Judgment of the ECJ of 28 June 2005 in Joined Cases C–189/02 P etc Dansk Rorindustri and Others v Commission (Pre-insulated Pipes) [2005] ECR I–5425, para 169. 102 Judgment of the CFI of 25 Oct 2005 in Case T–38/02 Groupe Danone v Commission (Belgian Beer) [2005] ECR II–4407, para 349, confirmed upon appeal in Judgment of the ECJ of 8 Feb 2007 in Case C–3/06 P Danone v Commission (Belgian Beer), not yet reported, para 39. 103 On the role of an undertaking’s culture, with a case study of Archer Daniels Midland, see JM Conley and WM O’Barr, ‘Crime and Custom in Corporate Society: A Cultural Perspective on Corporate Misconduct’ (1997) 60 Law and Contemporary Problems 5; see also J Sonnenfeld and PR Lawrence, ‘Why Do Companies Succumb to Price Fixing?’ [July–Aug 1978] Harvard Business Review 145; and Wils, above n 21, at 193–4.

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to commit infringements.104 The best that can then be done in practice is to wait until the undertakings with a higher propensity to commit infringements have committed repeated infringements, and then to raise the fines specifically for them.105 Secondly, higher fines for repeat offenders may be needed to compensate for a lower probability of detection, on the assumption that undertakings learn from a first investigation and prosecution by a competition authority how they can better hide their infringements or better organise their defence.106 Thirdly, higher fines for repeat offenders may be needed to compensate for decreasing social sanctions, in that the reputational, commercial or social damage from being fined for an antitrust violation may be lower the second or subsequent time than the first time.107 Fourthly, in a situation where the fines imposed (discounted for the probability of detection and punishment) are in reality below the illicit gains from the antitrust violations,108 but where the amounts of the fines are not sufficiently foreseeable for undertakings fully to understand this,109 it may take a first imposition of a fine for an undertaking fully to understand that violations are profitable. Higher fines for repeat offenders may then be required to reinforce deterrence for these undertakings. Finally, higher fines for repeat offenders may be required for moral reasons. Indeed, the visible fact of repeat offending risks weakening the moral commitment to the law of the spontaneously law-abiding, and the imposition of higher fines counters this effect, by expressing increased moral condemnation.110 301. As regards the conditions under which higher fines can be imposed on account of repeated infringement, the Court of First Instance has held that ‘recidivism, as understood in a number of national legal systems, implies that a person committed fresh infringements after having been penalised for similar

104 On the principle of proportionality as a constraint on the pursuit of optimal deterrence, as well as other limits to high fines, see above, paras 203–212, and below, paras 338 and 339. 105 See also RA Posner, Economic Analysis of Law, 3rd edn (Boston, Mass, Little, Brown & Company, 1986) at 214; AM Polinsky and DL Rubinfeld, ‘A Model of Optimal Fines for Repeat Offenders’ (1991) 46 Journal of Public Economics 291; and Dana, above n 100, at 755. 106 See Wils, above n 1, at 36–7, and Polinsky and Rubinfeld, above n 105, at 303; see also, on the importance of learning by cartels, Levenstein and Suslow, above n 23, and Harrington, above n 23, and, on the role of the cartel defendant bar, Harding and Gibbs, above n 95, 368–9; see however also above n 100 on the countervailing considerations relating to possible increased attention by the investigating authorities and availability bias. See also Katyal, above n 63, at 1381–2, arguing for increased penalties in cases where the same group of cartelists commit repeated infringements together, with the argument that this circumstances suggest a tightly knit conspiracy in which defection is more difficult: see above n 93 for the example of Eni, Shell and Bayer. 107 See Dana, above n 100, at 772–6; cf also TJ Miceli and C Bucci, ‘A Simple Theory of Increasing Penalties for Repeat Offenders’ (2005) 1 Review of Law and Economics No 1, Art 5. 108 For evidence suggesting that this is the case in Europe today, or at least was before the 2006 Guidelines see Connor and Helmers, above n 95; see also above n 59. 109 See above, text to n 60. 110 See Dana, above n 100, 776–83, and text to nn 25–27.

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infringements’.111 It has later added that, ‘bearing in mind the objective it pursues, the concept of repeated infringement does not necessarily imply that a fine has been imposed in the past, but merely that a finding of infringement has been made in the past’.112 The notion of repeated infringement thus does not cover contemporaneous infringements.113 As regards the identity of the person having committed the previous and the new infringements, given that the prohibitions of Articles 81 and 82 EC apply to ‘undertakings’ with an economic meaning, a finding of repeated infringement can be based on the imposition of an earlier fine on a sister company, if both companies are directly or indirectly owned by the same parent company and thus form the same undertaking.114 302. The aggravating circumstance of repeated infringement is taken into account only if a ‘similar infringement’ has been repeated. In one case, French Beer, the Commission considered that a price-fixing cartel is not ‘similar’ to a market-sharing cartel.115 It is not obvious that such a narrow approach is necessary. As already mentioned, the Court of First Instance has held that ‘recidivism, as understood in a number of national legal systems, implies that a person committed fresh infringements after having been penalised for similar infringements’.116 In the comparison with national legal systems, with their broad criminal laws, all hard-core violations of Article 81 or 82 EC may qualify as ‘similar infringements’. Moreover, many national legal systems know both the notions of specific recidivism (repetition of the same or a similar offence) and general recidivism (committing an offence after having been penalised for some other, not necessarily similar, offence).117 One could also consider the issue in the

111 Judgments of the CFI of 11 Mar 1999 in Case T–141/94 Thyssen Stahl v Commission (Steel Beams) [1999] ECR II–347, para 617, and of 30 Sept 2003 in Case T–203/01 Michelin v Commission [2003] ECR II–4071, para 284. 112 Judgment of the CFI of 25 Oct 2005 in Case T–38/02 Groupe Danone v Commission (Belgian Beer) [2005] ECR II–4407, para 363, confirmed upon appeal in Judgment of the ECJ of 8 Feb 2007 in Case C–3/06 P Danone v Commission (Belgian Beer), not yet reported, para 41. 113 Judgments of the CFI of 11 Mar 1999 in Case T–141/94 Thyssen Stahl v Commission (Steel Beams) [1999] ECR II–347, para 618; see also Case T–53/03 BPB v Commission (Plasterboard), pending before the CFI; see also the case of SGL Carbon, which received from the European Commission a 33% discount (called ‘volume discount’ by SB Völcker, ‘Developments in EC Competition Law in 2003: An Overview’ (2004) 41 CML Rev 1027 at 1045) from its fine for participation in the Electrical and mechanical carbon and graphite products cartel (Commission Dec of 3 Dec 2003, paras 358–360) because of its bad financial situation and the fact that it had already been fined for its participation in two other contemporaneous cartels. 114 See Judgment of the CFI of 30 Sept 2003 in Case T–203/01 Michelin v Commission [2003] ECR II–4071, para 290, and the literature on the notion of ‘undertaking’ referred to above in n 1. 115 Commission Dec of 29 Sept 2004 in French Beer [2005] OJ L184/57, para 91. On the other hand, the fact that the infringements took place in different markets or sectors appears irrelevant: see ibid. 116 Above, text to n 111. 117 See for instance French and Hungarian criminal law; alternatively, the similarity of the crimes may be a factor to be weighed up by the sentencing judge in determining by how much the penalty is increased on account of recidivism: see for instance Ch 9 Sect 4 of the Swedish Penal Code: ‘[i]n determining the appropriate punishment, the court … shall … take reasonable account of whether the accused has previously been guilty of crime. In this connection, special consideration shall be

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light of the justification which the Community Courts have given for increasing fines for repeat offenders: that the fact of the repeated infringement may reveal ‘a characteristic specific to the perpetrator of the infringement, namely its propensity to commit such infringements’.118 Does it make sense to distinguish between a propensity to take part in market-sharing cartels and a propensity to take part in price-fixing cartels? Or are both part of a single propensity to commit hard-core antitrust violations?119 303. Given that the Guidelines do not contain a maximum period of time between the starting date of the new infringement, or the date of the new decision, and the date at which the earlier infringement was penalised or found, concerns have been expressed that this would allow a system of ‘everlasting’ or ‘perpetual’ repeated infringement.120 In its recent judgment in Belgian Beer, the Court of Justice held that ‘the finding and the appraisal of the specific characteristics of a repeated infringement come within the Commission’s discretion and that the Commission cannot be bound by any limitation period when making such a finding. … repeated infringement is an important factor which the Commission must appraise, since the purpose of taking repeated infringement into account is to induce undertakings which have demonstrated a tendency towards infringing the competition rules to change their conduct. The Commission may, therefore, in each individual case, take into consideration the indicia

given to the extent of any previous criminality, to the time that has been elapsed between the crimes, and to whether the previous and the new criminality are similar in nature or whether in both cases they are of an especially serious character.’ 118 Above, text to n 102. 119 In British Sugar, the Commission increased by 75% the basic amount of the fine for an Art 81 infringement by British Sugar jointly for the aggravating circumstances of British Sugar having been the instigator of the infringement, and having acted contrary to a compliance programme for the introduction of which it had received a fine reduction for an earlier Art 82 infringement. The Commission noted that the compliance programme covered both Arts 81 and 82 EC, but also pointed out that ‘it has to be recalled that both [Art 81] and [Art 82] serve the common aim laid down in point (g) of Article 3 of the Treaty, of establishing a system ensuring that competition in the internal market is not distorted’: Commission Dec of 14 Oct 1998 [1999] OJ L76/1, para 209. Having learned from the British Sugar experience, the Commission today no longer takes the adoption of a compliance programme into account as a mitigating circumstance in setting the amount of fines. This change of policy has been approved by the CFI, which has held that ‘the mere fact that in certain of its previous decisions the Commission took the implementation of a compliance programme into consideration as a mitigating factor does not mean that it is obliged to act in the same manner in any given case …, especially where the infringement in question is … a clear infringement of [Art 81 or 82 EC]. The Commission is therefore not required to take a circumstance such as that into account as a mitigating factor, provided that it adheres to the principle of equality of treatment, which requires that it should not assess the matter differently for any undertaking addressed by the same decision’: Judgment of the CFI of 9 July 2003 in Case T–224/00 Archer Daniels Midland v Commission (Amino acids) [2003] ECR II–2597, paras 280–281; see also below n 138. 120 See the argument of Danone, as summarised in Judgment of the ECJ of 8 Feb 2007 in Case C–3/06 P Danone v Commission (Belgian Beer), not yet reported, para 33, and K Nordlander, ‘The Commission’s Policy on Recidivism: Legal Certainty for Repeat Offenders?’ (2005) 2 Competition Law Review 55 at 66–8.

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which confirm such a tendency, including, for example, the time that has elapsed between the infringements in question’.121 4.5.1.2 Refusal to Cooperate with or Obstruction of the Commission’s Investigations 304. The second example of an aggravating circumstance listed in the Guidelines is ‘refusal to cooperate with or obstruction of the Commission in carrying out its investigations’.122 305. According to settled case law, Regulation 1/2003 places the undertaking being investigated under ‘an obligation to cooperate actively, which means that it must make available to the Commission all information relating to the subjectmatter of the investigation’.123 ‘That obligation to cooperate means that the undertaking may not evade requests for production of documents on the ground that by complying with them it would be required to give evidence against itself’.124 The Commission is also ‘entitled to compel an undertaking, if necessary by adopting a decision, to provide all necessary information concerning such facts as may be known to it’.125 However, because the Commission must ensure that the rights of the defence are not impaired during preliminary inquiry procedures, it ‘may not compel an undertaking to provide it with answers which might involve an admission on its part of the existence of an infringement which it is incumbent upon the Commission to prove’.126 ‘Equally, respect for the rights of the defence requires that the undertaking concerned must have been afforded the opportunity, during the administrative procedure, to make known its views on the truth and relevance of the facts and circumstances alleged and on the documents used by the Commission to support its claim that there has been an infringement of [Article 81 or 82] of the Treaty’.127 306. In this light, the Community Courts have approved the use of refusal to cooperate with or obstruction of the Commission’s investigations as an aggravating circumstance, stating that ‘the conduct of the undertaking during the administrative procedure may be one of the factors to be taken into account when fixing the fine’, but that ‘the aggravating circumstance consisting in the 121 Judgment of the ECJ of 8 Feb 2007 in Case C–3/06 P Danone v Commission (Belgian Beer), not yet reported, paras 38 and 39. 122 Guidelines, above n 1, pt 28, second indent. Sect 2, second indent, of the 1998 Guidelines, above n 2, similarly listed ‘refusal to cooperate with or attempts to obstruct the Commission in carrying out its investigations’ as an aggravating circumstance. 123 Judgment of the ECJ of 29 June 2006 in Case C–301/04 P Commission v SGL Carbon (Graphite electrodes), not yet reported, para 40; on the Commission’s powers of investigation and the rights of the defence see generally Ch 1 above. 124 Judgment in Case C–301/04 P, above n 123, para 48. 125 Ibid, para 41. 126 Judgment of the ECJ of 7 Jan 2004 in Joined Cases C–204/00 P etc Aalborg Portland and Others v Commission (Cement) [2004] ECR I–123, paras 63 and 65, and Judgment in Case C–301/04 P, above n 123, para 42. 127 Judgment in Joined Cases C–204/00 P etc, above n 126, para 66.

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refusal to cooperate with or attempts to obstruct the Commission in carrying out its investigations cannot be applied when the undertaking concerned is merely exercising its rights of defence’.128 307. An example can be found in Graphite Electrodes, where the basic amount of the fine for SGL was increased by 85 per cent because of three aggravating circumstances, including ‘its attempts to obstruct the Commission proceedings by giving warnings to other companies of the forthcoming investigation’.129 308. For certain types of refusal to cooperate, the Commission also has the power to impose separate, procedural fines under Article 23(1) of Regulation 1/2003.130 The Commission is however not obliged to make use of this power, and the fact that this power exists is not an obstacle to taking the refusal to cooperate or the obstruction into account as an aggravating factor in the setting of the fine for the substantive infringement.131 4.5.1.3 Leader, Instigator or Coercer 309. The third example of an aggravating circumstance listed in the Guidelines is ‘role of leader in, or instigator of, the infringement; the Commission will also pay particular attention to any steps taken to coerce other undertakings to participate in the infringement and/or any retaliatory measures taken against other undertakings with a view to enforcing the practices constituting the infringement’.132 310. According to settled case law: where an infringement has been committed by a number of undertakings, it is necessary, in determining the amount of the fines, to establish their respective roles in 128 Judgment of the ECJ of 28 June 2005 in Joined Cases C–189/02 P etc Dansk Rorindustri and Others v Commission (Pre-insulated Pipes) [2005] ECR I–5425, paras 351 and 353. 129 Commission Dec of 18 July 2001 in Graphite electrodes [2002] OJ L100/1, para 160, and Judgment of the ECJ of 29 June 2006 in Case C–308/04 P SGL v Commission (Graphite Electrodes), not yet reported, paras 69 and 70. For further examples see D Geradin and D Henry, ‘The EC Fining Policy for Violations of Competition Law: An Empirical Review of the Commission Decisional Practice and the Community Courts’ Judgments’ [2005] European Competition Law Journal 401 at 446–7. 130 Above n 13; see above, paras 8 and 14. 131 See Judgment of the CFI of 20 Mar 2002 in Case T–9/99 HFB and Others v Commission (Pre-insulated Pipes) [2002] ECR II–1498, paras 474–564; Judgment of the ECJ of 28 June 2005 in Joined Cases C–189/02 P etc Dansk Rorindustri and Others v Commission (Pre-insulated Pipes) [2005] ECR I–5425, paras 348–362; and Commission Dec of 30 Nov 2005 in Industrial Bags, not yet published, para 792. If however the Commission were to impose a fine under Art 23(1) of Reg 1/2003 for certain facts, as well as to use the same facts as an aggravating circumstance in setting the amount of the fine for the substantive infringement under Art 23(2), this may be questioned under the principle of ne bis in idem; on the latter principle see generally WPJ Wils, ‘The Principle of Ne Bis in Idem in EC Antitrust Enforcement: A Legal and Economic Analysis’ (2003) 26 World Competition 131. 132 Guidelines, above n 1, pt 28, third indent. Sect 2, third and fourth indents, of the 1998 Guidelines, above n 2, similarly listed ‘role of leader in, or instigator of the infringement’ and ‘retaliatory measures against other undertakings with a view to enforcing practices which constitute an infringement’ as aggravating circumstances.

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the infringement throughout the duration of their participation in it …. It follows, in particular, that the role of ‘ringleader’ played by one or more undertakings in a cartel must be taken into account for the purposes of calculating the amount of the fine, in so far as the undertakings which played such a role must therefore bear special responsibility in comparison with other undertakings.133

311. Under the 1998 Guidelines, the Commission has in 21 cases decided before the end of 2006 increased the basic amount of the fine for one or two undertakings, because they had acted as keader or instigator in the cartel, or coerced others to participate, by percentages ranging from 20 to (more often) 50 per cent.134 312. As already mentioned above,135 in the case of collective violations such as cartels, the differentiation of penalties according to the role played by the different conspirators is an effective instrument for raising the cost of setting up and running cartels. Indeed, setting up and running a successful cartel takes effort and requires the participation of the different cartel members in various respects. A number of tasks have to be performed: the agreed price or other factors must be determined; the joint profit must be allocated through quotas or otherwise; and measures have to be taken to prevent cheating, by developing a sufficiently strong sense of solidarity and mutual trust and/or by monitoring and punishing deviations. For all these tasks to be carried out, someone has to take the initiative and someone has to do the job: to convene the meeting, to make the price or quota calculations, to do the monitoring and the punishing.136 313. The setting up and running of cartels can be made more difficult (and hence more costly, and cartels thus less profitable, which means they can be deterred at lower overall fine levels) by threatening higher fines for those cartel members that play active roles in setting up and running them, while offering the perspective of reduced fines for those cartel members that are exclusively passive. This makes the setting up and functioning of cartels more difficult because, faced with the prospect of higher fines, there will be fewer volunteers to play active roles. Those who nevertheless agree to do so are likely to want compensation in

133 Judgment of the CFI of 29 Apr 2004 in Joined Cases T–236/01 etc Tokai Carbon and Others v Commission (Graphite Electrodes) [2004] ECR II–1181, para 301. On the notions of ‘leader’ and ‘instigator’ see further Judgment of the CFI of 15 Mar 2006 in Case T–15/02 BASF v Commission (Vitamins) [2006] ECR II–497, paras 315–354. 134 See also the case of SGL in Graphite Electrodes, above, text to n 129, where ‘SGL’s role as one of the ringleaders and instigators of the cartel’ was one of the 3 aggravating circumstances justifying together an increase of 85% of the basic amount of the fine. For further examples see Geradin and Henry, above n 129, 443–5. See also Opinion of AG Mazák of 18 Jan 2007 in Case C–328/05 P SGL Carbon v Commission (Specialty graphite), not yet reported, para 60. 135 Above, para 259. 136 To some extent these tasks can be outsourced to specialist service providers. Hence the need for the activity of such service providers to be covered by the antitrust prohibitions and to be subject to the threat of sufficiently deterrent fines; see eg the role of AC-Treuhand in the Organic Peroxides cartel, Commission Dec of 10 December 2003; an appeal against this decision is pending before the CFI as Case T–99/04 AC-Treuhand v Commission (Organic peroxides).

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the form of a larger part of the gain, which is likely to be difficult to agree on, and to weaken the sense of solidarity and mutual trust within the group.137

4.5.2 Mitigating Circumstances 314. The basic amount of the fine may be reduced where the Commission finds that there are mitigating circumstances, of which the Guidelines give five examples.138 4.5.2.1 Termination as Soon as the Commission Intervenes 315. The first example of a mitigating circumstance listed in the Guidelines is ‘where the undertaking concerned provides evidence that it terminated the infringement as soon as the Commission intervened: this will not apply to secret agreements or practices (in particular, cartels)’.139 316. The 1998 Guidelines listed as an extenuating circumstance ‘termination of the infringement as soon as the Commission intervenes (in particular when the Commission carries out checks)’.140 The main difference is that the 2006 Guidelines exclude the application of this extenuating circumstance to cartels or other secret practices.141 317. The justification for this mitigating circumstance in the case of clear-cut infringements is indeed far from obvious. As the Court of First Instance has pointed out: ‘termination of an infringement only after the Commission has intervened should not be rewarded in the same way as an independent initiative of the offending party, and merely constitutes an appropriate and normal reaction to that intervention’; ‘if termination of an infringement as soon as the Commission intervenes were to be recognised as an attenuating circumstance, that would unduly impair the effectiveness of Article 81(1) EC by weakening both the penalty and its deterrent effect’; ‘the classification of the continuation of an infringement after the Commission intervenes as an aggravating circumstance … rightly constitutes an incentive to terminate the infringement, but … does not reduce the penalty or its deterrent effect’.142 137 See NK Katyal, ‘Conspiracy Theory’ (2003) 112 Yale Law Journal 1307 at 1341–6 and 1363–7. On the question whether ringleaders should also be excluded from the benefit of leniency see below, paras 425 and 430, nn 140 and 150. 138 Guidelines, above n 1, pt 29. Implementation of compliance programmes is not taken into account as a mitigating circumstance: see above n 119, and sect 3.2.3.2 above. 139 Guidelines, above n 1, pt 29, first indent. 140 1998 Guidelines, above n 2, sect 3, third indent. 141 According to de Broca, above n 1, at 5, this corresponds to what was already the Commission’s practice under the 1998 Guidelines; see also Barbier de la Serre, above n 2, pt 34. 142 Judgment of 27 Sept 2006 in Case T–329/01 Archer Daniels Midland v Commission (Sodium gluconate), not yet reported, paras 278–279, appeal pending as Case C–510/06 P Archer Daniels Midland v Commission (Sodium gluconate); see also Judgments of the CFI of 8 July 2004 in Case

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318. One could add that, under the 2006 Guidelines, an incentive to terminate the agreement already flows from the fact that the basic amount of the fine is proportional to the duration of the agreement.143

4.5.2.2

Negligence

319. The second example of a mitigating circumstance listed in the Guidelines is ‘where the undertaking provides evidence that the infringement has been committed as a result of negligence’.144 320. The 1998 Guidelines similarly listed as an extenuating circumstance ‘infringements committed as a result of negligence or unintentionally’.145 321. Article 23(2), first subparagraph, of Regulation 1/2003 lays down, as a condition that must be fulfilled to enable the Commission to impose fines, that the infringement must have been committed intentionally or negligently.146 As the Court of Justice has pointed out, this initial condition is distinct from the determination of the amount of the fine, which depends on the gravity and duration of the infringement.147 322. Before the 1998 Guidelines, the Commission had in several decisions taken intent into account as an aggravating circumstance in the calculation of the fine.148 There are at least two reasons for imposing higher fines for intentional infringements than for negligent ones. First, those who deliberately infringe the law generally have more opportunity to hide their tracks. They thus face a lower T–44/00 Mannesmannröhren-Werke v Commission (Seamless steel tubes) [2004] ECR II–2223, paras 280–284, and of 15 June 2005 in Joined Cases T–71/03 etc Tokai Carbon and Others v Commission (Specialty graphite) [2005] ECR II–10, para 292. 143 See above, paras 248 and 276. One could counterargue that there is still scope for an extra incentive because, in the setting of the basic amount of the fine, periods of less than 6 months are counted as half a year, and periods of between 6 months and one year as one year; see above n 8. However, a further problem of possibly perverse incentives may arise to the extent that termination as soon as the Commission intervenes is recognised as a mitigating circumstance, whereas termination before such intervention is not; see J-F Bellis, ‘La détermination des amendes pour infraction au droit communautaire de la concurrence—bilan de cinq années d’application des lignes directrices de 1998’ [2003] Cahiers de droit européen 373 at 385–6, and Geradin and Henry, above n 129, at 451. 144 Guidelines, above n 1, pt 29, second indent. 145 1998 Guidelines, above n 2, sect 3, fifth indent. 146 Requiring intent or negligence obviously makes sense, because it determines whether the conduct can be deterred. Fining undertakings for conduct they cannot avoid at reasonable cost will have no deterrent effect, while it may generate wasteful expense: see R Posner, The Economics of Justice (Boston, Mass, Harvard University Press, 1983) at 225; R Posner, ‘An Economic Theory of the Criminal Law’ (1985) 85 Columbia Law Review 1193 at 1221–3; and Wils, above n 1, at 30. 147 Order of the ECJ of 25 Mar 1996 in Case C–137/95 P SPO and Others v Commission (Dutch building and construction industry) [1996] ECR I–1627, paras 53–54, and Judgment of the ECJ of 17 July 1997 in Case C–219/95 P Ferriere Nord v Commission (Welded Steel Mesh) [1997] ECR I–4440, paras 32–33. 148 Eg, Commission Dec of 19 Dec 1990 in Soda-ash—Solvay [1991] OJ L152/21 and Commission Dec of 10 Jan 1996 in ADALAT [1996] OJ L210/1.

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probability of detection and should therefore be fined more heavily for deterrence to occur.149 Secondly, higher fines for intentional offenders may be required for moral reasons. Indeed, as in the case of repeat offending, the visible fact of intentional offending risks weakening the moral commitment to the law of the spontaneously law-abiding, and the imposition of higher fines counters this effect, by expressing increased moral condemnation.150 323. Following the 1998 Guidelines, the Commission no longer takes intent into account as an aggravating circumstance but instead recognises negligence as an extenuating circumstance. This change reflects the fact that intentional infringements are in fact far more common than negligent ones,151 given the wide interpretation of the former concept. Indeed, according to settled case law, ‘it is not necessary for an undertaking to have been aware that it was infringing [Article 81 EC] for an infringement to be regarded as having been committed intentionally; it is sufficient that it could not have been unaware that the contested conduct had as its object the restriction of competition’.152

4.5.2.3 Substantially Limited Role (Cheating) 324. The third example of a mitigating circumstance listed in the Guidelines is ‘where the undertaking provides evidence that its involvement in the infringement is substantially limited and thus demonstrates that, during the period in which it was a party to the offending agreement, it actually avoided applying it by adopting competitive conduct in the market: the mere fact that an undertaking participated in an infringement for a shorter duration than others will not be regarded as a mitigating circumstance since this will already be reflected in the basic amount’.153 149 See LA Bebchuk and L Kaplow, ‘Optimal Sanctions and Differences in Individuals’ Likelihood of Avoiding Detection’ (1993) 13 International Review of Law and Economics 217 at 223; Posner, ‘An Economic Theory’, above n 146 at 1221–2; and Wils, above n 1, at 36–7. 150 See above, para 300. 151 Indeed, the extenuating circumstance of negligence appears to have been found in none of the 74 decisions taken under the 1998 Guidelines before the end of 2006; see however Geradin and Henry, above n 129, at 452–3 and Judgment of the CFI of 27 July 2005 in Joined Cases T–49/02 etc Brasserie nationale and Others v Commission (Luxembourg Beer) [2005] ECR II–3033, paras 191–194, on the application in 3 decisions of the extenuating circumstance of ‘existence of a reasonable doubt on the part of the undertaking as to whether the restrictive conduct does indeed constitute an infringement’, a circumstance which was listed in the 1998 Guidelines but no longer figures in the 2006 Guidelines. 152 Judgment of the ECJ of 11 July 1989 in Case 246/86 Belasco and Others v Commission [1989] ECR 2191, para 41. Intention can thus be derived from the awareness either that the behaviour is forbidden by Community law or of the behaviour’s anti-competitive object. The Community Courts have never provided a definition of negligence. In his Opinion of 29 Oct 1975 in Case 26/75 General Motors v Commission [1975] ECR 1389, AG Mayras wrote that ‘the concept of negligence must be applied where the author of the infringement, although acting without any intention to perform an unlawful act, has not foreseen the consequences of his action in circumstances where a person who is normally informed and sufficiently attentive could not have failed to foresee them’. 153 Guidelines, above n 1, pt 29, third indent.

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325. The 1998 Guidelines similarly listed as an extenuating circumstance ‘non-implementation in practice of the offending agreements or practices’.154 The more elaborate wording in the new Guidelines appears to be inspired by the Judgment of the Court of First Instance in Daiichi Pharmaceutical v Commission, in which the Court stated that, in order to be granted a reduction in its fine on account of non-implementation in practice of the offending agreement, an undertaking must show that, ‘during the period in which [it] was party to the offending agreements, it actually avoided implementing them by adopting competitive conduct on the market or, at the very least, .. . it clearly and substantially breached the obligations relating to the implementation of the cartel to the point of disrupting its very operation’.155 326. This mitigating circumstance should be understood against the background of the settled case law according to which: it is sufficient for the Commission to show that the undertaking concerned participated in meetings at which anti-competitive agreements were concluded, without manifestly opposing them, to prove to the requisite standard that the undertaking participated in the cartel. … Nor is the fact that an undertaking does not act on the outcome of a meeting having an anti-competitive purpose such as to relieve it of responsibility for the fact of its participation in a cartel, unless it has publicly distanced itself from what was agreed in the meeting …. Neither is the fact that an undertaking has not taken part in all aspects of an anti-competitive scheme or that it played only a minor role in the aspects in which it did participate material to the establishment of the existence of an infringement on its part. Those factors must be taken into consideration only when the gravity of the infringement is assessed and if and when it comes to determining the fine.156

327. Granting a reduction of the fine to cartel members that cheated on their cartel commitments obviously makes sense, because it creates an incentive for cheating, thus undermining the effectiveness of cartels. It is however important not to be too generous on this account, so as to maintain adequate incentives for cheaters to make use of the ability to denounce the cartel to the Commission and seek immunity under the Leniency Notice, thereby allowing the cartel to be discovered and penalised.157

154

1998 Guidelines, above n 2, sect 3, second indent. Judgment of the CFI of 15 Mar 2006 in Case T–26/02 Daiichi Pharmaceutical v Commission (Vitamins) [2006] ECR II–713, para 113. 156 Judgment of the ECJ of 7 Jan 2004 in Joined Cases C–204/00 P etc Aalborg Portland and Others v Commission (Cement) [2004] ECR I–123, paras 81–86. 157 Commission Notice on Immunity from fines and reduction of fines in cartel cases [2006] OJ C298/17; see further below, para 340 and Ch 5. 155

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4.5.2.4 Cooperation Outside the Leniency Notice 328. The fourth example of a mitigating circumstance listed in the Guidelines is ‘where the undertaking concerned has effectively cooperated with the Commission outside the scope of the Leniency Notice and beyond its legal obligation to do so’.158 329. According to its point 1, the Leniency Notice: sets out the framework for rewarding cooperation in the Commission investigation by undertakings which are or have been party to secret cartels affecting the Community. 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 anti-competitive actions against other competitors.159

330. For types of infringements of Articles 81 and 82 EC other than secret cartels, cooperation with the Commission can thus be rewarded under this fourth mitigating circumstance.160 Only cooperation ‘beyond [the undertaking’s] legal obligation to do so’ can be rewarded by a reduction in the fine. Indeed, as already mentioned above, undertakings being investigated have certain obligations of active cooperation, and failure to respect these obligations is taken into account as an aggravating circumstance leading to an increase in the fine.161 Finally, the cooperation must have been ‘effective’, which means that it must have enabled the Commission more easily to establish the existence of the infringement, and, where relevant, to bring it to an end.162

158 Guidelines, above n 1, pt 29, fourth indent. This mitigating circumstance also figured in sect 3, sixth indent, of the 1998 Guidelines. 159 Above n 157. 160 See however also Commission Dec of 20 Oct 2005 in Case COMP/B-2/38.281 Italian Raw Tobacco, paras 385–398. 161 See above, paras 304–308, and Judgment of the CFI of 30 Jan 2007 in Case T–340/03 France Télécom v Commission, not yet reported, para 276: ‘according to established case-law, cooperation in the investigation which does not go beyond that which undertakings are already obliged to provide under [Regulation No 1/2003] does not warrant a reduction in the fine’. 162 See Judgment of the ECJ of 16 Nov 2000 in Case C–297/98 P SCA Holding v Commission (Cartonboard) [2000] ECR I–10101, para 36, confirming the Judgment of the CFI of 14 May 1998 in Case T–327/94: ‘[t]he Court of First Instance correctly held in that regard, in paragraph 156 of the contested judgment, that a reduction in the fine on grounds of cooperation during the administrative procedure is justified only if the conduct of the undertaking in question enabled the Commission to establish the existence of an infringement more easily and, where relevant, to bring it to an end’; see further sect 3.2.3.1 above, and Ch 5 below.

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4.5.2.5 Encouragement by Public Authorities or by Legislation 331. The fifth and last example of a mitigating circumstance listed in the Guidelines is ‘where the anti-competitive conduct of the undertaking has been authorized or encouraged by public authorities or by legislation’.163 332. This mitigating circumstance must be interpreted in the light of the settled case law according to which ‘where undertakings are required by national legislation to engage in anti-competitive conduct, they cannot … be held accountable for infringement of Articles 81 EC and 82 EC’; however, ‘if a national law merely encourages, or makes it easier for undertakings to engage in anticompetitive conduct, those undertakings remain subject to Articles 81 EC and 82 EC and may incur penalties …. It must none the less be made clear that, although such a situation cannot lead to acceptance of practices which are likely further to exarcerbate the adverse effects on competition, it nevertheless means that when the level of the penalty is set the conduct of the undertakings concerned may be assessed in the light of the national legal framework, which is a mitigating factor’.164 333. An example of this mitigating circumstance can be found in the French Beef case, where the Commission reduced the basic amount of the fine by 30 per cent on account of ‘the forceful intervention of the French Minister for Agriculture in favour of the conclusion of such an agreement. This was reflected in his speeches in parliament and his press release the day the agreement was concluded.’165

4.5.3 Specific Increase for Deterrence (Large Undertakings and/or Amount of the Illicit Gains) 334. Under the heading ‘Specific increase for deterrence’, the Guidelines state that the Commission ‘will pay particular attention to the need to ensure that fines have a sufficient deterrent effect; to that end, it may increase the fine to be imposed on undertakings which have a particularly large turnover beyond the sales of goods or services to which the infringement relates. The Commission will

163 Guidelines, above n 1, pt 29, fifth indent. The accompanying n 1 adds: ‘[t]his is without prejudice to any action that may be taken against the Member State concerned’. 164 Judgment of the ECJ of 9 Sept 2003 in Case C–198/01 CIF [2003] ECR I–8055, paras 51 and 56–57; the Court also held that national competition authorities have the power and duty to disapply any national law that requires undertakings to engage in anti-competitive conduct, with the result that, from that time onwards, the undertakings ‘can no longer claim that they are obliged by that law to act in breach of the Community competition rules. Their future conduct is therefore liable to be penalised’: ibid, para 55. 165 Commission Dec of 2 Apr 2003 in Case COMP/C.38.279/F3 French Beef [2003] OJ L209/12, para 176.

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also take into account the need to increase the fine in order to exceed the amount of gains improperly made as a result of the infringement where it is possible to estimate that amount’.166 335. As regards increasing the fine for undertakings which have a particularly large turnover beyond the sales of goods or services to which the infringement relates (known as ‘deterrence multiplier’), the Court of Justice has recently confirmed in Showa Denko v Commission its settled case law according to which ‘the size of the undertaking concerned is one of the factors which may be taken into account for the purpose of calculating the fine and, therefore, setting the “deterrence multiplier’’’.167 The Court of Justice also approved the finding by the Court of First Instance that ‘owing to its “enormous” worldwide turnover by comparison with the turnovers of the other members of the cartel, the applicant could more readily raise the necessary funds to pay its fine, which, if the fine was to have a sufficiently deterrent effect, justified the application of a multiplier’.168 336. Advocate-General Geelhoed has given two further explanations of why a ‘deterrence multiplier’ for very large undertakings appears justified. First, ‘in the event of collective infringement like a cartel as opposed to an infringement by a single offender, the Commission must also consider the subsequent effects of the fines and take into account the size of a given company. The example given by the Commission is a cartel consisting of one big player and several small players. The big player cooperated with the Commission and received immunity under the Leniency Notice. In such a case very high fines could have put the smaller players out of business, in which case the Commission’s intervention would have resulted in a monopoly.’169 Secondly, ‘as regards the argument that larger companies do not care less about small amounts than small companies, that assumes, in the first place, perfect information and perfect rationality. That is hard for an individual calculating the risk involved in an offence and it is hard for the undertakings involved in a cartel too. Furthermore, it cannot be denied that there is a difference between small and large companies, in the sense that a small fine may escape the attention of the board of a parent company of the group, while a huge amount will not. A huge fine is likely to attract the attention of the board and therefore is likely to stimulate compliance with the competition rules with regard to future behaviour.’170 337. As regards the possible increase in the fine in order to exceed the amount of the illicit gains, the theoretical relevance of the amount of the illicit gain for the setting of the optimal fine, as well as the practical impossibility in most cases

166

Guidelines, above n 1, pts 30 and 31. Judgment of the ECJ of 29 June 2006 in Case C–289/04 P [2006] ECR I–5859, para 29. Ibid, para 18. 169 Opinion of AG Geelhoed of 19 Jan 2006 in ibid, para 61 and n 16; see also above, paras 229–232. 170 Ibid, para 62. 167 168

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of estimating this amount with sufficient precision and at a reasonable administrative cost, has already been discussed above.171 This should however not rule out that, in those rather unlikely circumstances in which the Commission has a reliable estimate of the illicit gains available, it could take this amount into account, at least to ensure that the fine exceeds it. Indeed, a fine below the illicit gains could certainly never be a sufficient deterrent, even under the unrealistic assumption that all infringements are detected and penalised.172 According to settled case law, ‘the profit which the undertakings were able to derive from their practices is one of the factors to be considered in assessing the gravity of the infringement and … taking that factor into account is designed to ensure that the fine is deterrent’.173 Ensuring that the fine exceeds the illicit gain also contributes to corrective justice, in the form of disgorgement of unjust enrichment.174

4.5.4 Legal Maximum 338. The Guidelines recall that the ‘final amount of the fine shall not, in any event, exceed 10 % of the total turnover in the preceding business year of the undertaking … , as laid down in Article 23(2) of Regulation No 1/2003’.175 339. The Court of Justice has held that ‘this limit seeks to prevent fines from being disproportionate in relation to the size of the undertaking and since only the total turnover can effectively give an approximate indication of that size, the aforementioned percentage must … be understood as referring to the total turnover’.176

171 See above, paras 284–288; see also Opinion of AG Geelhoed in Showa Denko, above n 167, paras 57–60. 172 See also above, para 242, discussing Commission Dec of 25 Mar 1992 in Case IV/30.717-A Eurocheque: Helsinki Agreement [1992] OJ L95/5. 173 Judgment of the ECJ of 28 June 2005 in Joined Cases C–189/02 P etc Dansk Rorindustri and Others v Commission (Pre-insulated Pipes) [2005] ECR I–5425, para 292. 174 See above, text to n 28. 175 Guidelines, above n 1, pt 32; see above n 13 and para 262 176 Judgment of 7 June 1983 in Joined Cases 100–103/80 Musique Diffusion française v Commission [1983] ECR 1825, para 119; see also Judgments of the CFI of 15 June 2005 in Joined Cases T–71/03 etc Tokai Carbon and Others v Commission (Specialty graphite) [2005] ECR II–10, paras 388–390, and of 29 Nov 2005 in Case T–33/02 Britannia Alloys & Chemicals v Commission (Zinc phosphate) [2005] ECR II–4973, paras 33–52; see further above, paras 202–212 (on the requirements of proportional justice and other reasons for avoiding excessively high fines) and Wils, above n 1, at 44 and 159 (on the origin of the 10% limit in the ECSC Treaty, and the suggestion made by the OECD Competition Law and Policy Division in 1999 to raise the 10% ceiling); see also I Bos and MP Schinkel, ‘On the Scope for the European Commission’s 2006 Fining Guidelines under the Legal Fine Maximum’ (2006) 2 Journal of Competition Law and Economics 673.

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4.5.5 Application of the Leniency Notice 340. The Guidelines recall that, after the amount of the fine has been calculated and possibly capped at the ceiling of 10 per cent of total turnover, the Commission will apply its Leniency Notice.177 As has been pointed out by the Court of First Instance, the Commission’s practice of applying the Leniency Notice after the application of the 10 per cent ceiling ‘ensures that the Leniency Notice is fully effective: if the basic amount was significantly in excess of the 10% limit before the application of the Leniency Notice and that limit could not be applied immediately, the incentive for the undertaking concerned to cooperate with the Commission would be much less, since the final fine would be reduced to 10% in any event, with or without the undertaking’s cooperation’.178 4.5.6 Ability to Pay 341. Finally, the Guidelines state that, ‘in exceptional cases, the Commission may, upon request, take account of the undertaking’s inability to pay in a specific social and economic context. It will not base any reduction granted for this reason in the fine on the mere finding of an adverse or loss-making financial situation. A reduction could be granted solely on the basis of objective evidence that the imposition of the fine as provided for in these Guidelines would irretrievably jeopardise the economic viability of the undertaking concerned and cause its assets to lose all their value’.179 342. This possibility was also more briefly mentioned in the 1998 Guidelines, according to which, ‘depending on the circumstances, account should be taken … of certain objective factors such as [the undertakings’] real ability to pay in a specific social context, and the fines should be adjusted accordingly’.180 343. The Court of Justice has recently recalled that, ‘according to settled case-law, the Commission is not required, when determining the amount of the fine, to take into account the poor financial situation of an undertaking, since recognition of such an obligation would be tantamount to giving unjustified competitive advantages to undertakings least well adapted to the market consitions’.181 ‘That case-law is in no way called into question by [the 1998 Guidelines], which [state] that an undertaking’s real ability to pay must be taken into

177 Commission Notice on Immunity from fines and reduction of fines in cartel cases [2006] OJ C298/17; for a detailed discussion of the law and economics of leniency see Ch 5 below. 178 Judgment of the CFI of 29 Nov 2005 in Case T–52/02 SNCZ v Commission (Zinc phosphate) [2005] ECR II–5005, para 41. 179 Guidelines, above n 1, pt 35. 180 1998 Guidelines, above n 2, sect 5(b). 181 Judgment of the Court of Justice of 29 June 2006 in Case C–308/04 P SGL Carbon v Commission (Graphite electrodes) [2006] ECR I–5977, para 105. See also Opinion of AG Mazák of 18 Jan 2007 in Case C–328/05 P SGL Carbon v Commission (Specialty graphite), not yet reported, para 93:

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account. That ability can be relevant only in a ‘specific social context’, namely the consequences which payment of a fine could have, in particular, by leading to an increase in unemployment or deterioration in the economic sectors upstream or downstream of the undertaking concerned’.182

‘the fact that a measure taken by a Community authority results in the insolvency or liquidation of a particular undertaking is not precluded as such by Community law’. 182 Ibid, para 106; see further Killick, above n 45, at 6, and A Stephan, ‘The Bankruptcy Wildcard in Cartel Cases’, CCP Working Paper 06–5 (Mar 2006).

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5 Leniency: Theory and Practice 5.1 INT RODUCTION

5.1.1 Definition 344. This chapter deals with leniency in antitrust enforcement, defined here as the granting of immunity from penalties or the reduction of penalties for antitrust violations in exchange for cooperation with the antitrust enforcement authorities. 345. The cooperation could consist in the provision of intelligence and/or evidence of the antitrust violations, and/or in the recognition of the violation and acceptance of the reduced penalty.1 It could possibly also involve acceptance of remedial or compensatory measures.2 346. The penalties that are waived or reduced could be any penalties that can be imposed or sought by the antitrust enforcement authorities in the jurisdiction concerned: fines on companies, fines on individuals, director disqualification and/or imprisonment.3

5.1.2 Examples 5.1.2.1 US Department of Justice 347. The US Department of Justice has a Corporate Leniency Policy (also known as corporate amnesty or corporate immunity policy), under which it

1 Typically the cooperation and the penalties that are waved or reduced relate to the same antitrust violation; see however below, paras 456–463, as to penalty reductions for one violation in exchange for cooperation concerning another violation. 2 See paras 413 and 414 below; this ch does not deal with settlements of antitrust investigations in cases where no penalties are envisaged but only remedial or compensatory measures; on such settlements see Ch 1 above. 3 On the choice of penalties for antitrust offences see below, paras 443–450 and Ch 6.

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accords immunity to corporations reporting their illegal antitrust activity at an early stage.4 Immunity means in this case not charging such a firm criminally for the activity being reported.5 348. Immunity will always be granted if, at the time the corporation comes forward to report the illegal activity, the US Department of Justice has not received information about the illegal activity from any other source. A number of other conditions must also be met, in particular that the corporation, upon its discovery of the illegal activity being reported, took prompt and effective action to terminate its part in the activity; that the corporation reports the wrongdoing with candour and completeness and provides full, continuing and complete cooperation with the US Department of Justice throughout the investigation; that, where possible, the corporation makes restitution to injured parties; and that 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.6 349. If a corporation thus qualifies for immunity, all its directors, officers and employees who admit their involvement as part of the corporate confession will receive immunity, in the form of not being charged criminally with the illegal activity, if they admit their wrongdoing with candour and completeness and continue to assist the US Department of Justice throughout the investigation.7 350. If the US Department of Justice has already received information about the illegal activity, and possibly already started an investigation, immunity may still be granted to a corporation that is the first to come forward and qualify for immunity, provided that, at the time the corporation comes in, the US Department of Justice does not yet have evidence against the company that is likely to result in a sustainable conviction. The same conditions as to prompt termination, full cooperation and restitution have to be met. Moreover, immunity will be granted only if the US Department of Justice determines that granting immunity would not be unfair to others. In applying this last condition, the primary considerations are how early the corporation comes forward and whether it coerced another party to participate in the illegal activity or clearly was the leader in, or originator of, the activity.8

4 US Department of Justice, Corporate Leniency Policy (10 Aug 1993), available at www.usdoj.gov/atr/public/guidelines/0091.pdf. 5 Ibid, at 1. 6 Ibid, at 1–2. 7 Ibid, at 4. Where a corporation is granted immunity after the US Department of Justice has already received information about the illegal activity, under the conditions described below (para 350), the directors, officers and employees who come forward with the corporation will be considered for immunity from criminal prosecution on the same basis as if they had approached the US Department of Justice individually, under the conditions of the Leniency Policy for Individuals: see below, para 352. 8 Ibid, at 2–3.

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351. As a result of a relatively recent statutory modification,9 companies that have been accepted by the US Department of Justice in its immunity programme and that are found by the court in follow-on actions for damages to have provided satisfactory cooperation with the private claimants are liable for only single instead of treble damages, and the normal rule of joint and several liability for co-conspirators does not apply to the immunity applicant.10 352. The US Department of Justice also has a Leniency Policy for Individuals, which applies to individuals who approach the Division on their own behalf, not as part of a corporate confession.11 Leniency again means here immunity from criminal prosecution.12 Immunity will be granted to an individual reporting illegal antitrust activity before an investigation has begun if, at the time the individual comes forward, the US Department of Justice has not received information about the illegal activity from any other source; the individual reports the wrongdoing with candour and completeness and provides full, continuing and complete cooperation with the US Department of Justice throughout the investigation; and the individual did not coerce another party to participate in the illegal activity and clearly was not the leader in, or instigator of, the activity.13 353. The Corporate Leniency Policy and the Leniency Policy for Individuals apply only to (hard-core) cartels. Indeed, although the text of the criminal provisions in the US Sherman Act covers all types of restrictive agreements as well as unilateral monopolistic behaviour, by long tradition the US Department of Justice limits criminal prosecution to hard-core violations of section 1 of the Sherman Act such as price fixing, bid rigging, market division, or customer allocation schemes among horizontal competitors.14 354. As already mentioned, beneficiaries of the Corporate Leniency Policy and the Leniency Policy for Individuals are not charged criminally. As regards the

9 Antitrust Criminal Penalty Enhancement and Reform Act of 2004, Pub L 108–237, §§ 201–214, 118 Stat 661 (22 June 2004), 15 USC § 1 note (2004 Act). 10 Ibid, § 213. 11 US Department of Justice, Leniency Policy for Individuals (10 Aug 1994), available at www.usdoj.gov/atr/public/guidelines/0092.pdf; see also above n 7. 12 Ibid, at 1. 13 Ibid, at 1–2. 14 SW Waller, ‘The Incoherence of Punishment in Antitrust’ (2003) 78 Chicago-Kent Law Review 207 at 216, referring in n 48 to US v Dunham Concrete Prods, Crim No 1842 (ED La 1969) as the last criminal monopolisation indictment discovered by that author; and US Antitrust Modernization Commission, Report and Recommendations (Washington, DC, Antitrust Modernization Commission, Apr 2007), at 296–7 and 303. As the US Department of Justice has no powers to impose or to seek the imposition of civil or administrative fines, it only seeks prospective, injunctive relief against other violations of s 1 and all violations of s 2 of the Sherman Act. The Federal Trade Commission has relatively recently in competition cases applied its power, which it had traditionally used in consumer protection cases, to seek disgorgement of unlawful profits. Otherwise deterrence and punishment are left to private treble-damages actions; see again Waller, above, at 210, 218 and 230–2; S Calkins, ‘Corporate Compliance and the Antitrust Angencies’ Bi-Modal Penalties’ (1997) 60 Law and Contemporary Problems 127 at 136–9 and 150; and the US Antitrust Modernization Commission report, above, at 285–91.

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other corporations and individuals that are charged, the US Department of Justice may enter into plea agreements or plea/cooperation agreements.15 355. The US Department of Justice has discretion whether or not it enters into a plea agreement. One of the minimal requirements is that the defendant is willing to assume responsibility for its conduct, ie admits guilt.16 Under a plea agreement, an agreed joint recommendation is normally made to the court as to the penalty to be imposed (amount of the corporate fine, or length of the prison term and/or amount of the individual fine). The agreement is binding on the defendant and on the US Government, but not on the court. It appears however that courts normally follow such agreements.17 The defendant also agrees to waive the right to appeal the sentence imposed by the court, if that sentence follows the joint recommendation. 356. The plea agreement is made in the light of the US Sentencing Guidelines, which give the courts advice on sentencing.18 The Sentencing Guidelines determine guideline ranges for prison terms, individual fines and corporate fines, depending on the volume of commerce affected by the antitrust offence and on the defendant’s culpability.19 357. Under Sections 3E1.1 and 8C2.5 of the Sentencing Guidelines, recognition and acceptance of responsibility for the offence, possibly including the voluntary payment of restitution, reduces the defendant’s culpability. 358. Section 1B1.8 of the Sentencing Guidelines provides that where a defendant agrees to cooperate with the government by providing information concerning unlawful activities of others, and as part of that cooperation agreement the government agrees that self-incriminating information provided pursuant to the agreement will not be used against the defendant, then such information shall not be used in determining the applicable guideline range, unless the information was already known to the government prior to entering

15 See US Department of Justice, Antitrust Division, Grand Jury Manual, Ch 9, Plea Agreements (Nov 1991), available at www.usdoj.gov/atr/public/guidelines/207144.pdf. 16 Ibid, at 7. In limited circumstances, where employees have died or are not subject to the corporation’s control, a corporate defendant’s agreement to accept as true the Government’s version of the offence may be enough. 17 J Ratliff, ‘Plea Bargaining in EC Anti-Cartel Enforcement—A System Change’, paper presented at the 11th EUI Competition Law and Policy Workshop (Florence, 2–3 June 2006), available at www.iue.it/RSCAS/Research/Competition/Index.shtml, forthcoming in C-D Ehlermann and I Atanasiu (eds), European Competition Law Annual 2006: Enforcement of Prohibition of Cartels (Oxford, Hart Publishing, 2007), at 13. 18 US Sentencing Commission, Guidelines Manual (Nov 2005), available at www.ussc.gov/ 2005guid/TABCON05.htm. Since the judgment of the US Supreme Court in United States v Booker, 125 S Ct 738 (2005), the US Sentencing Guidelines are no longer mandatory but only advisory. As to the impact of this change see SD Hammond, ‘Antitrust Sentencing in the Post-Booker Era: Risks Remain High For Non-Cooperating Defendants’, address to the American Bar Association Section of Antitrust Spring Meeting (Washington, DC, 30 Mar 2005), available at www.usdoj.gov/atr/public/ speeches/208354.pdf. See also US Antitrust Modernization Commission, Criminal Remedies Discussion Memorandum (4 May 2006), available at www.amc.gov/pdf/meetings/ CrimRem_DiscMemo_060504-fin.pdf. 19 See in particular Sect 2R1.1 of the Sentencing Guidelines.

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into the cooperation agreement, or unless there is a breach of the cooperation agreement by the defendant. This possibility (which amounts to the grant of partial immunity) is used by the US Department of Justice in situations where a company that cannot benefit from (full) immunity under the Corporate Leniency Policy because it is not the first to come in, as part of its cooperation pursuant to a plea agreement reveals that the suspected cartel was broader than had been previously identified—either in terms of its duration or of the products, contracts or commerce affected.20 359. Sections 5K1.1 and 8C4.1 of the Sentencing Guidelines provide that the court may depart from the guidelines to impose a sentence below the minimum guideline range, upon a motion from the government that the defendant has provided substantial assistance in the investigation or prosecution of another defendant. The appropriate reduction is to be determined considering the significance and usefulness of the assistance, taking into account the government’s evaluation of the assistance rendered, its nature and extent, and its timeliness. The US Department of Justice’s practice is to agree cooperation discounts with an average in the order of 30 to 35 per cent for companies that are the second to cooperate. In one extreme case, a 59 per cent discount was granted.21 A third cooperating company receives a significantly lower discount, the fourth even less, and so on.22 Moreover, the US Department of Justice’s practice for the second cooperating company is to take as the starting point for the discount the bottom of the guideline fine range, unless the company had a significant leadership role in the cartel, whereas a higher starting point is taken for subsequent cooperating companies.23 360. There are however no fixed discounts for cooperation outside the Corporate Leniency Policy and the Leniency Policy for Individuals. The size of the discount is determined in each specific case.24 361. Finally, the US Department of Justice has a practice (called ‘Amnesty Plus’) of granting an additional discount to a cooperating company that reports an unrelated antitrust violation (in addition to the immunity which the company may obtain for this other violation under the Corporate Leniency Policy).25

20 SD 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 (Washington, DC, 29 Mar 2006), available at www.usdoj.gov/atr/public/speeches/215514.pdf, at 3–4. 21 Ibid, at 5 and 2; the one extreme case was United States v Crompton Corporation, No CR 04–0079 MJJ (ND Cal 2004). 22 Ibid, at 11–12. 23 Ibid, at 5–7. Apart from the case of a significant leadership role, a higher starting point is also taken if the company failed to discover and report the offence when it was earlier investigated for a cartel in another market; the latter practice is called ‘Penalty Plus’. 24 Ibid, at 2. Cf the percentage brackets in the European Commission’s Leniency Notice, below, para 369. 25 Ibid, at 9–10 and 14; see further below, paras 458–463.

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5.1.2.2 The European Commission 362. The European Commission has a Leniency Notice, which applies to secret cartels between two or more competitors involving practices such as fixing prices, production or sales quotas, sharing markets including bid-rigging, restricting imports or exports, and/or anti-competitive actions against other competitors.26 363. The Commission will grant immunity from any fine which would otherwise have been imposed on an undertaking disclosing its participation in a cartel if that undertaking is the first to submit information and evidence which in the Commission’s view will enable it to carry out a targeted inspection in connection with the cartel, and if, at the time of the application for immunity, the Commission did not have sufficient evidence to adopt a decision to carry out an inspection and had not yet carried out such an inspection.27 364. If no undertaking has been granted immunity on the above ground, the Commission will alternatively grant immunity to the undertaking that is the first to submit information and evidence which will enable the Commission to find an infringement of Article 81 EC in connection with the cartel, provided that the Commission did not, at the time of the submission, have enough evidence to make such a finding.28 365. A number of additional conditions must be met in any case to qualify for immunity: the undertaking must cooperate genuinely, fully, on a continuous basis and expeditiously from the time it submits its application throughout the Commission’s administrative procedure; and the undertaking must have ended its involvement in the cartel immediately following its application, except for what would, in the Commission’s view, be reasonably necessary to preserve the integrity of the inspections.29 Moreover, an undertaking which took steps to coerce other undertakings to join the cartel or to remain in it is not eligible for immunity.30 366. Contrary to the US Department of Justice’s Corporate Leniency Policy, immunity under the European Commission’s Leniency Notice does not mean absence of prosecution. The Commission will normally still adopt a decision

26 Commission Notice on immunity from fines and reduction of fines in cartel cases [2006] OJ C298/17; see Ch 4 above. 27 Ibid, pts 8(a) and 10. The inspections referred to are those provided for in Art 20(4) of Council Reg 1/2003 of 16 Dec 2002 on the implementation of the rules on competition laid down in Arts 81 and 82 of the Treaty [2003] OJ L1/1. On the evidence required to conduct an inspection see the Judgment of the ECJ of 22 Oct 2002 in Case C–94/00 Roquette Frères [2002] ECR I–9011; see further CS Kerse and N Khan, EC Antitrust Procedure, 5th edn (London, Sweet & Maxwell, 2005); L Ortiz Blanco (ed), EC Competition Procedure, 2nd edn (Oxford, Oxford University Press, 2006); and Ch 1 above. 28 Notice, above n 26, pts 8(b) and 11. 29 Ibid, pts 12 and 22. If the undertaking has not met these conditions, it cannot qualify either for a fine reduction. See also Case T–12/06 Deltafina v European Commission, pending before the CFI. 30 Ibid, pt 13. It may however still qualify for a fine reduction if it fulfills the relevant requirements and meets all the conditions therefor.

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finding an infringement of Article 81 EC. The fact that the undertaking cooperated with the Commission during its administrative procedure will be indicated in the decision, so as to explain the non-imposition of a fine.31 367. As the European Commission currently has no powers to impose penalties on individuals other than undertakings,32 the grant of immunity to an undertaking does not concern its directors or employees, and there is no other immunity policy for individuals. 368. Undertakings disclosing their participation in a cartel that do not meet the conditions for immunity may still under the Leniency Notice be eligible for a reduction of any fine that would otherwise have been imposed if they provide the European Commission with evidence which represents significant added value compared to the evidence already in the European Commission’s possession, and provided that they fulfill the same conditions as to genuine, full cooperation and as to termination of the infringement as required for the immunity applicants.33 369. The first undertaking to provide such significant added value will receive a reduction of 30 to 50 per cent of the fine which would otherwise have been imposed; the second undertaking a reduction of 20 to 30 per cent, and subsequent undertakings a reduction of up to 20 per cent.34 370. The degree of added value depends on the extent to which the evidence provided strengthens, by its very nature and/or its level of detail, the European Commission’s ability to prove the infringement. The degree of corroboration from other sources required for the evidence submitted to be relied upon against other undertakings involved in the cartel will have an impact on the value of that evidence, so that compelling evidence will be given a greater value than uncorroborated or simply corroborating statements.35 371. Guidance on the normal amount of the fine, and thus on the size of the reduction in absolute terms, can be found in the European Commission’s Fining Guidelines.36 The basic amount of the fine normally corresponds to a proportion of the value of the undertaking’s sales of goods or services to which the infringement directly or indirectly relates during the last full business year of its participation in the infringement, multiplied by the number of years of the infringement. The proportion depends on the gravity of the infringement. As a general rule, it will be set at a level of up to 30 per cent. For secret cartels it will generally be set at the higher end of the scale. Irrespective of the duration of the

31

Ibid, pt 38. It would however be possible under the current EC Treaty to modify Reg 1/2003 so as to provide for the imposition of penalties on individuals other than undertakings; see below, paras 618–624, and Judgment of the ECJ of 13 Sept 2005 in Case C–176/03 European Commission v EU Council [2005] ECR I–7879. 33 Leniency Notice, above n 26, pts 23 and 24; and above, para 365. 34 Ibid, pt 26. 35 Ibid, pt 25. 36 Guidelines on the method of setting fines imposed pursuant to Art 23(2)(a) of Reg 1/2003 [2006] OJ C210/2; for a detailed analysis see Ch 4 above. 32

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infringement, a sum of between 15 and 25 per cent of the value of sales will in addition be included in the basic amount.37 The basic amount may then be increased or reduced to take into account aggravating or mitigating circumstances.38 One of the aggravating circumstances listed in the Fining Guidelines is the refusal to cooperate with or obstruction of the European Commission in carrying out its investigations.39 Another aggravating circumstance mentioned is the role of leader in, or instigator of, the infringement; the European Commission will also pay particular attention to any steps taken to coerce other undertakings to participate in the infringement and/or any retaliatory measures taken against other undertakings with a view to enforcing the practices constituting the infringement.40 372. Finally, the European Commission’s Leniency Notice also provides for partial immunity like Section 1B1.8 of the US Sentencing Guidelines.41 If an applicant for a fine reduction is the first to submit compelling evidence which the European Commission uses to establish additional facts increasing the gravity or the duration of the infringement, the European Commission will not take such additional facts into account when setting any fine to be imposed on the undertaking which provided this evidence.42 373. Contrary to the US Department of Justice’s Corporate Leniency Policy,43 the European Commission’s Leniency Notice does not contain any condition of restitution being made, where possible, to injured parties. As regards the impact of the granting of leniency on follow-on actions for damages, the Leniency Notice states that the fact that immunity or reduction in respect of fines is granted cannot protect an undertaking from the civil law consequences of its participation in an infringement of Article 81 EC.44 374. Whereas the Leniency Notice only applies to secret cartels between competitors, the European Commission also regularly uses its powers to impose fines on undertakings for other types of infringements of Article 81 EC, such as vertical agreements restricting imports or exports between EU Member States,45 or for abuses of a dominant position prohibited by Article 82 EC.46 375. For these other types of infringements, cooperation can be rewarded with a fine reduction under the Fining Guidelines,47 which provide that the basic

37

Ibid, pts 13–26. Ibid, pts 27–29. 39 Ibid, pt 28, second indent. 40 Ibid, pt 28, third indent. 41 See above, para 348. 42 Leniency Notice, above n 26, pt 26, last sentence. 43 See above, para 348. 44 Leniency Notice, above n 26, pt 38; see further below n 114. 45 See for instance Commission Dec of 5 Oct 2005 in Cases COMP/E2?36623, 36820 and 37275, Automobiles Peugeot SA and Peugeot Nederland BV [2006] OJ L173/20. 46 See for instance Commission Dec of 24 Mar 2004 in Case COMP/C-3/37.792 Microsoft, available at http://ec.europa.eu/comm/competition/antitrust/cases/decisions/37792/en.pdf. 47 See above, para 371. 38

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amount of the fine may be reduced where the European Commission finds that mitigating circumstances exist, such as: where the undertaking concerned has effectively cooperated with the European Commission outside the scope of the Leniency Notice and beyond its obligation to do so; and where the undertaking has terminated a non-secret infringement as soon as the European Commission intervened.48 376. The Leniency Notice and the Fining Guidelines currently provide for the grant of immunity from fines or the reduction of fines only in exchange for the provision of intelligence and evidence of the antitrust violations, not in exchange for the recognition of the infringement and acceptance of the reduced fine.49 377. Under an earlier version of its Leniency Notice,50 the European Commission also granted a reduction of the fine (typically of 10 per cent) where, after receiving a statement of objections, the undertaking informed the Commission that it did not substantially contest the facts on which the European Commission based its allegations. The European Commission is currently considering introducing a new settlement policy further along this line, offering a fine reduction in exchange for not merely a non-contestation of facts, but rather a recognition of the infringement and a commitment to pay the fine.51

5.1.2.3 Competition Authorities of the EU Member States 378. The competition authorities of most EU Member States operate a leniency programme for undertakings.52 These programmes are in many respects similar to the European Commission’s leniency programme. 379. A number of differences however exist. For instance, in the United Kingdom, the Office of Fair Trading’s leniency programme for undertakings53 applies not only to horizontal cartels but also to vertical retail price maintenance agreements.54 Contrary to the European Commission’s Leniency Notice and to the leniency programmes in all other EU Member States, it also contains a 48

Fining Guidelines, above n 36 pt 29, fourth and first indents. Cf the plea agreements by the US Department of Justice above, paras 354–356. 50 Commission Notice on the non-imposition or reduction of fines in cartel cases [1996] OJ C207/4. This notice was replaced in 2002: see above n 26. 51 See speech by Commissioner N Kroes, ‘Reinforcing the Fight against Cartels and Developing Private Antitrust Damage Actions: Two Tools for a More Competitive Europe’ (Commission/IBA Joint Conference on EC Competitiona Policy, 8 Mar 2007), available at http://ec.europa.eu/ commission_barroso/kroes/speeches_en.html; see also sect 2.5.3 above. 52 A list of all the competition authorities of the EU Member States that operate a leniency programme is available at http://ec.europa.eu/comm/competition/antitrust/legislation/ authorities_with_leniency_programme.pdf. 53 Part 3, ‘Lenient treatment for undertakings coming forward with information in cartel activity cases’, of OFT’s Guidance as to the Appropriate Amount of a Penalty (London, OFT, Dec 2004), supplemented by Leniency and No-action—OFT’s Draft Final Guidance on the Handling of Applications (London, OFT, Nov 2006), available at www.oft.gov.uk. 54 Ibid, nn 23 and 8. 49

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provision similar to the ‘Amnesty Plus’ practice of the US Department of Justice.55 In Germany, the leniency programme of the Bundeskartellamt excludes from immunity not only cartel participants that coerced others to participate in the cartel, but also the cartel participant that was the only ringleader of the cartel.56 380. In a number of EU Member States, the cartel prohibitions are enforced not only by fines on undertakings, but also by criminal or other penalties on individuals.57 Some of these Member States also have corresponding leniency provisions for individuals. In the United Kingdom, for instance, directors of companies that have committed competition law breaches can be subjected to director disqualification orders, and individuals involved in cartel conspiracies can be punished with imprisonment and/or fines under the criminal cartel offence. The Office of Fair Trading has a policy of no-action letters for individuals, which grant immunity from prosecution under the cartel offence to cooperating individuals, comparable with the US Department of Justice’s Leniency Policy for Individuals.58 An undertaking can apply for no-action letters on behalf of named employees, directors, ex-employees or ex-directors when seeking leniency under the Office of Fair Trading’s leniency programme for undertakings, or in conjunction with an application for leniency from the European Commission in accordance with the latter’s Leniency Notice.59 The Office of Fair Trading will also not seek director disqualification orders against individuals who benefit from no-action letters or who are directors of companies that benefit from leniency under the Office of Fair Trading’s leniency programme or under the European Commission’s Leniency Notice.60 On the other hand, in Germany, for instance, a specific criminal offence, punishable with imprisonment, exists for bid-rigging, but there is no leniency programme for this offence.

5.1.3 History 381. The contemporary practice of leniency in antitrust enforcement is generally considered to have been started by the US Department of Justice in 1978, when it adopted its first Corporate Leniency Policy. The basic idea of granting immunity 55

Ibid, para 3.16; see above, para 361, and below, paras 458–463. Notice 9/2006 of the Bundeskartellamt on the immunity from and reduction of fines in cartel cases—Leniency Programme—of 7 Mar 2006, available at www.bundeskartellamt.de/wEnglisch/ download/pdf/06_Bonusregelung_e.pdf. 57 See Ch 6 below, in particular paras 548–543. 58 Office of Fair Trading, The Cartel Offence—Guidance on the Issue of No-action Letters for Individuals (London, OFT, Apr 2003), supplemented by Leniency and No-action—OFT’s Interim Note on the Handling of Applications (London, OFT, July 2005), available at www.oft.gov.uk; see above, para 352. 59 Ibid, para 3.5; see above, paras 362–367. 60 Ibid, para 3.15 and OFT, Competition Disqualification Orders—Guidance (London, OFT, May 2003), available at www.oft.gov.uk, paras 4.12 and 4.27. 56

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or a reduced penalty in exchange for cooperation to help convict co-conspirators is however probably as old as criminal prosecution.61 382. The US Department of Justice replaced its initial Corporate Leniency Policy of 1978 with its current Corporate Leniency Policy in 1993. The three main changes were that the grant of immunity before the start of an investigation became automatic instead of being a matter of prosecutorial discretion, that immunity also became available after an investigation had started, and that immunity was automatically extended to cooperating directors and employees coming forward together with the cooperating corporation. The US Department of Justice also added its Leniency Policy for Individuals shortly afterwards in 1994.62 The most important change since then was introduced by the Antitrust Criminal Penalty Enhancement and Reform Act of 2004, which grants participants in the US Department of Justice’s leniency programme the benefits of single instead of treble damages and of the non-application of joint and several liability with co-conspirators in follow-on private actions for damages.63 383. The European Commission’s first Leniency Notice was adopted in 1996, and was clearly inspired by the US Department of Justice’s Corporate Leniency Policy of 1993.64 The European Commission had however already in a number of cases before 1996 reduced fines or even abstained from imposing fines in recognition of cooperation received.65 The idea of granting immunity from fines in exchange for cooperation with the European Commission also underlay Article 15(5)(a) of Regulation 17, in force from 1962 to 2004, under the terms of which no fine could be imposed in respect of acts taking place after notification of an agreement to the European Commission and before its decision as to the

61 See NK Katyal, ‘Conspiracy Theory’ (2003) 112 Yale Law Journal 1307 at 1330–1, referring to practices in English law going back to the early 12th century, as well as in early American law. 62 See above, sect 5.1.2.1 and AK Bingaman, ‘Antitrust Enforcement: Some Initial Thoughts and Actions’, Address to the ABA Antitrust Section (New York, 10 Aug 1993), available at www.usdoj.gov/ atr/public/speeches/0867.pdf, at 7–9, and ‘Report from the Antitrust Division— Spring 1994’, Address to the ABA Antitrust Spring Meeting (Washington, DC, 8 Apr 1994), available at www.usdoj.gov/atr/ public/speeches/0110.pdf, at 8–9, and SD Hammond, ‘Cornerstones of an Effective Leniency Program’, Presentation at the ICN Workshop on Leniency Programmes (Sydney, 22–23 Nov 2004), available at www.usdoj.gov/atr/public/speeches/206611.pdf, at 3–4. 63 See above, para 351 64 See above n 50, and WPJ Wils, ‘The Commission Notice on the Non-Imposition or Reduction of Fines in Cartel Cases: A Legal and Economic Analysis’ (1997) 22 European Law Review 125. The origin was even more visible in the earlier draft notice which was published by the European Commission as part of the consultation procedure preceding the adoption of the 1996 Leniency Notice [1995] OJ C341/13. 65 Examples of reduced fines include the Dec of 19 Dec 1984, in Wood Pulp [1985] OJ L85/1, para 148; Dec of 24 Apr 1986, in Polypropylene [1986] OJ L230/1, para 109; and Dec of 13 July 1994, in Cartonboard [1994] OJ L243/52, paras 169–171. In its Dec of 1 Apr 1992, in Franco-West-African Shipowners Committees [1992] OJ L134/1, para 74, sub (e), the European Commission decided that ‘there are grounds for exempting from fines the four shipping companies which although members of the committees contributed in drawing the attention of the Commission to the practices dealt with in this decision’; see also the Dec of 21 Dec 1994, in Tretorn [1994] OJ L378/45, para 77.

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exemptability of the agreement under Article 81(3) EC, provided the acts fell within the limits of the activity described in the notification.66 384. The European Commission replaced its initial Leniency Notice by a new one in 2002. The main changes were that immunity became automatic, and that fine reductions became more strictly aligned to the timing of the cooperation.67 In 2006 the European Commission again amended its Leniency Notice, mainly to clarify the threshold for immunity in terms of information to be provided and to clarify the duty of cooperation of all leniency applicants.68 As already mentioned above, the European Commission is also considering introducing a new policy of ‘direct settlements’, under which fine reductions would be granted in exchange for a recognition of the infringement and a commitment to pay the fine.69 385. The leniency programmes in the EU Member States have generally been adopted following the example of the European Commission, and thus indirectly of the US Department of Justice. The United Kingdom and Germany were the first EU Member States to do so in 2000. Both have already supplemented or amended their leniency programmes since.70 386. These relatively frequent modifications reflect a process of experimentation, and of emulation between jurisdictions.71 Competition authorities have been learning how to design more effective leniency policies by trying them out. They may also have to adjust leniency programmes in reaction to learning on the part of the cartel participants and of the specialised lawyers defending them. Indeed, leniency is a game played at two stages between the competition authorities on the one hand and the cartel participants and their lawyers on the other hand. At the stage of the application for leniency, the cartel participants’ lawyers will try to obtain for their clients immunity from penalties or as great a reduction as possible, while giving as little evidence as possible of the antitrust violations. Even if they obtain full immunity, it is generally against their interest

66 Council Reg 17 [1962] JO 13/204, [1959–62] OJ Spec Ed 87, replaced by Reg 1/2003, above n 27, which abolished the entire notification system; see WPJ Wils, ‘Notification, Clearance and Exemption in EC Competition Law: An Economic Analysis’ (1999) 24 European Law Review 139 and ch 1 of WPJ Wils, Principles of European Antitrust Enforcement (Oxford, Hart Publishing, 2005). 67 See above, paras 362–377and F Arbault and F Peiró, ‘The Commission’s New Notice on Immunity and Reduction of Fines in Cartel Cases: Building on Success’, EC Competition Policy Newsletter, June 2002, 15–22, available at http://ec.europa.eu/comm/competition/publications/cpn/ cpn2002_2.pdf. 68 See above, paras 362–377, in particular n 26; O Guersent, ‘The EU Model of Administrative Enforcement against Global Cartels—Evolving to Meet Challenges’, paper presented at the 11th EUI Competition Law and Policy Workshop (Florence, 2–3 June 2006), available at www.iue.it/RSCAS/ Research/Competition/Index.shtml, forthcoming in C-D Ehlermann and I Atanasiu (eds), European Competition Law Annual 2006: Enforcement of Prohibition of Cartels (Oxford, Hart Publishing, 2007); and press release IP/06/1705 and MEMO/06/469 of 7 Dec 2006, available at http://europa.eu/rapid/. 69 See above, para 377. 70 See above, paras 378–380. 71 See WE Kovacic, ‘Background Note: Using Evaluation to Improve the Performance of Competition Policy Authorities’, in OECD, Evaluations of the Actions and Resources of Competition Authorities (Paris, OWCD, 16 Dec 2005), DAF/COMP(2005)30, 19, at 22, available at www.oecd.org/dataoecd/7/ 15/35910995.pdf.

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to have the violation fully established, as this can only increase their liability in follow-on private actions for damages.72 At the stage of the formation and maintenance of cartels, cartel participants will try to adapt their organisation to the leniency policies, so as to mimimise the destabilising effect, or even (if the leniency policies are badly designed) to exploit the leniency policies to their advantage.73 387. As already mentioned, competition authorities in different jurisdictions have been emulating each other in designing effective leniency programmes. Systematic exchanges of experience have been taking place in the framework both of the OECD and of the ICN (International Competition Network).74 In Europe, the ECN (European Competition Network), which groups together the European Commission and the competition authorities of the EU Member States, has recently launched an ‘ECN Model Leniency Programme’.75

5.2 CONT R IBUTION TO OPTIMAL ANTIT R UST ENFORCEMENT

5.2.1 Optimal Antitrust Enforcement and the Imposition of Penalties 388. Before examining how the granting of immunity from penalties for antitrust violations or the reduction of such penalties can contribute to optimal antitrust enforcement, it may be useful to recall the role of the imposition of penalties in the optimal enforcement of the antitrust prohibitions. 389. As I have argued in more detail in Chapter 3 above,76 the imposition of penalties on companies and individuals that are found to have breached the antitrust prohibitions can in several ways contribute to the enforcement of these prohibitions. First, the imposition of penalties may have a deterrent effect, in that it creates a credible threat of prosecution and punishment which weighs sufficiently in the balance of expected costs and benefits to deter calculating companies and individuals from committing antitrust violations. Secondly, in the case of collective violations such as cartels, the differentiation of penalties 72

See below, paras 451–454. On cartel organisation and learning in general see MC Levenstein and VY Suslow, ‘What Determines Cartel Success?’ (2006) 44 Journal of Economic Literature 43; on the effects of leniency on cartel stability see below, paras 404–408 and 422–425. 74 See OECD, Fighting Hard-Core Cartels—Harm, Effective Sanctions and Leniency Programmes (Paris, OECD, 2000), available at www.oecd.org/dataoecd/41/44/1841891.pdf; Hammond, above n 000 and ICN, Anti-Cartel Enforcement Manual, Chapter 2: Drafting and Implementing an Effective Leniency Program, 2nd edn (Apr 2006), available at www.internationalcompetitionnetwork.org/ capetown2006/FINALFormattedChapter2-modres.pdf. 75 This Model Leniency Programme was posted on the ECN website at http://ec.europa.eu/comm/ competition/antitrust/ecn/ecn_home.html on 29 Sept 2006; see further C Gauer and M Jaspers, ‘Designing a European Solution for a ′one stop leniency shop′’ [2006] European Competition Law Review 685, and K Dekeyser and M Jaspers, ‘A New Era of ECN Cooperation—Achievements and Challenges with Special Focus on Work in the Leniency Field’ (2007) 30 World Competition 3. 76 See in particular above, paras 167–182 73

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according to the role played by the different co-conspirators can have the effect of raising the cost of setting up and running cartels.77 Thirdly, the public punishment of those who violate the antitrust prohibitions may also have a moral effect, in that it sends a message to the spontaneously law-abiding, reinforcing their moral commitment to the antitrust prohibitions.78 Indeed, corporate managers are not necessarily just maximisers of profits for themselves and their principals. They may feel a moral responsibility to live within the law whether or not they are likely to be caught, and this normative commitment could trump their interest calculus.79 Psychological research suggests that normative commitment is generally an important factor explaining compliance with the law.80 Moreover, the detection and prosecution of antitrust violations with a view to the imposition of penalties may also have the additional direct benefit of bringing violations to an earlier end. Finally, the imposition of penalties may contribute to corrective justice, in the form of disgorgement of unjust enrichment,81 and possibly also in the form of compensation, either because the imposition of public penalties facilitates follow-on private actions for damages or because the making of restitution to injured parties is somehow taken into account in the imposition of the public penalties.82 390. The imposition of penalties for antitrust violations will however also always have a cost. Two types of costs could be distinguished. First, it could have undesirable side-effects. For instance, errors or the risk of errors in the imposition of penalties could lead to lawful and economically desirable conduct being deterred. Secondly, the detection, prosecution and punishment of antitrust violations will always have an administrative cost, which includes both the cost borne by the public sector (cost of competition authorities, prosecutors and courts) and the cost borne by the businesses or individuals concerned (cost of lawyers and experts, management time). 391. The presence of cost has two implications. First, it raises the question how much avoidance of antitrust violations (and how much corrective justice) is worth the cost of attaining it. The answer to this question depends on the one

77

See above, paras 223–228. See J Adenaes, ‘The Moral or Educative Influence of Criminal Law’ (1971) 27 Journal of Social Issues 17, and ‘General Prevention Revisited: Research and Policy Implications’ (1975) 66 Journal of Criminal Law & Criminology 338 at 341–3; KG Dau-Schmidt, ‘An Economic Analysis of the Criminal Law as a Preference-Shaping Policy’ [1990] Duke law Journal 1; CR Sunstein, ‘On the Expressive Function of the Law’ (1996) 144 University of Pennsylvania Law Review 2021; DM Kahan, ‘Social Influence, Social Meaning, and Deterrence’ (1997) 83 Virginia Law Review 349; NK Katyal, ‘Deterrence’s Difficulty’ (1997) 95 Michigan Law Review 2385; GE Lynch, ‘The Role of Criminal Law in Policing Corporate Misconduct’ (1997) 60 Law and Contemporary Problems 23; DM Kahan, ‘Social Meaning and the Economic Analysis of Crime’ (1998) 27 Journal of Legal Studies 609; and KG Dau-Schmidt, ‘Preference Shaping by the Law’ in P Newman (ed), The New Palgrave Dictionary of Economics and the Law (Basingstoke, Macmillan, 1998) 84. 79 CD Stone, ‘Sentencing the Corporation’ (1991) 71 Boston University Law Review 383 at 389. 80 See TR Tyler, Why People Obey the Law (Princeton, NJ, Yale University Press, 1990). 81 See above, para 182, n 38. 82 See below, para 413 and 414. 78

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hand on how high the cost is and on the other hand on how much value society attaches to the avoidance of antitrust violations (and to the pursuit of corrective justice).83 In all likelihood something less than full enforcement is optimal. Secondly, whatever level of avoidance of antitrust violations (and of corrective justice) is aimed at, one should try to achieve that goal at the least possible cost.

5.2.2 Positive Effects of Leniency 392. Leniency can in several ways contribute to optimal antitrust enforcement, depending on the type of cooperation concerned (provision of intelligence and evidence of the antitrust violations and/or recognition of the violation and acceptance of the penalty) and on whether the type of violations concerned are committed by single offenders or are collective violations like cartels.

5.2.2.1 Improved Collection of Evidence and Intelligence 393. In order to be able to impose penalties or to seek the imposition of penalties for antitrust violations, competition authorities need intelligence of the existence of such violations, and evidence sufficient for the penalties to be upheld in court. 394. Competition authorities can try to obtain the necessary intelligence and evidence from three possible sources. First, they could themselves monitor markets, observing publicly available information and data, and possibly use economic analysis of these data to try to detect and prove violations. In particular for cartels, this first method has not been very important in practice. Economic evidence is generally insufficient in court to establish collusion, and screening for cartels appears difficult, given current methods of economic analysis.84 395. Secondly, the authorities could obtain information from third parties. Customers or competitors harmed by antitrust violations may bring complaints to the authorities,85 and third parties may otherwise volunteer to provide information. As Donald Baker has pointed out, ‘[t]he desire for revenge is more picturesque, but it is still very much present. In my experience, disgruntled 83 See generally, with regard to deterrence, GJ Stigler, ‘The Optimum Enforcement of Laws’ (1970) 78 Journal of Political Economy 526 and KG Elzinga and W Breit, The Antitrust Penalties: A Study in Law and Economics (Princeton, NJ, Yale University Press, 1976) at 9–15. 84 This may of course change with the development of better methods: see JE Harrington, ‘Behavioral Screening and the Detection of Cartels’, paper presented at the 11th EUI Competition Law and Policy Workshop (Florence, 2–3 June 2006), available at www.iue.it/RSCAS/Research/ Competition/Index.shtml, forthcoming in Ehlermann and Atanasiu (eds), above n 17. 85 See European Commission’s Notice on the handling of complaints by the Commission under Arts 81 and 82 of the EC Treaty [2004] OJ C101/5.

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current employees, fired employees, former trade association officials, and even ex-spouses and ex-lovers may be anxious to finger the individuals who they think have done them in.’86 396. The third, and usually best, source of information is the companies and individuals that have committed the antitrust violations themselves. For certain types of violations, in particular secret price cartels, the undertakings that have committed the violations and their staff may be the only ones holding the information which the competition authorities need to detect and punish the violations. 397. As I have analysed in more detail elsewhere,87 there are essentially three ways in which competition authorities can obtain information from the companies and individuals that have committed the antitrust violations: direct force, compulsion and leniency. First, they could use direct, physical force or covert intrusion to obtain evidence in the hands of the companies and their staff. Indeed, depending on the applicable legal regime, competition authorities may have powers to conduct inspections (so-called ‘dawn raids’) at business premises, and inspections at private homes, or carry out directed surveillance or use covert human intelligence sources.88 The use of inspections has at least two drawbacks. First, it can only be used to obtain existing documents or other existing physical or electronic evidence. Secondly, without help from the undertakings or staff concerned, and unless the competition authorities already have precise intelligence as to what documents or records they can find at what exact place, the method is a very expensive one, in that the authorities will have to go through many documents, files or records before finding relevant information. 398. In order to avoid the limitations and costs of the first method of obtaining information through the direct use of force, competition authorities could try to make companies and individuals cooperate in handing over the information sought by using compulsion in the form of threatened sanctions for refusal to cooperate. These could be of two kinds. Refusal to cooperate with investigations could be punished as a separate offence, and such refusal could also be punished through an increase in the amount of the penalty imposed for the antitrust violations established following the investigation. 399. Compared with the first method of direct force, the second method of making the company or its staff cooperate through the threat of punishment for non-cooperation has two advantages. First, its use is not limited to obtaining information contained in already existing documents or records. Secondly, the method is less costly, in that the company and its staff will be able more easily to

86 DI Baker, ‘The Use of Criminal Law Remedies to Deter and Punish Cartels and Bid-Rigging’ (2001) 69 George Washington Law Review 693 at 708. 87 See WPJ Wils, ‘Self-incrimination in EC Antitrust Enforcement: A Legal and Economic Analysis’ (2003) 26 World Competition 567, and ch 5 in Wils, Principles, above n 66. 88 For an overview of the investigative powers of the European Commission and the competition authorities of the EU Member States see Ch 1 above.

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locate or bring together the required elements of information than the competition authorities’ inspectors searching without help through a mass of business records with which they are unfamiliar. The method of inducing cooperation through the threat of sanctions also has its problems, however. First, as in the case of the first method of direct force, the competition authorities already need to have some level of intelligence concerning the antitrust violation. Secondly, it still imposes a significant cost on the companies and individuals concerned, including the economic cost in terms of resources spent on complying with the requests for cooperation, as well as the psychic cost where individuals are subjected to on-the-spot oral questions. Thirdly, the problem of reliability constitutes a specific drawback of the second method of obtaining information under compulsion. Information obtained under compulsion may be unreliable for two sets of reasons. On the one hand, companies or individuals that have indeed committed antitrust violations or their staff may give misleading answers when questioned, in the hope of wrongfooting the investigating authorities and thus escaping detection and punishment. The threat of sanctions for untruthful answers may not be effective to the extent that the authorities are believed not to be able to obtain the necessary information to establish their untruthfulness. On the other hand, where the companies or persons being investigated are in reality innocent, there is a risk that ingenious questioning will lead less sophisticated respondents to make seemingly inculpatory statements, or, in situations of on-the-spot oral questioning where psychological or physical pressure is created or felt, the individuals questioned may end up making untruthful inculpatory statements to escape from the pressure. Because of these costs and risks, the law imposes some limits on the possible use of compulsion, in particular against individuals, under the privilege against self-incrimination.89 400. Leniency is the third method of obtaining information from the companies and individuals that committed the antitrust violations. Compared to the first and second method, direct force and compulsion, this third method has clear advantages. Indeed, contrary to the first method, it can be used to obtain all kinds of information, not just existing documents or other existing physical evidence. Like the second method, it saves on search costs, in that the collecting of relevant information is done by the undertaking and its staff, who are most familiar with it. But, contrary to the second method, it does not suffer from the same reliability problems, as there is no clear incentive at least for immunity applicants to provide unreliable information, given that they risk losing the benefit of immunity if they provide misleading information and given that immunity from punishment is the highest benefit they can obtain.90

89 For a detailed discussion see Wils, above n 87, as well as Ch 1 above; see also the Judgment of the ECJ of 29 June 2006 and the Opinion of AG Geelhoed of 19 Jan 2006 in Case C–301/04 P Commission v SGL Carbon [2006] ECR I–5915. 90 See also Opinion of AG Mischo of 18 May 2000 in Case C–298/98 P Finnboard v Commission [2000] ECR I–10159, paras 24–27; see however below, paras 464–468. There can however be problems

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401. It is however important to note that leniency is not a substitute for but a complement to the other methods of collecting intelligence and evidence of antitrust violations.91 Indeed, leniency can only work if the companies and individuals concerned perceive a risk that the competition authorities will detect and establish the antitrust violation without recourse to leniency. The risk could be a specific one, where the competition authority is already collecting or receiving information of the antitrust violation by other means (or is believed to be doing so, or to be doing so in the near future), or a more general one, where a competition authority, as a result of many other recent cases of successful detection and prosecution, is believed to be good at it. In the case of collective violations such as cartels, and if leniency policies are well designed, in that immunity is granted only to the first co-conspirator to come forward, and reductions in penalties are linked to the timing of the cooperation as compared to the other co-conspirators, companies and individuals may decide to cooperate out of fear that a co-conspirator may do so before them. 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.92 402. Leniency not only allows for cheaper and more reliable collection of intelligence and evidence of antitrust violations than would be possible if only the other investigative methods were available. It also adds an incentive for cartel participants to create and keep more evidence in the first place.93 This increases the possibilities for competition authorities to find evidence through other methods, for instance through ‘dawn raids’, and this increased possibility in turn increases the incentives to apply for leniency, thus creating a virtuous circle. 403. More generally, the larger amount and better quality of evidence which competition authorities may get hold of thanks to leniency (both because of the reduced costs of collecting it and because more evidence is created and kept in the first place) will allow for higher penalties to be upheld in court. This again increases the incentives to apply for leniency, thus creating another virtuous circle.94

with the reliability of information provided by applicants for reductions in penalties, as they may try to obtain such reductions by wrongly incriminating other parties. 91 See Wils, above n 87, at 588, and Harrington, above n 84, at 14–16. 92 See also Wils, above n 64, at 133. 93 See C Aubert, P Rey and WE Kovacic, ‘The Impact of Leniency and Whistleblowing Programs on Cartels’ (2006) 24 International Journal of Industrial Organization 1241 at 1260–4. 94 See also OECD, Prosecuting Cartels Without Direct Evidence of Agreement (Paris, OECD, 15 Feb 2006), DAF/COMP/GF(2006)3, at 4.

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5.2.2.2 Increased Difficulty of Creating and Maintaining Cartels 404. Setting up and maintaining a successful cartel requires effort. The cartel members have to select and coordinate their behaviour on mutually consistent, collusive strategies, allowing the cartel participants as a group to increase profits, and providing for a fair distribution of profits between them. They also need to develop mechanisms to discourage cheating, involving monitoring, rewards and punishments. In a dynamic economy, successful cartels may have to develop an organisational structure that allows them to solve these problems continuously.95 405. A well-designed leniency programme can make these tasks more difficult. The possibility for a cheating cartel member to apply for leniency increases the benefits of cheating, thus making collusion more difficult to sustain.96 It increases uncertainty, making it more difficult for cartel participants to reach agreement, diminishing trust among them, and increasing the need for costly monitoring.97 406. This effect of raising the cost of setting up and maintaining cartels98 is not unique to leniency. The same logic underlies the legal rule that cartels or other restrictive agreements are legally unenforceable,99 and the practice of imposing higher penalties for cartel members that play active roles in setting up and running the cartel, and lower penalties for cartel members that are exclusively passive.100 407. This effect of leniency may lead to cartels breaking down earlier than they would otherwise or even not being formed in the first place.101 408. The size of this effect of leniency on cartel formation and stability (as well as the size of the effect of leniency in terms of improved collection of intelligence and evidence102) depends essentially on three factors:103 the expected leniency discount, the probability of detection and punishment in the absence of

95 Levenstein and Suslow, above n 73, at 44–5; see also JE Harrington, ‘How Do Cartels Operate?’ (June 2006), available at www.econ.jhu.edu/People/Harrington/CartelOperations-6.28.06.pdf. 96 JE Harrington, ‘Optimal Corporate Leniency Pograms’ (Nov 2005), available at www.econ.jhu.edu/People/Harrington/amnesty11–05.pdf, at 3, has called this the ‘Deviator Amnesty Effect’ of leniency. 97 Katyal, above n 61, at 1342–50, and G Spagnolo, ‘Divide et Impera: Optimal Leniency Programmes’, CEPR Discussion Paper No 4840 (Dec 2004), available at www.cepr.org/pubs/dps/ DP4840.asp, at 6. 98 Katyal, above n 61, at 1363, calls this ‘cost deterrence’. 99 See Art 81(2) EC. 100 This makes the setting up and functioning of cartels more difficult, because, faced with the prospect of higher fines, there will be fewer volunteers to play active roles. Those who nevertheless agree to do so are likely to want compensation in the form of a larger part of the gain, which is likely to be difficult to agree on, and to weaken the sense of solidarity and mutual trust within the group: see Katyal, above n 61, at 1341–6 and 1363–7; and above, paras 224–226, 309–313 and 324–327. 101 The two are of course linked, as the earlier breakdown means that the cartel is less profitable and thus less likely to be entered into in the first place: see Wils, above n 64, at 130, 133 and 140, and Harrington, above n 96, at 5–6. 102 See above, paras 393–403. 103 See also Hammond, above n 62; Wils, above n 87, at 587; and Wils, above n 64, at 140.

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cooperation, and the profitability of the cartel. The greater the discount from the otherwise applicable penalty that is offered to the cartel member who defects and cooperates with the competition authority, the stronger the incentive to cheat and report will be. This discount is to be compared to the leniency available in the event of cooperation at a later point in time, or of a lesser degree. For optimal effect, leniency programmes should thus make the leniency discount dependent on the timing of the cooperation (including in comparison with other cooperating cartel members) and its extent. Higher penalties for antitrust violations allow for more effective leniency, as they allow for larger benefits to be offered to leniency applicants.104 Clarity and certainty as to the leniency discounts on offer are also important, as they reduce the risk for the potential leniency applicant of opting for cooperation with the competition authority.105 As already mentioned above, the effectiveness of leniency also crucially depends on the credibility of the competition authority’s enforcement activity, more specifically on the risk, as perceived by the potential leniency applicant, that the competition authority will be able to detect, establish and punish the antitrust violation if that potential leniency applicant decides not to apply for leniency. While this risk can be enhanced by the good design of the leniency programme, creating a race to cooperate between the different cartel members, it ultimately depends on (the perception of) the competition authority’s ability to detect and punish the antitrust violation without the help of leniency.106 Finally, the effect of leniency will of course also depend on the profitability of the cartel. Cartels that are already less profitable will of course be the first to break down, or not even come into existence, as a result of leniency.

5.2.2.3 Lower Costs of Adjudication 409. Apart from its positive effects at the investigative stage (improved collection of intelligence and evidence),107 leniency can also lead to cost savings at the adjudicative stage,108 if the cooperation rewarded consists in the recognition of the violation and acceptance of the penalty.

104 Conversely, higher penalties that cannot be waived or reduced as part of leniency make leniency less effective: see below, below, paras 448, 452 and 456. 105 See OECD, above n 74, at 8, and Hammond, above n 62, at 19–20. 106 See above, para 401; OECD, above n 74, at 4; ICN, above n 74, at 2; and J Rosenstok, ‘Analysis of Self-reporting in Law Enforcement against Cartels in the Netherlands’, Master Thesis, Maastricht University (Mar 2005), available at www.encore.nl/publications/Rosenstok.pdf. 107 See above, paras 393–403. 108 On the different systems of adjudication in antitrust enforcement in the EU and the US see WPJ Wils, ‘The Combination of the Investigative and Prosecutorial Function and the Adjudicative Function in EC Antitrust Enforcement: A Legal and Economic Analysis’ (2004) 27 World Competition 201, and sect 1.2.10 and ch 6 of Wils, Principles, above n 66.

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410. In the case of the US Department of Justice, for instance, the practice of plea agreements allows the saving of the costs of full litigation before the federal district court, as well as the costs of further appeal.109 411. As for the European Commission, it currently adopts a reasoned decision in every cartel case (typically of dozens or even a few hundred pages), finding the infringement and imposing the fines. This decision can be appealed by each of the companies concerned before the Court of First Instance, with the possibility of a further appeal, limited to points of law, before the Court of Justice. On average, three to four appeals are brought against every cartel decision.110 Significant cost savings could thus be made if a mechanism could be introduced under which companies would recognise the violation and commit to paying an accepted fine, as the European Commission’s decision would then no longer need to contain the same detailed reasoning, and there would no longer be systematic appeals to the EC Courts. As already mentioned above, the European Commission is currently considering the introduction of such a settlement mechanism.111 412. The savings in the costs of full litigation, or of fully reasoned decisions and frequent appeals, allow or would allow the antitrust enforcement authorities to investigate and punish more violations with their available resources, thus increasing the probability of detection and punishment, and hence increasing deterrence.

5.2.2.4 Restitution to Injured Parties 413. As already mentioned, one of the conditions for obtaining immunity under the US Department of Justice’s Corporate Leniency Policy is that, where possible, the corporation makes restitution to injured parties.112 Furthermore, under the US Sentencing Guidelines, the voluntary payment of restitution can reduce the defendant’s culpability and thus the amount of the penalties imposed.113 In the United Kingdom, the Office of Fair Trading recently brought to an end its investigation in the Independent Schools case. As part of the settlement, the schools under investigation agreed to make ex gratia payments totalling £3 109 See above, paras 354 and 355. As has been pointed out by GM Grossman and ML Katz, ‘Plea Bargaining and Social Welfare’ (1983) 73 American Economic Review 749, plea bargaining not only saves resources, but can also function as an insurance and as a screening device. These positive effects must however be weighed against possible negative effects, in particular the lowering of the penalty level: see below, paras 415–418. 110 N Kroes, ‘The First Hundred Days’, speech at the 40th Anniversary of the Studienvereinigung Kartellrecht (Brussels, 7 Apr 2005), available at http://ec.europa.eu/comm/competition/speeches/ index_speeches_by_the_commissioner.html, at 4; see also Case Associates, Casenote ‘Penalties for Price-fixers—A Survey of Fines Imposed in 43 Cartels by the EC Commission’ (May 2006), available at http://casecon.com/data/pdfs/casenote41.pdf, at 2, reporting that 87% of fines are appealed. 111 See above, para 377. 112 Above, paras 348 and 349. 113 See above, para 357.

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million to a charitable fund to benefit pupils who attended the schools, in addition to the payment of a nominal penalty of £10,000 per school.114 414. Requiring restitution to injured parties as a condition for leniency may contribute to the optimal pursuit of the enforcement objective of corrective justice,115 in that it may otherwise not have been feasible for the injured parties to obtain compensation through a follow-on private action for damages, or by saving the costs of such follow-on litigation.

5.2.3 Risks of Negative Effects 5.2.3.1 Lowering of the Penalty Level 415. Waiving or reducing penalties to reward cooperation inevitably has a negative effect on the penalty level, and thus on deterrence.116 It is thus crucial to design and apply leniency policies in such a way that this negative effect is outweighed by the positive effects discussed above,117 and that no more leniency is granted than is strictly necessary to obtain these positive effects.118 416. The need to avoid unnecessary penalty reductions explains the limitation of leniency policies that offer full immunity to secret, horizontal cartels, given that these are the types of antitrust violations that are most difficult to detect.119 It also explains the limitation of the benefit of full immunity to the single first

114 Decision of the OFT No CA98/05/2006 Exchange of information on future fees by certain independent fee-paying schools (20 Nov 2006; Case CE/2890–03); see also Decs of the European Commission of 21 Oct 1998, in Pre-Insulated Pipe Cartel [1999] OJ L24/1, rec and of 30 Oct 2002, in Nintendo [2003] OJ L255/33, recs 440 and 441, granting reductions of the fines imposed on respectively ABB and Nintendo for violations of Art 81 EC in recognition of the fact that ABB had paid ‘substantial compensation to Powerpipe and its previous owner’ and that Nintendo had ‘offered substantial financial compensation to third parties identified in the Statement of Objections as having suffered financial harm as a result of [Nintendo]’s violation’. The European Commission has refused to grant such reductions in other cases, and the CFI has recently confirmed that addressees of fining decisions have no right to obtain such reductions: see the Judgment of 27 Sept 2006 in Case T–59/02 Archer Daniels Midland v Commission, not yet reported, paras 349–355. 115 On the different objectives of antitrust enforcement and their relationship see above, paras 167–182. 116 Wils, above n 64, at 130; M Motta and M Polo, ‘Leniency Programs and Cartel Prosecution’ (2003) 21 International Journal of Industrial Organization 347; Harrington, above n 96, who has called this the ‘Cartel Amnesty Effect’ of leniency; and Case Associates, above n 110, reporting that cartel members have been receiving an average fine reduction of 42% through the European Commission’s leniency programme (and a further 18% by disputing the fine in court). 117 Above, paras 392–414. 118 Wils, above n 64, at 130 and 134; see also JM Connor, Global Price Fixing—Our Customers are the Enemy (Boston, Mass, Kluwer Academic Publishers, 2001) at 387–8 and 561. 119 Ibid, at 131.

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cartel member to cooperate.120 In order to establish the antitrust violation in court, the evidence provided by the first leniency applicant may however not be sufficient, and corroborating evidence may be needed from a second source.121 To the extent that this is the case, substantial leniency towards the second cooperating cartel member may be necessary.122 Much more questionable is the need to grant substantial leniency to the third, fourth, fifth, sixth or seventh cooperating cartel member.123 417. One way to counteract the penalty-lowering effect of leniency may be first to raise the level of penalties applicable in the absence of cooperation.124 If, for instance, leniency leads to an average penalty reduction of 33 per cent, this effect can be neutralised by first raising the penalty level applicable in the absence of cooperation by 50 per cent. To some extent, this may indeed have happened historically. In the US, leniency was introduced in 1978, and made more generous in 1993 and 2004, whereas Congress raised the maximum jail term for antitrust offences in 1974 and 2004, and the maximum fines for corporations in 1974, 1990 and 2004. The three changes in 2004 were part of the same Act.125 The European Commission adopted its first Leniency Notice in 1996 and its first Fining Guidelines, which reflected an increase in the level of fines, in early 1998. The European Commission’s current reflections on introducing a new settlements policy follow the publication of its new Fining Guidelines in 2006, which

120 Ibid, at 132–3; and OECD, above n 74, at 27. As already indicated above, paras 401–408 the limitation of immunity to the single first leniency applicant also creates a race to be the first to cooperate, and this ‘Race to the Courthouse Effect’ is a countervailing force to the ‘Cartel Amnesty Effect’: see Harrington, above nn 96, and 116. 121 See generally B Vesterdorf, ‘Burden of Proof in Cartel Cases’, paper presented at the Nordic Lawyers Academy—Challenges in Nordic Cartel Cases (Helsinki, 4–5 May 2006) at 10. 122 See for instance European Commission Dec of 30 Oct 2002 in Case COMP/E-2/37.784 Fine art auction houses [2005] OJ L200/92, where, out of two cartel participants, the first received immunity and the second a 40% reduction of the fine. One may observe that in this case the cartel had already been detected by the US Department of Justice prior to the European Commission’s investigation: see C Mason, The Art of the Steal—Inside the Sotheby’s-Christie’s Auction House Scandal (New York, Putnam, 2004). 123 See for instance European Commission Dec of 17 Dec 2002 in Case COMP/37.667 Specialty Graphite [2006] OJ L180/20, where, out of 8 cartel members, one received immunity, 6 a fine reduction of 35% and the last a fine reduction of 10%. It should be noted that this decision applied the 1996 version of the European Commission’s Leniency Notice, which was replaced in 2002, inter alia to make the fine reductions more strictly dependent on their timing and usefulness: see above, paras 368, 369 and 384. 124 Such general raising of the level of penalties in the absence of cooperation, which is transparent and non-discriminatory, should be distinguished from an opportunistic raising, in a specific case where cooperation has taken place, of the penalty from which the leniency discount is deducted. The latter practice would undermine the clarity and certainty of the leniency policy, and thus its effectiveness: see M Bloom, ‘Immunity/Leniency/Finalncial Incentives/Plea Bargaining’, paper presented at the 11th EUI Competition Law and Policy Workshop (Florence, 2–3 June 2006), available at www.iue.it/RSCAS/Research/Competition/Index.shtml, forthcoming in C-D Ehlermann and I Atanasiu (eds), European Competition Law Annual 2006: Enforcement of Prohibition of Cartels (Oxford, Hart Publishing, 2007), at 4; and above, para 408. 125 See above, paras 351 and 382.

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again reflect an increase in the level of fines.126 A similar pattern can be found in the EU Member States. In France, for instance, a leniency programme was introduced in 2001 by the same Act of Parliament which also increased the maximum fine.127 One could argue that these general penalty increases could have been introduced anyway, irrespective of the introduction of a leniency policy, so that the fact remains that the leniency policy has the effect of lowering the penalty level. On the other hand, the existence of a leniency policy, which allows antitrust offenders to reduce their exposure to penalties by cooperating with the authorities and which results in more and better evidence of the antitrust violations being discovered, may precisely allow the higher penalty levels, because the antitrust offenders’ failure to take advantage of the ability to cooperate increases their culpability, and hence the acceptability of higher penalties, and because the stronger evidence equally makes higher penalties acceptable. 418. Another measure which could be taken to reduce the penalty-lowering effect of leniency is to raise the requirements as to the quality of evidence that has to be provided by the first cooperating cartel member applying for immunity. It is often argued that the threshold as to the evidence to be provided by the first immunity applicant should be kept low, so as maximise the number of leniency applications.128 The ultimate objective of a leniency policy is however not a high number of leniency applications, but stronger deterrence.129 Requiring very little evidence from the first leniency applicant means that in more cases it will be necessary to grant substantial leniency also to a second leniency applicant (and possibly a third etc) in order to obtain enough evidence to be able to establish the antitrust violation in court. This multiplication of leniency tends to reduce deterrence. Moreover, requiring more evidence from the first leniency applicant does not necessarily reduce the number of applications. It may instead increase the incentive for cartel participants to create and keep more and stronger evidence, which in turn increases the effectiveness of leniency (directly, as better evidence is obtained through leniency, as well as indirectly, by increasing the possibility for competition authorities to collect such evidence without resorting to leniency, which again increases the incentive to seek leniency).130 5.2.3.2 Exclusive Reliance on Leniency 419. As explained above, a leniency policy can only work if, in the case of a violation committed by a single offender, the offender fears that his violation will 126

See above, paras 371 and 384. See D Voillemot, Gérer la clémence (Brussels, Bruylant, 2005) at 59. 128 See for instance MJ Reynolds and DG$ Anderson, ‘Immunity and Leniency in EU Cartel Cases: Current Issues’ [2006] European Competition Law Review 82 at 85. 129 See also sect 5.2.4 below. 130 See above, text to nn 93, 94 and 119–123. It should however be predictably clear what the required threshold of evidence is: see above, text to nn 102–106. 127

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be detected and punished by the antitrust enforcement authorities if he does not apply for leniency. In the case of a cartel or other collective violation, leniency will work only if one cartel member either believes that the cartel risks being detected and punished without leniency or fears that at least one other cartel member may hold such belief.131 420. A leniency policy will thus start working only if the antitrust enforcement authority concerned has first built up a sufficient level of credibility as to its capacity to detect and punish antitrust violations on its own. For the authorities that have managed to do so, and subsequently operate a successful leniency programme, there may be a risk in relying too much on this success. If for a prolonged period they no longer detect and prosecute any cases other than through leniency, they may lose their capacity to do so, or at least antitrust offenders may start doubting their continued capacity to do so. If this were to happen, the success of their leniency programmes would risk coming to an end. 421. It may thus be useful that antitrust enforcement authorities continue, at least from time to time, detecting and punishing antitrust violations without the help of leniency, and are seen to do so.132

5.2.3.3 Facilitation of the Creation and Maintenance of Cartels 422. As already mentioned above, successful cartels tend to be sophisticated organisations, capable of learning. It is thus safe to assume that cartel participants will try to adapt their organisation to leniency policies, not only so as to minimise the destabilising effect, but also, where possible, to exploit leniency policies to facilitate the creation and maintenance of cartels.133 This raises the question whether there could be features of leniency programmes that risk being exploited to perverse effect.134 423. The limitation of immunity to the single first cooperating cartel participant is clearly important in avoiding perverse effects.135 If this condition did not exist, one could imagine all the members of a cartel collectively denouncing it to the antitrust enforcement authorities and claiming leniency, only after having fully implemented the cartel agreement up to its time of natural death.136 424. In situations where the same companies participate in a number of cartels in different markets, or repeatedly form cartels over time, one could imagine a system in which cartel participants take turns to apply for leniency, 131

See above, paras 401 and 408. On the European Commission see Case Associates, above n 110, reporting that in 4 out of 39 cartel cases between 1999 and 2004 no leniency reductions were given. 133 See above, paras 386 and 404. 134 Other than the general penalty-lowering effect discussed above, paras 415–418. 135 See Wils, above n 64, at 133. 136 Cartels tend to die natural deaths, be it only after a long life, because of the entry or expansion of non-cartel members: see Levenstein and Suslow, above n 73. 132

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every time one of the cartels is (about to be) detected by the competition authority.137 In jurisdictions where cartels are not only punished by fines on companies, but also by imprisonment of individuals, such a system is most unlikely to be attractive,138 but in jurisdictions without such individual penalties it may work.139 425. Another potential perverse scenario to be considered is the use of leniency as a mechanism to punish deviations from the cartel agreement. Again the limitation of immunity to the single first cooperating cartel participant very much reduces the risk of such perverse effect, as it makes it impossible for all the other cartel members together to denounce the cartel to the antitrust enforcement authority, obtain immunity themselves, and have the deviator penalised by the authority. One may however wonder whether it would be possible to set up a system in which one cartel member played a central role in organising and administering the cartel, and was the only one to have all the evidence of the cartel, and could use this position to deter the other cartel members from deviating from the cartel agreement under the threat of a leniency application. It would however seem very unlikely that the other cartel members would be willing to enter into such an agreement, as they would have to trust the ringleader to act exclusively in the common interest, and would risk being the co-victims of deviations by one of the other non-ringleaders. This would be different only if the ringleader could coerce the other cartel members into the agreement. In all jurisdictions, however, leniency programmes exclude coercers from immunity.140

137 The cartel participants could then also try to make use of the possibilities offered for partial immunity to later leniency applicants that provide evidence of a longer duration of the infringement: see above, paras 358 and 372 . A first cartel participant would apply for immunity, providing evidence of the last third of the cartel period, while saying that the cartel may have started earlier, but that it cannot retrieve evidence of that. A second cartel member would then come forward with evidence of the other two thirds of the cartel period. 138 See also Aubert, Rey and Kovacic, above n 93, at 1250. 139 One (at least partial) solution could be to exclude repeat offenders from leniency. In one EU Member State, Greece, recidivists are excluded from immunity. However, excluding repeat offenders from leniency would mean that leniency would no longer work at all if the same group of companies that was found to have formed a cartel originally subsequently enters a new cartel. If all these companies cannot apply for leniency because they are repeat offenders, this second cartel will thus be more stable than the first. Paradoxically, excluding recidivists from leniency may thus encourage recidivism. 140 See above, paras 348, 349, 352, 365 and 379. In some jurisdictions, including the US and Germany, leniency programmes go further in that they also exclude non-coercing sole ringleaders. Such an exclusion generally makes sense in that it deters potential ringleaders from volunteering to take on this role, in the same way as higher penalties for ringleaders: see above, para 406; K Mehta, ‘Comments on Switgard Feuerstein’s “Collusion in Industrial Economics—A Survey”’ (2005) 5 Journal of Industry, Competition and Trade 217 at 220; and Katyal, above n 61, at 1343 and 1365. On the other hand, allowing (non-coercing) ringleaders to apply for immunity may have the effect of making the other cartel members more cautious in following the ringleader’s initiative; see also Aubert, Rey and Kovacic, above n 93, at 1250. Finally, the exclusion of the ringleader as a potential immunity applicant reduces the number of such potential applicants, and thus reduces the potential of a race to be the first to cooperate: see above, paras 401 and 408. The first version of the European Commission’s Leniency Notice in 1996 excluded all ringleaders (even if there were several of them):

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5.2.3.4 Negative Moral Effects 426. As already mentioned above,141 corporate managers are not necessarily just maximisers of profits for themselves and their principals. They may feel a moral responsibility to live within the law whether or not they are likely to be caught, and this normative commitment could trump their interest calculus. The public punishment of those who violate the antitrust prohibitions has thus not only a deterrent effect, in that it helps create a credible threat of punishment for those who would be willing to commit violations on the basis of a profit calculation, but also has moral effects, in that it sends a message to the spontaneously law-abiding, reinforcing their moral commitment to the rules. 427. For people to have such moral commitment to the law, however, it is important that the law and its enforcement are perceived to be fair.142 Leniency, in particular in its strongest form of immunity, may raise two (closely related) concerns in this respect.143 428. First, there may be concerns about the retributive injustice of an antitrust offender escaping punishment. The main response to this concern is to design and apply leniency programmes in such a way as to ensure that no more leniency is granted than is strictly necessary to obtain the positive enforcement effects,144 and to stress the condition for any beneficiary of leniency, and in particular of immunity, to provide genuine and full cooperation to the enforcement authorities. This appears to be reflected, for instance, in the case law of the Court of Justice, which has emphasised that, for companies to benefit from leniency under the European Commission’s Leniency Notice, their conduct must reveal ‘a genuine spirit of cooperation’.145 Requiring restitution to injured parties as a condition for leniency may also help to assuage justice concerns.146 429. A second (closely related) concern focuses on the unequal treatment between the beneficiary of immunity or leniency and the other cartel participants, who receive full punishment for the same antitrust violation.147 Again the main response is to ensure that leniency is granted only to the extent that the

see above n 50 and Judgment of the CFI of 15 Mar 2006 in Case T–15/02 BASF [2006] ECR II–497, paras 316, 321 and 535–536. This was however changed in 2002, and the current Leniency Notice only excludes coercers: see above, text to nn 29–30. 141 At para 389. 142 See Tyler, above n 80, as well as the literature listed above in n 78. 143 See also OECD, above n 74, at 26. 144 As argued above, in para 415, limiting leniency to what is strictly necessary to obtain its enforcement benefits is also indicated to counter the penalty-reducing effect of leniency. 145 Judgments of the ECJ of 28 June 2005 in Joined Cases C–189/02 P etc Dansk Rorindustri and Others v Commission (Pre-insulated Pipes) [2005] ECR I–5425, paras 388–403, and of 29 June 2006 in Case C–301/04 P Commission v SGL Carbon [2006] ECR I–5977, para 68. See also, in the UK, the Judgment of the Competition Appeals Tribunal of 19 May 2005 in Cases 1019/1/1/03 etc. Umbro and Others v Office of Fair Trading [2005] CAT 22, paras 210–234. 146 See above, paras 413 and 414. One might also consider excluding recidivists from immunity, in particular if the recidivism followed an earlier grant of immunity; see however above n 139. 147 See also Voillemot, above n 127, at 99–100.

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company or individual has genuinely and effectively cooperated with the competition authority, thus objectively distinguishing its situation from the other cartel participants that have not done so, or not to the same extent, or at the same early point in time. It is equally important to ensure that leniency policies are applied in a transparent and consistent way, thus providing an equal chance for all cartel participants to benefit from them.148 In this respect, the Court of First Instance has stressed that, under the general principle of equal treatment, the European Commission must ensure that it does not distort the conditions of competition between undertakings in a (potential) race to be the first to cooperate, by contacting one of them, or giving them unequal access when they contact the European Commission.149 430. Both concerns, as to the guilty remaining unpunished and as to co-conspirators being treated unequally, appear to be particularly acute in the case of immunity being granted to the ringleader of a cartel, in particular if that ringleader has coerced other cartel members into committing the infringement. As already discussed above, in all jurisdictions coercers are excluded from immunity, and in several jurisdictions non-coercing sole ringleaders are also included.150

5.2.4 Measuring the Effects of Leniency 431. The most obvious measurement of the effects of leniency is the number of leniency applications received by the competition authorities, and the amounts of the penalties imposed with the help of these leniency applications. Indeed, both the US Department of Justice and the European Commission have been regularly reporting the success of their leniency policies, in that they receive several applications for leniency per month, and that these applications have helped them in imposing high amounts of penalties.151 148 On could try to argue that a company that is willing to cooperate but detains less evidence that it can offer in exchange for leniency is disadvantaged as compared to another willing applicant with more evidence at its hands. This argument should however be rejected (and has indeed been rejected by the CFI in its Judgment of 18 July 2005 in Case T–241/01 SAS v Commission [2005] ECR II–2917, paras 211–221), because its distinguishing according to the usefulness of the cooperation appears objectively justified. Moreover, as pointed out above in para 402, granting leniency in proportion to the evidence provided creates a desirable incentive for all cartel participants to create and keep evidence. 149 Judgments of the CFI of 13 Dec 2001 in Joined Cases T–45/98 etc Krupp Thyssen and Others v Commission [2001] ECR II–3757, paras 237–248, and of 15 Mar 2006 in Case T–15/02 BASF v Commission [2006] ECR II–497, para 504. The European Commission would thus not be allowed to adopt the US Department of Justice’s practice of ‘affirmative amnesty’, under which the latter approaches a company—which may at the time not even know that it or its competitors are under investigation—to cooperate and seek leniency: see ICN, above n 74, at 5, and Hammond, above n 20, at 11. 150 See above, para 425 and n 140. See also above nn 139 and 146 as to the case of recidivists. 151 See for instance Hammond, above n 62, at 2–4; O Guersent, ‘The Fight against Secret Horizontal Agreement in the EC Competition Policy’ in BE Hawk, 2003 Fordham Corporate Law

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432. On its own, the number of leniency applications is not a good indicator of the success of a leniency policy, as it may reflect excessive generosity and thus a weakening rather than a strengthening of deterrence.152 The imposition of more and higher penalties, without an increase in the competition authority’s resources, is however clearly a sign of success. Indeed, more and higher penalties means more deterrence and hence fewer antitrust violations. 433. The only doubt one could have about the overall positive effect of leniency policies would be that this positive effect would be outweighed by perverse effects of leniency, either in that cartel participants find ways to exploit leniency programmes so as to facilitate the creation or maintenance of cartels, or in that leniency programmes have negative moral effects leading to less respect for the antitrust prohibitions.153 However, as explained above,154 leniency programmes in all jurisdictions appear to be designed in ways that appear to make it very unlikely that they could be exploited in a way that facilitated the creation and maintenance of cartels, certainly in those jurisdictions that impose not only fines on companies but also imprisonment on individuals,155 and good design and application of leniency programmes should also be able to limit negative moral effects. 434. Of course, it would be nice if we were able to measure the overall effect of leniency by directly observing its impact on the cartel population. But, given that cartels hide themselves, we have no way directly to observe the population of cartels. We can observe the population of discovered cartels, but this is a very unreliable indicator of the cartel population, as an increase or decrease in the number of detected cartels can be due as much to improved or worsened detection as to an increase or decrease in the cartel population. In a recent paper, Joseph Harrington has shown that the change in the duration of discovered cartels can be informative about the change in the rate of cartels.156 In order to use this proxy to measure the effect of a leniency policy, one would however also have to be able to separate the effect of the leniency policy from the effect of other changes in antitrust enforcement during the same period, such as changes in the competition authority’s resources or in the applicable penalties.157

Institute International Antitrust Law & Policy (Huntington, NY, Juris Publishing, 2004) 43 at 45–9; and European Commission, Report on Competition Policy 2005, SEC(2006)761, para 175. 152 Wils, above n 64, at 139. 153 See above, paras 422–430. 154 Ibid. 155 The risk for jurisdictions without such penalties for individuals is that, in situations where the same companies participate in a number of cartels in different markets, or repeatedly form cartels over time, cartel participants may take turns to apply for leniency, every time one of the cartels is (about to be) detected by the competition authority: see above, para 424. 156 JE Harrington, ‘Modelling the Birth and Death of Cartels with an Application to Evaluating Antitrust Policy’ (June 2006), available at www.econ.jhu.edu/People/Harrington/CartelBirthDeath6.06.pdf. 157 See above, para 417, as to the phenomenon of penalties being raised in parallel with the introduction of leniency programmes.

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5.3 O BSTACLES TO THE INT RODUCTION OF LENIENCY POLICIES

435. As described above,158 many jurisdictions have introduced leniency policies in the last decade, following the initial example of the US Department of Justice. In most jurisdictions, however, the introduction of leniency programmes, in particular programmes offering immunity from penalties, has not been uncontested, and their use has not yet spread everywhere. In Germany, for instance, a leniency programme for companies has existed since 2000, but there is no leniency programme for individuals who are punishable with imprisonment for the specific criminal offence of bid-rigging. 436. Whereas initially doubts about their effectiveness may have slowed down the introduction and spread of leniency policies, such doubts appear no longer to play a significant role, as leniency policies are widely credited with having contributed to an important extent to the increase in the number and the size of antitrust penalties obtained or imposed by the US Department of Justice and by the European Commission.159 Objections of principle and institutional problems may however still constitute obstacles to the introduction of leniency policies. 5.3.1 Objections of Principle 437. The two strongest objections of principle that could be raised against leniency, in particular in its strongest form of immunity, namely the retributive injustice of antitrust offenders escaping punishment and the unequal treatment between the beneficiaries of leniency and the other offenders, have already been discussed above.160 Provided that no more leniency is granted than is strictly necessary to obtain the positive enforcement results, that beneficiaries of leniency are required to provide genuine and full cooperation, that leniency policies are applied in a transparent and consistent way, and that coercers are excluded from immunity, the granting of leniency does not appear unfair. 438. Leniency has also raised objections akin to the use of informants or spies.161 While one may readily applaud, in the light of historical experience with totalitarian regimes, vigilance against the use by the state of neighbours, friends and family to spy and inform on each other’s private livee, especially for political offences, in the antitrust context this objection seems rather to reflect an ‘honour among thieves’ culture.162 In the end, the issue appears to be whether or not, or to what extent, one considers antitrust offences, in particular secret price-fixing 158

Above, paras 381–387. See above, paras 431–434and the references above in n 74. 160 Above, paras 426–430. 161 In French, the emotionally charged term ‘délation’ is used in this context: see Voillemot, above n 127, at 13 and 93–5. 162 Cf D Brault, ‘Jusqu’où augmenter la prime aux repentis?’ [2005] Revue Lamy de la Concurrence 113, at 115, referring to the ‘mutual confidence between contracting parties’ (‘la confiance mutuelle entre co-contractants’). 159

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cartels, to be reprehensible. Strong antitrust enforcement requires a societal consensus that antitrust offences are bad.163 439. Objections have also been raised to the compatibility of leniency with respect for the rights of the defence, but none of these objections appear convincing. As the Court of Justice has held in relation to the European Commission’s Leniency Notice: ‘admission of an alleged 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 defence’.164 5.3.2 Institutional Problems 440. In some jurisdictions the question has arisen whether the competition authority has the power to introduce a leniency policy, or whether the legislator has to introduce such a policy or has to create a new empowerment for the competition authority to do so. In the case of the European Commission, which itself adopted its Leniency Notice, the Court of Justice has confirmed that it had the power to do so.165 441. In some jurisdictions there is a principle of mandatory prosecution, under which the public prosecution office is obliged to take action in relation to all criminal offences which may be prosecuted, provided there is sufficient evidence.166 This could be considered to create a problem for the introduction of leniency, at least in its stronger form of immunity, with regard to criminal penalties. The problem does not appear to arise if the immunity granted is not immunity from prosecution but only immunity from the imposition of penalties. In any event, the principle of mandatory prosecution usually only applies ‘unless otherwise provided by law’,167 which means that a leniency policy can be introduced, provided that the introduction is done through a legislative act. It may also be noted that the Council of Europe has since 1987 recommended to its Member States that they introduce or extend the application of the principle of 163

See also below, paras 598–600. Judgment of 14 July 2005 in Joined Cases C–65/02 P etc ThyssenKrupp Stainless and Others v Commission [2005] ECR I–6773, paras 52–53; see also the Opinion of AG Léger of 28 Oct 2004 in the same case, at paras 134–146; Wils, above n 64, at 137–8; Wils, above n 87, at 580; and Judgment of the CFI of 15 Mar 2006 in Case T–15/02 BASF v Commission [2006] ECR II–497, para 58. 165 Judgment of 16 Nov 2000 in Case C–298/98 P Metsä-Serla (Finnboard) v Commission [2000] ECR I–10171, paras 56 and 57; see also Wils, above n 64, at 135–6. 166 See Council of Europe, Proceedings of the 5th session of the Conference of Prosecutors General of Europe, ‘Discretionary Powers of Public Prosecution: Opportunity or Legality Principle— Advantages and Disadvantages’ (Celle, 23–25 May 2004), available at www.coe.int/t/e/legal_affairs/ legal_co-operation/conferences_and_high-level_meetings/european_public_prosecutors/ 2004(Celle).asp#TopOfPage. 167 This is the case, for instance, in Germany: see s 152(1) of the Code of Criminal Procedure. 164

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discretionary prosecution, wherever possible, or otherwise devise measures having the same purpose.168 In any event, concerns to avoid arbitrariness and unequal treatment, which appear to be underlying the idea of mandatory prosecution, should not apply to leniency policies that are set out and applied in a transparent and consistent way, and that provide no more leniency than is strictly necessary to obtain the positive enforcement results.169 442. Finally, in some jurisdictions, the investigation of antitrust violations and their prosecution are carried out by separate authorities. A problem may then arise in that the prosecuting authority will resist giving up its prosecutorial discretion and becoming bound by the investigating authority’s decisions on leniency applications. This problem can be overcome by involving the prosecuting authority in the introduction and application of the leniency programme,170 or by imposing it through a higher legislative act, making it binding on the prosecuting authority.

5.4 SOME FUR THER ISSUES

5.4.1 Leniency and Criminal Penalties on Individuals 443. As set out above,171 whereas in the US the cartel prohibition is enforced not only by fines on companies but also by imprisonment of individuals, the European Commission and the competition authorities of most EU Member States can currently impose fines only on undertakings. In the last decade, prison sanctions for individuals have been introduced in Ireland and the United Kingdom,172 and they may be introduced in the Netherlands in the near future.173 Prison sanctions also exist in some other EU Member States, for instance in Germany for bid-rigging. This trend towards criminalisation raises the question how the addition of criminal penalties on individuals impacts upon the effectiveness of leniency. 168 Recommendation R (87) 18 concerning the simplification of criminal justice, adopted by the Committee of Ministers of the Council of Europe on 17 Sept 1987, again referred to in Recommendation Rec (2000) 19 on the role of public prosecution in the criminal justice system, both available at www.coe.int/t/e/legal_affairs/legal_co-operation/conferences_and_high-level_meetings/ european_public_prosecutors/00_0E_Reference%20Texts.asp#TopOfPage. As has also been pointed out by the OECD, above n 74, at 26, specifically with regard to antitrust enforcement, few, if any, enforcement agencies could function effectively without discretion. Some prioritising and balancing of costs and benefits in the enforcement process is inevitable. 169 See also above, paras 426–430 and 437–439. 170 See ICN, above n 74, sect 2.6.7. 171 See above, paras 349, 352, 367 and 380; see also above n 32. 172 See below, paras 538–543. 173 The issue was debated in the Second Chamber of the Dutch Parliament on 15 June 2006, and broad support for the introduction of prison sanctions for cartels emerged. See also below, paras 534–538.

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444. If, as is the case in the US, Ireland and the UK, leniency (including immunity) is also available for individuals, and the leniency policies for companies and for individuals are well integrated, in that, when a company is the first to apply for immunity, it can also obtain immunity for its cooperating staff, but that immunity is normally no longer available for a company if an individual has applied for it earlier (and is similarly normally unavailable for an individual if a company has been first and the individual is not part of the company’s application), leniency will be more effective, for three reasons.174 445. First, at least to the extent that the companies care for their staff, the higher overall penalty discount available will make it more attractive for companies to apply for leniency. 446. Secondly, additional races to be the first to cooperate are created between the companies and their staff, as well as between individuals. As Scott Hammond has explained with regard to US Department of Justice’s practice of combining corporate and individual leniency programmes: the individual amnesty program helps prevent companies from covering up their misconduct. The real value and measure of the Individual Leniency Program is not in the number of individual applications we receive, but in the number of corporate applications it generates. It works because it acts as a watchdog to ensure that companies report the conduct themselves. … So long as one of its employees has individual exposure, the company remains at great risk. If the company self-reports the conduct under the Corporate Leniency Policy, then the company and all of its cooperating executives will avoid criminal prosecution. However, if the company delays or decides not to report, then the company puts itself in a race for leniency with its own employees. In this example, if the company does not report the conduct first, then the executive may come forward on his own and report the conduct for his own protection, thereby potentially leaving the company out in the cold. … If the secretary gets nervous, say, after talking to a relative who convinces her that she has real criminal exposure for her own conduct, she may decide to report the conduct.175

As Donald Baker has further explained, also describing US practice: The same process works between individuals at different companies involved in the suspected conspiracy. There certainly have been cases where an individual was indicted for a one-on-one conversation with someone who worked for a competitor and who then turned the defendant in. Of course, as we saw with the Lysine cartel, an individual who turns herself in to the government may become a government informant and continue to participate in conspiracy meetings, armed with recording devices in order to entrap the other conspiracy members.176

447. Thirdly, the presence of criminal penalties for individuals strongly reduces the risk of perverse effects of leniency policies.177 It would in particular appear to 174 175 176 177

See also Bloom, above n 124. Hammond, above n 62, at 12–14. Baker, above n 86, at 708. See above, paras 422–425.

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eliminate the risk that, in situations where the same companies participate in a number of cartels in different markets, or repeatedly form cartels over time, cartel participants may take turns to apply for leniency every time one of the cartels is (about to be) detected by the competition authority.178 448. To the contrary, if leniency (including immunity) is not available for individuals, the addition of criminal penalties for individuals will decrease the effectiveness of leniency. At least to the extent that they care about their staff, companies will be less inclined to apply for leniency, as this will expose their staff to punishment. Even if they do not care about their staff, companies may not be able to make useful leniency applications, as their staff will not be willing to cooperate for fear of incriminating themselves. 449. It thus appears essential, when adding criminal penalties for individuals to corporate fines, to provide also for leniency (including immunity) for individuals.179 This conclusion is confirmed, on the one hand, by the experience of the successful combined application by the US Department of Justice of its Corporate Leniency Policy and its Leniency Policy for Individuals,180 and, on the other hand, by the example of Germany, where criminal penalties for individuals exist for bid-rigging, without a corresponding possibility of leniency, with the result that the German competition authority, which has an otherwise functioning leniency programme for companies, has never received a leniency application in a bid-rigging case. 450. The introduction of leniency, in particular immunity, for criminal penalties might be considered more problematic than in the case of fines on companies.181 However, as argued above,182 it would appear that all the concerns relating to retributive justice, equal treatment and legality which could be raised can be adequately addressed, provided that no more leniency is granted than is strictly necessary to obtain the positive enforcement results, that beneficiaries of leniency are required to provide genuine and full cooperation, that coercers are 178

See above, paras 424 and 433. See further below, paras 592–595. 180 As has been pointed out by Margaret Bloom, above n 124, at 9, when comparing the statistics of the success of the leniency policies of the US Department of Justice and for instance the European Commission, one should observe that roughly half of the immunity applications received by the European Commission follow leniency applications to the US Department of Justice, and might thus never have taken place if it were not for the strong attraction of the US Department of Justice’s leniency policy, linked to the threat of imprisonment; see also A Stephan, ‘An Empirical Assessment of the 1996 Leniency Notice’, CCP Working Paper 05–01 (Sept 2005), available at www.ccp.uea.ac.uk/ public_files/workingpapers/CCP05– 10.pdf#search=%22Empirical%20Assessment%20Leniency%20Andreas%20Stephan%22. 181 In Sweden, where currently only corporate fines exist, with a leniency programme, a Governmental Committee of Inquiry in 2004 produced a proposal to introduce criminal penalties for individuals, but without the possibility of leniency, referring to the general rule of mandatory prosecution in the Swedish Code of Judicial Procedure: see Konkurrensbrott—En lagstiftningsmodell, SOU 2004:131, available at www.regeringen.se/sb/d/264/a/36225. See above, para 441 for arguments as to why the principle of mandatory prosecution should not constitute an insurmountable obstacle to introducing leniency. 182 At paras 426–430 and 435–442. 179

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excluded from immunity, that leniency policies are applied in a transparent and consistent way, and, in those jurisdictions where this would be necessary, are laid down in a legislative act.

5.4.2 Leniency and Follow-on Private Actions for Damages 451. The European Commission published in 2005 a Green Paper on damages actions for breach of the EC antitrust rules, opening a wide debate in the EU Member States on options to facilitate private damages actions, including follow-on actions in cases where penalties have already been imposed by the European Commission or the competition authority of an EU Member State.183 Such actions are currently less common in the EU Member States than in the US. This debate raises the question how follow-on private actions for damages impact upon the effectiveness of leniency. 452. To some extent the impact of follow-on private damages actions appears similar to that of the addition of criminal penalties on individuals.184 If a leniency applicant, and in particular an immunity applicant, could also be offered leniency or immunity from damages, the effect of follow-on private damages actions would be to strengthen the effectiveness of leniency, because potential leniency applicants would be attracted by the larger benefit available to them. To the contrary, if immunity applicants or other leniency applicants cannot be offered corresponding immunity or leniency as regards damages, follow-on private damages actions weaken the effectiveness of leniency, as the prospect of having to pay damages, or at least of having to defend oneself in follow-on private actions, adds a negative element to be weighed in the potential leniency applicant’s decision whether or not to apply for leniency.185 183 The Green Paper COM(2005)672 and the Commission Staff Working Paper SEC(2005)1732 annexed to it, both of 19 Dec 2005, as well as many subsequent contributions to the debate, are available at http://ec.europa.eu/comm/competition/antitrust/others/actions_for_damages/ index_en.html; see also D Waelbroeck and D Slater, ‘The Commission’s Green Paper on Private Enforcement: “Americanisation” of EC Competition Law Enforcement?’, and J Lawrence, ‘Seeking the Perfect Balance—Some Reflections on the Commission Green Paper: Damages Actions for Breach of the EC Antitrust Rules (19 Dec 2005)’, papers presented at the 11th EUI Competition Law and Policy Workshop (Florence, 2–3 June 2006), available at www.iue.it/RSCAS/Research/Competition/ Index.shtml, forthcoming in C-D Ehlermann and I Atanasiu (eds), European Competition Law Annual 2006: Enforcement of Prohibition of Cartels (Oxford, Hart Publishing, 2007), and Wils, above n 76. 184 See above, paras 443–450. 185 One might argue that leniency applicants will still come 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 follow-on damages actions also applies to all the other co-conspirators, and any potential leniency applicant will understand this. It should also be noted that the negative effect exists even if the fact of cooperating with the authority does not place the leniency applicant in a worse position in respect of follow-on damages actions than other cartel members that do not cooperate. Competition authorities generally try to avoid putting the leniency applicant in a worse position than the other cartel members, in particular by providing for an oral procedure for leniency applications, so to avoid corporate statements being discoverable: see Bloom,

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453. As already mentioned above, in the US, following a statutory modification in 2004, companies that have been granted immunity by the US Department of Justice under its leniency programme and that are found by the court in follow-on actions for damages to have provided satisfactory cooperation with the private claimants are only liable for single damages based on their own share of the commerce affected by the violation, whereas the other cartel members remain jointly and severally liable for treble damages based on the harm caused by the entire conspiracy.186 454. In the EU, successful leniency applicants do not currently benefit from any immunity or reduction of liability with regard to follow-on private damages actions.187 Following the US example, the European Commission’s Green Paper on damages actions for breach of the EC antitrust rules puts forward for discussion the options of giving successful leniency applicants a rebate on damages and of removing joint and several liability.188 As the Green Paper also floats the idea of double damages for cartels,189 the proposed rebate could take the form of single instead of double damages.190

5.4.3 Leniency in Multiple Jurisdictions 455. International cartels may be subject to the imposition of penalties in multiple jurisdictions.191 This raises the question how the fact that penalties may also be imposed in other jurisdictions impacts upon the effectiveness of leniency. above n 124, at 17–21; Reynolds and Anderson, above n 128, at 82–4; and K Nordlander, ‘Discovering Discovery—US Discovery of EC Leniency Statements’ [2004] European Competition Law Review 646. 186 See above, paras 351 and 382. 187 See above, para 373. 188 Commission Staff Working Paper, above n 183, paras 235 and 236 (Options 29 and 30). 189 Ibid, para 150 (Option 16). 190 Ibid, para 235. The initial reactions to the Green Paper, however, do not appear to indicate much support for the idea of double damages: see the contributions referred to above in n 183, and U Böge and K Ost, ‘Up and Running, or Is It? Private Enforcement—the Situation in Germany and Policy Perspectives’ [2006] European Competition Law Review 197 at 201–2, referring to constitutional concerns in Germany. On punitive damages see also the Judgment of the ECJ of 13 July 2006 in Joined Cases C–295/04 etc Manfredi and Others [2006] ECR I–6619, paras 92–96, and the Judgment of the CFI of 27 Sept 2006 in Case T–59/02 Archer Daniels Midland v Commission, not yet reported, paras 349–355. 191 The general rule in international law is that each jurisdiction can impose the penalties provided for in its laws for the violation of its antitrust laws on its territory, without any obligation to take into account the penalties imposed (or not imposed) in the other jurisdictions: see Judgment of the ECJ of 29 June 2006 in Case C–308/04 P SGL Carbon v Commission [2006] ECR I–5977, paras 29–39, as well as the Opinion of 19 Jan 2006 of AG Geelhoed in the same case. As the ECJ pointed out in para 30 of the same judgment, the legal situation is ‘completely different’ inside the EU. On the relationship between the European Commission and the competition authorities of the EU Member States see Wils, ‘The Principle of Ne Bis in Idem in EC Antitrust Enforcement: A Legal and Economic Analysis’ (2003) 26 World Competition 131, and Wils, above n 66, chs 1, 2 and 3. See also above, para 387 and n 75 as to the ECN Model Leniency Programme.

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456. This impact appears similar to that of follow-on private damages actions, and thus to some extent also to that of the addition of criminal penalties on individuals.192 If the leniency applicant, and in particular the immunity applicant, can also obtain leniency or immunity in the other jurisdictions, the effectiveness of leniency will be increased, because potential leniency applicants will be attracted by the larger benefit available to them. To the contrary, if immunity applicants or other leniency applicants cannot obtain corresponding immunity or leniency in the other jurisdictions, the effectiveness of leniency will be weakened, as the prospect of penalties in the other jurisdictions adds a negative element to be weighed in the potential leniency applicant’s decision whether or not to apply for leniency. 457. This impact helps to explain the efforts of those antitrust enforcement authorities that were the first to introduce leniency policies, in particular the US Department of Justice, in convincing the authorities in other jurisdictions to adopt similar policies.193

5.4.4 ‘Amnesty Plus’ 458. As already mentioned above, the US Department of Justice and the UK Office of Fair Trading have a policy, called ‘Amnesty Plus’, under which a cooperating company that does not qualify for immunity as to a first cartel being investigated but that uses the occasion of that first investigation to report a second, distinct cartel will receive, in addition to the immunity it can obtain for the second cartel, a further reduction of the fine for the first cartel.194 459. There would indeed appear to be an increased probability that companies that participate in one cartel also participate in others. First, these companies, or the responsible individuals within them, must have overcome the normative or moral barrier which would prevent the law-abiding from engaging in illegal activity.195 Secondly, by participating in one cartel, they will have gained valuable experience, making it more likely that their participation in other cartels will be successful.196 Thirdly, to the extent that ability to pay plays a role in determining the amount of penalties for cartels, companies that participate in several cartels may be punished proportionally less.197 192

See above, paras 451–454 and 443–450. See above, paras 381–387 and n 75 concerning the ECN Model Leniency Programme. 194 See above, paras 361 and 379; see also ICN, above n 74, at 4, and D McAlwee, ‘Should the European Commission Adopt “Amnesty Plus” in its Fight Against Hard-core Cartels?’ [2004] European Competition Law Review 558. 195 On the importance of normative commitment to the law as a barrier to antitrust violations see above, paras 389 and 426–430. 196 On the complexity of successful cartels and the importance of learning see above, paras 386, 404–408 and 422–425. 197 See for instance the case of SGL Carbon, which received from the European Commission a 33% discount from its fine for participation in the Electrical and mechanical carbon and graphite 193

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460. It would also seem that, once the participation of a company in one cartel has been detected by an antitrust enforcement authority, there is an increased probability that the antitrust enforcement authority will also detect the participation in the other cartels. Indeed, a rational competition authority will be aware of the increased probability that companies that participate in one cartel also participate in other cartels, and will thus spontaneously focus its investigations in that direction. Moreover, investigations into one cartel may incidentally produce evidence of other cartels, for instance when the authority’s investigators conducting a ‘dawn raid’ at the premises of a company to collect evidence of one suspected cartel come across evidence of another cartel.198 461. Given this increased probability of detection of the second cartel, once the participation of a company in a first cartel has been detected, the justification for an ‘Amnesty Plus’ policy does not appear obvious. ‘Amnesty Plus’ comes down to granting more than 100 per cent leniency for the second cartel. As further discussed below, one could argue whether it is a good idea in general to grant more than 100 per cent leniency, ie not only to waive the entire penalty but also to give a positive financial reward to a cooperating company.199 But whatever one may think about this idea in general, it is difficult to see the justification for applying it only in the specific case of a company the participation of which in a first cartel has already been detected. Given that in that specific situation, the probability of detection is higher than normal, there should be less need to go beyond 100 per cent leniency and grant a positive financial reward. 462. It has been pointed out that over half of the investigations of suspected international cartels by the US Department of Justice were initiated as a result of leads generated during the investigation of a separate market.200 It does not follow however that this would not also have happened without ‘Amnesty Plus’, or that similar phenomena could not be observed at competition authorities that do not have an ‘Amnesty Plus’ policy.201 products cartel (Dec of 3 Dec 2003 in Case COMP/38.359, available at http://ec.europa.eu/comm/ competition/antitrust/cases/decisions/38359/en.pdf, paras 358 to 360) because of its bad financial situation and the fact that it had already been fined for its participation in two other contemporaneous cartels; see further A Stephan, ‘The Bankruptcy Wildcard in Cartel Cases’, CCP Working Paper 06–5 (Mar 2006), available at www.ccp.uea.ac.uk/public_files/workingpapers/CCP06–5.pdf; C Harding, ‘Effectiveness of Enforcement and Legal Protection’, paper presented at the 11th EUI Competition Law and Policy Workshop (Florence, 2–3 June 2006), available at www.iue.it/RSCAS/Research/ Competition/Index.shtml, forthcoming in C-D Ehlermann and I Atanasiu (eds), European Competition Law Annual 2006: Enforcement of Prohibition of Cartels (Oxford, Hart Publishing, 2007); and above, paras 206 and 341–343. 198 See the Judgment of the ECJ of 17 Oct 1989 in Case 85/87 Dow Benelux v Commission [1989] ECR 3137, paras 17–19, holding that in a situation where the European Commission’s inspectors discover evidence of a violation outside the subject-matter indicated in the decision ordering the inspection, the European Commission can initiate a new investigation and use its investigative powers to obtain that evidence in the framework of this new investigation. 199 See below, paras 467 and 468. 200 Hammond, above n 62, at 14. 201 On the European Commission see Opening exposé by Commissioner N Kroes at the 11th EUI Competition Law and Policy Workshop (Florence, 2–3 June 2006), available at www.iue.it/RSCAS/

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463. The obvious disadvantage of ‘Amnesty Plus’ is that it involves an additional lowering of the penalty.202 It could arguably make it more attractive for a company already participating in one cartel also to join other cartels.203

5.4.5 Positive Financial Rewards or Bounties 464. Leniency as discussed above in this chapter consists in the reduction of penalties or, in its strongest form, the grant of immunity from penalties for antitrust violations in exchange for cooperation with the antitrust enforcement authorities.204 William Kovacic and others have proposed the grant of positive financial rewards or bounties to incentivise cooperation in the detection and prosecution of cartels.205 465. In April 2005 the Korean Fair Trade Commission introduced an Informant Reward System to facilitate the detection of secret violations of competition law.206 In June 2005 a first reward of 66.87 million won (about US$63,700) was paid to an anonymous informant who had provided decisive evidence in a welding rod cartel case, including the names of executives of the six cartel member companies, meeting places and details of agreement.207 466. It may be useful to distinguish between three different types of positive financial rewards or bounties, depending on whether the beneficiary is (1) a company that participated in the cartel, (2) an individual that could otherwise be penalised for its role in the cartel, or (3) another informant. 5.4.5.1 Rewards to Companies that Participated in Cartels 467. If the beneficiary of the positive financial reward is a company that participated in the cartel, giving a positive financial reward comes down to granting more than 100 per cent corporate leniency; instead of merely reducing Research/Competition/Index.shtml, forthcoming in C-D Ehlermann and I Atanasiu (eds), European Competition Law Annual 2006: Enforcement of Prohibition of Cartels (Oxford, Hart Publishing, 2007) at 7, pointing out that the Commission’s ex officio investigations almost always trigger immunity and leniency applications in related geographical or product markets. 202 See above, para 415. 203 See Rosenstok, above n 106, at 64. 204 See above, para 344. 205 See WE Kovacic, ‘Private Monotoring and Antitrust Enforcement: Paying Informants to Reveal Cartels’ (2001) 56 George Washington Law Review 766; Aubert, Rey and Kovacic, above n 93; Spagnolo, above n 97; A Riley, ‘Beyond Leniency: Enhancing Enforcement in EC Antitrust Law’ (2005) 28 World Competition 377; and WE Kovacic, ‘Bounties as Inducements to Identify Cartels’, paper presented at the 11th EUI Competition Law and Policy Workshop (Florence, 2–3 June 2006), available at www.iue.it/RSCAS/Research/Competition/Index.shtml, forthcoming in C-D Ehlermann and I Atanasiu (eds), European Competition Law Annual 2006: Enforcement of Prohibition of Cartels (Oxford, Hart Publishing, 2007). 206 See www.ftc.go.kr/data/hwp/rewardsystem.doc. 207 See www.ftc.go.kr/data/hwp/informant_reward.doc.

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the penalty which would otherwise have been imposed on the company, or waiving it entirely, the cooperating company is given a positive financial reward. Such a system simply continues the logic of corporate leniency to a further point. Compared with the mere granting of immunity, or only a reduction of the penalty, such a system is likely to create stronger incentives to cooperate, as the benefit offered is bigger.208 It however also increases the risks of negative effects, in that it further lowers the penalty level,209 is likely to raise additional concerns in terms of retributive justice and equal treatment and may thus have negative moral effects,210 and increases the risk of cartel members finding ways to exploit the leniency system in ways that facilitate the creation and maintenance of cartels.211 468. As mentioned above,212 in situations where the same companies participate in a number of cartels in different markets, or repeatedly form cartels over time, one could imagine a system in which cartel participants take turns to apply for leniency, every time one of the cartels is (about to be) detected by the antitrust enforcement authorities. In jurisdictions where cartels are not only punished by fines on companies, but also by imprisonment of individuals, such a system is most unlikely to be attractive, but in jurisdictions without such individual penalties it might work.213 Positive financial rewards obviously increase this risk. It would therefore not appear advisable for jurisdictions that do not have criminal penalties for individuals to grant positive financial rewards for companies that participated in cartels.214

5.4.5.2 Rewards to Individual Cartel Offenders 469. If the beneficiary of the positive financial reward is an individual cartel offender, who could otherwise have been penalised for his role in the cartel (assuming thus a jurisdiction in which not just companies but also individuals are prosecuted for cartel offences), giving a positive financial reward comes down to granting more than 100 per cent individual leniency; instead of merely reducing the penalty which would otherwise have been imposed on the individual, or waiving it entirely, the cooperating individual is given a positive financial reward. Compared with the mere granting of immunity, or only a reduction of the penalty, such a system is again likely to create stronger incentives 208

See above, para 408. See above, para 415. See above, paras 426–430. 211 See above, para 422–425. 212 At para 424. 213 Ibid; Aubert, Rey and Kovacic, above n 93, at 1250. 214 Cf P Buccirossi and G Spagnolo, ‘Optimal Fines in the Era of Whistleblowers’, CEPR Discussion Paper No 5465 (Jan 2006), available at www.cepr.org/pubs/dps/DP5465.asp, who precisely propose such rewards as, according to those authors, a superior alternative to the introduction of criminal penalties on individuals. 209 210

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to cooperate, as the benefit offered is bigger.215 It also increases the risk of negative effects, but less so than in the case of rewards to companies. Indeed, while it has an additional effect of lowering the penalty level216 and is likely to raise additional concerns in terms of retributive justice and equal treatment and may thus have negative moral effects,217 there would not seem to be an increased risk of cartel members finding ways to exploit the leniency system in ways that facilitate the creation and maintenance of cartels.218 5.2.4.3 Rewards to Non-offender Informants 470. If the beneficiary of the financial reward is an informant who has not herself committed a punishable offence, the system is unrelated to leniency. It rather builds on one of the methods other than leniency which antitrust enforcement authorities traditionally use to collect intelligence and evidence of antitrust violations, namely to obtain information from volunteering third parties.219 The reward adds an incentive to the other incentives, such as revenge, or a sense of civic duty, which informants may have to volunteer information to the antitrust enforcement authority. I understand this to be the system which was introduced in Korea in 2005.220

215

See above, paras 408 and 467. See above,para 415. 217 See above, aras 426–430. 218 See above, paras 422–425 and 468. 219 See above, para 395. 220 See above, para 465; see further Kovacic, above n 205, as to various possible objections to such a system and answers to these objections. 216

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6 Is Criminalisation the Answer? 471. This chapter addresses five questions concerning criminalisation of EU antitrust enforcement: First, what do we mean by ‘criminalisation’, or ‘criminal’ enforcement (as opposed to public enforcement of a ‘civil’ or ‘administrative’ nature)? Secondly, is there a tendency in the EU Member States to criminalise antitrust enforcement (in comparison with US antitrust enforcement and with antitrust enforcement at the level of the EU institutions)? Thirdly, is criminal antitrust enforcement, more specifically imprisonment, desirable (in general, irrespective of whether it takes place at the level of the Member States or of the EU institutions, or whether it is harmonised at EU level)? Fourthly, is it problematic that antitrust enforcement is criminalised at the level of individual EU Member States without parallel criminalisation at the level of the EU institutions or without EU harmonisation? Fifthly, would it be legally possible to criminalise antitrust enforcement at the level of the EU institutions, or to have EU harmonisation of criminal antitrust enforcement in the Member States?

6.1 WHAT DO WE MEAN BY ‘CR IMINALISATION’?

6.1.1 No Definition of ‘Criminal’ in EC or EU Law 472. Article 23(5) of Regulation 1/2003,1 the main regulation governing the enforcement of Articles 81 and 82 EC, provides that decisions by which the European Commission imposes fines on undertakings for violations of Articles 81 and 82 EC, or for obstruction of investigations into possible violations, ‘shall not be of a criminal law nature’.2 The last sentence of recital 8 of the same Regulation says that ‘this Regulation does not apply to national laws which

1 Council Reg 1/2003 of 16 Dec 2002 on the implementation of the rules of competition laid down in Arts 81 and 82 of the Treaty [2003] OJ L1/1, last amended by Council Reg 1419/2006 [2006] OJ L269/1. 2 On the interpretation of this provision see below, paras 506 and 507, and further WPJ Wils, Principles of European Antitrust Enforcement (Oxford, Hart Publishing, 2005), sect 1.1.4.3.3 (n 88).

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impose criminal sanctions on natural persons except to the extent that such sanctions are the means whereby competition rules applicable to undertakings are enforced’.3 473. The EU Treaty has a Title VI concerning ‘Provisions on police and judicial cooperation in criminal matters’. Article 30 (a) EU provides that common action in the field of police cooperation shall include operational cooperation in relation to the prevention, detection and investigation of ‘criminal offences’. Article 31 EU provides for common action on judicial cooperation ‘in criminal matters’. 474. EC or EU law does not, however, contain any definition of what is criminal.

6.1.2 Distinguishing Characteristics of Criminal Law 475. Looking across legal systems (of the EU Member States, and of third countries, in particular English-speaking third countries), criminal law enforcement, as opposed to public law enforcement of a civil or administrative nature, appears to have the following six distinguishing characteristics:4

6.1.2.1 Criminal Penalties 476. First, it appears that criminal law has a monopoly on the use of imprisonment. Whereas fines can be either criminal or civil or administrative, imprisonment appears to be essentially a criminal sanction. The possibility of a prison sanction does not seem to be a necessary condition for a prohibited act or an enforcement procedure to be criminal, but it is certainly a sufficient condition. 477. Compared with civil or administrative enforcement, criminal enforcement tends to make relatively more use of penalties imposed on individuals (natural persons), and relatively less of penalties imposed on corporate entities or legal persons. Individual penalties are however neither a necessary nor a sufficient condition for enforcement to be criminal. In Denmark, for instance, violations of Articles 81 and 82 EC and of the parallel prohibitions under national competition law are punished with fines, which are of a criminal law nature but which are in practice only imposed on undertakings, not on natural persons. In Germany, on the other hand, leaving aside the specific criminal law provisions on bid-rigging, violations of Articles 81 and 82 EC and of the parallel 3 On the meaning of this sentence see below, para 532; see also below, para 619, on the use of the word ‘criminal’ in the text of the EC Treaty. 4 See WPJ Wils, The Optimal Enforcement of EC Antitrust Law (The Hague, Kluwer Law International, 2002), sect 8.7.2.1.

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national prohibitions are punished through fines, which are imposed on natural persons and only derivatively also on undertakings, but which are of an administrative law nature.5

6.1.2.2 Criminal Intent 478. Secondly, the commission of a criminal offence usually requires that the prohibited act be committed with a guilty state of mind (criminal intent), not by mere negligence.

6.1.2.3 Moral Condemnation 479. Thirdly, the imposition of criminal sanctions carries, and is designed to carry, a stigma effect. Criminal enforcement has a stronger message-sending role or expressive function than civil or administrative enforcement.6

6.1.2.4 Less Strict Relationship between Penalty and Harm 480. Fourthly, in criminal law there appears to be a less strict relationship, if any, between the size of the penalty and the size of the harm caused than in the setting of civil sanctions. This appears to reflect the idea that criminal law does not seek to price certain behaviour (by making the actor bear the external costs of his behaviour) but rather to prohibit it (unconditionally, ie irrespective of the actual size of the external costs).7

5 For an overview of antitrust enforcement in the 25 Member States see D Cahill and J Cooke (eds), The Modernisation of EU Competition Law Enforcement—FIDE 2004 National Reports (Cambridge, Cambridge University Press, 2004), and M Holmes and L Davey (eds), A Practical Guide to National Competition Rules Across Europe (The Hague, Kluwer Law International, 2004). 6 See J Adenaes, ‘The Moral or Educative Influence of Criminal Law’ (1971) 27 Journal of Social Issues 17, and ‘General prevention revisited: research and policy implications’ (1975) 66 Journal of Criminal Law & Criminology 338 at 341–3, as well as KG Dau-Schmidt, ‘An Economic Analysis of the Criminal Law as a Preference-Shaping Policy’ [1990] Duke law Journal 1, CR Sunstein, ‘On the Expressive Function of the Law’ (1996) 144 University of Pennsylvania Law Review 2021, DM Kahan, ‘Social Influence, Social Meaning, and Deterrence’ (1997) 83 Virginia Law Review 349, NK Katyal, ‘Deterrence’s Difficulty’ (1997) 95 Michigan Law Review 2385, GE Lynch, ‘The Role of Criminal Law in Policing Corporate Misconduct’ (1997) 60 Law and Contemporary Problems 23, DM Kahan, ‘Social Meaning and the Economic Analysis of Crime’ (1998) 27 Journal of Legal Studies 609, and KG Dau-Schmidt, ‘Preference Shaping by the Law’ in P Newman (ed), The New Palgrave Dictionary of Economics and the Law (Basingstoke, Macmillan, 1998) 84. 7 See R Cooter, ‘Prices and Sanctions’ (1984) 84 Columbia Law Review 1523 and JC Coffee, ‘Paradigms Lost: the Blurring of the Criminal and Civil Law Models–and What Can be Done about It’ (1992) 101 The Yale Law Journal 1875.

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6.1.2.5 Criminal Powers of Investigation 481. Fifthly, under criminal law, enforcement authorities tend to have stronger investigative powers.8

6.1.2.6 Criminal Rights of Defence 482. Finally, criminal procedures tend to have stronger procedural protections, designed to avoid false convictions. In particular, in criminal enforcement systems the adjudicative or decision-making function is always separated from the investigative and prosecutorial function or functions.9 Whereas it appears to be a necessary condition of criminal enforcement that the body which imposes the criminal penalties is separate and independent from the investigator and prosecutor, it is however not a sufficient condition. In Finland, for instance, violations of Articles 81 and 82 EC and of the parallel national prohibitions are punished with fines on undertakings, which are of an administrative law nature, but which are imposed by the Market Court, a specialised court which is entirely separate and independent from the Competition Authority, which acts as investigator and prosecutor. In criminal enforcement systems, the standard of proof for establishing violations also tends to be higher. In the English-speaking countries, criminal convictions normally require proof ‘beyond reasonable doubt’, whereas civil or administrative findings can normally be made ‘by a preponderance of the evidence’ or a ‘balance of probabilities’.

6.1.2.7

Links between the Six Characteristics

483. These six characteristics listed above are clearly interrelated. The use of imprisonment and the stigma effect create the stronger need for procedural protections to avoid false convictions. These stronger procedural protections create in their turn the need for stronger investigative powers so as to avoid enforcement becoming ineffective. On the other hand, the message-sending role of criminal enforcement explains the requirement of a guilty state of mind (as this shows the need for wrong valuations to be repudiated) as well as the absence of a strict relationship between punishment and actual harm, reflecting the desire to deter the criminal behaviour unconditionally rather than merely to price it.

8 For an overview of the law and economics of the collection of intelligence and evidence by the competition authorities from antitrust offenders see chr 5 of Wils, above n 2; see also Ch 1 above. 9 See Wils, above n 4, sect 8.7.4.5; and ch 6 of Wils, above n 2.

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6.1.3 The Wider Notion of ‘Criminal’ in the European Convention on Human Rights 484. The notion of ‘criminal’ enforcement as described above and as used throughout most of this chapter should be distinguished from the wider notion of ‘criminal’ as conceived under Article 6 of the European Convention on Human Rights (ECHR).10 485. The European Court of Human Rights has, within the framework of Article 6 ECHR, developed an autonomous notion of ‘criminal’, which covers proceedings of an administrative law nature which fulfill the following conditions:11—the offences are defined by a general rule, applicable to all citizens and not only to some of them;—the rule is linked to penalties in the event of non-compliance;—the sanctions are intended not as pecuniary compensation for damage but essentially as a punishment to deter reoffending; and—the sanctions are severe.12 486. The European Court of Human Rights has never had the occasion to rule on an antitrust enforcement procedure at the level of the EU institutions or in one of the EU Member States.13 In 1989, the European Commission of Human Rights (a body which has since been abolished) decided a case involving competition proceedings before the French competition authority.14 It decided that the sanctions imposed by that authority were of a criminal nature within the meaning of Article 6 ECHR. The case was not brought before the European Court of Human Rights. 487. In 2004, the European Court of Human Rights decided a case concerning proceedings under the Russian Law on Competition and the Restriction of Monopolies in the Commodity Markets, which had led to the confiscation of profits obtained by a number of companies in violation of that law. The

10 See K Dekeyser and C Gauer, ‘The New Enforcement System for Articles 81 and 82 EC and the Rights of Defence’, paper presented at the 31st Annual Fordham Corporate Law Institute Conference on International Antitrust Law & Policy (New York, 8 Oct 2004), forthcoming in BE Hawk (ed), 2004 Annual Proceedings of the Fordham Corporate Law Institute—International Antitrust Law and Policy (Huntington, NY, Juris Publishing. 2005) 537 at 540–2; Wils, above n 4, sect 8.7.2.3; and Wils, above n 2, sects 1.1.4.3.3 (n 88) and 6.1.4.1. 11 Restated in the words of Dekeyser and Gauer, above n 10, at 541. 12 Engel and Others v the Netherlands, Series A No 32, Judgment of 8 June 1976, para 82; Özturk v Germany, Series A No 73, Judgment of 21 Feb 1984, para 50; Bendenoun v France, Series A No 284, Judgment of 24 Feb 1994, para 47. 13 In App No 56672/00 Senator Lines GmbH v the 15 Member States of the European Union, the question was raised. The European Commission had imposed a fine of €273 million on Senator Lines. The EC Courts rejected the company’s request to suspend the payment of the fine. The company alleged a violation of Art 6 ECHR (right of access to court), in that it was required to pay the fine before a decision was taken in the substantive proceedings before the EC Courts. It claimed that this would have resulted in the insolvency and liquidation of the company before the substantive issues were determined. The application was declared inadmissible by the ECtHR after the CFI decided to set aside the fine imposed by the European Commission. 14 European Commission of Human Rights, Stenuit v France, Series A No 232-A, Decision of 11 July 1989. Stenuit withdrew its application in 1991.

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European Court of Human Rights declared the application brought by the companies concerned for alleged violation of Article 6 ECHR inadmissible on the ground that the proceedings at issue were not criminal within the meaning of Article 6 ECHR.15 488. The European Court of Justice appears to have acknowledge since its Hüls judgment of 1999 that the fines imposed by the European Commission then under Regulation 17 and now Regulation 1/2003 may be qualified as ‘criminal’ within the meaning of Article 6 ECHR.16 489. Antitrust proceedings at the level of the EU institutions or in the EU Member States which are, according to EU law or to the applicable national law, of an administrative or civil nature may thus fall under the wider notion of ‘criminal’ within the meaning of Article 6 ECHR. 490. It should however be pointed out that, in its case law on the compatibility of specific proceedings with the substantive requirements of Article 6 ECHR, the European Court of Human Rights appears to distinguish between enforcement proceedings which are criminal within a more traditional, narrower sense or which are considered as criminal under the applicable domestic law, and proceedings which are only criminal within the wider meaning of Article 6 ECHR. 491. This distinction appears most clearly in the case law of the European Court of Human Rights on the separation of the decision-making function from the investigative and prosecutorial function or functions. Indeed, the European Court of Human Rights has ruled that, for reasons of efficiency, the determination of civil rights and obligations or the prosecution and punishment of offences which are ‘criminal’ within the wider meaning of Article 6 ECHR can be entrusted to administrative authorities, provided that the persons concerned are able to challenge any decision thus made before a judicial body that has full jurisdiction and that provides the full guarantees of Article 6(1) ECHR.17 This means that antitrust proceedings such as those at the level of the EU institutions are not incompatible with Article 6 ECHR, even if the European Commission combines the investigative and prosecutorial functions with the decision-making function, given that the addressees of European Commission decisions imposing fines can bring an action for annulment before the Court of First Instance, which manifestly provides the full guarantees of Article 6(1) ECHR and which undertakes a comprehensive review of the Commission’s decisions.18 This alternative means of satisfying the requirements of Article 6(1) ECHR, however, does not

15

Decision of 3 June 2004 on App nos 69042/01 etc OOO Neste St Petersburg and Others v Russia. Case C–199/92P Hüls v European Commission [1999] ECR 4287, para 150. 17 Judgments of 23 June 1981, Le Compte, Van Leuven and De Meyere v Belgium, Series A No 43, para 51, of 1 Feb 1983, Albert and Le Compte v Belgium, Series A No 58, para 29, of 21 Feb 1984, Öztürk v Germany, Series A No 73, para 56, and of 24 Feb 1994, Bendenoun v France, Series A No 284, para 46. 18 See Judgment of the CFI of 15 Mar 2000 in Joined Cases T–25/95 etc Cimenteries CBR and Others v Commission [2000] ECR II–700, para 719: ‘[w]hen the Court of First Instance reviews the 16

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appear to be available in more traditional areas of criminal law or in areas considered criminal under domestic law. In those areas the case law of the European Court of Human Rights appears to require separation of the adjudicative function from the investigative and prosecutorial functions not only on appeal but also at first instance.19

6.2 IS THERE A TENDENCY TO CR IMINALISE ANTIT R UST ENFORCEMENT IN THE EU MEMBER STATES?

6.2.1 US Antitrust Enforcement 492. To the extent that there is currently a tendency in the EU Member States, or even at the level of the EU institutions,20 to criminalise antitrust enforcement, this is undoubtedly inspired by US antitrust enforcement, even if criminal antitrust legislation in the US may historically in turn have been inspired by older European precedents.21 493. Since the original 1890 version of the Sherman Act, violations of sections 1 and 2 of the Act have been punishable under US federal law by criminal fines for both enterprises and individuals and by imprisonment for individuals.22 Initially the maximum term of imprisonment was one year.23 In 1974 Congress raised the maximum term to three years24 and in 2004 to 10 years.25 The maximum criminal fines for enterprises were similarly increased to $1 million in 1974,26 to $10 million in 1990,27 and to $100 million in 2004.28

legality of a decision finding an infringement of [Article 81(1) and/or Article 82 EC], the applicants may call upon it to undertake an exhaustive review of both the Commission’s substantive findings of fact and its legal appraisal of those facts’. 19 See Judgments of 26 Oct 1984, De Cubber v Belgium, Series A No 86, paras 31–32, and of 25 Feb 1997, Findlay v United Kingdom, Reports 1997–I, para 79. 20 See below, paras 538–543 on EU Member States and below, para 510, on the EU institutions. 21 In particular English 16th century legislation, which had however fallen in disuse by the 19th century: see N Green, ‘The Road to Conviction—The Criminalisation of Cartel Law’ in BE Hawk (ed), 2003 Annual Proceedings of the Fordham Corporate Law Institute International Antitrust Law & Policy (Huntington, NY, Juris Publishing, 2004) 13 at 13–22. In France, following the Loi Le Chapelier of 2–17 Mar 1791, a criminal cartel prohibition was also contained in Art 419 of the Napoleonic Penal Code. 22 For an overview of the history of US criminal antitrust enforcement from 1890 to 2001 see DI Baker, ‘The Use of Criminal Law Remedies to Deter and Punish Cartels and Bid-Rigging’ (2001) 69 George Washington Law Review 693 at 694–6. 23 Sherman Act, ch. 647, 26 Stat 209 (1890). 24 Antitrust Procedures and Penalties Act, Pub L No. 93–528, § 3, 88 Stat 1706, 1708 (1974). 25 Antitrust Criminal Penalty Enhancement and Reform Act of 2004, HR 1086. 26 Above n 24. 27 Antitrust Amendments Act of 1990, Pub L No 101–588, § 4, 104 Stat 2879, 2880 (1990). 28 Above n 25.

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494. More than half of the US states also have criminal antitrust statutes that provide for jail sentences, and many of these statutes predate the federal Sherman Act.29 495. It was not until 1959, however, that prison sentences were imposed against businessmen for price fixing without acts or threats of violence.30 Since then, enforcement has increased very strongly. During the 1990s, the US Department of Justice successfully prosecuted an average of more than 35 individuals each year. During 1990–9, 132 individuals were sentenced to prison terms averaging almost nine months, and 154 were sentenced to periods of confinement in a halfway house or community treatment centre averaging four months.31 496. In his 2004 overview of US antitrust enforcement, Joel Davidow reported: In the last fiscal year, defendants in [Department of Justice Antitrust] Division cases were sentenced to more than 10,000 jail days—a record—with an average sentence of more than 18 months. In the last four years, a total of over 75 years of imprisonment have been imposed on antitrust defendants, with more than 30 defendants receiving prison sentences of one year or longer. It is not just US executives who are facing prison sentences, but foreign executives as well. Business people from Canada, France, Germany, Sweden, and Switzerland have now served term in US prisons for violating US antitrust laws. Extradition of cartel leaders is now frequently sought. The Justice Department is conducting over 40 criminal investigations of international cartel activity.32

497. Although the text of the criminal provisions in the Sherman Act covers all types of restrictive agreements as well as unilateral monopolistic behaviour, by long tradition the US Department of Justice limits criminal prosecution to hard-core violations of section 1 of the Sherman Act such as price fixing, bid rigging, market division or customer allocation schemes among horizontal competitors.33

29 KG Dau-Schmidt, ‘Sentencing Antitrust Offenders: Reconciling Economic Theory with Legal Theory’ (1983) 9 William Mitchell Law Review 75 at 75–6. 30 JC Gallo, KG Dau-Schmidt, JL Craycraft and CJ Parker, ‘Criminal Penalties Under the Sherman Act: A Study of Law and Economics’ (1994) 16 Research in Law and Economics 25 at 40. 31 ‘Antitrust Deterrence in the United States and Japan’, remarks by SM Chemtob at a Conference on Competition Policy in the Global Trading System (Washington, DC, 23 June 2000), available at www.usdoj.gov/atr/public/speeches/5076.pdf, at 7–8; for more statistics see JC Gallo, K Dau-Schmidt, JL Craycraft and CJ Parker, ‘Department of Justice Antitrust Enforcement, 1955–1997: An Empirical Study’ (2000) 17 Review of Industrial Organization 75. 32 J Davidow, ‘Recent US Antitrust Developments of International Relevance’ (2004) 27 World Competition 407 at 409; see also SD Hammond, ‘An Overview Of Recent Developments In The Antitrust Division’s Criminal Enforcement Program’, address to the American Bar Association Midwinter Leadership Meeting (Kona, Hawaii, 10 Jan 2005), available at www.justice.gov/atr/public/ speeches/207226.htm. 33 SW Waller, ‘The Incoherence of Punishment in Antitrust’ (2003) 78 Chicago-Kent Law Review 207 at 216, referring in n 48 to US v Dunham Concrete Prods, Crim No 1842 (ED La 1969) as the last

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498. As the US Department of Justice has no powers to impose or to seek the imposition of civil or administrative fines, it only seeks prospective, injunctive relief against other violations of section 1 and all violations of section 2 of the Sherman Act. The Federal Trade Commission has relatively recently applied in competition cases its power, which it had traditionally used in consumer protection cases, to seek disgorgement of unlawful profits.34 Otherwise deterrence and punishment are left to private treble-damages actions.35 499. The imposition of criminal penalties for violation of section 1 of the Sherman Act requires a finding of criminal intent. It also carries a rather strong moral condemnation. Indeed, in the US, antitrust values enjoy a very wide consensus36 and price-fixing is considered to be immoral, like theft.37 500. To investigate suspected criminal antitrust violations, the US Department of Justice can make use of a full arsenal of criminal investigatory powers.38 The US Department of Justice also operates a very successful Corporate Leniency Policy and an Individual Leniency Policy, which allow corporations and individuals to avoid criminal prosecution if they are the first to cooperate with the Department.39 501. Defendants in turn benefit from a full range of criminal rights of defence—less extensive however for corporations than for individuals—40 and violations have to be proven ‘beyond reasonable doubt’.

criminal monopolisation indictment discovered by that author; and US Antitrust Modernization Commission, Report and Recommendations (Washington, DC, Antitrust Modernization Commission, Apr 2007) at 296–7 and 303. 34 S 13 (G) of the FTC Act; see FTC v Mylan Labs Inc, 62 F Supp 2d 25, 36 (DDC 1999) and Waller, above n 33, at 218. 35 See ibid, at 210 and 230–2; S Calkins, ‘Corporate Compliance and the Antitrust Angencies’ Bi-Modal Penalties’ (1997) 60 Law and Contemporary Problems 127 at 136–9 and 150; and letter dated 5 Jan 2005 from RH Pate, Assistant Attorney General, Department of Justice Antitrust Division, to DA Garza, Chair, Antitrust Modernization Commission, ‘Suggested Topics for Antitrust Modernization Commission Study’, available at www.usdoj.gov/atr/public/comments/207122.pdf, at 2. The Antitrust Modernization Commission did not propose any change in this respect: see US Antitrust Modernization Commission, above n 33, at 285–91. 36 In the words of Robert Reich, ‘antitrust is popular with the public’ and ‘has a compelling ideologic attraction’, ‘the ideal of competition continuing to receive broad support from a wide spectrum of American public opinion’: RB Reich, ‘The Antitrust Industry’ (1980) 68 Georgetown Law Journal 1035 at 1054 and n 1. 37 See Wils, above n 4, sect 8.6.7, and Baker, above n 22, at 714. 38 See below, paras 564 and 565 and 592–594. 39 US Department of Justice Corporate Leniency Policy (10 Aug 1993) and US Department of Justice Leniency Policy for Individuals (10 Aug 1994): see above, paras 347–361 and below, para 594. 40 Corporations can in particular not invoke the privilege against self-incrimination enshrined in the 5th Amendment to the US Constitution: see White v US, 322 US 694 (1911).

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6.2.2 Antitrust Enforcement at the Level of the EU Institutions 502. As regards the enforcement of Articles 81 and 82 EC at the level of the EU institutions, Article 23(2) of Regulation 1/2003 empowers the European Commission to impose fines for violations of Articles 81 and 82 EC only on ‘undertakings’. Neither the Treaty nor Regulation 1/2003 contains any definition of the term ‘undertaking’. The Court of Justice has held that ‘in competition law, the term “undertaking” must be understood as designating an economic unit … even if in law that economic unit consists of several persons, natural or legal’.41 503. In practice the Commission does not simply impose fines on undertakings thus defined as economic units. For reasons of enforceability, it rather addresses its fining decisions to entities possessing legal personality, typically companies, to which the violation committed by the undertaking is imputed.42 As regards the choice of the person or persons to whom a violation is to be imputed, the general rule formulated by the Community Courts is that ‘when … a violation is found to have been committed, it is necessary to identify the natural or legal person who was responsible for the operation of the undertaking at the time when the violation was committed, so that it can answer for it’.43 504. If the undertaking found to have committed a violation were found to consist of an unincorporated business (a single trader, with or without employees, who has not incorporated his or her business, or a professional exercising his or her profession alone and unincorporated, or several natural persons operating a single business without any employment relationship between them and without any form of legal person), the Commission would necessarily have to address its fining decision to the natural person or persons operating the business. However, in the more than 100 decisions in which the Commission has imposed fines under Regulation 17 and Regulation 1/2003 hitherto, this situation has never occurred: all fines have been imposed on companies or other legal persons. Indeed, the undertakings found to have committed violations of Article 81 or 82 EC invariably either consisted of a single company or other legal person, which was the obvious addressee of the fining decision, or consisted of a group of companies, in which case fines were imposed on one or more of the companies in the group.44

41 Judgment of 12 July 1985 in Case 170/83 Hydrotherm v Compact [1985] ECR 3016, para 11. For a detailed analysis of the notion of undertaking and the relationship between undertaking and legal or natural person see Wils, above n 4, ch 7. 42 See Opinion of Judge Vesterdorf, acting as AG, in Case T–1/89 Rhône-Poulenc v Commission [1991] ECR II–869 at 916, Judgment of the CFI of 20 Apr 1999 in Joined Cases T–305/94 etc Limburgse Vinyl Maatschappij and Others v Commission [1999] ECR II–945, para 978. 43 Judgment of the CFI of 17 Dec 1991 in Case T–6/89 Enichem Anic v Commission [1991] ECR II–1695, para 236, and Judgment of the ECJ of 16 Nov 2000 in Case C–279/98 P Cascades v Commission [2000] ECR I–9709, para 78. 44 In Pre-Insulated Pipes, one of the undertakings was controlled and managed by a natural person, Dr W Henss, but the Commission appears to have made an effort (for reasons unexplained) to avoid imposing the fine on him, identifying instead a collection of companies which it held jointly

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505. According to Article 23(2) of Regulation 1/2003, fines can be imposed on undertakings where they infringe Article 81 or 82 EC ‘either intentionally or negligently’. Criminal intent is thus clearly not required. 506. Article 23(5) of Regulation 1/2003 expressly provides that the decisions by which the European Commission imposes fines ‘shall not be of a criminal law nature’. As explained above,45 this provision appears to have some relevance not for the question whether Article 6 ECHR is applicable to the antitrust enforcement proceedings at the level of the EU institutions, but rather for the question of the compatibility of those proceedings with the substantive requirements of Article 6 ECHR. The EU Council, when it adopted Regulation 1/2003, may also have considered that this provision had some relevance to the necessary legal basis under the EC Treaty.46 It may also have some importance as regards the status of such fines under national law, for instance whether they are tax deductable.47 507. The affirmation that fining decisions ‘shall not be of criminal nature’ could also be read as reflecting the absence of moral condemnation of violations of Articles 81 and 82 EC. On the other hand, there appears in recent years to have been an increase on the part of the European Commission in the rhetoric of condemnation of cartels in particular. For instance, in a speech in 2000, Mario Monti, the then Competition Commissioner, declared that ‘cartels are cancers on the open market economy, which forms the very basis of our [European] Community’.48 It may also be noted that the European Commission’s Directorate General for Competition has in recent years started using the term ‘antitrust’ alongside the official term ‘competition law’.49 As Christopher Harding has pointed out, the North American term ‘antitrust’ reflects the proscriptive and negative character of US antitrust law, as opposed to the historically more tolerant European approach.50 508. As regards the relationship between the size of the penalty for antitrust violations and the size of the harm caused by them, Christopher Harding has made the following observations, starting from the ranking of ‘seriousness’ in the European Commission 1998 Guidelines on the method of setting fines:

and severally liable for the fine: see recs 157–160 and Art 3(d) of the Decision of 21 Oct 1998 in Pre-Insulated Pipe Cartel [1999] OJ L24/1, and para 105 of the judgment of the CFI of 20 Mar 2002 in Case T–9/99 HFB and Others v Commission [2002] ECR II–1530, in which the Court found that the European Commission had ‘intentionally’ not established Dr Henss’s liability. 45 Paras 488–491. 46 See further paras 618–624 and n 192 below. 47 See Wils, above n 2, sect 1.1.4.3.3, n 88, and CS Kerse and N Khan, EC Antitrust Procedure, 5th edn (London, Sweet & Maxwell, 2005) at para 7–090. 48 ‘Fighting Cartels Why and How? Why Should We be Concerned with Cartels and Collusive Behaviour?’, speech at the 3rd Nordic Competition Policy Conference (Stockholm, 11–12 Sept 2000), available at http://europa.eu.int/comm/competition/speeches. 49 See the website of DG Competition: http://europa.eu.int/comm/competition/index_en.html. 50 C Harding, ‘Business Cartels as a Criminal Activity: Reconciling North American and European Models of Regulation’ (2002) 4 Maastricht Journal of European and Comparative Law 393 at 404.

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What is especially notable in this ranking is the focus on elements of market impact, and especially—at the higher level of seriousness—impact on the functioning of the single market. There is no explicit mention of the ‘bad attitude’ elements which are so prominent in the American rules, so that the European ‘offence’ is very much an offence of outcome. A further examination of the Commission’s practice in determining the severity of fines (its ‘sentencing practice’) reveals that market impact factors supply the cardinal points on its sentencing tariff, while attitudinal factors (such as organized collusive activity, furtiveness and secrecy, antitrust awareness, recidivist behaviour) appear as aggravating factors, or ordinal points, moving up and down the tariff within a range founded upon a base gravity derived from market impact.51

The Commission’s more recent 2006 Guidelines on the method of setting fines appear different in this respect, in particular in that the impact on the market is no longer mentioned as a criterion, and that repeated infringement becomes an important criterion.52 509. As regards the European Commission’s powers of investigation, Regulation 17 already gave the European Commission significant powers, in particular the power to conduct inspections at business premises, including the ability to overcome opposition with the assistance of the police or other authorities of the Member State where the inspection takes place. But these powers are clearly much more limited than those of the US Department of Justice or those which are common for criminal investigations in the EU Member States. 510. Since 1996, the European Commission has been operating a leniency programme which, in its current version dating from 2006, offers full immunity to the first cartel member to cooperate with the Commission’s investigation.53 Such a leniency policy, which was clearly adopted following the US example, would traditionally in the EU Member States, if known at all, be reserved for the most serious forms of organised crime.54 Of course, since the European Commission can only impose fines on undertakings, the leniency programme only concerns them, not individuals (unless the individual is an undertaking55). 511. Regulation 1/2003 has strengthened the European Commission’s powers of investigation in two respects.56 First, Article 21(1) empowers the Commission to conduct investigations in premises other than business premises, including the homes of directors and employees of the undertakings concerned, ‘if a reasonable suspicion exists that books or other records related to the business and to the subject-matter of the inspection, which may be relevant to prove a serious violation of [Article 81 or 82 EC], are being kept in [those] premises’. Article

51

Harding, above n 50, at 412; see Ch 4, n 2 above. See Ch 4 above, in particular n 84 and paras 293–308. 53 European Commission Notice on immunity from fines and reduction of fines in cartel cases [2006] OJ C298/17; see Ch 5 above, in particular paras 362–370. 54 For instance the mafia in Italy. 55 See above, para 304. 56 For a detailed analysis of these changes see Dekeyser and Gauer, above n 10. 52

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21(3) adds that a decision to conduct such inspection can only be executed with prior authorisation from the national judicial authority of the Member State where the inspection takes place. 512. Secondly, Article 20(2)(e) of Regulation 1/2003 provides that, during an inspection at the business premises of an undertaking, the inspectors are empowered ‘to ask any representative or member of staff of the undertaking … for explanations on facts or documents relating to the subject-matter and purpose of the inspection and to record the answers’.57 However, Regulation 1/2003 does not threaten the individuals thus questioned with any sanctions for refusal to answer, nor for giving incorrect, incomplete or misleading answers. Article 23(1)(d) only provides for fines on undertakings that ‘fail or refuse to provide a complete answer on facts’, ‘give an incorrect or misleading answer’ or ‘fail to rectify within a time-limit set by the Commission an incorrect, incomplete or misleading answer given by a staff member’. 513. The defendant companies’ rights of defence in antitrust proceedings conducted by the European Commission have significantly increased over time.58 The European Commission combines the investigative and prosecutorial function with the adjudicative function in the first instance, but its decisions are subject to exhaustive review by the Court of First Instance.59 The standard of proof which the European Commission has to satisfy to find a violation of Article 81 or 82 EC and impose a fine according to Chris Kerse and Nicholas Khan ‘is a high one, although it would be going too far to say that the infringement must be proven to the criminal standard of “beyond reasonable doubt”’.60

6.2.3 The EU Framework for Antitrust Enforcement in the EU Member States 514. Regulation 1/2003 frames antitrust enforcement in the EU Member States in two ways. First, it allows Member States to provide for criminal enforcement of Articles 81 and 82 EC. Secondly, it restricts the possibilities for Member States to enforce their national competition laws in isolation from the enforcement of Articles 81 and 82 EC. 57 Under Reg 17, the Commission officials could only seek explanations relating to the books and records under examination: see Judgment of the ECJ of 26 June 1980 in Case 136/79 National Panasonic v Commission [1980] ECR 2056, para 15, and Order of the CFI of 9 June 1997 in Case T–9/97 Elf Atochem v Commission [1997] ECR II–919, para 23. 58 See K Lenaerts and I Maselis, ‘Procedural Rights and Issues in the Enforcement of Articles 81 and 82 of the EC Treaty’ (2001) 24 Fordham International Law Journal 1615, and Kerse and Khan, above n 47. 59 See above nn 18 and 9. 60 Kerse and Khan, above n 47, para 8–038. The standard formula used by the EC Courts is that ‘the Commission must produce sufficiently precise and consistent evidence to support the firm conviction that the alleged infringement took place’; see for instance the Judgment of the CFI of 8 July 2004 in Joined Cases T–67/00 etc JFE Engineering Corp v European Commission [2004] ECR II–2501, para 179. See further B Vesterdorf, ‘Burden of Proof in Cartel Cases’, paper presented at the Nordic Lawyers Academy—Challenges in Nordic Cartel Cases (Helsinki, 4–5 May 2006).

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6.2.3.1 Member States can Criminalise their Enforcement of Articles 81 and 82 EC 515. Article 5 of Regulation 1/2003 provides that ‘[t]he competition authorities of the Member States shall have the power to apply Articles 81 and 82 of the Treaty in individual cases. For this purpose, acting on their own initiative or on a complaint, they may take … decisions … imposing fines, periodic penalty payments or any other penalty provided for in their national law’. 516. Member States can thus in their national law provide for administrative or civil fines on companies for violations of Article 81 or 82 EC, or criminal fines, or fines on individuals, of an administrative, civil or criminal nature, or imprisonment, or indeed ‘any other penalty’. 517. That ‘any other penalty’ also covers penalties on individuals, including imprisonment, is further confirmed by Article 12(3) of Regulation 1/2003. Whereas Article 12(1) provides that the European Commission and the competition authorities of the Member States can exchange all kinds of information, and use the information thus exchanged in evidence, Article 12(3) adds the following limitation: Information exchanged pursuant to paragraph 1 can only be used in evidence to impose sanctions on natural persons where: —the law of the transmitting authority foresees sanctions of a similar kind in relation to an infringement of [Article 81 or 82 EC] or, in the absence thereof, —the information has been collected in a way which respects the same level of protection of the rights of defence of natural persons as provided for under the national rules of the receiving authority. However, in this case, the information exchanged cannot be used by the receiving authority to impose custodial sanctions

518. This provision confirms what is already apparent from the terms ‘any other penalty’ in Article 5 of Regulation 1/2003, namely that Member States can indeed provide for sanctions on natural persons, including imprisonment, for violations of Articles 81 and 82 EC. 519. By thus allowing Member States to provide for criminal enforcement of Articles 81 and 82 EC, the EU Council, which adopted Regulation 1/2003 unanimously, would appear to have rejected the view, which has sometimes been suggested, according to which Articles 81 and 82 EC would somehow be inherently non-criminal, and that the EC Treaty would thus exclude criminal enforcement of Articles 81 and 82 EC not only at the level of the EU institutions but also at the level of the Member States.61

61 See remarks by Gerard Hogan in Roundtable Debate Session IV—Rights, Privileges and Ethics in Competition Cases, the 31st Annual Fordham Corporate Law Institute Conference on International Antitrust Law & Policy (New York, 8 Oct 2004), in BE Hawk (ed) 2004 Annual Proceedings of the Fordham Corporate Law Institute—International Antitrust Law and Policy (Huntington, NY, Juris Publishing, 2005).

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520. This view appears mistaken. It is of course correct that the text of Articles 81 and 82 EC only mentions ‘undertakings’. But, as is apparent from Article 83 EC, the prohibitions on restrictive agreements and abuse of dominant positions by undertakings, as set out in Articles 81 and 82 EC, are only ‘principles’, and the appropriate regulations or directives to give effect to these principles are to be laid down by the Council. Nothing in the EC Treaty suggests that the Council could thus not allow Member States to provide for penalties for individuals, including imprisonment, to enforce Articles 81 and 82 EC, as it did in Regulation 1/2003.62 521. The possibility offered by Regulation 1/2003 for Member States to provide for criminal enforcement of Articles 81 and 82 EC has been used by a number of Member States.63 Ireland and Estonia have provided only for criminal enforcement, through fines on companies and individuals, as well as imprisonment.64 In the United Kingdom, non-criminal fines are provided for companies, but also director disqualification for individuals, as well as imprisonment and/or criminal fines for individuals specifically for price-fixing, limitation of supply or production, market-sharing and bid-rigging.65 In France, Cyprus and the Slovak Republic, the main sanctions provided for are non-criminal fines on companies, but imprisonment for individuals is also provided for, at least in theory.66 In Denmark and Malta, essentially only fines on companies are provided for, but these have a criminal character. In Malta, directors may be held jointly and severally liable with the company for these fines. In Greece, non-criminal fines on companies (with joint and several liability for managers) are complemented by criminal fines for individuals. In Germany, non-criminal fines are provided for individuals, and derivatively also for companies, as well as imprisonment specifically for bid-rigging. In Austria, non-criminal fines are provided only for companies, but also imprisonment specifically for bid-rigging.67

6.2.3.2 Member States Cannot Criminalise the Enforcement of Only their National Competition Laws 522. The possibilities for Member States to enforce their national competition laws in isolation from the enforcement of Articles 81 and 82 EC are limited in three ways. First, Article 3(2) of Regulation 1/2003 forbids Member States to prohibit under national competition law agreements or concerted practices which may affect trade between Member States but which do not restrict

62 63 64 65 66 67

See also below, para 619 . See above n 5. See also below, para 539 on Ireland. See also ibid and below, paras 539 and 582 on the United Kingdom. See also below, para 534 on France. See also below, para 534 on Austria.

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competition within the meaning of Article 81(1) EC, or which fulfill the conditions of Article 81(3) EC or which are covered by a block exemption regulation applying Article 81(3) EC.68 523. Secondly, it follows from the principle of equivalence, a general principle of Community law developed in the case law of the Court of Justice,69 that the penalties which Member States provide for violations of Articles 81 and 82 EC pursuant to Article 5 of Regulation 1/2003 must at least be equivalent in effectiveness and dissuasiveness to the sanctions they provide for comparable violations of their national competition laws. If a Member State thus provides, for instance, imprisonment sanctions to enforce a cartel prohibition under national law, it must also provide for such sanctions to enforce the cartel prohibition in Article 81 EC. 524. Thirdly, Article 3(1) of Regulation 1/2003 provides: Where the competition authorities of the Member States or national courts apply national competition law to agreements, … or concerted practices within the meaning of [Article 81(1) EC] which may affect trade between Member States within the meaning of that provision, they shall also apply [Article 81 EC] to such agreements, … or concerted practices. Where the competition authorities of the Member States or national courts apply national competition law to any abuse prohibited by [Article 82 EC], they shall also apply [Article 82 EC].

525. Unless the practices concerned do not affect trade between Member States, national competition authorities and national courts thus cannot apply national competition law without simultaneously applying Articles 81 and 82 EC. This means that they cannot avoid the application of the mechanisms of cooperation with the European Commission and/or within the EU network of competition authorities as provided for in Articles 11 and 15 of Regulation 1/2003.70 526. Article 3(3) of Regulation 1/2003 clarifies that, ‘[w]ithout prejudice to general principles and other provisions of [European] Community law’, Article 3(1) and (2) ‘do [not] preclude the application of provisions of national law that predominantly pursue an objective different from that pursued by [Articles 81 and 82 EC]’. Recital 9 of Regulation 1/2003 explains that Articles 81 and 82 EC ‘have as their objective the protection of competition on the market’, and gives ‘national legislation that prohibits or imposes sanctions on acts of unfair trading practice’ as an example of legislation protecting ‘other legitimate interests’.

68 On Art 3 of Reg 1/2003 and on block exemption regulations see Wils, above n 2, sects 1.2.8.2 and 1.2.1 respectively. 69 See, inter alia, Judgment of the ECJ of 15 Sept 1998 in Case C–231/96 Edis [1998] ECR I–4990, paras 34 and 36–37; for a more detailed analysis see P Oliver, ‘Le règlement 1/2003 et les principes d’efficacité et d’équivalence’, in [2005] Cahiers de droit européen 343. 70 On these cooperation mechanisms see D Schnichels, ‘The Network of Competition Authorities: How Will it Work in Practice?’ in D Geradin (ed), Modernisation and Enlargement: Two Major Challenges for EC Competition Law (Antwerp, Intersentia, 2004) 99–121 and Wils, above n 2, chs 1 and 2.

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527. The three limitations mentioned above can be illustrated by the cartel offence in the United Kingdom. Section 188 of the Enterprise Act 2002 provides that an individual is guilty of this criminal offence, punishable by imprisonment and/or a fine, if he or she dishonestly agrees with one or more other persons that undertakings will engage in one or more of the prohibited cartel activities, namely price-fixing, limitation of supply or production, market-sharing and bid-rigging.71 528. First, given that price-fixing, limitation of supply or production, marketsharing and bid-rigging are, when they actually or potentially affect trade between Member States, also prohibited under Article 81 EC, this prohibition under UK law is compatible with Article 3(2) of Regulation 1/2003. 529. Secondly, section 188 of the Enterprise Act 2002 does not distinguish in any way between, on the one hand, price-fixing, limitation of supply or production, market-sharing or bid-rigging that may affect trade between Member States, and thus falls under Article 81 EC, and, on the other hand, prohibited cartel activities that do not affect trade between Member States, and thus only fall under the Chapter I prohibition of the Competition Act 1998, the provision of UK national competition law comparable to Article 81 EC. Unless the UK authorities were to develop an administrative practice of investigating and prosecuting only cases which concern prohibited cartel activities that do not affect trade between Member States, the principle of equivalence is thus fully respected. 530. Thirdly, when a case which concerns prohibited cartel activities that may affect trade between Member States is investigated, prosecuted and punished by the competent UK authorities and courts, it would in my view follow from Article 3(1) of Regulation 1/2003 that they will have to establish that the prohibited cartel activities indeed may affect trade between Member States and is thus contrary to Article 81 EC, and they will have to comply with the mechanisms of cooperation with the European Commission and within the EU network of competition authorities as provided for in Articles 11 and 15 of Regulation 1/2003. 531. No prosecution has yet been brought under section 188 of the Enterprise Act 2002, but the UK authorities have indicated that they consider that Regulation 1/2003 would not apply to the cartel offence.72 In the view of the UK authorities, ‘[t]he cartel offence in Part 6 of the Enterprise Act and the prohibitions of Article 81 or Chapter I are aimed at different legal persons and the

71

Enterprise Act 2002, available at www.legislation.hmso.gov.uk/acts/acts2002/20020040.htm. This view has also been expressed by an official of the European Commission’s Directorate General for Competition, speaking in a personal capacity: see remarks by Kris Dekeyser in Roundtable Debate Session IV—Rights, Privileges and Ethics in Competition Cases, the 31st Annual Fordham Corporate Law Institute Conference on International Antitrust Law & Policy (New York, 8 Oct 2004), in BE Hawk (ed), 2004 Annual Proceedings of the Fordham Corporate Law Institute—International Antitrust Law and Policy (Huntington, NY, Juris Publishing, 2005). The European Commission has to my knowledge never taken a position on this matter. 72

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former is concerned with what is essentially dishonest activity. The cartel offence aims to catch dishonest activity by individuals whereas the civil prohibitions are directed at undertakings. [Regulation 1/2003] does not apply to national laws, which impose criminal sanctions on natural persons, except to the extent that such sanctions are the means whereby competition rules applying to undertakings are enforced’.73 532. As already argued above,74 I believe that the idea that Article 81 EC is somehow inherently non-criminal, and could not be enforced by penalties on individuals, including penalties of a criminal law nature, is mistaken, and contradicted by Regulation 1/2003, as well as by the practice of other Member States, in particular Ireland and Estonia, but also France, Cyprus, the Slovak Republic, Denmark, Malta and Greece. The UK authorities’ view that Regulation 1/2003 would not apply to the criminal cartel offence apparently also relies upon the very last sentence of recital 8 of Regulation 1/2003, which says that ‘this Regulation does not apply to national laws which impose criminal sanctions on natural persons except to the extent that such sanctions are the means whereby competition rules applying to undertakings are enforced’.75 However, this sentence in my view merely specifies, with regard to national laws which impose criminal sanctions on natural persons, what already follows from Article 3(3) of Regulation 1/2003, namely that Article 3(1) and (2) of this Regulation does not preclude the application of provisions of national law that predominantly pursue an objective different from that pursued by Articles 81 and 82 EC. Article 3(1) and (2) of the Regulation would however appear to apply to all national laws that do not predominantly pursue an objective different from that pursued by Articles 81 and 82 EC, irrespective of whether those laws impose criminal sanctions on natural persons.76 I have difficulty seeing how one could consider that the UK cartel offence predominantly pursues an objective different from that pursued by Article 81 EC. Indeed, it is perfectly clear from the history of the Enterprise Act 2002 that the cartel offence was introduced in UK law because it was considered that the existing fines on companies were insufficient to deter hard-core cartels prohibited by Chapter I of the Competition Act 1998 and Article 81 EC, and that imprisonment was the most effective additional deterrent.77 The cartel offence in the UK should thus in my view be considered a means whereby competition rules applying to undertakings are enforced.

73 Para 10.16 of the UK Department of Trade and Industry’s Consultation on Modernisation (London, DTI, Apr 2003), available at www.dti.gov.uk/ccp/consultpdf/compmodcon.pdf. 74 Above, paras 519–521; see also below, para 619. 75 Whereas the Italian, Spanish and Dutch versions of this sentence use the equivalent of the words ‘the means’ in the English version (gli strumenti, el medio, het middel), the French and German versions rather use the equivalent of ‘a means’ (un moyen, Mittel). 76 See Wils, above n 2, sect 1.2.8.2. 77 See, inter alia, Department of Trade and Industry, ‘A World Class Competition Regime’, presented to Parliament by the Secretary of State for Trade and Industry, July 2001, available at www.archive.official-documents.co.uk/document/cm52/5233/523301.htm.

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6.2.4 Decriminalisation and Criminalisation of Antitrust Enforcement in the EU Member States 533. Looking at antitrust enforcement in the EU Member States over the last 20 years, one can detect a double tendency of decriminalisation and criminalisation.78

6.2.4.1 Decriminalisation on the One Hand 534. The tendency to decriminalise antitrust enforcement is illustrated by the examples of France, the Netherlands, Austria and Luxembourg. In France, antitrust enforcement under the Competition Acts of 1953 and 1958 was exclusively criminal. After a first reform in 1977, the Competition Act of 1986 introduced the current French system, which relies essentially on administrative fines on companies, imposed by the Competition Council, a specialised administrative authority. Criminal sanctions, including imprisonment, are however still provided for in French law. In the Netherlands, the current Competition Act, which came into effect in 1997, replaced an earlier system of criminal enforcement by a purely administrative system with only fines on undertakings, comparable to the enforcement system at the level of the EU institutions. In Austria, the 2002 competition law reform also replaced a system of criminal enforcement by a system of administrative fines on companies. A specific criminal offence of bid-rigging was however maintained. In Luxembourg, the 2004 Competition Act abolished an earlier competition regime with criminal enforcement by a new regime with only administrative fines on companies. 535. These movements to decriminalise antitrust enforcement reflect, I believe, two phenomena. The first explanation is that some of the older competition laws with criminal enforcement which were abolished in these Member States were in fact not comparable to Articles 81 and 82 EC, because they were not based on the prohibition principle. In Luxembourg, for instance, before the 2004 reform, there were in fact no sanctions at all for the mere fact of having concluded and operated a price cartel. Only if a cartel had been investigated and the undertakings had been ordered to put an end to it were the owners, managers and directors of those undertakings threatened with criminal sanctions if they continued the cartel notwithstanding the order to put an end to it. Luxembourg can thus hardly be considered to be leading a new trend towards decriminalisation. Rather, it was the last to follow an earlier trend started by the European Communities and Germany in the 1950s. 536. Indeed, looking at the whole of Europe over close to a century, specifically with regard to cartels, it would seem that most jurisdictions are historically 78

See also above, para 521 on the current situation in various Member States.

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moving through similar phases in the same direction. In a first phase, the one which Luxembourg abandoned only in 2004, there was no real cartel prohibition, only a system of control of abuse under which, once an abuse had been established, the undertakings concerned would have been ordered to put an end to this abuse for the future. Failure to respect this specific order for the future may have been punishable with criminal sanctions, including imprisonment. In a second phase, first reached by the European Coal and Steel Community in the early 1950s, and subsequently by Germany and by the European Economic Community in the late 1950s, cartels were prohibited, but the direct effect of this prohibition was softened through a notification system which allowed temporary immunity from sanctions,79 and violations of the prohibition were only punishable with fines on undertakings. In a third phase, reached at the EU level through Regulation 1/2003, the deterrent effect of the cartel prohibition is enhanced through the abolition of the notification system. In a fourth phase, reached long ago by the United States80 and recently entered into by the United Kingdom,81 the threat of individual sanctions, in particular imprisonment, is added, so as to increase deterrence for those types of cartel infringements which are most profitable and most difficult to detect, namely secret price-fixing, bid-rigging and market-sharing arrangements. 537. The second explanation for the observed decriminalisation in some EU Member States over the past 20 years is that, even if some of these Member States had already moved to a system based on the prohibition principle, their criminal enforcement did not work in practice because it was badly conceived. Indeed, as will be argued further in this chapter,82 criminal antitrust enforcement, in its strongest form, relying on imprisonment, can only work or only makes sense if it is limited to hard-core cartels, complementing other penalties for companies and for lesser antitrust violations, if a dedicated investigator and prosecutor and sufficient powers of investigation are provided for, and if judges or juries are willing to convict, all of which requires a sufficiently broad political or societal consensus that cartels are really bad and thus deserve severe punishment. These conditions would not appear to have been fulfilled in those Member States at the relevant time.83

79 See Wils, above n 2, sect 1.1.4.4, and G Marenco, ‘Does a Legal Exception System Require an Amendment of the Treaty?’ in C-D Ehlermann and I Atanasiu (eds), European Competition Law Annual 2000: The Modernisation of EC Antitrust Policy (Oxford, Hart Publishing, 2001) 145 at 174–5. 80 See above, paras 493–495. 81 See above, para 527, and below, para 538. 82 At paras 586–602. 83 See further below, para 591. In the Netherlands, more recently, the situation has developed, and criminal enforcement may again be introduced, but now on a sounder basis. The issue was debated in the Second Chamber of the Dutch Parliament on 15 June 2006, and broad support for the introduction of prison sanctions for cartels emerged. In a letter to Parliament of the following day (Tweede Kamer 2005–6, 30 071, no 27), the Minister of Economic Affairs announced that the Government would submit a legislative proposal.

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6.2.4.2 Criminalisation on the Other Hand 538. The tendency to criminalise antitrust enforcement is primarily illustrated by the examples of Ireland and the United Kingdom, but also by other phenomena, such as the introduction of leniency programmes in an increasing number of EU Member States.84 539. In Ireland, since entry into force of the Competition Act 1996, later replaced by the Competition Act 2002, violations of the national law prohibitions equivalent to Articles 81 and 82 EC, as well as violations of Articles 81 and 82 EC, are criminal offences, punishable with fines on companies, and imprisonment and/or fines for individuals. A comparable system has been adopted in Estonia. In the United Kingdom, as already mentioned above,85 the Enterprise Act 2002 has added a criminal cartel offence, limited to hard-core cartels, punishable with imprisonment and/or fines for individuals only, as well as a sanction of director disqualification for individuals,86 to a system which otherwise relies on administrative fines on companies for breach of Articles 81 and 82 EC and the equivalent prohibitions under national law. 540. The introduction of criminal penalties in Ireland and the United Kingdom has been accompanied by the grant of corresponding criminal powers of investigation to the investigating authorities. In the United Kingdom, for instance, the Office of Fair Trading has been given new powers of covert surveillance for the purpose of investigating the criminal cartel offence.87 The Irish and UK competition authorities also operate leniency policies similar to those of the US Department of Justice.88 541. As part of a wider trend to criminalise antitrust enforcement, it should also be mentioned that an increasing number of Member States have followed the European Commission in operating a leniency programme for undertakings that help the competition authority to detect cartels.89 As mentioned above,90 such leniency programmes would traditionally in the EU Member States, if known at all, typically be reserved for the most serious forms of organised crime. 542. Similarly to what was pointed out above with regard to antitrust enforcement at the level of the EU institutions, it would also appear that in those EU Member States where antitrust enforcement remains based on administrative

84

See also above, para 510 and n 83 as to recent developments in the Netherlands. Para 527.. 86 See further below, para 582 on director disqualification. 87 Ss 199–200 of the Enterprise Act 2002: see also Office of Fair Trading, ‘Powers for Investigating Criminal Cartels—Guidance’ (London, OFT, Jan 2004), available at www.oft.gov.uk/. 88 See above, para 500 and, as to the UK, Office of Fair Trading, ‘The Cartel Offence—Guidance on the Issue of No-action Letters for Individuals’ (London, OFT, Apr 2003), supplemented by Leniency and No-action—OFT’s Interim Note on the Handling of Applications (London, OFT, July 2005), available at www.oft.gov.uk. 89 See the list at http://europa.eu.int/comm/competition/antitrust/legislation/ authorities_with_leniency_programme.pdf; see also above, paras 378 and 385. 90 Para 510. 85

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fines on companies, there is a more general, broad tendency to strengthen both the powers of investigation of the competition authorities and the defendant companies’ rights of defence in antitrust proceedings, even if either level generally remains below the level observed in fully criminalised systems. On the specific issue of the separation of investigative, prosecutorial and adjudicative functions, several EU Member States, including France, Belgium, Sweden and Finland, have to varying extents separated these functions, even if they only impose fines of an administrative law nature.91 543. The introduction of criminal penalties in Ireland and the United Kingdom, as well as the introduction of leniency programmes at the level of the EU institutions and in many EU Member States, has clearly been inspired by the US example.92 That Europe follows the US example in matters of antitrust is of course not new. Indeed, the history of antitrust in modern Europe,93 and in particular the history of Article 81 EC and similar provisions in national law, is very much one of American influence. The prohibition on abuse of a dominant position, first in the ECSC Treaty of 1951 and subsequently in Article 86 of the EEC Treaty of 1957 (now Article 82 EC), was not without precedent: in Germany, for instance, an ‘Ordinance against the Abuse of Economic Power’ had been enacted in 1923.94 However, the prohibition on restrictive agreements first laid down in Article 65 of the ECSC Treaty and then also in Article 85 of the EEC Treaty (now Article 81 EC) was ‘a fundamental innovation in Europe’.95 Before the Second World War, cartels were a widespread and highly esteemed institution throughout Europe.96 The insertion of the prohibition on restrictive agreements in European law, as well as around the same time in German national law, was due to American influence, if not pressure.97 As Joel Davidow has recently observed, ‘In the early years of the 21st Century, it has become evident that US antitrust, once nearly the sole source of influential antitrust enforcement, has

91

See Wils, above n 2, sect 1.2.10. See PF Kunzlik, ‘Globalization and Hybridization in Antitrust Enforcement: European “borrowings from the U.S. approach’ [Summer 2003] The Antitrust Bulletin 319; and above, para 492. 93 See above n 21 on older European precedents. 94 K Nörr, ‘Law and Market Organization: The Historical Experience in Germany From 1900 to the Law Against Restraints of Competition (1957)’ (1995) 151 Journal of Institutional and Theoretical Economics/Zeitschrift für die gesamte Staatswissenschaft 5 at 10. 95 J Monnet, Mémoires (Paris, Fayard, 1976) at 413; see however above n 21 on the older European precedents. 96 HG Schröter, ‘Cartelization and Decartelization in Europe, 1870–1995: Rise and Decline of an Economic Institution’ (1996) 25 Journal of European Economic History 129 at 137, who also writes at 140 that Yugoslavia was the only European country where cartels were prohibited at that time. 97 See Monnet, above n 95, at 356–7 and 411–13, D Spierenburg and R Poidevin, The History of the High Authority of the European Coal and Steel Community (London, Weidenfeld and Nicholson, 1994) at 26–8, and, with a detailed description of the strong resistance to be overcome in Germany, V Berghahn, The Americanization of West German Industry 1945–1973 (New York, Berg, 1986); see also G Marenco, ‘The Birth of Modern Competition Law in Europe’ in A von Bogdandy, PC Mavroidis and Y Mény (eds), European Integration and International Co-ordination—Studies in Transnational Economic Law in Honour of Claus-Dieter Ehlermann (New York, Kluwer Law International, 2002) 279, and Wils, above n 4, sects 5.3.2 and 9.5. 92

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become part of a “dynamic duo”, along with the European Union. The EU and its Member States have eclipsed the United States in terms of number of professionals employed, sometimes in size of fines and certainly in terms of countries imitating the basic enforcement scheme’.98 However, ‘[t]he United States, even if no longer the world’s largest jurisdiction, remains the most influential in terms of policy and theory’.99 The trend to criminalise antitrust enforcement reflects this influence. 6.3 IS CR IMINALISATION OF ANTIT R UST ENFORCEMENT DESIR ABLE?

544. In this third section I want to address the question whether, why or under what conditions criminalisation of antitrust enforcement is desirable. The question is addressed in general, irrespective of whether such criminalisation takes place at the level of the EU Member States or of the EU institutions, or whether it is harmonised at EU level. The question whether it is problematic that antitrust enforcement is criminalised at the level of individual EU Member States without parallel criminalisation at the level of the EU institutions or without EU harmonisation will be dealt with afterwards in the fourth section of this chapter. 545. As described above,100 criminalisation is a phenomenon with different faces, including for instance the spread of leniency programmes in jurisdictions which continue to rely exclusively on administrative fines on companies. I will however focus on its strongest variant, namely the introduction of individual penalties, and more specifically imprisonment, as exemplified by Ireland and the United Kingdom. 546. I will first consider five arguments in favour of imprisonment as a penalty for antitrust offences, then consider for what types of antitrust offences these arguments are valid, examine whether there are no equally effective alternatives to imprisonment, and finally discuss five conditions which need to be fulfilled for criminal antitrust enforcement to be effective, not only in theory but also in practice.

6.3.1 Five Arguments in Favour of Imprisonment 6.3.1.1 Effective Deterrence with only Fines on Companies would Require Impossibly High Fines 547. In a paper presented at the sixth Competition Law and Policy Workshop at the European University Institute (EUI) in 2001, I argued that the minimum level 98 99 100

Davidow, above n 32, at 407. Ibid. Paras 509–513 and 541 and 542.

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of fines required generally to deter price cartels and other antitrust offences of comparable profitability and ease of concealment would be in the order of 150 per cent of the annual turnover in the products concerned by the violation.101 548. This argument was based on the following: I took the figure of 10 per cent of the selling price as an estimate of the average price increase from price-fixing. This estimate had been relied upon by the US Sentencing Commission when drafting its Sentencing Guidelines and appeared generally accepted in the American literature, no European studies being available. As the price increase caused by the cartel will normally depress demand for the cartel members’ products, I assumed conservatively that a price increase of 10 per cent would lead to an increase in profits of 5 per cent of turnover. On the basis of the findings of duration in a number of cartel decisions of the European Commission, and of estimates in the American literature, I assumed, again conservatively, a cartel duration of five years. Finally, I assumed a probability of detection and punishment of 16 per cent, which I considered again a conservative estimate, given that the one existing study in the American literature, by Peter Bryant and Woodrow Eckard, based on a sample of 184 price-fixing cases for the period from 1961 to 1988, had produced an estimate of between 13 and 17 per cent,102 and that European competition authorities have weaker investigative powers than their American counterparts. Assuming a 10 per cent price increase, and a resulting increase in profits of 5 per cent of turnover, a five-year duration and a 16 per cent probability of detection and punishment, the floor below which fines will generally not deter price-fixing would be in the order of 150 per cent of the annual turnover in the products concerned by the violation.103 549. A slight variation on this argument was subsequently used by the UK government in its White Paper setting out its case for the introduction of a criminal cartel offence.104 The argument was also referred to by the OECD in its 2002 report on hard-core cartels.105 550. Five years later, would these estimates still appear appropriate? As regards the average price increase from price-fixing, the OECD reported in 2002 the results of a survey it had carried out. In the limited data (14 cases) of that survey, 101 WPJ Wils, ‘Does the Effective Enforcement of Articles 81 and 82 EC Require Not Only Fines on Undertakings But Also Individual Penalties, In Particular Imprisonment?’, paper presented at the 6th Competition Law and Policy Workshop at the European University Institute (Florence, 1–2 June 2001), later published in C-D Ehlermann and I Atanasiu, European Competition Law Annual 2001: Effective Private Enforcement of EC Antitrust Law (Oxford, Hart Publishing, 2003) 411 and in Wils, above n 4, 188–237. 102 PG Bryant and EW Eckhard, ‘Price Fixing: The Probability of Getting Caught’ [1991] Review of Economics and Statistics 531. 103 I added that the figure would be even higher if one were to take into account the fact that fines are only paid several years after the gain from the violation is obtained. Indeed, my calculations assumed a zero interest rate. With a more realistic higher interest rate, the minimum fine necessary to achieve deterrence would be even higher. 104 DTI, above n 77, at 40 (box 7.3). 105 OECD, ‘Report on the Nature and Impact of Hard Core Cartels and Sanctions against Cartels under National Competition Laws’, DAFFE/COMP(2002)7 (9 Apr 2002), at 19, n 20.

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the median overcharge was between 15 and 20 per cent.106 Most recently, John Connor has made a survey of hundreds of published social-science studies of hard-core cartels that contained 674 observations of long-run overcharges. His primary finding was that the median cartel overcharge for all types of cartels over all time periods throughout the world is 25 per cent. He also conducted a survey of 24 final verdicts in decided US horizontal collusion cases, revealing an average median overcharge of 21 per cent and an average mean overcharge of 30 per cent.107 On the basis of these new surveys, I should have taken 20 per cent rather than 10 per cent as an estimate of the average price increase from price-fixing in my argument. Keeping the same conservative assumption about the price elasticity of demand for the cartel members’ products, I would then take 10 per cent of turnover as an estimate of the increase in profits resulting from the price-fixing. 551. As regards the average duration of price-fixing cartels, the literature published in the last five years would not alter my conservative estimate of five years.108 552. As regards the probability of detection and punishment, it has correctly been pointed out that the detection rate in the US has presumably improved since the period 1961 to 1988 on which Peter Bryant and Woodrow Eckard based their estimate of between 13 and 17 per cent,109 because of the use of more effective investigative methods, in particular the use of optimised leniency programmes.110 Some have opined that nevertheless ‘there is little reason to believe that the true probability of detection is outside this range’.111 It would in any event still remain true that the probability is probably lower in Europe than in the US.112 I believe I would remain very safely on the conservative side by assuming the probability of detection and punishment in Europe not to be above 33 per cent. 553. Assuming then a 20 per cent price increase and a resulting increase in profits of 10 per cent of turnover, a five-year duration and a 33 per c ent probability of detection and punishment, I would thus still today reach the

106

OECD, above n 105, at 9. Connor, above n 33. See SJ Evenett, MC Levenstein and VY Suslow, ‘International Cartel Enforcement: Lessons from the 1990s’ [2001] World Economy 1221 at 1226; Connor, above n 33, at 12; and MC Levenstein and VY Suslow, ‘What Determines Cartel Success?’ (2006) 44 Journal of Economic Literature 43. 109 Above n 102. 110 See OECD, above n 105, at 13; and D Bush, JM Connor, JJ Flynn, S Ghosh, W Grimes, JE Harrington, N Hawker, R Lande WG Shepherd and S Semerano, ‘How to Block Cartel Formation and Price-Fixing’, Amicus Curiae brief in the US Supreme Court in Hoffman-La Roche v Empegran, 15 Mar 2004, available at http://aei-brookings.org/admin/authorpdfs/page.php?id=931, at 28; the point was first made to me by Bill Bishop shortly after I presented my 2001 EUI paper: see also Wils, above n 2, ch 5. 111 Bush et al, above n 110, at 28. 112 See also OECD, above n 105, at 13. 107 108

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conclusion that the floor below which fines on companies will generally not deter price-fixing would be in the order of 150 per cent of the annual turnover in the products concerned by the violation.113 554. As I argued in more detail in my 2001 EUI paper,114 raising the general level of fines to such a high level would be impossible or unacceptable for various reasons. First (and least importantly, as statutory ceilings could be raised), such higher fines are likely regularly to breach the statutory ceilings on the amount of fines which can legally be imposed.115 555. Secondly, and most importantly, such high fines are likely often to exceed the undertakings’ ability to pay, with as a result not only incomplete deterrence but also costly side-effects. The fact that the companies that have engaged in a price-fixing cartel have profited financially from the violation offers no guarantee that they will also be able to pay the minimum fine required for effective deterrence. Indeed, in the estimated average case of a price cartel leading to extra profits of 10 per cent of turnover for five years, with a probability of detection and punishment of 33 per cent, the cartel members would each have gained over the whole duration of the cartel 50 per cent of their annual turnover in the products concerned by the violation. Even if they had retained these profits until the fine was imposed, these would only pay for one third of the fine of 150 per cent of annual turnover in the products concerned. It is more likely that these profits would not have been retained but rather would have been paid out in taxes, dividends, salaries and wages.116 556. Even liquidating the assets of the firms concerned is often unlikely to generate enough revenue to pay the fine required for effective deterrence. Indeed, many companies’ annual turnover exceeds their assets. A fine of 150 per cent of annual turnover in the products concerned by the violation could thus only be

113 I would again add that the figure would be even higher if one were to take into account the fact that fines are only paid several years after the gain from the violation is obtained: see above n 103. I would also add that the figure is probably also too low because it ignores the likely effects of overconfidence bias. Indeed, it appears that people consistently tend to overestimate the probability of good things happening to them, and underestimate the probability of bad things happening to them, in particular when the event is question is perceived to be controllable: see ND Weinstein, ‘Optimistic Biases About Personal Risks’ (1989) 246 Science 1232 and RB Korobkin and TS Ulen, ‘Law and Behavioral Science: Removing the Rationality Assumption from Law and Economics’ (2000) 88 California Law Review 1051 at 1091–5. Applied to deterrence through antitrust fines, this suggests that companies and individual decision-makers within them will tend to overestimate the gain from the antitrust violation and to underestimate the probability of being caught: see also ML Denger, ‘Too Much or Too Little’, American Bar Association, Section of Antitrust Law, Antitrust Remedies Forum, available at www.abanet.org/antitrust/remedies, at 5: ‘most cartel participants don’t think they will get caught’; see also above, paras 195, 196 and 243. 114 Above n 101. 115 See, eg, on fines imposed by the European Commission, the ceiling of 10% of total turnover of the undertaking concerned in Art 23(2) of Reg 1/2003, above n 1. 116 GJ Werden and MJ Simon, ‘Why Price Fixers should Go to Prison’ [Winter 1987] The Antitrust Bulletin 917 at 928 n 35, referring to empirical estimates that unions are able to capture most of the monopoly profits earned by US manufacturing firms.

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paid out of the assets of large, diversified companies, which have taken part in cartels only for a small part of their activities,117 or companies with very high asset-to-sales ratios.118 557. If such high fines were really imposed, many of the companies concerned would be forced into bankruptcy.119 This would, however, entail undesirable social costs because, in the absence of perfect markets, it would hurt not only managers and shareholders, on whom the bankruptcy may be considered to have a desirable deterrent effect, but also all other stakeholders in the firm: employees, suppliers, customers, creditors and tax authorities.120 558. Even if they stay below the level of inability to pay, the imposition of such high fines is likely to be costly. Very high fines may have undesirable side-effects. In the absence of perfect markets, very high fines imposed on companies will have an incidence on all the stakeholders in the firm. Bondholders and other creditors will suffer a diminution in the value of their securities. Employees may suffer from cost-cutting campaigns induced by the need to pay the fine. Tax receipts will be reduced. Finally, consumers may end up suffering. Indeed, if the firm competes in a product market characterised by imperfect competition (as will often be the case), the fine may be partly recovered from consumers in the form of higher prices.121 6.3.1.2 Fines on Companies do not Always Guarantee Adequate Incentives for Responsible Individuals within the Firm 559. As I also argued in more detail in my 2001 EUI paper,122 the logic of fining undertakings or companies for antitrust violations is that the threat of the corporate sanction, if sufficiently high, will induce the undertaking or company to try to make its agents respect the law. This shifting of the enforcement function from the authorities to the firm makes sense because in general the firm has a relatively good ability to influence the behaviour of its agents. However, in a number of circumstances the firm may not, in reality, be capable of adequately controlling the behaviour of its agents, with the result that exclusive reliance on 117 When looking at the names of companies found to have been involved in cartels, one often sees the same names coming back, suggesting that companies found to have been involved in a cartel in one market may have been active in cartels in their other markets as well. 118 Werden and Simon, above n 116, at 928–9. 119 C Craycraft, JL Craycraft and JC Gallo, ‘Antitrust Sanctions and a Firm’s Ability to Pay’ (1997) 12 Review of Industrial Organization 171, in an empirical study based on a sample of 386 firms convicted of price fixing in the US between 1955 and 1993, have estimated that 58% of the firms would not have been able to survive the imposition of an optimal fine without becoming technically bankrupt. Because of data restrictions, the firms in their sample were the larger firms, which means that their result may very well underestimate the extent of the problem of inability to pay. 120 RH Kraakman, ‘Corporate Liability Strategies and the Costs of Legal Controls’ (1984) 93 Yale Law Journal 857 at 882. 121 JC Coffee, ‘”No Soul to Damn: No Body to Kick”: an Unscandalized Inquiry into the Problem of Corporate Punishment’ (1981) 79 Michigan Law Review 387 at 401–2. 122 Above n 101.

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corporate sanctions will not lead to effective deterrence. This situation can arise because firms may not be able to impose sufficiently serious sanctions on their agents. It can also arise when firms are management controlled. Finally, the managers responsible for the violation may have left the firm by the time the violation is detected, and there may be little a company can do to a former employee. 6.3.1.3 Increased Effectiveness of Leniency and Whistle Blowing Programmes 560. Sanctions against individuals have another beneficial effect, in that they provide an incentive for individuals to offer cooperation in cartel investigations, against the interests of their employers.123 561. As Scott Hammond has explained with regard to US Department of Justice’s practice of combining corporate and individual leniency programmes: the individual amnesty program helps prevent companies from covering up their misconduct. The real value and measure of the Individual Leniency Program is not in the number of individual applications we receive, but in the number of corporate applications it generates. It works because it acts as a watchdog to ensure that companies report the conduct themselves. … So long as one of its employees has individual exposure, the company remains at great risk. If the company self-reports the conduct under the Corporate Leniency Policy, then the company and all of its cooperating executives will avoid criminal prosecution. However, if the company delays or decides not to report, then the company puts itself in a race for leniency with its own employees. In this example, if the company does not report the conduct first, then the executive may come forward on his own and report the conduct for his own protection, thereby potentially leaving the company out in the cold. … If the secretary gets nervous, say, after talking to a relative who convinces her that she has real criminal exposure for her own conduct, she may decide to report the conduct.124

562. As Donald Baker has further explained, also describing US practice: The same process works between individuals at different companies involved in the suspected conspiracy. There certainly have been cases where an individual was indicted for a one-on-one conversation with someone who worked for a competitor and who then turned the defendant in. Of course, as we saw with the Lysine cartel, an individual who turns herself in to the government may become a government informant and continue to participate in conspiracy meetings, armed with recording devices in order to entrap the other conspiracy members.125

563. Donald Baker has also pointed out that the system of imposing criminal liability on individuals generates not only incentives for whistle blowing based on 123

OECD, above n 105, at 16. SD Hammond, ‘Cornerstones of an Effective Leniency Program’, paper presented at the ICN Workshop on Leniency Programs (Sydney, 22–23 Nov 2004), available at www.usdoj.gov/atr/public/ speeches/206611.htm, at 12–14; see also Ch 5 above. 125 Baker, above n 22, at 708. 124

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fear, but also incentives for whistle blowing based on the desire for revenge: ‘[t]he desire for revenge is more picturesque, but it is still very much present. In my experience, disgruntled current employees, fired employees, former trade association officials, and even ex-spouses and ex-lovers may be anxious to finger the individuals who they think have done them in’.126 564. As the OECD has pointed out, ‘There is an offsetting consideration relating to individual sanctions, however. In many countries, sanctioning individuals requires criminalisation of the conduct. In that context individuals have rights against self-incrimination, which makes it more difficult to obtain evidence from them unless they willingly co-operate. In this sense, criminalisation of cartel conduct for individuals makes voluntary co-operation more possible, because of the threat of personal sanctions, but also makes it more necessary, because a right against self-incrimination attaches’.127 565. The US experience,128 though, suggests that the net result is an increase in the effectiveness of investigations. As will be discussed further in this chapter,129 replication of the successful US experience in Europe would however require that the competition authorities concerned can make similar use of leniency instruments to that made by the US Department of Justice.

6.3.1.4 Imprisonment is a Very Effective Deterrent 566. There is ample evidence, based in particular on the US experience, that imprisonment is a very effective deterrent for potential antitrust offenders. 567. In Arthur Liman’s words, ‘For the purse snatcher, a term in the penitentiary may be little more unsettling than basic training in the army. To the businessman, however, prison is the inferno, and conventional risk-reward analysis breaks down when the risk is jail. The threat of imprisonment, therefore, remains the most meaningful deterrent to antitrust violations.’130 Or as Joseph Bauer has more recently put it, ‘[t]he sight of A. Alfred Taubman, the extremely wealthy chairman of the board of Sotheby’s, the world-famous auction house, convicted and sentenced, at the age of 78, to a one-year term of imprisonment

126

Ibid. OECD, above n 105, at 16. 128 See Baker, above n 22, and Hammond, above n 124, as well as paragraphs 592 to 595 below. 129 Below, paras 592–595. 130 AL Liman, ‘The Paper Label Sentences: Critique’ (1977) 86 Yale Law Journal 619 at 630–1; in the same sense see DI Baker and BA Reeves, ‘The Paper Label Sentences: Critique’ (1977) 86 Yale Law Journal 619 at 621, and MB Mukasey, ‘Comment on Lynch’ (1997) 60 Law and Contemporary Problems 71; see also Antoine Winckler’s remarks in the panel discussion on criminal sanctions at the 6th Competition Law and Policy Workshop at the European University Institute (Florence, 1–2 June 2001), published in C-D Ehlermann and I Atanasiu, European Competition Law Annual 2001: Effective Private Enforcement of EC Antitrust Law (Oxford, Hart Publishing, 2003), 387 at 404: ‘[m]y experience as a legal practitioner is that criminal sanctions are an extremely effective deterrent’. 127

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and a substantial fine for participating in a price-fixing conspiracy, doubtless sent a message to other business executives about the risks and penalties for this kind of behavior’.131 568. The success of the current criminal antitrust enforcement in the US is shown by several indicators. First, according to Terry Calvani, in the US ‘there is much less domestic cartel activity today than before’.132 The majority of cartels detected and prosecuted by the US Department of Justice in recent years have been international, often even global in membership and geographic spread.133 569. Secondly, as Scott Hammond has pointed out: We [the US Department of Justice] are observing firsthand in some of our investigations how the threat of criminal prosecution in the United States has deterred a significant number of global cartels from extending their conspiracy into the United States. We have uncovered cartels that operated profitably and illegally in Europe, Asia, and elsewhere around the world, but did not expand their cartel activity to the United States solely because it was not worth the risk of U.S. sanctions. I am referring to cartels that had every opportunity to target U.S. consumers, because they sold in the U.S. market. Indeed, in some cases, the U.S. market was the largest and potentially most profitable but the collusive conduct still ceased at the border. Why? The answer, from the mouth of the cartel members and verified by our investigators, is that the executives did not want to get caught and going to jail in the United States.134

570. Thirdly, as William Kolasky has indicated with regard to those international cartels that nevertheless continue to target also US consumers, ‘[t]he power of criminal enforcement is illustrated by another characteristic common to those cartels in which the conspirators know that their conduct is unlawful—namely, their efforts to stay away from the United States. International cartels often try to minimize their contacts in the United States by conducting their meetings abroad. This has been particularly true since 1995, when the lysine investigation became public. In fact, cooperating defendants in several recent cases have revealed that the cartels changed their practices and began avoiding contacts in the United States at all costs once the [US Department of Justice Antitrust] Division began cracking and prosecuting international cartels. Some cartel members go so far as to try to keep their cartel activity secret from all U.S.-based employees, even those responsible for carrying out their instructions as to the firm’s output and prices’.135

131 JP Bauer, ‘Reflections on the Manifold Means of Enforcing the Antitrust Laws: Too Much, Too Little, or Just Right?’ (2004) 16 Loyola Consumer Law Review 303 at 307. 132 T Calvani, ‘Enforcement of Cartel Law in Ireland’ in BE Hawk (ed), 2003 Annual Proceedings of the Fordham Corporate Law Institute International Antitrust Law & Policy (Huntington, NY, Juris Publishing, 2004), 1 at 6. 133 See Connor, above n 33, at 10; and Hammond, above n 32, at 2. 134 Hammond, above n 124, at 8–9. 135 W Kolasky, ‘Criminalizing Cartel Activity: Lessons from the U.S. Experience’, fifth lunch talk of the Global Competition Law Centre (Brussels, 29 Sept 2004), available at www.gclc.coleurop.be/ lunchtalk20040929.htm, at 11–12.

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571. Fourthly, as Margaret Bloom has pointed out, ‘Another factor that illustrates the effect of criminal powers is the extent to which international cartels are first uncovered through amnesty applications to the [US Department of Justice]. In these cases, it is the threat of criminal sanctions that drives executives to go first to the [US Department of Justice] – and only later to the European Commission and other relevant authorities. Without the U.S. criminal sanctions and active enforcement record, how many of these cases would be revealed by leniency applications to the European Commission? It is, of course, impossible to answer this question, but I suspect the answer might well be few’.136 6.3.1.5 Imprisonment Carries a Uniquely Strong Moral Message 572. Corporate managers are not necessarily just maximisers of profits for themselves and their principals. They may feel a moral responsibility to live within the law whether or not they are likely to be caught, and this normative commitment could trump their interest calculus.137 Indeed, psychological research suggests that normative commitment is generally an important factor explaining compliance with the law.138 573. The public punishment of those who violate the antitrust prohibitions has thus not only a deterrent effect, in that it helps to create a credible threat of punishment for those who would be willing to commit violations on the basis of a profit calculation, but also has moral effects, in that it sends a message to the spontaneously law-abiding, reinforcing their moral commitment to the rules.139 574. Imprisonment is by far the most expressive sanction. Prison sanctions not only send a special message not conveyed by fines, they also send it more effectively, as prison sentences for businesspeople are much more newsworthy than fines and will thus get more publicity and be more noted by other businesspeople.140

6.3.2 For Which Types of Antitrust Violations is Imprisonment Desirable? 575. The above argument that effective deterrence with only fines on companies would require impossibly high fines, and that such fines should be supplemented by imprisonment to achieve effective deterrence, is based on the paradigmatic case of a price cartel.141 The conclusions reached only apply to those types of 136 M Bloom, ‘The Great Reformer: Mario Monti’s Legacy in Article 81 and Cartel Policy’ (2005) 1 Competition Policy International, Volume 1, No 1 (Spring 2005), 55. 137 CD Stone, ‘Sentencing the Corporation’ (1991) 71 Boston University Law Review 383 at 389. 138 See TR Tyler, Why People Obey the Law (Princeton, NJ, Yale University Press, 1990). 139 See above n 6; see also paras 171 and 181. 140 Werden and Simon, above n 116, at 934; Lynch, above n 6, at 47 and 49; and DM Kahan, ‘Social Influence’, above n 6, at 383–4; see also above, para 567. 141 See above, paras 547–558.

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violations of Articles 81 and 82 EC which are comparable to price cartels as regards their profitability and ease of concealment. For those types of infringements which are difficult to hide, or which are anyway not very profitable for the undertakings committing them, fines on companies, or fines on companies combined with director disqualification,142 could be sufficient to achieve effective deterrence. 576. Secondly, because imprisonment is a much more onerous punishment than fines, the costs of imposing it erroneously are all the greater. These costs include not only the suffering of those unjustly punished, but also the riskbearing cost to those risking unjustified punishment, the risk of lawful behaviour being undesirably deterred, as well as possible negative effects on other people’s normative commitment to the law.143 Prison sanctions should therefore only be imposed in case of clear-cut violations. Alternatively one could conclude that imprisonment should only lie for wilful violations of the law where there is evidence that the individuals knew that they were violating the law or acted with flagrant disregard for the law, with wilfulness being presumed in cases of clear-cut violations.144 577. Applying these two sets of criteria, it would seem that imprisonment is desirable for horizontal, naked price fixing, bid rigging and market allocation schemes. It seems that all other types of antitrust violations, including vertical restraints, other horizontal agreements and violations of Article 82 EC, are usually easier to detect, as the victims of the violation will very often be aware of it, and that the risk of undesirably chilling lawful behaviour is much more substantial, as the borderline between anti-competitive and pro-competitive behaviour is often less obvious. For those other types of violations, fines on undertakings, or fines on undertakings combined with director disqualification, may suffice.145

6.3.3 Are there no Equally Effective Alternatives to Imprisonment? 578. The above argument in favour of imprisonment consists in saying, on the one hand, that hard-core cartels cannot be deterred only by fines on companies, and, on the other hand, that imprisonment constitutes an effective deterrent. But could effective deterrence not also be reached by adding other types of sanctions or remedies to fines on companies? 142

See below, paras 582 and 583, on director disqualification. See also Kraakman, above n 120, at 865 and 887, and RD Blair, ‘A Suggestion for Improved Antitrust Enforcement’ [1985] The Antitrust Bulletin 433 at 444, n 32. 144 See Baker and Reeves, above n 130, at 623–4. 145 The UK would thus in my view appear to have struck the balance right, in providing for a criminal cartel offence added to fines on undertakings and director disqualification for all types of antitrust violations: see above, paras 527 and 539 and below, para 602. 143

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6.3.3.1 Fines on Individuals 579. Fines on individuals would not appear to be an equally effective alternative to imprisonment. The main reason146 is that companies can relatively easily indemnify their agents for any threat of fines or any fines effectively imposed, thus taking away the deterrent effect of the penalty on the individuals concerned. Companies can relatively easily compensate their agents in advance for taking the risk of being fined and/or indemnify them ex post when they have to pay the fine. The crucial advantage of imprisonment is that it is impossible to shift the penalty ex post, and also more difficult to arrange for a premium to compensate the risk in advance.147 580. As Donald Baker has reported a senior corporate executive telling him, ‘as long as you are only talking about money, the company can at the end of the day take care of me—but once you begin talking about taking away my liberty, there is nothing that the company can do for me’.148 581. Fines on individuals may nevertheless have at least some stigmatising effect. They could thus be considered as a third-best option, to be used when the stronger options of imprisonment and director disqualification are unavailable.149

6.3.3.2 Director Disqualification 582. As already mentioned above, in the UK the Enterprise Act 2002 introduced not only the criminal cartel offence, but also Competition Disqualification Orders (CDOs).150 On application from the Office of Fair Trading, the competent court must make a CDO against a director of a company (including a de facto director) if that company commits a breach of competition law (Article 81 or 82 EC or the corresponding prohibitions in UK competition law) and the court considers that person’s conduct as a director makes him or her unfit to be concerned in the management of a company. The maximum period of disqualification under a CDO is 15 years. During the period in which a person is subject 146 As explained in my 2001 EUI paper, above n 101, another reason is that, just as for fines on companies, the level of fines required for deterrence risks being impossibly high. 147 See Werden and Simon, above n 116, at 931; Blair, above n 143, at 440–1; Kraakman, above n 120, at 876–9; and CD Stone, ‘The Place of Enterprise Liability in the Control of Corporate Conduct’ (1980) 90 Yale Law Journal 1 at 45–65. 148 Baker, above n 22, at 705. 149 Specifically with regard to the enforcement of Arts 81 and 82 EC at the level of the EU institutions, fines on individuals would have an advantage in that they could certainly be introduced under Art 83 EC or Art III-163 of the Constitutional Treaty, provided that they are ‘not of a criminal law nature’ in the same way as the current fines on undertakings: see above, para 506. It would suffice to amend Reg 1/2003: see paras 618–634 below, and also Wils, above n 4, sect 8.7.4.5. 150 Ss 9A to 9E of the Company Directors Disqualification Act 1986, as amended by the Enterprise Act 2002; see also Office of Fair Trading, ‘Competition Disqualification Orders—Guidance’ (London, OFT, May 2003), available at www.oft.gov.uk/.

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to a CDO, it is a criminal offence for him or her to be a director of a company or, in any way, whether directly or indirectly, to be concerned or take part in the management of a company. 583. Director disqualification would not appear to be as strong a deterrent as imprisonment. Depending on the age of the person concerned, director disqualification may simply be the occasion to move into comfortable retirement, and the company could fully compensate its former director for any financial loss. It can also only be used for directors, not for middle management. On the other hand, when it can be used, director disqualification is certainly more effective than fines on individuals. If the person concerned is not ready for retirement, being barred from taking part in the management of a company may hurt him or her in a way which the company cannot fully compensate financially. Director disqualification may also have a stigmatic effect and send a moral message, not as much as imprisonment would,151 but certainly more than fines. While not being an equally effective alternative to imprisonment, director disqualification would thus appear to be a useful complement, as well as a defensible second-best.152

6.3.3.3 Private Actions for Damages 584. Could the problem of hard-core cartels not being deterred by mere fines on companies be solved by adding private follow-on actions for damages? Here the answer is in my view clearly no.153 585. As explained above,154 the main problem with fines on companies is that the floor below which fines will generally not deter hard-core cartels would be in the order of 150 per cent of the annual turnover in the products concerned by the violation, and that fines of such a high level would often exceed the companies’ ability to pay. This problem exists just as much for damages as for fines, as well as for any combination of the two. Adding private actions for damages against companies to fines on companies also does not bring with it the above explained advantage of adding individual penalties, namely the increased effectiveness of leniency and whistle blowing programmes.

6.3.4 Five Conditions for Criminal Antitrust Enforcement to be Effective not only in Theory but also in Practice 586. For criminal antitrust enforcement, and in particular imprisonment, to work as an effective deterrent, it does not suffice to enact legislation creating a 151 152 153 154

See above, para 574. See also above, para 577. See also below, para 602. At paras 547–558.

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criminal offence. The effective operation of such legislation much also be ensured. Indeed, deterrence will only work if there is a credible threat of detection and punishment. 587. As explained below, for imprisonment to be an effective deterrent for hard-core cartel behaviour, four conditions would need to be fulfilled: (1) a dedicated investigator and prosecutor and (2) sufficient powers of investigation must be provided for, and (3) judges or juries must be willing to convict, all of which requires (4) a sufficiently broad political and public consensus that cartels are really bad and thus deserve severe punishment. 588. Moreover, given that imprisonment can only work or only makes sense if it is limited to hard-core cartels and complements other penalties for companies, it remains important to provide for such other penalties as well as for penalties to deter antitrust offences other than hard-core cartels. 6.3.4.1 The Need for a Dedicated Investigator and Prosecutor 589. For the threat of imprisonment to be credible, there must be a sufficiently well resourced and sufficiently dedicated body, or bodies, in charge of investigating and prosecuting criminal antitrust offences. 590. In the US, the Department of Justice Antitrust Division has a National Criminal Enforcement Section in Washington, DC, as well as seven field offices, in Atlanta, Chicago, Cleveland, Dallas, New York, Philadelphia and San Francisco, dedicated to investigating and prosecuting criminal cases. 591. The absence of a sufficiently well resourced and sufficiently dedicated investigator and prosecutor may to a significant extent explain the ineffectiveness of criminal enforcement in those EU Member States which have decriminalised their enforcement in the last two decades.155 Indeed, if antitrust offences have to compete with manslaughter and child abuse cases for the attention of a (typically already over-stretched) generalist public prosecutor’s office, they are most unlikely to get much priority. 6.3.4.2 The Need for Adequate Powers of Investigation 592. The success of US criminal antitrust enforcement in recent years is also the result of the strong powers of investigation which the US Department of Justice Antitrust Division has at its disposal.156 593. First, as Terry Calvani has stated, ‘the Division began using special agents of the Federal Bureau of Investigations (“F.B.I.”) to assist in its cartel investigations. F.B.I. agents now routinely staff these investigations. Indeed, agents are 155

See above, paras 533–537. Apart from the 3 elements mentioned in paras 593 to 595, Donald Baker also mentions the grand jury system, a secretive process favouring the investigators: see Baker, above n 22, at 693, 697 and 708. 156

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actually seconded to the Division field offices where they work together with Division attorneys in jointly investigating cartels. [T]hese F.B.I. agents have brought with them the investigative techniques used to combat serious crime. Antitrust investigators now routinely employ computer forensics, “wire” witnesses, conduct “ambush” interviews, etc., in the course of investigations’.157 594. Secondly, as already explained above, the US Department of Justice has both a Corporate Leniency Policy and an Individual Leniency Policy, under which it can guarantee immunity from prosecution to cooperating companies or individuals.158 It can also make precisely calculated promises of reduced penalties to those cooperating at a later stage that cannot benefit from immunity.159 The Corporate Leniency Policy also includes a so-called ‘Amnesty Plus’ option, under which a company can get a substantial additional discount in the fine it will have to pay for a first cartel being investigated (where the company was not the first leniency applicant and hence does not get immunity from prosecution) if it reveals a second cartel in another market for which it can get immunity.160 The Department of Justice also increases the pressure by asking the so-called ‘omnibus question’ at the conclusion of a witness interview or grand jury interrogation. The question goes something like this: ‘do you have any information whatsoever, direct or indirect, relating to price fixing, bid rigging, market allocation, etc. with respect to other products in this industry or in any other industry?’. The witness must answer the question and must answer it fully and truthfully, or he or she not only loses the leniency protection but is also subject to the penalties of perjury or of making false statements or declarations. 595. Thirdly, as already mentioned above, in the US companies cannot invoke the privilege against self-incrimination enshrined in the Fifth Amendment to the US Constitution.161

157 Calvani, above n 132, at 7–8. It should be noted that the existence of a leniency programme does not absolve one from the need to have other effective powers of investigation. Indeed, leniency can only work if potential leniency applicants know that the competition authorities are also able to detect cartels without cooperation from leniency applicants: see above, paras 401 and 408 and Wils, above n 2, sect 5.2.3. 158 See above, paras 500, 561and 562, and 347–361. 159 See SD 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 (Washington, DC, 29 Mar 2006), available at www.usdoj.gov/atr/public/speeches/ 215514.pdf. 160 See GR Spratling, ‘Making Companies an Offer They Shouldn’t Refuse’, paper presented at the Bar Association of the District of Columbia’s 35th Annual Symposium on Associations and Antitrust (Washington, DC, 16 Feb 1999), available at www.usdoj.gov/atr/public/speeches/2247.pdf; and Hammond, above n 32, at 10. 161 See above n 40.

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6.3.4.3 Judges and Juries Must be Willing to Convict 596. For the threat of imprisonment to be credible, it is also essential that judges and juries are willing to convict antitrust offenders and sentence them to prison.162 597. In the US, this is the case today, thanks at least in part to the Sentencing Guidelines.163

6.3.4.4 The Need for Political and Public Support 598. Underlying the three above conditions is a more fundamental fourth one, namely that there needs to be a sufficiently broad political and public consensus that cartels are really bad and thus deserve severe punishment. 599. In Donald Baker’s words, ‘When all is said and done, criminal liability ought to reflect the culture and values of the people of a country. The United States has a long tradition of fairly broad and sometimes noisy support of antitrust law and enforcement. After all, this is what created the Sherman Act in 1890 and the felony statute in 1974. Robber barons and cartel conspirators are bad people in the American popular lexicon.’164 600. As is well known, Europe does not have the same history.165 We are however not condemned to remaining stuck in our past. As John Coffee has pointed out, ‘the limited empirical evidence on public attitudes toward whitecollar crimes suggests that the public learns what is criminal from what is punished, not vice versa’.166 Leadership, such as that being shown by the Irish and UK governments and competition authorities in criminalising cartel enforcement, may thus work.167

162

See Kunzlik, above n 92, at 345–6 and Green, above n 21, at 26–8. Baker, above n 22, at 694. It was not always the case in earlier times: see Baker and Reeves, above n 130. See also above n 159. 164 Baker, above n 22, at 714. 165 See above, para 543; Wils, above n 4, sects 8.6.7 and 9.5; and C Harding and J Joshua, Regulating Cartels in Europe (Oxford, Oxford University Press, 2003). 166 Coffee, above n 7, at 1889. 167 See, inter alia, the speech by John Vickers, Chairman of the Board of the UK Office of Fair Trading at the British Chambers of Commerce on 31 Mar 2003, ‘Policy for Markets and Enterprise’, available at www.oft.gov.uk/NR/rdonlyres/62E7FFA8–3803–440C-8119–33FF119C0967/0/ spe0203.pdf, at 4: ‘[s]ince hard core cartels are like theft, criminalisation makes the punishment fit what is indeed a crime’. 163

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6.3.4.5 Fines on Companies and Public Penalties for Antitrust Violations Other than Hard-core Cartels Remain Necessary 601. Imprisonment as a penalty for hard-core cartels should only be used in combination with fines on the companies concerned.168 Indeed, if firms were not responsible for the antitrust violations committed by their agents, serious incentive problems would result. Given that the firm normally benefits from the antitrust violations committed by its agents, it would have an incentive to encourage violations. Even if they risk individual penalties, the firm’s agents may be willing to take the risk if they expect to be sufficiently rewarded in terms of salary and promotion (or avoidance of demotion or dismissal). Assigning liability to the firm tends to remove the incentive for both the firm and its agents to commit antitrust violations on behalf of the firm.169 Firms are instead encouraged to strive for clarity in the messages conveyed to their agents as to the behaviour they expect from them.170 602. As argued above,171 imprisonment appears desirable only for horizontal, naked price fixing, bid rigging and market allocation schemes. However, all other types of antitrust violations, including vertical restraints, other horizontal agreements and violations of Article 82 EC, also need to be deterred. As already mentioned above,172 in the US, apart from the possibility for the Federal Trade Commission to seek disgorgement, deterrence of antitrust violations other than hard-core cartels is left to private treble-damages actions. As appears to be recognised also in the US,173 this could be considered problematic. Indeed, as I have argued in detail elsewhere, private antitrust enforcement is inherently inferior to public enforcement.174 The United Kingdom, with its combination of

168 See also above, paras 560–565 as to the increased effectiveness of leniency and whistle-blowing programmes resulting from the combination of corporate and individual liability, and my 2001 EUI paper, above n 101, for other reasons why imprisonment should only be used in combination with corporate fines. 169 TS Ulen, ‘The Economic Case for Corporate Criminal Sanctioning’ in WS Lofquist, MA Cohen and GA Rabe (eds), Debating Corporate Crime (Cincinnati, Anderson, 1997), 117 at 133, and Coffee, above n 121, at 410. 170 DA DeMott, ‘Organizational Incentives to Care About the Law’ (1997) 60 Law and Contemporary Problems 39 at 47. 171 Paras 575–577. 172 Paras 497 and 498. 173 See letter from the Assistant Attorney General, Department of Justice Antitrust Division, above n 35, at 2 (‘Our system’s extreme weighting of the civil enforcement balance toward private lawsuits as opposed to federal government enforcement is not necessarily ideal’). 174 See WPJ Wils, ‘Should Private Antitrust Enforcement Be Encouraged in Europe?’ (2003) 26 World Competition 473, and Wils, above n 2, ch 4; see also the leading article ‘MS.dosh settlement— Microsoft’s pay-offs show why regulators are necessary’, Financial Times, 26 Nov 2004, 12; J Kay, ‘Antitrust concerns are not so easily dismissed’, Financial Times, 30 Nov 2004, 13; and B Groom, European Comment, ‘Microsoft’s Brussels trouble not over yet’, Financial Times, 10 Nov 2004, 16: ‘[i]t is a comfort that competition policy in Europe is pursued largely by public authorities rather than through private lawsuits. Rival companies can be bought off, but the [European] Commission’s role is to safeguard consumers.’

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a criminal cartel offence with a system of administrative fines and director disqualification for all types of antitrust violations, would in my view appear to have struck the balance exactly right.

6.4 IS IT PROBLEMATIC THAT ANTIT R UST ENFORCEMENT IS CR IMINALISED AT THE LE VEL OF INDIV IDUAL EU MEMBER STATES W ITHOUT PAR ALLEL CR IMINALISATION AT THE LE VEL OF THE EU INSTITUTIONS, OR W ITHOUT EU HAR MONISATION?

6.4.1 Regulation 1/2003 has been Designed to Accommodate Criminalisation in Individual Member States 603. The fact that individual Member States, such as Ireland, the United Kingdom and Estonia, have criminalised their enforcement of Articles 81 and 82 EC, without parallel criminalisation at the level of the EU institutions and without EU harmonisation, is not problematic. Indeed, Regulation 1/2003 has precisely been designed to accommodate criminalisation in individual Member States. 604. As already explained above,175 Article 5 of Regulation 1/2003 leaves each Member State the choice whether or not to provide for criminal penalties to enforce Articles 81 and 82 EC. 605. Article 12(3) of Regulation 1/2003, also already mentioned above,176 ensures that criminal enforcement in some Member States can coexist with non-criminal enforcement in other Member States. Indeed, whereas Article 12(1) of Regulation 1/2003 provides that the European Commission and the competition authorities of the Member States can exchange all kinds of information, and use the information thus exchanged in evidence, Article 12(3) adds the following limitation: Information exchanged pursuant to paragraph 1 can only be used in evidence to impose sanctions on natural persons where: —the law of the transmitting authority foresees sanctions of a similar kind in relation to an infringement of [Article 81 or 82 EC] or, in the absence thereof, —the information has been collected in a way which respects the same level of protection of the rights of defence of natural persons as provided for under the national rules of the receiving authority. However, in this case, the information exchanged cannot be used by the receiving authority to impose custodial sanctions.

606. Without this limitation, the free circulation of information between the competition authorities of all the Member States as well as the European Commission would have caused problems both in the Member States which provide for individual penalties, in particular imprisonment, and in the other Member States as well as at the level of the EU institutions. Indeed, if in Ireland 175 176

At paras 515–518. Ibid.

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or the United Kingdom individuals could have been sent to prison on the basis of evidence collected by the European Commission or for instance the Italian competition authority in its administrative proceedings leading only to fines on companies, the rights of defence of the individuals concerned would have been weakened. Indeed, the Irish and UK courts would probably have refused the use of such evidence. On the other hand, the risk of evidence collected by the European Commission or the Italian competition authority in its administrative proceedings leading only to fines on companies being subsequently used in Ireland or the United Kingdom to send individuals to prison could have led the EC and Italian courts or legislators to raise the level of the rights of the defence in proceedings by the European Commission or the Italian competition authority to the same level at that applying to criminal investigations in Ireland or the United Kingdom. This could have seriously harmed the effectiveness of the investigations by the European Commission or the Italian competition authority.177 607. All these problems have been avoided as a result of Article 12(3), whereas this provision does not create any obstacle to the competition authorities of Ireland, the United Kingdom, Estonia and any other Member State which may follow their example, exchanging all information between them and using it in evidence to impose prison sanctions on individuals. 608. Article 12(3) of Regulation 1/2003 prevents information collected in a jurisdiction that does not provide for imprisonment to be used in evidence in another jurisdiction to seek imprisonment. It does not, however, prevent the intelligence being transmitted. The UK competition authorities could thus for instance, after having received information from the European Commission or the Italian competition authority, start an investigation of their own themselves to collect the same or related information and subsequently use it in evidence to impose criminal sanctions on an individual. This possibility could have as a result that individuals, as well as the undertakings wanting to protect them, may be less willing to cooperate with the investigations of the European Commission or the Italian competition authority. To the extent that cooperation under leniency programmes is concerned, this problem has been anticipated and addressed in the European Commission’s Notice on cooperation within the network of competition authorities, which provides that information provided under a leniency programme to the European Commission or a national competition authority will not be transmitted to another competition authority unless the latter commits itself not to use this information, nor any information obtained following that information, to impose sanctions on the leniency applicant or on any of its employees or former employees.178

177

See further Wils, above n 2, sect 1.2.12. Commission Notice on cooperation within the Network of Competition Authorities [2004] OJ C101/43, paras 37 to 42; see also Schnichels, above n 70, at 114–15, and Wils, above n 2, sect 1.2.14. 178

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6.4.2 What Would be the Advantages of Criminalising the Enforcement of EU Antitrust Law in all Member States, through EU Harmonisation, as well as at the Level of the EU Institutions? 609. The fact that Regulation 1/2003 has been designed to accommodate criminalisation in individual Member States, without EU harmonisation, and without criminalisation of antitrust enforcement at the level of the EU institutions, with the result that criminalisation in individual Member States is not problematic, does not rule out that there may be advantages in criminalising the enforcement of EU antitrust law in all Member States, through EU harmonisation, as well as at the level of the EU institutions. 610. I would personally expect that criminal cartel enforcement for instance in the United Kingdom will prove to be effective, even if enforcement in most other Member States and at the level of the EU institutions continues to rely only on fines on companies, in the same way as US criminal antitrust enforcement has in recent years been highly successful,179 even if most of the rest of the world does not have similar enforcement. I would however see three or four advantages in criminalising the enforcement of EU antitrust law in all Member States, through EU harmonisation, as well as at the level of the EU institutions. 611. First, as explained above,180 Article 12(3) of Regulation 1/2003 provides, for very good reasons, that the competition authorities in Member States such as the United Kingdom can only use information exchanged in the network of EU competition authorities in evidence in order to impose prison sanctions on an individual if the information has been collected by the competition authority of a jurisdiction which equally provides for imprisonment. If all EU Member States were to follow the UK example in criminalising their enforcement of hard-core cartels, either of their own motion or as a result of EU harmonisation, and if enforcement at the level of the EU institutions could be similarly criminalised, there would be an obvious advantage, in that more competition authorities could work more effectively together in investigating criminal cartel offences. 612. Secondly, more widespread or harmonised criminalisation throughout the EU would enhance the effectiveness of sanctions, allowing for instance individuals suspected or convicted of a criminal cartel offence to be extradited between Member States, or the effect of director disqualifications to be EU-wide. 613. Thirdly, as explained above,181 Article 12(3) of Regulation 1/2003 prevents information collected in a jurisdiction that does not provide for imprisonment being used in evidence in another jurisdiction to seek imprisonment, and the European Commission’s Notice on cooperation within the network of competition authorities provides that information provided under a leniency programme to the European Commission or a national competition authority 179 180 181

See above, paras 566–571. Paras 605–608. Ibid.

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will not be transmitted to another competition authority unless the latter commits itself not to use this information, nor any information obtained following that information, to impose sanctions on the leniency applicant or on any of its employees or former employees. 614. The risk of imprisonment in some Member States and the exchange of intelligence within the network of competition authorities may however still have an impact on the effectiveness of investigations by the competition authorities in the other Member States or by the European Commission in the absence of leniency applications.182 Indeed, the risk of imprisonment may lead cartel participants to make even greater efforts to hide the evidence of their behaviour, and the possibility of intelligence being transmitted to the competition authorities in, for example, the United Kingdom may reduce the willingness of individuals, and of the undertakings wanting to protect them, to cooperate outside the framework of leniency with investigations by the European Commission or, for example, the Italian competition authority. Individuals may for instance be less forthcoming in answering on-the-spot questions during inspections,183 or companies may be more evasive in their answers to written requests for information. 615. Fourthly, criminalisation in some EU Member States, and not in others, nor at the level of the EU institutions, could result in those Member States that have criminal enforcement playing a disproportionate role, or carrying a disproportionate share of the burden, in the overall task of enforcing EU competition law, in the same way as the US in recent years has played a disproportionate role in deterring and punishing world-wide cartels.184 616. Specifically with regard to the role of the European Commission in the overall task of enforcing EU competition law, Peter Kunzlik has made the following conjecture of what might happen if criminal enforcement in Ireland and the United Kingdom were successful, and other EU Member States followed their example: the situation might well arise in which cartels will be uncovered and prosecuted more efficiently at the national level than at the European level. In such a scenario the European Commission’s view that its proper vocation is primarily in the enforcement of Community competition law against hard-core cartels—a central premise of its own

182 The ability of competition authorities to detect cartels in the absence of leniency applications is also important for the effectiveness of leniency programmes. Indeed, if companies were to believe that the competition authorities would not be able to detect a cartel on their own, they would have no reason to apply for leniency either: see above n 157, and above, paras 401, 408 and 419–421. 183 See above, para 512 on such questioning under Art 20(2)(e) of Reg 1/2003; see also JS Venit and T Louko, ‘The Commission’s New Power to Question and its Implications on Human Rights’, paper presented at the 31st Annual Fordham Corporate Law Institute Conference on International Antitrust Law & Policy (New York, 8 Oct 2004), as well as remarks by several participants in Roundtable Debate Session IV—Rights, Privileges and Ethics in Competition Cases at the same conference, all forthcoming in BE Hawk (ed), 2004 Annual Proceedings of the Fordham Corporate Law Institute—International Antitrust Law and Policy (Huntington, NY, Juris Publishing, 2005). 184 See Wils, above n 4, sect 8.7.3.3.

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modernization proprosals—may need to be revisited. By the time that the Commission’s investigations will have cranked into gear, the national systems may already have taken the initiative. The Commission may in practice lose its central role in European cartel enforcement to quicker, more effective, and better-resourced national competition authorities operating under [systems such as the ones in Ireland and the United Kingdom].185

617. In Margaret Bloom’s words: If criminal sanctions do provide far more effective deterrence, why has Commissioner Monti apparently not considered introducing such sanctions as part of the fight against cartels? Should such powers be considered now? One obvious answer is the fact that only six out of the 25 Member States have such powers in their national law and these have not yet been used on their own for any custodial sentences. Also, the European Commission does not currently have criminal powers in any area. At this time, it seems unlikely that there would be the necessary support within the European Union for such a change. But if the United Kingdom or another Member State demonstrates effective use of its powers and increases deterrence significantly as a result, the Commission should consider criminal powers seriously.186

6.5 WOULD IT BE LEGALLY POSSIBLE TO CR IMINALISE ANTIT R UST ENFORCEMENT AT THE LE VEL OF THE EU INSTITUTIONS, OR TO CR IMINALISE ANTIT R UST ENFORCEMENT IN ALL EU MEMBER STATES THROUG H EU HAR MONISATION?

6.5.1 Under the Current EC Treaty 618. As I have argued in more detail in my 2001 EUI paper,187 under the current EC Treaty it would be legally possible to criminalise antitrust enforcement at the level of the EU institutions, and to provide for a system in which the Court of First Instance, upon investigation and prosecution by the European Commission, would impose prison sanctions on individuals for hard-core violations of Article 81 EC.188 619. Indeed, as is apparent from Article 47 EU (‘nothing in this Treaty shall affect the Treaties establishing the European Communities’) and from the very first words of Article 29 EU (‘without prejudice to the powers of the European 185 Kunzlik, above n 92, at 352–3; see also ibid, at 347–48: ‘[i]f the approach adopted in [Ireland and the UK] were to be emulated by other member states then transatlantic cartel enforcement cooperation might become substantially refocused upon the national rather than the European level. This would, in turn, affect the prestige of the European Commission within the European system. It might potentially take back from the Commission, and return to the authorities of the member states concerned, the de facto role as primary collaborators with the U.S. in terms of an important aspect of transatlantic cartel enforcement cooperation’. 186 Bloom, above n 136. 187 Above n 101. 188 The same conclusion was reached by Manfred Zuleeg in his paper for the same EUI Workshop, ‘Criminal Sanctions to Be Imposed on Individuals As Enforcement Instruments in European Competition Law’, published in C-D Ehlermann and I Atanasiu, European Competition Law Annual 2001: Effective Private Enforcement of EC Antitrust Law (Oxford, Hart Publishing, 2003) 453.

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Community’), the existence of the EU Treaty, with its Title VI on police and judicial cooperation in criminal matters, does not affect the ability or inability to introduce under the EC Treaty criminal sanctions to enforce EC competition law. Apart from two specific provisions in Articles 135 and 280 EC, concerning customs cooperation and fraud affecting the financial interests of the European Community, the EC Treaty does not contain any provision excluding criminal law from its scope. As already mentioned above,189 the use of the term ‘undertakings’ in Article 81 EC leaves open the question what sanctions, on undertakings and/or individuals, are to be provided for. This choice is to be made by the Council, when using its broad legislative powers under Article 83(1) EC to lay down ‘the appropriate regulations or directives to give effect to the principles set out in Articles 81 and 82’. 620. More problematic is the explicit reference to fines in Article 83(2)(a) EC, which provides that the regulations or directives referred to in Article 83(1) ‘shall be designed in particular: (a) to ensure compliance with the prohibition laid down in Article 81(1) and in Article 82 by making provision for fines and periodic penalty payments’. 621. It is clear that the authors of the Treaty thought that compliance with the antitrust prohibitions would be induced by the threat of financial penalties, not imprisonment. However, one could argue on the basis of a teleological interpretation that, if the Council were to come to the view that prison sanctions were necessary for effective deterrence, the reference to fines in Article 83(2)(a) EC would not prevent it from adding such sanctions, given the wide mandate in Article 83(1) EC for laying down any ‘appropriate regulations or directives to give effect to the principles set out in Articles 81 and 82’. 622. In any event, even if one were to conclude that Article 83 does not provide a sufficient legal basis for introducing prison sanctions, the solution would be to use Article 308 EC, which empowers the Council, acting unanimously on a proposal from the Commission and after consulting the European Parliament, to take the appropriate measures whenever action by the Community proves necessary to attain, in the course of the operation of the common market, one of the objectives of the Community and the Treaty has not provided the necessary powers. 623. Of course, the introduction of prison sanctions would require the separation of the powers of investigation and decision currently held in common by the Commission, and the transfer of the latter power to an independent judicial body, such as the Court of First Instance. The Commission would then act as a prosecutor before the Court of First Instance.190 Such transfer of the decisional power from the Commission to the Court of First Instance would be possible under the existing EC Treaty. Indeed, as already mentioned above, 189

Above, para 520. This requirement of separation flows from both Arts 5 and 6 ECHR: see above, paras 488–491. See also above n 9. 190

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Article 83(1) EC gives an wide mandate to the Council, acting by a qualified majority on a proposal from the Commission and after consulting the European Parliament, to lay down ‘the appropriate regulations or directives to give effect to the principles set out in Articles 81 and 82’. Article 83(2)(d) adds that the Council’s regulations and directives ‘shall be designed in particular: (d) to define the respective functions of the Commission and of the Court of Justice applying the provisions laid down [under Article 83(1)]’. Moreover, Article 229 EC provides that regulations adopted by the Council may give the Court of Justice ‘unlimited jurisdiction with regard to the penalties provided for in such regulations’. That such ‘unlimited jurisdiction’ can take the form not only of an unlimited review of a Commission decision, but also of imposition of penalties directly by the EC Courts, is apparent from the German language version of Article 229 EC which talks about giving the Court a competence ‘which includes the power of unlimited control of judgment and the power to modify or impose such penalties’.191 624. The above reasoning to the effect that Article 83 EC (if necessary combined with Article 308 EC) would provide a sufficient legal basis for criminalising antitrust enforcement at the level of the EU institutions can also be transposed to criminalisation of antitrust enforcement in all Member States through EU harmonisation, which thus appears equally possible. This conclusion also finds support in the recent judgment of the Court of Justice confirming EC competence as regards protection of the environment through criminal law.192

6.5.2 Under the Signed but Unratified Constitutional Treaty 625. It would appear doubtful whether the same ability to criminalise antitrust enforcement at the level of the EU institutions would still exist under the signed but unratified Constitutional Treaty.193 191 Emphasis added; my translation of ‘eine Zuständigkeit … welcher die Befugnis zu unbeschränkter Ermessensnachprüfung und zur Änderung oder Verhängung solcher Maβnahmen umfaβt’. That the Commission would prosecute undertakings before the Court appears also to have been the understanding of the Spaak Report preceding the adoption of the EEC Treaty: see Comité intergouvernemental créé par la Conférence de Messine, Rapport des Chefs de Délégation aux Ministres des Affaires Etrangères, Mae 120f/56 corrigé (Brussels, 21 Apr 1956), at 56: ‘[p]our l’application concrète, il conviendra d’établir une procédure qui évite autant que possible une multiplication de procès devant la Cour. A cette fin, la Commission européenne constituerait un comité consultatif des ententes et discriminations qui l’aiderait dans une tâche de conciliation et d’arbitrage. A défaut d’une solution acceptée par les parties à l’expiration d’un délai qui pourrait être de deux mois, les Etats ou la Commission européenne elle-même pourraient introduire une plainte devant la Cour. Dans tous les cas, l’affaire sera instruite par la Commission européenne.’ 192 Judgment of the ECJ of 13 Sept 2005 in Case C–176/03 European Commission v EU Council [2005] ECR I–7879; see also Communication from the Commission to the European Parliament and the Council on the implications of the Court’s judgment of 13 Sept 2005 (Case C–176/03 Commission v Council), COM(2005)583final/2 of 24 Sept 2005. 193 Treaty establishing a Constitution for Europe [2004] OJ C310/1.

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626. The crucial difference from the current situation is that the Constitutional Treaty integrates the areas currently covered by the EC Treaty and by the other Titles of the EU Treaty into a single Treaty, without any hierarchy of the former over the latter. It can thus no longer be said that the presence of provisions on judicial cooperation in criminal matters (in Articles III-270 to III-274 of the Constitutional Treaty) does not affect the scope of the provisions on competition, and in particular of Article III-163 of the Constitutional Treaty, which is the (for all practical purposes identical) successor to Article 83 EC. 627. Article III-271(2) of the Constitutional Treaty reads as follows: If the approximation of criminal laws and regulations of the Member States proves essential to ensure the effective implementation of a Union policy in a area which has been subject to harmonisation measures, European framework laws may establish minimum rules with regard to the definition of criminal offences and sanctions in the area concerned.

628. Article III-271(1) further provides for the possibility for European framework laws to ‘establish minimum rules concerning the definition of criminal offences and sanctions in the areas of particularly serious crime with a crossborder dimension resulting from the nature or impact of such offences or from a special need to combat them on a common basis’.194 629. European framework laws, which correspond to directives under the current EC Treaty, are, according to Article I-33(1) of the Constitutional Treaty, legislative acts ‘binding, as to the result to be achieved, upon each Member State to which it is addressed, but shall leave to the national authorities the choice of form and methods’. 630. Whereas Article III-271 of the Constitutional Treaty could undoubtedly be used to criminalise the enforcement of EU antitrust law in all the EU Member States, the fact that this Article only allows the use of European framework laws (and not European laws, the equivalent of regulations under the current EC Treaty) appears to close the door to criminalisation of EU antitrust enforcement at the level of the EU institutions. 631. Given that Article III-271 is the provision of the Constitutional Treaty specifically providing a legal basis for criminalisation, it appears doubtful whether this limitation to the instrument of European framework laws could be overcome by using Article III-163 instead. 632. A possible way forward could be provided by Article III-274 of the Constitutional Treaty, which provides for the possibility of establishing a European Public Prosecutor’s Office, and giving this new body the task of investigating and prosecuting, in the competent courts of the Member States, the

194 Cartels are not among the areas of crime listed in the second subpara of Art III-271(1), but they could be added through use of the third subpara.

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perpetrators of ‘serious crime having a cross-border dimension’. This provision would however not allow the European Commission to act as prosecutor, or the EU Courts to act as competent courts. 633. As already mentioned just above, criminalisation of antitrust enforcement in all Member States through EU harmonisation, though limited to the establishment of ‘minimum rules’, would clearly appear to be possible under Article III-271 of the Constitutional Treaty. 634. In the end, of course, the main issue is whether the European Commission and the EU Member States would want to criminalise the enforcement of EU competition law at the level of the EU institutions and, through harmonisation, in all Member States. The day there is a consensus that this outcome would be desirable, it will also be possible to make whatever Treaty changes may be needed.

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Index possibility under the EC Treaty: paragraphs 514 to 532, 618 to 634 powers of investigation: paragraphs 32 to 34, 592 to 595 procedural rights and guarantees: 62, 501, 564, 565, 623 types of infringement for which desirable: paragraphs 575 to 577 US example: paragraphs 492 to 501 wider notion of ‘criminal’ in ECHR: paragraphs 484 to 491

A Access to the file: paragraphs 105, 108 to 116 Amnesty: see Leniency Availability bias: paragraphs 175, 195, 196 B Bias: availability bias: paragraphs 175, 195, 196 overconfidence bias: paragraphs 197, 198, 243 Bounties: paragraphs 464 to 470

D Damages: see Compensation, Corrective justice Deterrence: paragraphs 172, 181, 184 to 207, 223 to 228, 243, 283 to 290, 299, 300, 324 to 327, 334 to 337, 393 to 408, 415 to 425, 443 to 450, 464 to 470 Director disqualification: paragraphs 539, 582, 583

C Charter of Fundamental Rights of the European Union: paragraphs 56, 112, 208 Commitments: see Settlements Community Courts: judicial review of settlements: paragraphs 151 to 153 role as to procedural rights and guarantees: paragraphs 51 to 60, 64 to 66, 75 Compensation: paragraphs 178, 179, 182, 348, 349, 373, 413 to 454, 584, 585 Competition authorities of the Member States: see National competition authorities Compliance programmes: paragraphs 218 to 221, 301 (footnote 119) Corrective justice: paragraphs 178, 179, 182, 261, 348, 349, 373, 413, 414 Court of Justice: see Community Courts Criminalisation: paragraphs 471 to 634 benefits: paragraphs 547 to 574, 609 to 617 conditions for effectiveness: 586 to 602 definition: paragraphs 472 to 491 history: paragraphs 493 to 496, 534 to 543, 598 to 600 leniency: paragraphs 443 to 450, 560 to 565 national competition authorities: paragraphs 514 to 543, 603 to 608

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E Econometrics (use in setting fines): paragraphs 237 to 243, 285 to 287 Effectiveness (principle of): paragraphs 22, 38 to 40 Equality (principle of): paragraphs 233 to 236, 429, 430 Equivalence (principle of): paragraphs 22, 37, 523, 529 European Commission: commitments: paragraphs 67 to 172 cooperation with national competition authorities: 19 to 27, 43, 119 criminal powers: paragraphs 484 to 491, 502 to 513, 609 to 634 guidelines on fines: paragraphs 244 to 343 discretion as to fines: paragraphs 266 to 274 enforcement priorities: paragraphs 92 to 103 leniency policy: paragraphs 328 to 330, 340, 362 to 377

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powers of investigation: paragraphs 5 to 27, 44 to 60 settlements: paragraphs 67 to 172 European Competition Network (ECN): assistance in investigations: paragraphs 12, 15, 19 to 26, 41 to 43, 67 to 75 exchange of information: paragraphs 27, 41, 43, 67 to 75, 603 to 614 generally: paragraphs 1, 297 leniency: paragraph 387 see also National competition authorities European Convention on Human Rights: paragraphs 53 to 56, 63, 75, 262 (footnote 29), 484 to 491, 623 (footnote 190) European Court of Human Rights: paragraphs 53 to 56, 63, 75 European Court of Justice: see Community Courts Exchange of information: paragraphs 27, 41, 43, 67 to 75, 603 to 614 F Financial rewards: paragraphs 464 to 470 Fines: ability to pay: paragraphs 207 to 212, 229 to 236, 336, 338, 339, 341 to 343 collection of fines: paragraph 23 deterrent effect: paragraphs 172, 181, 184 to 207, 223 to 228, 283 to 290, 324 to 327, 334 to 337, 393 to 408, 415 to 425, 547 to 571 discretion: paragraphs 266 to 274 equal treatment: paragraphs 233 to 236 European Commission guidelines: paragraphs 244 to 343 fines for failure to comply with commitments: paragraphs 87, 132 fines on individuals: paragraphs 579 to 581 foreseeability: paragraphs 272 to 274 increase for repeated infringement: paragraphs 293 to 303 limits to high fines: paragraphs 203 to 212, 229 to 236, 338, 339, 341 to 343, 547 to 558

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moral effect: paragraphs 171, 181, 189, 192, 208 to 212, 233 to 236, 260, 426 to 430, 572 to 574 optimal fines: paragraphs 163 to 243 procedural fines: paragraphs 9, 10, 13, 14, 18 proportionality: paragraphs 208 to 212, 233 to 236 purpose: paragraphs 167 to 182, 255 to 261 reduction because of compliance programme: paragraphs 218 to 221, 302 (footnote 119) reduction because of cooperation: paragraphs 214 to 217, 227 to 228, 315 to 318, 328 to 330, 340; see also Leniency settlements involving fines: paragraphs 159 to 162, 377, 354 to 360, 409 to 412 use of econometrics to determine the amount: paragraphs 237 to 243, 285 to 287 Fundamental rights: generally: paragraphs 44 to 75 legal professional privilege: paragraphs 45, 46, 52, 60, 65, 66, 73 to 75 rights of the defence: paragraphs 44 to 75 self-incrimination (privilege against): paragraphs 44 to 46, 52, 55, 57 to 59 see also Charter of Fundamental Rights of the European Union European Convention on Human Rights General principles of Community law G General principles of Community law: effectiveness: paragraphs 22, 38 to 40 equality: paragraphs 233 to 236, 429, 430 equivalence: paragraphs 22, 37, 523, 529 proportionality: paragraphs 208 to 212, 233 to 236 rights of the defence: paragraphs 44 to 75 see also Fundamental rights

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Goals: of antitrust enforcement: paragraphs 93, 167 to 182, 179, 255 to 261 of antitrust law: paragraphs 179, 187, 188 Guidelines: European Commission guidelines on fines: paragraphs 244 to 343 purpose of guidelines: paragraphs 262 to 274

see also General principles of Community law Fundamental rights Moral effects of penalties L Legal professional privilege: paragraphs 45, 46, 52, 60, 65, 66, 73 to 75 Leniency: paragraphs 214 to 217, 227, 228, 328 to 330, 340, 344 to 470 amnesty plus: paragraphs 361, 379, 458 to 463 beneficial effects: paragraphs 393 to 414, 431 to 434, 443 to 450 bounties: paragraphs 464 to 470 compared to other methods of investigation: paragraphs 1 to 4, 393 to 403 compensation to injured parties: paragraphs 348, 349, 373, 413 to 414, 451 to 454criminalisation: paragraphs 443 to 450, 560 to 565 equal treatment: paragraph 429 European Commission: paragraphs 328 to 330, 340, 362 to 377, 383, 384 exclusion of ringleaders: paragraphs 348, 350, 359, 365, 379, 425, 430 history: paragraphs 381 to 387 measuring its effects: paragraphs 431 to 434 moral effects: paragraphs 426 to 430 multiple jurisdictions: paragraphs 455 to 457 national competition authorities: paragraphs 378 to 380, 385 negative effects: paragraphs 415 to 434 penalty plus: paragraph 359 (footnote 23) positive financial rewards: paragraphs 464 to 470 rights of the defence: paragraph 439 US Department of Justice: paragraphs 347 to 361, 382

H History: criminalisation: paragraphs 493 to 496, 534 to 543, 598 to 600 leniency: paragraphs 381 to 387 settlements: paragraphs 82 to 90 Human rights: see Fundamental rights I Immunity: see Leniency Imprisonment: see Criminalisation Informants: paragraphs 2, 395, 464, 465, 470, 560 to 565 Inspections: paragraphs 11 to 25 see also Investigations Investigations: assistance by other authorities: paragraphs 12, 15, 19 to 26, 41 to 43 different methods: paragraphs 1 to 4, 393 to 403, 464 to 470 fines: 9, 10, 13, 14, 18, 23, 304 to 308 inspections: paragraphs 11 to 25 periodic penalty payments: paragraphs 9, 10, 14, 18, 23 powers of investigation: paragraphs 5 to 75, 592 to 595 requests for information: paragraphs 6 to 10 see also Leniency J Justice: corrective justice: paragraphs 178, 179, 182, 261, 348, 349, 413, 414 proportional justice: paragraphs 208 to 212, 233 to 236

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M Moral effect of penalties: paragraphs 171, 181, 189, 192, 208 to 212, 233 to 236, 260, 426 to 430, 572 to 574

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N National competition authorities: criminal sanctions: paragraphs 32 to 34, 62, 514 to 543, 603 to 617 impact of European Commission settlements: paragraphs 141 to 150 leniency policies: paragraphs 378 to 380, 385 powers of investigation: paragraphs 28 to 47, 61 to 75 settlements: paragraphs 157 to 158 see also European Competition Network (ECN) National courts: enforcement of European Commission settlements: paragraphs 133 to 140 impact of European Commission settlements: paragraphs 141 to 150 Negligence: paragraphs 319 to 323 O Overconfidence bias: paragraphs 197, 198, 243 P Periodic penalty payments: paragraphs 9, 10, 14, 18, 23 Plea-bargaining: see Settlements Powers of investigation: paragraphs 5 to 43, 592 to 595 Prison : see Criminalisation Private enforcement: see Compensation, National courts Proportionality: paragraphs 208 to 212, 233 to 236 R Recidivism : see Repeated infringement Redress: see Compensation Repeated infringement: paragraphs 293 to 303 Requests for information: paragraphs 6 to 10

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see also Investigations Rights of the defence: access to the file: paragraphs 105, 108 to 116 generally: paragraphs 44 to 75 legal professional privilege: paragraphs 45, 46, 52, 60, 65, 66, 73 to 75 leniency: paragraph 439 self-incrimination (privilege against): paragraphs 44 to 46, 52, 55, 57 to 59 see also Fundamental rights S Self-incrimination (privilege against): paragraphs 44 to 46, 52, 55, 57 to 59 Settlements: paragraphs 67 to 162 access to the file: paragraphs 105, 108 to 116 history: paragraphs 82 to 90 impact on national competition authorities: paragraphs 141 to 150 impact on national courts: paragraphs 133 to 150 informal settlements: paragraphs 82 to 87, 89, 154 to 156 judicial review: paragraphs 151 to 153 legal effect: paragraphs 125 to 150 optimal use: paragraphs 91 to 105 rights of third parties: paragraphs 117, 118, 133 to 140, 145 to 150, 153 settlements involving fines: paragraphs 159 to 162, 377, 409 to 412, 354 to 360 types of commitments: paragraphs 122 to 124 U Undertaking (notion of): paragraphs 27 (footnote 31), see also Commitments, Settlements

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