A recent decision by the Court of Justice of the European Union may make it easier for prospective claimants to obtain at least those leniency statements and related materials that are submitted to the national competition authorities of the EU Member States. Companies doing business in the European Union are urged strongly to follow developments in this area and factor the risk of disclosure into the decision of whether or not to apply for leniency.
Some recent developments in the European antitrust legal arena demonstrate that the enforcement of antitrust rules in the distribution sector is clearly one of the main priorities on the agenda of the European antitrust authorities. As such, compliance with antitrust legislation is also a priority for alcohol beverage companies reliant on distribution systems.
Under EU antitrust law, parent companies are presumed liable for antitrust infringement of their wholly owned subsidiaries. While this presumption is rebuttable, it is unclear what a company must do to rebut it successfully. The recent Air Liquide judgment of the General Court of the European Union marks the first time that a company escaped the presumption of liability, if only for procedural reasons. The judgment also sheds some light on the arguments that may work for a parent company.
Compliance with EU and national antitrust merger control rules can significantly impact the feasibility, timing and costs of M&A transactions. Parties to a proposed transaction in the EU should assess the merger control issues early in the process and evaluate and comply with any procedural antitrust requirements to avoid unnecessary delay, or even civil or criminal penalties, in any EU transactions.
In Europe, the interplay between antitrust and criminal law at the national level may vary significantly by jurisdiction. Some European Union member states, such as the United Kingdom, Ireland, and Romania, have criminalized competition law. Other jurisdictions, such as Germany and Italy, do not envisage criminal penalties for anticompetitive practices; however, such conduct may sometimes qualify as a separate criminal offense. The following cases, across Europe, show that there appears to be a general trend towards more effective enforcement against serious antitrust violations – including by means of criminal penalties against individuals – and not only in the countries with criminal competition laws.
The European Court of Justice (ECJ) ruling of 14 June 2011 followed a case that originated in Germany. Pfleiderer, a firm in the wood industry, was considering a damages claim against members of a paper cartel. It sought access to the cartel files held by the German Competition Authority (FCO) in order to substantiate its claim. A dispute followed over whether disclosing the documents of companies who had cooperated with the FCO would undermine the national leniency programme since potential leniency applicants would fear eventual disclosure.
A German court asked the ECJ for a preliminary ruling whether or not the provisions of EU competition law are to be interpreted as meaning that cartel victims can be granted access to leniency applications received by an EU Member State competition authority.
The ECJ has held that it was for the courts and tribunals of each EU Member State on the basis of their own national law to determine the conditions under which such access must be permitted or refused by weighing the interests protected by EU law. The upshot of this ruling is therefore that each judge in each Member State has a discretion as to what type of leniency document can be disclosed to a cartel victim. The ECJ has therefore distanced itself from recommendations made by the Advocate General who suggested that documents which existed before the cartel was uncovered could be disclosed but said that submissions drafted for the purpose of revealing the infringement should be protected.
For leniency applicants, weighing the decision whether to apply for leniency has now become even more complex. On the one hand, a potential leniency applicant stands to benefit from immunity, or a reduction, from fines. On the other hand, it will now have to take into consideration not only the remaining risk of a fine and criminal sanctions but also the the fact that private damages claimant might get easier access to incriminating evidence. Such complexity is all the more greater given that the ECJ’s ruling may lead to different results in different European countries.
The majority of merger control regimes around the world impose standstill or waiting period requirements for notifiable transactions, e.g. the US, the EU and most EU Member States. If a transaction meets the filing thresholds, it must be notified to the competent antitrust regulator and must not be closed without prior approval by the antitrust regulator or the expiration of the applicable waiting period.
Under German merger control rules, a notifiable merger must not be implemented without prior clearance decision. An infringement of the standstill obligation can (theoretically) lead to fines of up to 10 percent of the group’s worldwide turnover. In addition, the infringement of the standstill obligation renders the contracts ineffective under German merger control rules.
The German Federal Cartel Office (FCO) has recently taken a stricter approach to the enforcement of the merger standstill obligation. In the past, the risk of fines was minor if the merger did not lead to any serious competition concerns, if it was the group’s first infringement of the standstill obligation and if the company itself notified the FCO ex post of the implemented merger.
We see now a growing number of decisions imposing fines for the infringement of the standstill obligation (sometimes referred to as "gun jumping" in the United States). In May 2011, in the latest of a string of such decisions, the FCO imposed a substantial fine for infringement of the standstill obligation although the merger did not lead to any serious competition concerns and although the company had itself notified the implemented merger. These facts were only taken into account as mitigating factors for the calculation of the fine.
The European Commission has also recently imposed fines for the infringement of the standstill obligation.
In this changing environment, the filing requirement and the standstill obligation cannot be seen as a pure formality. It is therefore essential to always verify whether and in which jurisdictions a transaction is notifiable – and not to close the deal before the relevant competition authorities have cleared the deal.
In January 2011, the European Commission decided that the proposed merger between Aegean Airlines and Olympic Air should be prohibited because it would have resulted in a quasi-monopoly on the domestic Greek air transport market. This decision shows that traditional airline merger remedies, such as slot releases, are sometimes insufficient to allay concerns of monopolization. It also illustrates that the Commission will take a tough stance on competition policy, even when facing strong political pressure to clear the merger for the sake of the economy.
The European Commission started a public consultation on a draft document which seeks to establish best practices on cooperation between national competition authorities (NCAs) in the EU when reviewing mergers. Although cooperation between NCAs exists already, especially through the European Competition Network (ECN), the best practices seek to formalize the cooperation between NCAs and thus providing more security and predictability for the parties and their legal advisers.
The best practices should enhance cooperation between NCAs in cases where the same merger is assessed by several NCAs because it does not meet the thresholds for review under the EU Merger Regulation. The Commission considers cooperation between NCAs as beneficial not only for the authorities but also for the merging parties: it will speed up the investigation process, reduce burdens on the merging parties and may help NCAs in designing remedies. Particularly in cases where serious concerns about the post merger situation exist, close cooperation between competition authorities will secure a non-conflicting and coherent outcome.
The object of the Commission’s draft is twofold:
First, NCAs should keep each other informed of important developments related to their investigation into the merger. Also, NCAs should liaise in cases where closer cooperation is necessary and keep each other informed about their progress. Most importantly, the Commission proposes that NCAs should in future discuss market definition, theories of harm, empirical evidence and the possible impact of a proposed merger.
Second, the draft also assigns a role to the merging parties. Merging parties should, as far as possible, provide NCAs with information as to where the merger will be filed, the dates of the proposed filing, geographic areas, sectors involved etc. Also, merging parties should assist in ensuring that remedies do not lead to inconsistencies and that such remedies are effective. Of importance is further the proposal that the merging parties, but also third parties, shall – as far as possible – grant waivers of confidentiality so that NCAs actually are permitted to discuss particular issues of a proposed transaction.
A recent Decision of the European Court of Justice shows once more that it is still next to impossible for a parent company to rebut the presumption of liability for its subsidiary’s conduct. Nevertheless, companies with subsidiaries operating in the EU would be well-served to consider reinforcing their compliance programmes throughout their groups. Reinforcing compliance is more likely to reduce competition law risks for parent companies than, for example, a strategy of distancing itself from its subsidiaries.
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