Cartels & Leniency In The European Union

This article first appeared in the second edition of The

International Comparative Legal Guide to: Cartels &

Leniency; published by Global Legal Group Ltd, London (www.iclg.co.uk

)

1 The Legislative Framework of the Cartel

Prohibition

1.1 What is the legal basis and general nature of the

cartel prohibition e.g. is it civil and/or criminal?

Article 81 of the EC Treaty prohibits anti-competitive

agreements and arrangements between companies (such as cartel

conduct) which may affect trade between EU member states. The

prohibition covers both horizontal and vertical conduct. Article 81

only provides for civil sanctions and not criminal sanctions and

applies only to companies and not to individuals. However, national

legislation may provide for parallel criminal sanctions for

individuals who participated in the cartel conduct (see, for

example, the chapter on the UK).

The concept of a company (or 'undertaking') for the

purposes of article 81 is defined broadly and can in principle

cover any legal or natural person engaged in economic or commercial

activity. Also, the alleged activities do not necessarily have to

involve crossborder trade. The Community Courts i.e. the Court of

First Instance (the 'CFI') and the European Court of

Justice (the 'ECJ') have held in the past that activities

which cover the whole territory of one Member State are in

principle capable of effecting trade between Member States.

1.2 What are the specific substantive provisions for the cartel

prohibition?

Article 81(1) of the EC Treaty prohibits "all

agreements between undertakings, decisions by associations of

undertakings and concerted practices which may affect trade between

Member States and which have as their object or effect the

prevention, restriction or distortion of competition within the

common market". Article 81(1) provides a non-exhaustive

list of practices caught by the above provision that includes:

price-fixing;

output restrictions; and

market-sharing;

Article 81(2) provides that any agreements or decisions

prohibited pursuant to article 81(1) shall be automatically void

and unenforceable without the need for any act or finding of the

European Commission (the 'Commission') or any other

enforcement agency or court.

Article 81(3) sets out certain exemption criteria from the

general prohibition under article 81(1). Agreements or

arrangements, which may prima facie restrict competition, may be

compatible with the EC Treaty provisions and enforceable if they

fulfil the following three cumulative criteria:

they improve the production or distribution of goods or services

or promote technical or economic progress, while allowing consumers

a fair share of the resulting benefits; they do not impose on the

companies concerned restrictions which are not absolutely necessary

for the attainment of the above consumer welfare enhancing

objectives; and they do not afford the undertakings concerned the

possibility of eliminating competition in respect of substantial

part of the relevant products or services.

Article 1(2) of Council Regulation 1/2003 ('Regulation

1/2003') removes the old monopoly by the Commission to rule on

whether the exemption criteria of article 81(3) apply. Instead, it

establishes a system of 'self-assessment' under which

companies and their legal advisors must now determine for

themselves (and on the basis of Commission's Guidelines on

the application of Article 81(3)) whether the exemption

criteria apply. Where they apply, no prior decision to that effect

by the Commission is required.

However, price-fixing and market-sharing cartels and bid-rigging

activities (conduct the Commission refers to as 'hard core'

cartel conduct) will never qualify for the above exemption.

Further, the Community Courts have established that the Commission

does not usually have to prove any actual anti-competitive effects

to establish an infringement of the cartel prohibition under

article 81 of the EC Treaty where it has evidence that the conduct

had an anticompetitive 'object'.

1.3 Who enforces the cartel prohibition?

Regulation 1/2003 implements the general rules governing the

enforcement of EC competition law in general and of article 81 in

particular. The principal body charged with the responsibility to

enforce the cartel prohibition under article 81 of the EC Treaty is

the Commission and, more specifically, the Directorate-General for

Competition ('DG COMP'). However, Regulation 1/2003 also

creates enforcement rights for the national competition authorities

of the EU member states (the 'NCAs'). In particular,

Regulation 1/2003 establishes the following principal

jurisdictional rules:

the Commission only applies EC competition law whereas the NCAs

can apply both EC and national competition law (subject to the

rules set out below);

where an NCA investigates cartel conduct which may affect trade

between EU member states under national competition law, it must

also apply article 81 in parallel or instead of national law

(article 3(1)); and

NCAs may not prohibit any alleged cartel conduct under national

laws, which may affect trade between EU member states (i.e. to

which article 81 applies in principle), and which would not be

prohibited under article 81 itself (article 3(2)).

As a result, there is the possibility of parallel investigations

of alleged cartel conduct, which may affect trade between EU member

states by the Commission and one or more NCAs. Regulation 1/2003

therefore creates a multilateral forum consisting of the Commission

and all NCAs (the 'European Competition Network' or

'ECN') to coordinate article 81 enforcement activities

across the EU and contains a requirement on the Commission and NCAs

to inform one another of their respective investigative activities

through the ECN. In addition, the Commission's Notice on

cooperation within the Network of Competition Authorities (the

'Network Notice') contains guidance on which competition

authority is 'well placed' to investigate cross-border EU

cartel conduct. The Network Notice specifies, among other things,

that the Commission is 'particularly well placed' to

investigate cartel conduct which may have effects in more than

three EU member states. Where the Commission takes the formal step

of 'initiating proceedings' prior to the issue of a

statement of objections (see question 1.4 below), NCAs which may be

investigating the same conduct in parallel national investigations

must terminate their national proceedings (article 11(6) of

Regulation 1/2003).

Decisions of the Commission in competition matters are subject

to judicial review under article 230(1) of the EC Treaty and

appeals are made in the first instance to the CFI and then

subsequently to the ECJ. The Community Courts can annul the

Commission's decision or review the fines imposed by the

Commission, i.e. they have the power to both reduce and increase

the level of fines

imposed by the Commission.

1.4 What are the basic procedural steps between the opening of

an investigation and the imposition of sanctions?

The Commission can start an investigation on the basis of one or

more of the following four grounds: (i) its own market

intelligence; (ii) following a complaint; (iii) following a

reference from an NCA; and/or (iv) a leniency application. However,

over the past few years most EC cartel cases were triggered by

leniency applications. Once alleged anti-competitive conduct has

come to the Commission's attention and the Commission has

internally decided to pursue the matter, it will collect further

information, either informally or using its formal powers of

investigation. The Commission does not require any external

authorisation for the use of its wide formal investigatory powers

and has a wide margin of discretion as to when to use its powers.

The exercise of the relevant power must be 'necessary' for

the effective enforcement of the Community competition rules and

must be proportionate. In practice, in cartel cases the Commission

will almost invariably adopt inspection decisions for a series of

unannounced parallel searches or 'dawn raids' of businesses

and, if required, private homes at which the Commission has reason

to believe that incriminating information may be held. See Section

2 below for further details on the Commission's investigatory

powers.

Where after its initial fact-finding exercise the Commission

believes it has sufficient grounds to establish an infringement, it

will formally 'initiate proceedings' in accordance with

article 2 of Regulation 773/2004 (the "Implementing

Regulation"). This is essentially an internal administrative

step. The Commission may make public the initiation of proceedings,

in any way it deems appropriate. The Commission case team then

informs the parties under investigation of the objections raised

against them in writing in a 'statement of objections'. The

statement of objections sets out the facts the Commission relies

on, the conclusions it draws and the actions it proposes to take,

e.g. impose fines. The parties are then allowed to review the

documents on the Commission's investigation file (the

'access to file' stage) before they are given an

opportunity to make known their views on the Commission's

allegations contained in the statement of objections in writing (in

the 'written response') and orally (at an 'Oral

Hearing'). Together, these three rights of defence are referred

to as the parties' right 'to be heard'. The Commission

has created the office of the Hearing Officer that is charged with

ensuring that the parties can exercise their right to be heard

effectively. In practice, this allows parties to refer matters

concerning, for example, time limits for their written and oral

submissions and concerns that the Commission case team may have

unduly restricted access to its file to the Hearing Officer for

review and a decision. The Hearing Officer also arranges and

presides over the Oral Hearing. After the right to be heard has

been exercised, the Commission...