(by Andreas Stephan) On 20 July 2010, the European Commission announced the conclusion of the second cartel case (after DRAM) to employ its new settlement notice. The notice was introduced in June 2008 as a way of expediting cartel investigations, inspired largely by the success of plea bargains in swiftly concluding serious competition law cases in the United States. Unfortunately, one of the firms under investigation in this case pulled out of the settlement procedure, raising interesting questions about the value of settlements in cartel cases.
Fines totalling €175,647,000 were imposed on six undertakings. Animal Feed Phosphates are chemical compounds used in feed for animals such as cattle, pigs, poultry, fish and pets. The cartel operated for nearly 35 years and represents the latest in a long line of high profile collusive agreements to be exposed in the highly cartelised Chemicals Industry. More than 50% of cartel fines imposed by the European Commission between 1996 – 2007 involved this industry alone. Many of the infringements can be traced back to Vitamins and Lysine – with the same firms involved in multiple infringements.
It was envisaged that the Commission’s Settlement Notice would yield procedural savings in two respects. (i) Engaging with the firms at an early stage circumvents requests for access to the file and an oral hearing once the Statement of Objections (SO) has been issued. Firms will already have been given the opportunity to raise defences during the settlement discussions. They then simply endorse the contents of the SO as corresponding with the contents of their settlement submissions. (ii) Involving the firms at an earlier stage means that the SO and subsequent final decision can be less detailed than would otherwise be the case. The cumulative effect of these savings should be that Commission resources are freed up to deal with more cartel cases.
The withdrawal of one firm from the settlement procedure is likely to have wiped out most of the procedural savings in this case. In reverting back to the more cumbersome full procedure for the one firm, the Commission will have had to issue a full SO, allowing access to the file and an oral hearing. As the firms were involved together in a cartel agreement, it would presumably be difficult to tailor an SO for one undertaking that does not also fully detail the involvement of every other firm. Despite this loss of procedural savings, the other five undertakings who stuck with the settlement procedure received an extra 10% reduction in fines. This inevitably has a detrimental effect on deterrence.
The fact that the one ‘awkward’ firm pulled out of the settlement procedure also highlights a second issue: the incentive to settle in Europe may be comparatively weak. While parties gain a 10% settlement discount, settlements are distinct from the Commission’s leniency programme and European fines are capped at a maximum 10% of annual turnover. Contrast this to the US, where leniency only applies to the revealing firm (immunity) so any subsequent firms wanting a reduction in penalties in return for cooperation have no choice but to plea bargain. On the other hand, such stark incentives to settle may risk punishing firms for exercising the right to defend themselves; raising the prospect of firms settling out of corporate pragmatism.* If the Commission is serious about using settlements to boost cartel enforcement in the long run, it will have to integrate its settlement notice with leniency, but at the possible cost of fairness and type I errors. In the present case, the settlement notice appears to have provided additional concessions to infringing firms, without any discernable gains for enforcement.
* My forthcoming article in the ECLR discusses this point in relation to the OFT’s dairy cartel investigation. Part of the case was dropped this year as a result of Tesco and Morrison’s refusing to settle. The remainder of the investigation was settled by Tesco, who continued publically to deny wrongdoing and cited escalating legal costs as a key consideration in the decision finally to settle.