While the Office of Fair Trading (OFT)’s fines imposed on construction companies (discussed above) have grabbed headlines in the UK, competition authorities across the European Union (EU) have been actively pursuing an anti-cartel agenda by conducting unannounced inspections, opening investigations and issuing fines.
Zero tolerance in the EU and UK
Neelie Kroes, EU Commissioner for Competition, is nearing the end of her five-year mandate – a mandate during which levels of cartel fines have soared. Kroes has maintained a zero-tolerance approach to cartel activity, with her term of office seeing the total fine for a single cartel break the €1bn mark not just once but twice, in relation to infringements in the flat glass and gas sectors. In a recent speech Kroes exhorted her audience to:
‘Never, ever under-estimate the effect large fines – in the absence of jail terms – have on the target audience.’1
In October 2009 the European Commission fined seven companies a total of €67.6m for involvement in a cartel in the power transformer sector. Several companies involved had also previously been fined by the Commission in 2007 for involvement in the gas-insulated switchgear cartel, which resulted in fines of over €750m. Although, in comparison, the recent fine appears limited, it represents over 65% of the parties’ combined European Economic Area (EEA) sales in the market at the time of the cartel behaviour.
The OFT imposed a second set of fines in September, fining six recruitment agencies a total of £39.27m for price fixing and for the collective boycott of another company. The anti-competitive activity related to the supply of candidates to the construction industry. Heather Clayton, senior director at the OFT, stated that:
‘Cartels such as these can impact on other businesses, in this case construction companies, by distorting competition and driving up staff costs. Ultimately it is the consumer and the wider economy that loses out from such behaviour.’2
Parental liability and fining levels
Recent appeals of cartel decisions have continued to confirm the principle that a parent company is likely to be held liable for the anti-competitive activity of its subsidiary if certain conditions are satisfied. (See p4, IHL173 for the feature article on parental liability for competition law infringements.)
Where a parent company holds 100% of the capital of a subsidiary that has committed an infringement, there is a rebuttable presumption that the parent exercises decisive influence over the subsidiary. The Commission will be able to regard the parent company as jointly and severally liable for the payment of the fine, unless the parent company demonstrates that the subsidiary acts independently on the market. It is for the parent company to adduce evidence relating to the organisational, economic and legal links between itself and its subsidiary, which demonstrate that they do not constitute a single economic entity. This was reconfirmed in Akzo Nobel & ors v Commission , where a Dutch multinational company, Akzo Nobel, appealed to the European Court of Justice (ECJ) against the €21m fine imposed on it and four subsidiaries in 2004 for anti-competitive behaviour in the choline chloride (a feed additive) market.
Finding the parent entity liable enables the Commission to fine the larger entity, resulting in much heavier penalties. Consequently, numerous companies have raised the issue of parental liability when appealing their fines and have become increasingly vocal about the level of sanctions imposed. In recent appeal hearings relating to fines imposed for a cartel in the market for lifts and escalators, companies argued that fining levels have entered into the realm of de facto criminal sanctions and are disproportionate. In Evonik Degussa GmbH v Commission  the ECJ upheld the Commission’s approach to setting fines, clarifying that it is not necessary for the amount of the fine to be predictable with absolute certainty. However, companies have argued that the exorbitant level of recent fines has broken into new territory and that the court should reconsider the position.
Judgment has not yet been given in these appeals and it is therefore not clear whether the ECJ will choose to be sympathetic to the pleas of the appellants.
Impact of the financial crisis
The Commission’s 2006 Guidelines on the method of setting fines 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.’
However, a reduction in fine for such inability to pay will only be granted on the basis of objective evidence that the fine would:
‘Irretrievably jeopardise the economic viability of the undertaking concerned and cause its assets to lose all their value.’
In March 2008 the Commission reduced the fine imposed on Interdean, a relocation service, by 70% for its involvement in a cartel in international removal services, based on the company’s inability to pay. Interdean was required to provide a significant amount of information, including market studies, to demonstrate the specific circumstances that rendered it unable to pay the fine. It is clear that arguments based on an inability to pay will not be easily accepted by the Commission. Judgment is currently awaited in Le Carbone Lorraine’s appeal against the Court of First Instance’s decision in the carbon and graphite products cartel, which found that the company could not benefit from a reduction in fine on the basis of its financial difficulties.
However, the Commission recently decided to write off a total of €7.27m in fines imposed on companies that have now entered into insolvency. The Carbide Graphite Group was fined over €6.3m for its involvement in a graphite electrodes cartel, while Bernay Film Plastique was implicated in a cartel in the market for industrial bags. Both companies have seen their fines waived, with the Commission confirming that the waiver was due to:
‘The absence of any prospect of such recovery, due to the insolvency and liquidation of the companies concerned.’
Two companies fined by the Commission in July this year for involvement in a calcium carbide cartel have cited their fines, referred to as ‘drastic’ by one of the companies, in bankruptcy proceedings.
The Commission has made clear, however, that the current economic climate will not be viewed as a reason for relaxing the crack-down on cartels:
‘If we were to encourage cartelists and others at this point we would be guaranteeing disaster… No-one wins – today’s softness is tomorrow’s nightmare.’3
Indeed, despite the recession, and the fact that Commissioner Kroes is nearing the end of her mandate, enforcement activity shows no sign of abating. In recent months, unannounced on-site inspections (or dawn raids) by competition authorities have taken place across a wide range of industries, including fire engine producers in Austria and Germany.
The Commission has raided companies involved in the sector for special glass, which is used for both optical and electronics applications. These inspections took place in March 2009, but were only confirmed by the Commission in July 2009. The Commission is not under any obligation to release information about dawn raids or ongoing inspections, but frequently confirms basic information once companies involved have made such information public, or if there is significant press interest or speculation.
In the food sector, meat and sausage producers were raided in Germany in July 2009 on suspicion of participation in illegal pricing agreements. Food suppliers and retailers have come under the spotlight in Romania, where four investigations have been launched into alleged price fixing and illegal co-operation.
The Belgian authorities have conducted dawn raids at the premises of several companies active in the wholesale of electricity on the Belgian market, while in Romania inspections were carried out at the premises of companies involved in the market for petroleum.
Spotlight on pharma and transport
The pharmaceuticals sector has been under the spotlight in recent months, particularly following the Commission’s sector inquiry into the area. The Commission published its final report on 8 July 2009 (see p37, IHL173) and, in a speech to the European Parliament in September, Commissioner Kroes announced that the Commission is ‘capitalising on our pharmaceutical sector inquiry with new cases’, noting that ‘a sector inquiry “bears fruit” over a number of years’.4 On 6 October the Commission dawn-raided the premises of several pharmaceuticals companies, including Sanofi-Aventis, Teva Pharmaceuticals Industries Ltd and Novartis UK. National regulators are also looking into the sector, with the Romanian competition authority launching four investigations into the wholesale distribution of pharmaceuticals in September 2009 and carrying out dawn raids on numerous companies.
In the transport sector, the Commission has confirmed that it sent a statement of objections to British Airways, American Airlines and Iberia, all members of the oneworld airline alliance. A statement of objections is a formal step in Commission antitrust investigations in which the Commission informs the parties concerned, in writing, of the objections raised against them. The statement of objections relates to agreements conducted between the three airlines regarding the co-ordination of the parties’ commercial, operational and marketing activities relating to passenger traffic on transatlantic routes. The Commission is also currently investigating proposed co-operation between the members of two other airline alliances: Star Alliance (Lufthansa, Continental Airlines Inc, United Air Lines Inc and Air Canada) and SkyTeam (Air France, KLM, Delta Air Lines Inc and Northwest Airlines).
By Rachel Cuff, senior associate, Berwin Leighton Paisner.
- 1Neelie Kroes, SPEECH/09/408, at 36th Annual Conference on International Antitrust Law and Policy, Fordham University New York, 24 September 2009.
- 2OFT press release 119/09 of 30 September 2009.
- 3Neelie Kroes speech (see note 1) above).
- 4Neelie Kroes, ‘Lessons learned from the economic crisis: address to Committee on Economic and Monetary Affairs’, European Parliament Brussels, 29 September 2009, SPEECH/09/420.
Akzo Nobel & ors v Commission  C-97/08 P judgment 10/09/09
Evonik Degussa GmbH v Commission  C-266/06 P judgment 22/05/08