Tag Archives: cartel

Crisis cartels: relying on Article 101(3) in a pandemic

Brian Kennelly QC and Tom Coates examine how businesses might invoke Article 101(3) to justify collaboration during the pandemic.

The coronavirus pandemic has prompted some slackening of competition rules, but not much. Competition authorities, including the Commission and the CMA, have indicated that they are unlikely to take issue with coordination between providers of critical items such as medical equipment (see here and here). The government has issued exemptions from the Chapter I prohibition for groceries, healthcare services and Solent ferries. But these limited indulgences are all designed to remedy an urgent and heightened demand for essential products. For most businesses – many of whom will have seen a cliff-edge plunge in demand – the competition regime is unchanged.

Nevertheless, the temptation amongst competitors to find a shared solution to a shared problem must be great. For such businesses, the critical question will be: how will competition law principles – and Article 101(3) in particular – be applied in a time of unprecedented crisis?

Clues to the answer may lie in the EU’s reaction to historical crises in the markets for synthetic fibres (Commission Decision 84/380/EEC), Dutch bricks (Commission Decision 94/296/EC) and – most importantly – Irish beef (Case C-209/07). All these sectors suffered declines in demand which led to issues of structural overcapacity. In each case, rival undertakings agreed to reduce capacity in a concerted and orderly way, rather than allow market forces to remedy the problem. When challenged by the Commission, the relevant undertakings invoked Article 101(3) to justify their conduct.

The starting point for the analysis in each case was that the relevant agreement to reduce capacity amounted to a restriction of competition by object under Article 101(1). In the Irish Beef case, the CJEU emphasised that the parties’ honest subjective intentions did not matter: “even supposing it to be established that the parties to an agreement acted without any subjective intention of restricting competition, but with the object of remedying the effects of a crisis in their sector, such considerations are irrelevant for the purposes of applying that provision” [21].

Courts have reached similar conclusions in cases of other crisis cartels which do not concern overcapacity. An example from the UK is the dairy price initiative case, in which retailers clubbed together to agree prices they would charge to farmer suppliers, whose dissatisfaction at milk prices had led them to blockade creameries. Although the scheme had wide public support, the OFT nevertheless considered it an object restriction and the CAT largely agreed (Tesco Stores v OFT [2012] CAT 31).

The objectives and pro-competitive effects of crisis cartels may, however, be relevant to the analysis of Article 101(3). This includes the following four cumulative conditions: (a) the agreement must contribute to improving the production or distribution of goods or contribute to promoting technical or economic progress; (b) consumers must receive a fair share of the resulting benefit; (c) the restrictions must be indispensable to the attainment of these objectives; and (d) the agreement must not afford the parties the possibility of eliminating competition in respect of a substantial part of the products in question.

In both the Synthetic Fibres and the Dutch Brick cases, the Commission found that Article 101(3) was applicable. Reducing capacity brought efficiencies and pro-competitive benefits insofar as it allowed the industries in question to shed the financial burden of keeping under-utilized excess capacity open without incurring any loss of output. Interestingly, the Commission also had regard to the social advantages which would arise from the agreements in the form of the retraining or redeployment of redundant workers. As to consumers, the Commission reasoned – without lengthy analysis – that they would benefit from an overall healthier industry with increased competition and greater specialization. In considering whether the agreements were indispenable, the Commission’s view was that (a) market forces on their own had been unable to solve overcapacity problems and (b) the agreements themselves were solely concerned with overcapacity and so went no further than necessary.

In the Irish Beef case, the CJEU did not itself consider Article 101(3) but the Commission submitted a brief in the underlying Irish proceedings giving guidelines on its application to crisis cartels. The substance of this brief was later replicated in a paper submitted by the Commission to the OECD (here). It illustrates the key hurdles which an undertaking relying on Article 101(3) will have to clear.

First, it will be necessary to establish pro-competitive benefits which outweigh the disadvantages for competition. In the context of the crisis, this may be one of the (relatively) easier hurdles to clear. Benefits could for example take the form of shedding inefficient capacity; or, in the case of an agreement protecting the survival of a shared critical supplier, shielding consumers from an interruption in supply, market collapse, or an overly concentrated market. There may be a useful analogy to be drawn with the failing firm defence which makes rare appearances in the mergers context: the thrust of the argument could be that, although anti-competitive, the conduct is better than the alternative of market exit.

Second, businesses will need to show that the agreement is indispensable to achieve the benefits. The critical – and difficult – question here is likely to be whether market forces alone could remedy the problem at hand. In its paper, the Commission’s view was that an agreement reducing capacity was unlikely to be indispensable unless quite specific conditions were present (in particular, high costs associated with reducing capacity and stable, transparent and symmetric market structures). In the ordinary course of events, mergers and specialisation agreements might produce a more efficient solution.

Third, and again critically, businesses will need to demonstrate that consumers receive a fair share of the benefits such that they are at least compensated for any negative impact. This is likely to be a hard condition to satisfy. Although the Synthetic Fibres and Dutch Brick cases contain generous reasoning on consumer benefits, the Irish Beef paper signals a more rigorous and quantitative approach. Of particular importance will be an analysis of the extent to which competitive constraints are reduced. The greater the reduction, the greater the efficiency and benefits must be for sufficient pass-on.

The Commission’s paper concludes that pleading Article 101(3) successfully in overcapacity reduction cases is likely to be “very difficult” [58]. But these are extraordinary times. The key to success is likely to be whether the agreement in question limits any lessening of competition to the bare minimum. If it does, there may be a serious argument that the countervailing benefits in the context of an unprecedented crisis outweigh the harm.

Leave a comment

Filed under Agreements, coronavirus

The Freight-Forwarding Cartels in the General Court: Lessons on Leniency and Discretion

On 29 February 2016, the General Court handed down its judgments in Case T-265/12 Schenker Ltd v European Commission; Case T-267/12 Deutsche Bahn AG and ors v European Commission, upholding the Commission’s decision on the freight forwarding cartels. The judgments provide some useful guidance on the operation of the leniency scheme and highlight the Commission’s broad discretion in deciding to whom it should attribute liability.

The Cartels

The applicants were found by the Commission to be participants in cartels relating to four different surcharges levied in the freight-forwarding sector between 2002-07.

The operation of the cartels was no lesson in subtlety. In the new export system cartel, the participants had organised their contacts in a ‘Gardening Club’ and had re-named surcharges according to vegetables. One set of minutes of the cartel’s meeting distinguished ‘standard asparagus’ from ‘contractual asparagus’, while another email explained ‘new equipment is on its way to enable fresh marrows and baby courgettes to hit the shops this month. Up to my elbows in fertilizer’.

The Commission fined 14 groups of companies a total of €169 million. The applicants were fined approximately €35 million for infringements of Article 101 TFEU and Article 53 of the EEA Agreement.

Leniency

The Commission began its investigation after an application for immunity was submitted by Deutsche Post AG (‘DP’). DP and its subsidiaries received full immunity from fines, while some other undertakings (including the applicants) received a reduction in fines ranging from 5 to 50 per cent.

In order to qualify as an immunity applicant under the Commission’s 2006 Leniency Notice, the evidence provided to the Commission must enable it (inter alia) to ‘carry out a targeted inspection in connection with the alleged cartel’ (paragraph 8(a)) and must include a ‘detailed description of the alleged cartel arrangement’ (paragraph 9(a)). The applicants contrasted the information initially provided by DP with the Commission’s final findings to argue that these criteria had not been met – in particular, no information was provided about one of the specific cartels, the CAF cartel.

The General Court rejected the applicants’ comparative approach. It explained that the Leniency Notice did ‘not require that the material submitted by an undertaking should constitute information and evidence pertaining specifically to the infringements which are identified by the Commission at the end of the administrative procedure’ (at [338], paragraph references in this post are to T-267/12). It was sufficient that the information provided by DP ‘justified an initial suspicion on the part of the Commission concerning alleged anticompetitive conduct covering, inter alia, the CAF cartel’ (at [340]).

The applicants also argued that the Commission had breached the principle of equal treatment by treating DP’s immunity application differently from the leniency applications of other undertakings. When assessing DP’s immunity application, the Commission granted conditional immunity on the basis of the information it had at the time, and then granted final immunity by considering whether those conditions had been satisfied. In contrast, when considering the applications for reductions of fines made by other undertakings, the Commission considered at the end of its procedure whether the information provided had added value.

The General Court upheld this approach. It explained that the Leniency Notice is structured such that an ex ante assessment is to be carried out in respect of applications for immunity only (at [358]). This distinction is justified by the objectives of (i) encouraging undertakings to cooperate as early as possible with the Commission, and (ii) ensuring that undertakings which are not the first to cooperate do not receive ‘advantages which exceed the level that is necessary to ensure that the leniency programme and the administrative procedure are fully effective’ (at [359]).

Attribution of Liability

A further ground of challenge concerned the Commission’s decision to hold Schenker China solely liable as the economic successor for the conduct of Bax Global, rather than including Bax Global’s former parent company.

The General Court noted that the Commission had a discretion concerning the choice of legal entities on which it can impose a penalty for an infringement of competition law (at [142]), but that such a discretion must be exercised with due regard to the principle of equal treatment (at [144]).

In the present case, the Commission had decided to hold liable parent companies of subsidiaries, but not former parent companies of subsidiaries. The General Court was content that such an approach was within the discretion available to the Commission. It was perfectly legitimate for the Commission to ‘take into consideration the fact that an approach designed to impose penalties on all the legal entities which might be held to be liable for an infringement might add considerably to the work involved in its investigations’ (at [148]). This purely administrative reason was sufficient to entitle the Commission to decline to attribute liability to a party who would be jointly and severally liable for the same infringement, even if the necessary consequence were to increase the fine levied against the existing addressee.

Given the sums involved, it would be no great surprise if the General Court’s judgments were appealed to the Court of Justice. In the meantime, there is greater certainty regarding the Commission’s approach to the Leniency Notice, and it is clear that the Commission has broad discretion in identifying the relevant addressees of its infringement decisions.

Leave a comment

Filed under Agreements, Policy, Procedure

PRIVATE ACTIONS: The CRA 2015 giveth; and the 2015 CAT Rules taketh away

Introduction

Today, on the 1st October 2015, when we are supposed to be celebrating the brave new world of the Competition Act 1998 (“CA”) as amended by the Consumer Rights Act 2015 (“CRA”), cartelists and other competition law infringers up and down the land[1] must be rubbing their hands in glee at the transitional provisions contained in Rule 119 of the Competition Appeal Tribunal Rules 2015 (“the 2015 CAT Rules” or the “New Rules”).[2]

The glee stems from the fact that these transitional provisions are very broad in temporal and material scope and yet very narrow in terms of gateway they provide into the new promised lands of flexible standalone claims,[3] and of collective redress leading to effective enforcement of private damages claims.   The problem, in essence is this: these transitional rules set in aspic for an unnecessarily long time the old CAT regime and all its manifest defects, defects which were the express cause for reform in the first place. Continue reading

1 Comment

Filed under Damages, Policy, Procedure

Arcadia v Visa revisited: the Court of Appeal takes a strict approach to limitation

Competition damages claims can be notoriously complex. According to the Court of Appeal, however, that is no reason to free them from the ordinary English rules of limitation – however strict those rules might be.

Unlike the large majority of European limitation rules, where time starts running from the date of the victim’s knowledge, the English rule under the Limitation Act 1980 (“LA 1980”) is that time starts running from the moment the wrong is done, unless the victim can show that the wrong was concealed from him. The claimants in Arcadia Group Brands Ltd & Ors v Visa Inc & Ors [2015] EWCA Civ 883 argued that various relevant facts had been concealed. Ultimately, their difficulty was that they did have sufficient facts available to them to plead their case. Continue reading

Leave a comment

Filed under Abuse, Agreements, Damages, Procedure

Settling cartel damages actions: contribution defendants beware

Anyone who has ever tried to settle a cartel damages case will know that the law relating to settlements is fraught with difficulty. The recent judgment of the High Court in IMI Plc v Delta Ltd [2015] EWHC 1676 (Ch) highlights some of the problems. Continue reading

Leave a comment

Filed under Agreements, Policy

Applying interest in damages claims

The Competition Bulletin is pleased to welcome the latest in our series of blogs by Oxera Consulting on key economic concepts for competition lawyers. In this blog, Enno Eilts, a Senior Consultant, discusses issues connected with the calculation of interest in damages actions. Continue reading

Leave a comment

Filed under Abuse, Agreements, Damages, Economics

The economics of pass-on

The Competition Bulletin is pleased to announce that Oxera Consulting will be contributing a short series of blogs on key economic concepts for competition lawyers. Robin Noble, Oxera Associate Director and an expert economist on commercial and competition law damages actions, is our first guest blogger. His post discusses the issue of pass-on—ie, the extent to which the purchaser of a cartelised product passes on the overcharge, and therefore its losses, to its own downstream customers. Robin can be contacted at robin.noble@oxera.com.

Introduction

Pass-on is a key issue in virtually all cartel damages claims in the EU. It can make or break a claim: assuming that pass-on is a valid defence to a damages claim, complete pass-on means a claimant cannot claim for any absorbed overcharge, the main head of loss in these actions.

This post focuses on two points. First, it provides a brief summary of the key insights provided by economic theory; second, it discusses two important real-world issues: cost plus pricing, and price-pointing. Continue reading

Leave a comment

Filed under Abuse, Agreements, Damages

Tesco scores partial victory in cheese cartel

In a judgment handed down this afternoon, the Competition Appeal Tribunal largely upheld Tesco’s appeal against the OFT’s decision that it had participated in unlawful agreements relating to the price of cheese: see Tesco Stores Ltd v Office of Fair Trading [2012] CAT 31.

Tesco’s victory is essentially on the facts: it persuaded the CAT that the OFT had misunderstood the evidence. The case is therefore yet another example of the facts of a case appearing very different when placed under forensic examination before the Competition Appeal Tribunal than they did when considered by the regulator (other recent examples are the tobacco litigation and the BSkyB case).

The OFT is plainly keen to strengthen the quality of its decisions. It has recently revised its Competition Act procedures guidance with precisely that goal in mind. It will therefore want to examine this latest judgment to see whether any further steps should be considered. Two points stand out. Continue reading

1 Comment

Filed under Agreements