EU Competition Law. Optimum Enforcement Methods Against EU Cartel Participants

Table of Contents

Introduction

1. EU Private Enforcement: David & Goliath?
(i) Current Law
(ii) Hot Topic: Directive 2014/
(iii) Collective Redress & ADR: Patching Holes

2. Harmony Required: EU Public Enforcement
(i) 2019: Cracks in the NCA Pavement
(ii) ECN+ Directive: New Rulebook
(iii) NCA Optimisation Requires Unified Union

3. Cartels: Promoting Individual Liability
(i) Trimming Weeds, Pulling Roots

Conclusion

Bibliography.

Introduction

Cartel arrangements have been described as “the supreme evil” of competition law violations.¹ The European Commission’s enforcement policy is based on the theory of deterrence, which relies on the rational economic reasoning of companies. In other words, larger fines – enhanced cartel deterrence. The number of prosecutions under Art. 101 TFEU has been reducing in recent years, but this reduction feigns true praise. Cartelists are covert operators with large financial incentives in avoiding detection. Gullibility would allow for commendation of the Commission for quashing these arrangements indefinitely. Cartels are adapting, a revision of European antitrust enforcement is required.

This paper is concerned with optimising the enforcement of European Union Competition Law against cartels participants. A critique of Directive 2014/104 and its main shortcomings will begin this paper.² I will then investigate the role of national competition authorities in the Union, arguing that enhanced member state cooperation and full transposition of draft Directive 2019/1 (ECN+) will deter cartel activity. My final point concerns individual liability against the company agents behind cartels, how corporate fines fail to deter individuals against continued cartel participation.

To escape any anti-EU sentiments, it is important to eulogise the Commission for their pragmatism in framing competition legislation, their vigour in issuing civil fines and their transparent cartel prosecutions. This serves to protect European industry and enhance consumer welfare. In lieu of this progress – more can be done.

1. EU Private Enforcement: David & Goliath?

(i) Current Law

The right to recover damages for private parties for a breach of EU Competition rules was created by European Court of Justice (ECJ) jurisprudence.³ These rules are based on art.101 TFEU in conjunction with the principle of effectiveness. The principle of effectiveness means that domestic procedural law must not make it excessively difficult to enforce rights derived from EU law. Following Courage, concerns were raised on the impact of multiplication of damage suits against leniency applicants. There was, and is, a consensus that this would deter leniency applications.

Legislation was introduced by way of Directive 2014/04 (The Directive), which attempts to harmonise public enforcement and private civil actions in the EU. This is the most recent European primary law on private enforcement proceedings. It also attempts to clarify national competition law policy in member states.⁴ Portugal for example, lacked any rules on damages caused by breaches of competition law, it was difficult and uncommon for claimants to be repatriated for a loss suffered from a cartel arrangement.⁵

The Directive improved the position of cartel victims in terms of the burden of proof in most jurisdictions.⁶ It allowed private claimants to rely on the decisions of the National Conduct Authority (NCA), making a causal link irrefutable when seeking damages in civil law against the cartelist. It has lessened the information asymmetry by allowing the cartel victim to rely on certain evidence derived from the infringement’s proceedings by the NCA or EC.⁷ It also increases limitation periods for bringing actions for private claimants, a minimum of five years.

This reflects the foundation of an optimum enforcement regime due to the ease at which private parties can access evidence, directly reducing legal costs for such parties. It may also promote an ease of enforcement due to the restriction it lifts on claimants pursing damages, furthering cartel participation. A review of the Directive is set to occur in 2020, so it is fitting to analysis its progress thus far.⁸

(ii) Hot Topic: Directive 2014/104

In contrast, the Directive does not engage with indirect damages or collective redress – leaving Member States to decide on their application, this decision will in turn be restricted by the principles of effectiveness.⁹ This lack of collective redress may make private actions difficult for consumers where passing on has occurred in the supply chain as a result of the cartel. Recent case law has showed that a restrictive approach is taken by the Commission when its confidential infringement decisions are at stake.¹⁰ Settlement submissions and leniency statements are given absolute statutory protection under EU law.¹¹

A balancing act exists between European courts and the Commission, with the former mandated to consider its own limits in granting access to leniency documents and adjudicating on umbrella pricing liability. This serves the Commission as its “useful tool”, the leniency programme, is protected.

By limiting access to leniency statements that protect a citizen’s property rights, their money, may come in conflict with the Charter of Fundamental Rights.¹² Although no jurisprudence has materialised in this area of law currently. This again goes back to institutional balance, the ECJ protects citizen rights and the EC provides safeguards for the four pillars of the single market. Conflicting interests are natural; although the balance favours the Commission.

On the other hand, by quarantining settlement submissions and leniency statements from disclosure, the commission promotes cooperation of cartel participants and protects the effectiveness of the leniency programme. The Directive is an operable system, and comprehensive bar few exceptions.

Non-mandatory collective redress provisions for private civil action is a blatant shortfall of the Directive. Making private claims unattractive for consumers directly affected by cartels. Ireland, Estonia and Luxembourg being notable outliers. Individuals define the Union, some of these individuals form cartels. When a cartel forms to bid rig, price fix or control output, it effects all individuals in the Union using that product or service. It is then reasonable that all European individuals should have access to group repatriation to punish cartel participants, to optimise private enforcement.

(iii) Collective Redress & ADR: Patching Holes

Cartel victims individually or collectively need a cost effective dispute resolution mechanism; this is not national courts.¹³ Cost efficiency is important due to the probable small loss experienced by individual consumers. It is paramount that consumer rights bodies secure positive decisions for their members. Punitive damages against a cartelist would benefit the consumer by potentially deterring other cartelists in an industry from engaging in such activity.

Mediation and arbitration may also have the benefit of confidentiality, enticing a cartel participant to engage with the process due to the negative economic implications of a publicized court decision. Confidential civil settlements may protect the Commissions leniency programme. Publicized court proceedings are costly for consumers and cartels, collective redress and ADR are the solution.

Optimum EU competition law enforcement is possible with a mandatory arbitration requirement for private litigants, paired with a compulsory collective redress mechanism available in all jurisdictions. This arbitration requirement could be paired with the new European Online Dispute Resolution platform, providing private claimants further access to foreign cartel participants. We must think digital to reduce the cost burden on consumer protection.¹⁴ This would again build upon the positive impact of the Directive.

I opine that these measures would act in furtherance of the Commissions objective of cartel deterrence. It binds logic with practicality.¹⁵ Leaving the door open for private claimants while protecting the leniency programme that has acutely served the Unions interest of fair competition. The choice is left with national regulators to adopt these proposals, which have been broadly covered. Resistance to its implementation exists from the procedural law asymmetry of EU member states and more specifically, their competition authorities.

2. Harmony Required: EU Public Enforcement

(i) 2019: Cracks in the NCA Pavement

Under Regulation 1/2003 each Member State must “designate” a National Competition Authority to enforce article 101-102 TFEU.¹⁶ Homogenous competition policy means one thing for governments, a dilution of their sovereignty. But it also means furtherance of consumer welfare and a more competitive European market.

Unsurprisingly, difficulties have arisen in differing competition law policy adopted by Member states.¹⁷ In point, they rejected a proposal to give binding effect to judgments given by foreign NCA’s in civil claims – evidence of a lack of mutual trust between Union members. Co-operation is required for an optimum enforcement regime. Harmony is the underlying theme to the new European Competition Network + Directive.

The current public enforcement system involves the Commission and National Competition Authorities. Infringement of Community law exists where a cartel has an “effect on trade”.¹⁸ This criterion needs to be satisfied before a case is included in the ECN system. The Commission has the power to maintain some consistency due to the primacy of Community law. Although the subsidiarity principle has allowed states to have their own national competition law, resulting in several different leniency programmes within the Union. Where a cartel has had an interstate effect, leniency dilemmas may be created by an absence of common principles. Leniency confessions need Union wide protection.¹⁹

A suboptimal European Competition Network is in effect. There is a lack of mutual trust between NCA’s and differing leniency regimes may deter potential leniency applicants.²⁰ This negatively affects public enforcement, the Commissions primary goal.

Further reliance on the Transparency Regulation will be used by private claimants if information cannot be accessed easily from foreign NCA’s.²¹ The Commissions discourages this; it has an interest to preserve the commercial sensitivity of its evidence. It follows that clear rules on evidence disclosure that apply to all NCAs is also in its interest.

While this author understands the current law and the principle of autonomy given to Member States and NCAs– a re-evaluation of the ECN is required to increase cartel deterrence.²² The upcoming ECN+ Directive will attempt to restructure this fragmentation – optimising the enforcement of EU Competition law.

(ii) ECN+ Directive: New Rulebook

Imagine the current European Competition Network as this: Twenty-eight different teams (Member States). Each having one player in a game. (NCA) The referee is the Commission. The players sometimes listen to the ref and often play by their own rules. Imagine if those teams allowed their players to come together and play by the same rules, and respect the ref - wouldn’t a lot more goals be scored? Knowledge and acceptance of a unified competition policy by member states may result in an optimal anti-cartel enforcement system.

An issue with the current ECN Model Leniency programme is that it is soft law.²³ The teams do not have their players play by one set of rules because there is no obligation to do so.

New rulebook: Directive 2019/1. Harmonising enforcement powers of NCAs would act in furtherance of the EC’s leniency programme and common goal. Along with ensuring the proper functioning of the internal market. The ECN+ Directive introduces minimum rules concerning cross border communication, leniency systems and enforcement power of NCAs.²⁴ The legislation reflects the ideas presented in the 2014 Staff Working paper by the European Commission.

Going back to this writer’s original point on mutual trust between Member States, this new legislation requires an NCA to enforce a foreign NCA decision. This is required when an undertaking exists in the NCA’s jurisdiction and found in violation of art.101 TFEU. This decision must be final and can’t be “manifestly contrary to the public policy” of the Member State.²⁵ This represents a welcome change from the informal co-operation system that previously defined the ECN.²⁶

The Directive is overarching, attempting to reconcile political resistance between national government and the Union to increase NCA enforcement power.²⁷ The legislation also codifies the existing EU procedural acquis. For example, some member states do not recognise the parent-subsidiary joint liability principle.²⁸ Some cannot adopt structural remedies or inspect non-business premises.²⁹ While its full transposition is yet to be seen, I believe the ECN+ directive is a step in the right direction. It provides a clear rulebook for public enforcement within Member States.

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¹ Verizon Communications Inc. v The Law Offices of Curtis Trinko 540 US 398 (2004) – Scalia J per 28

² Directive 2014/104/EU on certain rules governing actions for damages under national law for infringements of the competition law provisions of the Member States and of the European Union.

³ Courage v Crehan (C-453/99) and this was reconfirmed in Manfredi (C-295/04 to C-298/04)

⁴ Irish Competition Law, for example, will not be greatly impacted by the imposition of this directive. Which was transposed into Irish Law on 17th February 2017. Many of the principles of the directive were already established in Ireland – also you cannot rely on this Regulation for infringements happening before 27th December 2016. Much remains to be seen on its impact in this EU State.

⁵ Nuno Carrolo dos Santos ‘Portugal: private enforcement - national implementation of Damages Directive’ (2018) 39(9) E.C.L.R. 124.

⁶ Except Ireland, competition law violation is a criminal law offence in Ireland. The burden of proof is “beyond reasonable doubt” still. Estonia and Spain are also misnomers on EU Competition policy.

⁷ Caterina Fratea, ‘The interplay between Regulations 1049/2001, 1/2003 and Directive 2014/104: will public enforcement of EU competition law always come first?’ (2018) 39(2) E.C.L.R. 83.

⁸ Directive 2014/104 Art. 20

⁹ Directive 2014/104 Art.4.

¹⁰ European Commission v Netherlands (C-576/10) at [39] and [49]–[55].

¹¹ Directive 2014/104 art.6(6)

¹² Article 17 of the Charter of Fundamental Rights.

¹³ Micheal Legg, ‘Australian Law Reform Commission class action and litigation funding report: empowering courts, monitoring funders, supporting contingency fees for class action lawyers and proposing reviews of shareholder class actions and collective redress’ (2019) 38(4) C.J.Q. 479.

¹⁴ Fidelma White & Mary Donnelly, ‘A nudge in the right direction? Trader engagement with online dispute resolution in the European Union” (2019) 5 J.B.L. 389.

¹⁵ This view on a review of collective address by regulators is directly supported by the ALRC, an extra jurisdictional body in Australian Competition Law. Lawyers should not benefit in the sphere of consumer protection.

¹⁶ Council Regulation (EC) 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty [2003] OJ L1/1, art.35.

¹⁷ Pfleiderer (2011) (C-360/09) this case outlined the divergence of national courts interests and the EC’s interest. The Commission saw the threat of disclosure created in this case as a deterrent to potential leniency applicants

¹⁸ Commission Notice, Guidelines 2004/C101/07

¹⁹ EnBW Energie Baden-Wurttemberg AG v European Commission (T-344/08)

²⁰ Zia Akhtar, ‘Jurisdictional issues in EU competition law and remedies in anti-trust litigation’ (2017) 10(4) G.C.L.R. 204.

²¹ Regulation 1049/2001 (The Transparency Regulation) The EC does not like applications relying on this regulation for cartel evidence. This is due to the negative affect it may have on EU leniency applications

²² Pfleiderer (2011) (C-360/09) at [20] and [23].

²³ DHL Express (Italy) Srl v Autorità Garante della Concorrenza e del mercato (C-428/14) at [32].

²⁴ Directive (EU) 2019/1 of the European Parliament and of the Council of 11 December 2018 to empower the competition authorities of the Member States to be more effective enforcers and to ensure the proper functioning of the internal market.

²⁵ Directive 2019/1 Art.25(5).

²⁶ Giorgio Monti (2014), "Independence, Interdependence and Legitimacy: The EU Commission, National Competition Authorities, and the European Competition Network" EUI Working Paper, Law 2014/1,

²⁷ Directive 2019/1 Art. 35

²⁸ Marco Botta, ‘The draft Directive on the powers of national competition authorities: the glass half empty and half full’ (2017) 38(10) E.C.L.R. 2017, 474.

²⁹ Italy, Belgium and Denmark cannot search non-business premises. 11 NCA’s cannot provide structural remedies. P.17 of the Impact Assessment accompanying the draft of Directive 2019/1.