Criminal Charges in the UK for Cartel Activities
An individual appeared in court in the UK on 27 January 2014 charged with the “cartel offence”. The cartel offence is rarely used, so this was an extremely significant event for UK competition law and a warning for the future.
The cartel offence is set out in the UK Enterprise Act 2002: it is a criminal offence for individuals to dishonestly agree to make or implement, or to cause to be made or implemented, arrangements which constitute certain types of cartel activity, namely price-fixing, limiting or preventing supply or production, market-sharing and bid-rigging. Individuals convicted of the cartel offence may be sentenced to up to five years’ imprisonment and/or an unlimited fine.
The charge relates to allegations of customer allocation, price-fixing and bid-rigging between 2004 and 2012 in respect of the supply in the UK of galvanised steel tanks for water storage. There is a parallel civil investigation as to whether certain companies have infringed the Competition Act 1998 that could lead to the imposition of significant fines on companies.
The UK Office of Fair Trading is extremely keen to proceed with cartel offence cases, due in particular to the deterrent effect. However, to date it has had success in only one case (the Marine Hose case, where guilty pleas were entered), and it suffered a very high-profile and embarrassing failure in the Airline Passenger Fuel Surcharge case.
This case provides a strong reminder to companies as well as individuals to set up, adopt, take part in and implement effective antitrust compliance programmes. This will give companies the best chance of avoiding or at least minimizing the risk of competition law sanctions for the company and criminal sanctions for employees.
New Rules on the Granting of Risk Finance Aid in the EU
As part of its State Aid Modernization plan (see European Competition Newsletter of August 2013 for more information), the European Commission (EC) has adopted new guidelines aimed at promoting risk finance investments. The guidelines set out the conditions under which EU countries can grant support measures to facilitate access to finance for SMEs and midcap companies.
Where risk finance measures do not fall under an automatic exemption from the general ban on State aid in the EU (in which case they would need to be notified to the EC for approval), they will be assessed under the guidelines. The rationale behind the guidelines is that there is a funding gap (a market failure) regarding SMEs and certain small and innovative midcaps, which often have difficulties accessing necessary finance (especially in their start-up stage) due to their lack of a credit track record and sufficient collateral.
The guidelines allow aid to be granted through a wide range of financial instruments, such as equity, quasi-equity, loans and guarantees. They reduce the current requirements for private investment and abolish the current “pari passu” requirement (50-50 public/private investment). Support to alternative trading platforms can also be granted to incentivize investors to buy shares of SMEs listed on such platforms. Likewise, corporate investors may be incentivized through tax incentives under the guidelines. Capital replacement measures (the purchase of shares of existing shareholders, if they are combined with capital injections) will also be possible to facilitate the exit of investors and, at the same time, incentivize investments in the start-up stages.
The guidelines, which will go into effect in July 2014, provide a “simple, flexible and generous” framework which is aimed at enhancing private investment in SMEs and innovative midcaps. Investors, private equity funds, and fund managers will be able to more easily obtain support and guarantees for their future investments from public bodies in the EU.
Dutch Mobile Operators Commit to Refrain From Making Public Pricing Announcements
On 7 January 2014, the Dutch competition authority (the Authority for Consumers and Markets (ACM)) closed an antitrust probe against the three major mobile operators in the Netherlands: KPN, Vodafone and T-Mobile. ACM did not formally find that the companies had committed antitrust infringements, but it did identify potential antitrust risks arising out of the mobile operators’ common practice of making public statements about their future market behaviour.
The statements, which centred around planned pricing policy or other commercial conditions, were made in public by employees of these companies (for example, at conferences or in trade journals) even before an internal decision was taken by the companies. ACM was concerned that such statements could significantly reduce the uncertainty about competitors’ behaviour, which should characterize competitive markets. If followed by competitors, such public statements could therefore lead to collusion among the mobile providers and harm consumers. ACM decided to close the case when KPN, Vodafone and T-Mobile offered commitments in November last year (See European Competition Law Newsletter – December 2013), but the details of the case have only now been made public.
The three major mobile operators will refrain from making verbal or written statements in the public domain about future prices or other commercial conditions before an internal decision on such plans is taken within their companies. KPN, Vodafone and T-Mobile also committed to include this obligation in their compliance programmes and to organize staff training so that these commitments are complied with.
Concerns about public statements on future market behaviour (particularly a pre-announcement without a commitment to implement) are not specific to the mobile telecommunications sector. As the ACM made clear, the issues in this case are directly relevant to other industries. This case (as well as other cases at the EU and national levels) demonstrates that companies should bear these issues in mind when devising and implementing their compliance programmes and antitrust audits.
Private Damages Award in Spain
The Spanish Supreme Court has awarded a group of sugar purchasers a total of €4.1 million for damages suffered as a result of anticompetitive overcharges caused by a sugar cartel active in Spain from 1995 to 1996. The cartel had been fined in 1999 by the Spanish Competition Authority (SCA). The case provides a good example of consideration by a court of key issues which arise in EU private litigation.
As part of its analysis, the court confirmed that the passing-on defence applies under Spanish law. However, the court found that the burden of proof lies with the defendant (the cartelists). The defendants need to prove both that the claimants passed-on the overcharge down the supply chain to their customers and that they had not suffered a reduction in their volumes of sales as a consequence.
The court also confirmed that the claimants’ “but for” analysis, a comparator-based before-and-after model, was appropriate to assess their quantum of damage. The defendants’ expert report was inadmissible since it claimed there had been no damage, despite the findings of the SCA that a cartel existed, which had been implemented. Since the only acceptable economic evidence was therefore that of the claimants’ expert, the court awarded the full amount claimed (€4.1 million).
Private enforcement of the antitrust rules continues to increase in the EU, so similar issues arise in other jurisdictions. This includes the UK, where many follow-on actions based on cartel infringements are filed due in particular to the beneficial discovery rules in that country.
Additional European competition law news coverage can be found in our news section.