On June 14, 2011, the European Court of Justice decided that EU law allows third parties, who are suing cartel members for money damages, access to information and evidence gathered in criminal antitrust investigations. The decision may mean the end for leniency procedures, now that cartel members looking for a way out are faced with potential disclosure of the often incriminating information they provide the competition authorities.
Leniency in the framework of imposing fines for infringement of competition rules
Leniency procedures are the center of the fight against practices that restrict competition. Cartels can be fined and eliminated because one of its members brings enough information and evidence to the competition authorities in exchange for leniency or a reduced fine. A recent judgment of the European Court of Justice (“ECJ”), analyzed in this text, ruled that national laws that allow this disclosure of information are possible.
While competition rules are still mainly enforced by the Commission and National Competition Authorities (“NCA”), private enforcement of competition rules through damage claims has been making a way for itself. The European Commission dreams of a world where people adversely affected by infringements of (European) competition law can easily claim damages and thus contribute to the effective enforcement of competition rules.
Private enforcement of competition rules
There is a steady increase of “victims” of infringements of European antitrust rules that are using private enforcement of national liability law to obtain damages for infringements of competition rules. Imposing the fine is no longer the end, but the beginning. There are usually three elements a claimant needs to prove when claiming damages: fault, damage and causality. In private enforcement of competition rules, claimants try to argue that the fact that a fine was imposed by competition authorities proves that there was a “fault” that caused “damage” and that there is ‘causality’ between those two. The fine proves fault.
Pfleiderer v the Bundeskartellamt
Pfleiderer is a German company that started civil actions for damages for the excessive cost it had to pay for purchasing from a cartel of manufacturers. Pfleiderer was a purchaser of décor paper and special paper for the surface treatment of engineered wood and one of the world’s three leading manufacturers of engineered wood, surface finished products and laminate flooring. It purchased goods with a value in excess of EUR 60 million in 2005-2008 from manufacturers that were penalized in 2008 for infringing Art.101 of the Treaty on the Functioning of the European Union (“TFEU”), which prohibits agreements of undertaking and decisions of associations of undertakings that restrict or impede competition.
In the context of preparing that civil action, the company submitted an application to the Bundeskartellamt (the German antitrust authority) on February 26, 2008 seeking full access to the file relating to the imposition of fines. When the Bundeskartellamt replied with documents from which all identifying information had been removed, Pfleiderer expressly requested access to all the materials in the file, including documents relating to the leniency application. When the Bundeskartellamt (partly) rejected that request, Pfleiderer brought an action before the local court of Bonn challenging that decision.
The court of Bonn was inclined to order access to the material in the file, which the applicant for leniency had made available to the NCA, as well as to the incriminating material and evidence collected. According to the court, various interests had to be weighed to determine the extent of the right of access, which is restricted to documents required for the purpose of substantiating a claim for damages.
This exposure would be more than potentially problematic for the effectiveness of the leniency program the Bundeskartellamt had started. If the program were to work effectively or even work at all, the company ready to give evidence of a cartel to which itself is part of has to be certain that the information is strictly confidential. If it however is faced with the possibility of incriminating information being disclosed to a third party wishing to start civil actions for damages, it will most likely not go to the competition authorities at all.
The local court of Bonn stated that while it was inclined to make that decision, it could run counter to EU law, particularly its obligation of sincere cooperation with EU institutions and Art.11-12 of Regulation 1/2003, which provide for a close cooperation and the mutual exchange of information between the Commission and the NCA in proceedings for enforcement competition rules where those proceedings fall within the scope of EU law. The court of Bonn raised the question whether it was necessary to deny access to information gathered in a leniency program within the framework of imposing fines for infringing competition rules to third parties in order to ensure the effectiveness and proper functioning of the competition provisions. The ECJ found that there was no binding EU law on this matter as it was ultimately the national court that weighed the various interests involved and decided on a case-by-case basis if national law allowed the disclosure of such information.
Effect of the preliminary ruling in Pfleiderer…
Pfleiderer can have a big effect on the possibility of private enforcement of competition rules, depending on the national court that is addressed. Things are thus looking promising in the UK and the Netherlands, as their national liability laws allow judges to consider a fine imposed by competition authorities as proof of “fault” and give a stronger position to claimants looking to bring a civil action. This ECJ judgment enables “victims” of cartels to substantiate their civil actions against all participants of the restriction on competition.
As a result, undertakings looking for a way out of a cartel can now approach the competition authorities and request leniency or reduced fines in exchange for enough information and evidence to impose fines on the other cartel members and eliminate the restriction on competition a cartel poses. But if these undertakings are faced with the possibility that their, often incriminating, information and evidence may be disclosed to people bringing civil actions against all cartel members, they will not be as eager to bring such information to the authorities.
The ECJ’s main argument was that it was settled case law that any individual had the right to claim damages for loss caused to him by conduct which is liable to restrict or distort competition (C-453/99 Courage and Crehan, C-295/04 to C-298/04 Manfredi and Others) and that the existence of such a right strengthened the working of the community competition rules. Such rights, according to the Court, discourage agreements or practices liable to restrict or distort competition. From that point of view, actions for damages before national courts could make a significant contribution to the maintenance of effective competition in the EU instead of nullifying it.
The Court’s reasoning is based on the assumption that such a right to information strengthens civil actions for damages. This right would deter undertakings from forming cartels in the first place because there would be no way out anymore when the fear of getting caught becomes real. Once a company under investigation provides the information to the competition authorities, the information might be disclosed to victims of the cartel’s behavior.
… not as bad as it seems
National courts have to decide if national liability laws are applicable to a situation in which a person seeking damages is asking access to information and evidence gathered in a national leniency procedure. It is only natural that the ECJ left it to the national courts to decide. Neither the provisions of the TFEU on competition nor Regulation 1/2003 lay down common rules on the right of access to documents relating to a leniency procedure, which have been voluntarily submitted to the NCA pursuant to a national leniency program. The Commission notices on Cooperation within the Network of Competition Authorities and on Immunity from Fines and Reduction of Fines in Cartel Cases are not binding on the member states.
There is a model leniency program within the European Competition Network designed to achieve harmonization of some elements of national leniency programs, but it is just a model and has, as such, no binding effect on the courts/tribunals of member states. So, in the absence of binding regulation under EU law on the subject, it is for the member states to establish and apply national rules on the right of access for persons adversely affected by a cartel to documents relating to national leniency procedures.
Also, the effect on European leniency procedures might not even be that big. First, while the Commission notices mentioned above are not binding for member states, they do apply to leniency programs implemented by the European Commission itself.
Second, the NCA are obliged to apply EU antitrust rules as soon as there is an EU dimension to the facts (if the facts come within the scope of EU law), i.e. if there is a cross-border element, and to ensure that those articles are applied effectively in the general interest (see to that effect Case C-439/08 VEBIC).
Third, the establishment and application of rules on the right of access to documents relating to leniency procedures is a competence of the member states, but they still have to exercise that competence in accordance with EU law (C-154/08 Commission v Spain). This principle is called sincere cooperation (Art. 4 (3) Treaty on the European Union). Also, member states may not render the implementation of EU law impossible or excessively difficult (C-298/96 Oelmule and Schmidt Sohne) and in the area of competition law they must ensure that the rules they establish or apply do not jeopardize the effective application of Art.101-102 TFEU. This principle is called useful effect.
This preliminary ruling has a positive effect on private enforcement of competition rules and thereby contributes to the effectiveness of national and European provisions on competition. It might deter undertakings that are part of a cartel from going to the NCA for a national leniency program, but it will not be the case for asking the European Commission for leniency in exchange for information and evidence of their cartel.