What’s the Deal? Navigating the European Commission’s 2008 Settlement Notice

Julian Joshua, Kristian Hugmark and Ief Daems

Howrey LLP

Background – Commissioner Kroes’ launch of a settlement programme
It did not take EU Commissioner Neelie Kroes long after she took office to set out her enforcement priorities for her tenure as commissioner for competition. On 7 April 2005, she chose the unlikely setting of an annual legal conference in Brussels not usually noted for generating controversy to announce revolutionary changes. The focus was unambiguous: ramping up the combat against the worlds’ largest cartelists, with the clear objective of reorganising the system from top to bottom: ‘Regaining control of priorities means reorganising internally […] and changing the way the game is played.’¹ Her ‘First Hundred Days’ speech not only covered the review of the 1998 fine guidelines and the one-stop shop for leniency; much to the surprise of many, even her own cabinet, it also encompassed the first policy announcement of a ‘plea bargaining procedure’. It seemed like the launch of a new era in cartel enforcement.
Three years down the road, on 30 June 2008, the European Commission finally adopted its settlement programme. If Commissioner Kroes’ initial launch was seen by some as a flirtation with the US system of comprehensive plea agreements, the final programme is a very different animal from that in place in the US. During the long gestation of the new system, DG Competition officials had been careful to disabuse observers of hopes that the Commission might overhaul its ponderous case resolution system and turn the leniency programme into something more dynamic and holistic. When it appeared, the Notice² fully met the modest expectations that had been created. It is made clear that the Commission is not intending to bargain or even to negotiate. The basic concept is simple:
• the Commission will lay out its case and charges and grant access to key evidence;
• the alleged offenders will be able to respond and will ‘have the opportunity to influence the Commission’s objections through argument’.³ They will then agree to pay a fine and in effect waive their right to appeal; and
• in exchange, the Commission will grant a 10 per cent discount.

The settlement process is thus not just a matter of ‘not contesting the facts’, a concession which used to lead to an identical discount under the old leniency regime.⁴ Under the new settlement system, company admissions (euphemistically labelled ‘settlement submissions’) require the acknowledgement of liability for the infringement and companies’ involvement in it (setting out the object of the agreement, main facts, duration, legal characterisation, etc), as well as recognition that due process has been respected and the indication that the companies will not request full access to file or an oral hearing. The Commission retains full discretion whether or not to settle and on what terms to accept settlement.
The Settlement Notice may be applied to any cases pending before the Commission on 2 July 2008, the date of its publication in the Official Journal. The first settlement discussions are expected to start at any time. The challenges are however plentiful. Although the system breaks new ground in its general approach to cartel enforcement in Europe, it remains to be seen how effective the new settlement regime will be. Indeed, the Commission has a lot to do before one can really speak of a new era of cartel enforcement in Europe.
In the meantime, parties will have to be as careful as ever to condition their defence strategies. Given the huge concessions required, the 10 per cent fine reduction will probably on its own prove attractive only in the nowadays rarely found ‘open and shut’ case. In most cases, the willingness of companies to settle will depend on the Commission’s inclination to demonstrate flexibility in the reduction of their exposure in terms of major factors for the fine calculation, such as duration or gravity. To make the system work, the Commission needs to convince all parties to a cartel to settle: this means all must have a greater incentive to settle than to fight. This is a particular challenge, especially for those companies not having an immediate incentive to roll over (for example those that did not apply for leniency). The success of the settlement procedure is thus dependent on the Commission’s willingness to find a solution to fit all parties. The question will not be whether companies will accept a 10 per cent discount, but more pertinently, 10 per cent off what?
There could be several instances where companies would be better off not to settle. This would in particular be the case when:
• the company has a reasonable chance of successfully contesting the allegations, either because the Commission’s case against it is shaky or because its involvement in the infringement was minor;
• the Commission is not offering a generous reward, ie lenient interpretation of the fine guidelines in addition to the 10 per cent discount for settlement;
• the Commission does not clearly indicate the end fine but leaves it to the parties to read the tea leaves; or
• the circumstances are such that the Commission is unlikely to reach settlement with some parties, and is thus likely eventually to withdraw from settlement discussions for the entire case.

The Commission’s rationale: ‘scope for substantial procedural savings’

Instead of a dynamic investigation tool, the Commission sees the settlement system as no more than a case closure mechanism: the rationale is the reduction of the ever-mounting backlog of pending cases: ‘Cartel cases are typically long and procedurally complex. […] [T]here is a tremendous scope to make substantial procedural savings, such that would justify a reward for cooperation.’⁵
Indeed, few would gainsay the scope for substantial procedural savings. When the commissioner came into office, it took on average three or four years for a Statement of Objections (SO) to issue, with final decisions a leisurely year or more later.
Following the introduction of the leniency system, not only did the sheer number of cases multiply; they also grew in size and complexity. The amount of paper evidence ‘dumped’ on the Commission case teams by leniency applicants, particularly in transatlantic cartels, turned internal deadlines into a vague aspiration.
Even in cases where none of the parties contested the facts, the process took as long as when they all fought tooth and nail.⁶ The SOs issued by the Commission grew ever larger, had to be translated in multiple languages and were sometimes rendered almost incomprehensible by the increasingly employed technique of labelling apparently disconnected allegations as a ‘single continuous infringement’.
Notwithstanding the grant of leniency, all cases were routinely appealed to the European Courts. Leniency applicants tended to bank their discounts and then appeal to the court for further reductions. Not only was the Commission clogged up; the courts were overwhelmed with cartel cases as well.

Building up the incentive to settle – the leniency programme and fine guidelines
Ms Kroes’ first strategic acquisitions in the ‘war against cartels’ were revised fine guidelines and tougher conditions for obtaining leniency.
The new 2006 fine guidelines⁷ empowered the Commission to impose astronomic fines. Although recent practice indicates a more moderate application of the guidelines than some envisaged,⁸ they still leave a large discretion to the Commission to set the level of the fine. Elevators and Escalators⁹ set a new benchmark, and the first billion euro fine for a single cartel is only a matter of time.
Under the 2006 leniency programme,¹⁰ the Commission takes an increasingly tough stance on immunity and leniency applications, pushing applicants to provide ever more detailed information. The Commission has become less generous in its rewards and an increasing number of leniency applicants obtain no reduction at all.
The combination of the ever-increasing fines and reluctance of the Commission to grant immunity and leniency rewards provides the Commission with the stick, but does the settlement system provide a sufficient carrot? The stakes are high, and the first hundred days of the new system will be crucial. The Commission will look for textbook examples to achieve successful settlements early on, but it may not find such cases unless it is willing to create the incentives for all parties to settle. Overall, it will need to make more generous concessions to make the system as effective as Commissioner Kroes’ landmark speech in April 2005 envisaged.
In the following section, we first look at how the Commission will operate the settlement system, and the challenges it is likely to come across on its path.
In the third section, we assess how companies should approach the possibility of a settlement; how best to use its benefits and how to avoid its various traps and pitfalls.

The settlement process – how will it work?

The settlement process is yet to be tested in practice, but the Notice leaves little room for negotiation and a wide margin of discretion for the Commission. This aspect has been emphasised by Commission officials¹¹ and undertakings involved in global cartel infringements need to be aware it is not at all a US-like plea bargaining system. Basically, a 10 per cent reduction will be granted in return for accepting the facts, their legal characterisation as a violation, the main elements determining the fine (such as gravity or duration) and the final amount of the fine, as well as waiving the rights to full access to file and a hearing. In practice, while the Notice is careful not to say so, an appeal to the European Courts is thus virtually ruled out.

Initiation of procedure – when will the Commission opt for settlement discussions?

There is no obligation on the Commission to offer settlement discussions. At the initial stages of the procedure, it decides on a fully discretionary basis whether a particular cartel case is suitable for settlement. In taking the decision, the Commission will consider the likelihood of reaching a ‘common understanding’ regarding the scope of the potential objections, as well as the number of parties involved, or the likelihood of conflicting positions on liability or contesting facts (paragraph 5 of the Notice). The Commission will conduct its investigation (including the use of dawn raids, leniency applications, requests for information, etc) along standard lines before exploring whether the case is suitable for settlement. Only if the case is deemed suitable for settlement, will the Commission give the parties time (at least two weeks) to indicate their willingness to engage in settlement discussions.
Which cases will the Commission find suitable for settlement? This chapter distinguishes between straightforward cases where evidence is compelling and the parameters of the infringement leave little room for interpretation; and more complex cases where case files are often bulkier, but evidence is fragmented or contradictory, and where key determinants of the fine are contestable.
From the Commission’s perspective, settlement is most attractive in straightforward cases. Although the Commission would probably win these cases in court anyway, it regards the ‘procedural cost savings’, namely reduced man-hours required in a case without full SOs, access to file, translations and following appeals, as justifying a 10 per cent reduction in the fine.
The real test of the system will, however, be the more complex cases. These will be more difficult to settle, but settling complex cases to the satisfaction of all would in fact achieve far greater benefits than straightforward cases and hence be the most important in terms of procedural savings. As in any legal dispute, the weaker a party’s case, the greater the incentives to settle. Is the settlement system fit for purpose in this respect? To bring all cartel participants to the table, the Commission must be willing to scale down the scope of the infringement. The main question is: will the Commission and its Settlement Notice prove flexible enough to do so?
The fear of the sceptics is that the Commission will shrink from the challenge of its own Notice, and use the settlement option as a case closure device for straightforward cases only. In an ideal world, however, the Commission would make it a top priority to settle the complex cases, where potential procedural savings are the largest. The Commission’s refusal to negotiate and the ‘all or nothing’ design of the Notice itself make this a difficult, but hopefully not insurmountable, task.

Settlement discussions – is there any scope for negotiation?

Having received an indication of the parties’ interest to engage in discussions, the Commission may start bilateral discussions. This decision is fully discretionary.
During the settlement discussions, the Commission will set out its allegations. A ‘template SO’ will outline the findings of the Commission’s investigation and the various elements going to the determination of the fine. There being no room for what it considers plea bargaining, the Commission insists that the facts are not up for negotiation.
This being said, the Commission recognises that the parties must be heard effectively and ‘therefore have the opportunity to influence the Commission’s objections through argument’.¹² The interpretation of this guarded language will be the key to the entire settlement system. It remains to be seen where the Commission will in practice draw the line between ‘negotiations’ and effective ‘discussions’, but the Commission will need to listen carefully to parties’ arguments and be forthcoming in finding suitable solutions for the grey areas of the infringement in order to keep all parties at the table. As the Commission will have to settle with all parties on a non-discriminatory basis, it will not be able to distinguish between different parties on generic elements of the case. However, the Commission should be open to discuss elements specific to the parties in order to create additional incentives for the individual companies. Only if the right combination of stick and carrot is found will settlement discussions have a chance of creating the efficiencies the Commission is looking for, and allow the Commission also to tackle the more complex cases referred to above. Public statements by Commission officials to date are not encouraging in this respect, but hopefully the Commission will take a more reasonable stance in practice.

The discussion of fine levels – transparency or ambiguity?

The discussions will necessarily also cover fines. It is unclear though how this will be executed in practice. There are three possibilities:
• the Commission may set out the different elements of the infringement, not only indicating whether it is considered ‘very serious’, but also giving specifics on the gravity and entry fee percentages as well as the leniency discount and the other determining elements of the fine. Based on the value of sales, parties can then work out their potential fine exposure;
• alternatively, the Commission may refrain from giving any specific percentages and remain vague as to the specific consequences for the fine calculation. The Commission may decide to wait, set out the facts and allegations first, and then informally put a final fine number on the table that would suffice to endorse a settlement submission (without providing the specifics of how it was calculated); or
• the parties are themselves asked to propose the maximum fine they are willing to pay without having a clear indication from the Commission what the acceptable level would be (except an ‘estimation of the range of likely fines’).

Although the last option seems compatible with the language of the Settlement Notice, the Commission would be unwise to go down the third road. If a party proposed a figure at the lower end of the fine range (a prudent strategy from a company perspective), the Commission would then have either to refuse settlement, try and negotiate the fine upwards to the level it sees fit, or accept the bid of the party. None of those scenarios appears to be attractive to the Commission.
However much they might wish to settle, few responsible company boards or their advisers would be willing to take up the offer unless they knew the bottom line. To make the settlement system work, the Commission will surely have to provide the parties with a specific number or the exact variables of the fine calculation so that the figure can be ascertained by applying simple mathematics. Any other alternative would render settlement irrational from companies’ perspectives.
Whether the first or second alternative may be used in practice is hard to predict; in the end the practice may vary from case to case and may also turn into a combination of the two. What is clear is that parties will have to be well-prepared, and be able to respond quickly to any fine proposals the Commission will make.

Access to the file – but only parts of it…

During the settlement discussions, parties will also be granted access to the key documentary evidence on which the Commission has based its allegations. This is likely to occur only once the Commission believes the discussions are likely to be successful, if only to prevent parties marching in to review the evidence without a commitment in principle to settle. It is to be expected that the Commission will find ways to discourage parties from engaging in discussions just to gain an insight in the case.
In addition to the key documents (‘used to establish the potential objections’ – paragraph 16 of the Notice), the Commission will also provide a list of all documents on file. The parties can request access to non-confidential versions but the Commission retains discretion. With an eye on the procedural efficiencies and in particular the case team’s resources for lengthy and time-consuming access to file procedures, the Commission is likely to grant such requests for only a limited number of documents, where the parties can make out a good justification for access.
During the discussions, the parties may also call upon the hearing office in relation to any issues relating to due process.

Settlement submission – total admission but no guarantee of a settlement
If a ‘common understanding’ is reached on the allegations and the potential fine range, the Commission will invite the parties in question to submit a settlement submission. A period of at least 15 working days will be allowed for this. If the settlement discussions have not led to a consensus on the allegations, a full SO will be issued, and the ‘normal’ procedure comes back into play.
As indicated, one major weakness of the settlement system is its one-sidedness: the Commission may withdraw from the procedure at any point. In particular, if just one party decides not to make a settlement submission (or to submit one that does not match the Commission’s perception of what the ‘common understanding’ was), the Commission may withdraw the settlement procedure for all parties. This smacks of collective punishment, and indeed Commission officials have recognised that such an unfortunate scenario might damage the credibility of the settlement system overall. It also underlines the importance for the Commission to pick the right cases from the beginning and manage the settlement discussions in a way that makes it worthwhile for all parties to settle.
The settlement submission is binding on the company making it, unless the Commission does not endorse it – see below. It can be made orally (if the Commission so allows), but must cover the following elements (paragraph 20 of the Notice):
• an acknowledgement of the parties’ liability outlining the object, facts, their legal qualification, duration, the parties’ involvement in the infringement, etc;
• an indication of the maximum fine for which the party is willing to settle;
• confirmation that the party has been sufficiently informed about the Commission’s allegations and has had sufficient opportunity to react to such allegations;
• the party’s waiver of full access to file and the right to an oral hearing; and
• the party’s agreement to receive the SO and the final decision in one of the official EU languages.

Short-form statement of objections and settlement decision

If the Commission endorses the settlement submission, it will adopt a short-form SO. The short-form SO will reflect the elements included in the settlement submissions, that is, the facts, qualification of those facts, duration, gravity, etc, but in a much shorter format than the ‘normal’ SO.¹³
The parties’ reply to the SO should confirm that the SO corresponds to its settlement submission, and the parties remain committed to the settlement procedure. The Commission will grant a time limit of at least two weeks.
At least in the case that all parties settle, upon receipt of the responses to the SO (acknowledging the willingness to pursue the settlement track), the Commission should be able to publish its decision within a relatively short time. The decision will then reward the parties with a 10 per cent settlement reduction. This reduction will apply in combination with the leniency discount (ie, adding up both percentages – see also below).

Right to appeal – waived in practice

Although theoretically still susceptible to court review, the Commission’s decision endorsing the settlement submission will in practice not be open to challenge given the acknowledgements the parties will have to make. An appeal is only likely to succeed if the Commission has committed some serious error in the final decision such as unjustified discrimination between the parties to the same proceedings.

Hold or fold? When should companies opt for a settlement?

Parties to settlement discussions will have to assess their potential defence strategies carefully when facing the Commission’s settlement invitation. This section weighs the benefits of a settlement against the obvious downsides, traps and pitfalls.

Settlement benefits

The immediate benefits are the following:
• if the settlement is endorsed by the Commission, it will provide a 10 per cent reduction of the fine;
• although officially there is ‘no negotiation’, parties may in practice be able to influence the Commission’s objections by targeted arguments. It would certainly benefit the Commission to engage in such discussions, since the 10 per cent settlement reward in itself carries only a marginal incentive to settle. Enough tools are available to the Commission to provide additional incentives without blurring the line it wants to draw between setting out the facts and pure back-and-forth negotiation;
• legal and other administrative cost savings could be achieved;
• undertakings will have certainty for financial and business planning purposes about the amount of the fine at an earlier stage of the procedure, thus limiting long-term uncertainty for investors and future projects;
• reputational damage through adverse publicity such as media reports will be confined to a shorter period; and
• at least at its early stages, most parties will have little to lose by engaging in settlement discussion on a no-commitment basis to explore the Commission’s allegations and key evidence. The Commission will, however, likely try to prevent such tactics to the extent possible, for example by only providing access to evidence once the party has shown its willingness to settle.

Traps and pitfalls

Settlement, of course, means that a party in practice waives its right to appeal, although if it goes into the process with its eyes open it can hardly complain on that score. Below, we focus on the somewhat less evident traps and pitfalls in the settlement system.

Commission’s discretion – settlement never a certainty

Throughout the process, the Commission retains a de facto unlimited discretion to decide whether to start and to continue along the road to settlement. It may end the bilateral discussions at any point in time or decide not to endorse the settlement submissions. Even right before the final decision, the Commission may decide to distance itself from the settlement submissions and return to the ‘normal’ SO procedure.¹⁴
While Commission officials have informally acknowledged the potentially detrimental effects of unilateral decisions to end settlement discussions or ignoring settlement submissions that fairly reflect the common understanding reached, parties will have to consider carefully the extent to which they want to commit themselves unilaterally. They must constantly keep in mind that discussions can be broken off at any point and a ‘normal’ SO procedure put in place. They will thus have to align their strategies for both tracks (ie, settlement and non-settlement/full SO). For example, agreeing (or not disputing) certain facts during an earlier period of the infringement may make sense during settlement discussions (at least if the final outcome is beneficial to the parties), while such ‘concessions’ should not necessarily be made during the ‘normal’ SO procedure.
Although the settlement submissions ‘would be deemed to be withdrawn and could not be used in evidence against any of the parties to the proceedings’ if the Commission decides not to endorse the settlement submission (paragraph 27 of the Notice), companies that have started defending themselves in front of the same case team in the framework of a response to a full SO may be forgiven a certain scepticism. It is still unclear to what extent the actual settlement discussions will be conducted by a separate ‘settlement unit’ (ie, thus creating an ‘ethical wall’ with the case team). While officially the Commission may not use any information obtained during the settlement discussions, one has to question the extent to which parties can retrieve their full rights of defence once the Commission decides to revert to the ‘normal’ SO procedure. A Commission official is unlikely to ‘un-remember’ facts conceded by companies during settlement discussions, and will as a result of the discussions have a roadmap through the parties’ best defence arguments.
Although it is clear that the Commission must refrain from rejecting bona fide settlement submissions if it wants to attribute any credibility to the settlement system, parties must ensure they do not go ahead full-throttle without any fallback strategy in case settlement is terminated at the Commission’s discretion.

What if certain parties refuse to settle?

While companies will have to remain watchful as to the Commission’s approach to its own alleged involvement in the infringement, it will also have to factor in the engagement of other undertakings, and in particular the Commission’s reaction where other parties are unwilling to engage in or do not commit to settlement discussions.
Even if discussions run in parallel with all parties, some undertakings will express their commitment at an earlier stage than others and thus provide additional stiffening to the Commission’s case. It will be extremely detrimental to the whole system if the Commission refused settlement to willing companies on the sole basis that other companies have decided not to settle.
Conversely, if the Commission settled with some but not with others, much of the procedural savings will be lost since the Commission will still have to issue a full SO and go through the whole contested process with potentially just one addressee. While the company concerned may enjoy the benefits ‘negotiated’ by settling companies, if any (for example a later start point of infringement), it still retains its right to challenge the Commission’s case on any aspect. Although this strategy might have limited success when all others have settled, it is still a scenario that the Commission would like to avoid. Faced with a dilemma if one party refuses to settle, the Commission could well end up making the willing parties suffer by withdrawing the whole settlement process.
It is thus doubtful whether companies should even commit to serious settlement discussions in cases where the Commission is unlikely to settle with some (key) parties, for example because the deal on offer is unattractive or because some companies are likely to refuse settlement and fight.

If a fringe party refuses to settle

What if in the scenario just described the company refusing to settle is a fringe player of limited importance to the overall case? Will it still be worthwhile for the Commission to continue the lengthy time- and resource-consuming process of drafting a full SO, preparing full access to file, organising a hearing, etc, just because one or two smaller companies hold out? Or would it be more efficient to just drop the allegations against the smaller infringer?
More flexible fine ‘discussions’ would surely make sense here, as it is better from the Commission’s standpoint to collect a lower fine than no fine at all. If the Commission stays as inflexible as the Notice indicates, fringe players may well be better off staying out of settlement discussions.

Fine calculation and leniency reductions – buying a pig in a poke?

To make the settlement system work, the Commission will have to clarify the calculation of fines under the latest 2006 fine guidelines – which are yet untested in court. The fine guidelines leave the door open to significant increases in the level of fines, especially for cartels of long duration. Any changes in the wide ranges foreseen for gravity, entry fee, aggravating circumstances and the ‘deterrence uplift’ for large companies, to the extent that is still valid, have a considerable impact on the amount of the fine. In addition, duration uplifts have increased tenfold in comparison to the old guidelines. Potential fines for long-lasting hard-core cartels can thus be enormous. This does not make it any easier for parties to estimate the benefits they may gain from settling.¹⁵ Unless the Commission provides clear information on all elements of the fine calculation or an exact fine figure, settlements will be inadvisable.
Clarity in terms of leniency reductions is of particular importance. Undertakings currently remain largely in the dark until the very last minute when the Commission’s decision sets out the final fine and cooperation discount. They do not even know until the SO is issued whether they have even qualified for a particular band. With increasing regularity the leniency discount turns out to be much lower than the maximum reduction available according to the company’s position in the ‘leniency race’.¹⁶ In some cases, all the companies applied for a leniency reduction but were refused any discount on the basis they had provided no added value. Over the years, the Commission has applied a much narrower interpretation of the necessary ‘significant added value’ of the evidence provided in comparison to evidence already in the Commission’s possession.¹⁷
For parties to make a reasoned decision on the final amount for which they are prepared to settle, the Commission will have to disclose the amount of leniency reduction that will be granted and administer the leniency process in a far more transparent, predictable and generous manner than some recent cases and anecdotal accounts tend to suggest.¹⁸ Otherwise, the perceived uncertainty of outcome might have adverse effects on the settlement process: parties will avoid making any concessions in the absence of guarantees that their cooperation will be generously rewarded.
This argument is not only valid for the integrity of the settlement system; it also holds good for the leniency regime itself. Although it may not be the most efficient system¹⁹, the Commission has opted to separate leniency very clearly from settlement reductions. If final decisions do not reflect the level of leniency reductions the parties expected, it would not only limit the parties’ willingness to settle, but also their willingness to apply for leniency. Companies will therefore have to balance the cooperation they provide under the leniency system against the cooperation or discussions under the settlement system. Although parties are not obliged to settle, those who apply for leniency but then remain aloof from the next stage might also be forfeiting their best shot at the maximum leniency discount. Parties might know what they gain; they do not know what they will lose if discussions go wrong.

Settlement reward – not sufficient to settle in most cases

The careful balance relating to the calculation of fines is all the more important because of the Commission’s decision to keep the settlement reduction low. Even its friends had warned that anything less then a 20 per cent discount would attract few takers. As long as the 2006 fine guidelines have been untested in court, granting a mere 10 per cent reduction in return for waiving the possibility in practice to appeal to the Luxembourg courts has little allure. This is particularly true in the light of the statements that the court may take a more active role in the supervision of the Commission fining policy (even if some commentators believe this may lead to instances of increased fines as well).²⁰
It remains to be seen to what extent the Commission will actually be willing to take a step back from the more aggressive fining policy in order to make settlements worth while. If it is committed to making the system work, it will need to show the system from its best angle and provide sufficient benefits to all parties involved. Those companies that decide not to cooperate in the Commission’s investigation (because they consider itself not to be involved or at least not to the extent it merits the current level of fines) may prefer to fight rather than roll over. In such circumstances especially, a mere 10 per cent reduction is just not enough.
While the 10 per cent settlement reward is clear and limited, the question should rather be ‘10 per cent of what?’, that is, the base fine on which the discount will be calculated. An open-minded policy would certainly be beneficial to all parties involved, and might provide the incentives it will need to guarantee the success of the current settlement system.

Risk of discovery and action for damages

A company opting to settle must take into account that in any resulting civil litigation with injured parties there will be a Commission decision indicating that the party has admitted guilt and agreed to pay a fine, and that this decision may be available much earlier than would otherwise be the case. As a counter-argument, however, any such decision will contain less detailed evidence of the infringement than under the non-settlement procedure.

Exposure in multi-jurisdictional investigations

A functioning leniency and settlement system must avoid clashing with concurrent enforcement proceedings in other jurisdictions, in particular negotiations with the US DoJ. Unlike the Commission’s collective settlement process, US practice is to deal with the cooperating parties one by one, reach separate plea agreements with each and only start negotiation with a later applicant once it has concluded a settlement with those who came in earlier. But to what extent can a company successfully negotiate a plea agreement in the US (which generally takes priority given the potential jail terms on executives, etc) when in parallel (possibly with diverging timeframes) it is also engaged as a cooperative immunity/leniency applicant and potential settling party at the European level? The Notice takes no account of such potentially conflicting timing issues. A company considering settlement with the Commission will therefore not only have to be mindful of the vagaries of the process in Europe, but will also have to align its strategy on a transatlantic basis. Moreover, it will hardly be inclined to settle in Europe before any US DoJ plea agreement has been reached.

***

The settlement package will not make life easier for parties facing strategic decisions in a cartel investigation. Given the prevailing uncertainty not just in relation to the settlement system itself, but also as regards the untested fine guidelines and the Commission’s increasingly tough and sometimes inconsistent stance on leniency reductions, parties will have to consider carefully at every step in the procedure what their strategic options are.
The uncertainty and lack of transparency also endangers the success of the settlement system. As long as companies do not know exactly what they will have to pay, or whether or not the settlement will ever materialise, they will not want to settle: boards do not buy a pig in a poke.
To make the system work, the Commission should at the very least demonstrate its commitment to settle the cases where it engages in settlement discussions, and provide sufficient incentives for parties who would be willing to accept liability and settle rather than contest. Any failure of the Notice to attract settlement candidates would have adverse consequences not only for the procedure itself; it would have a wider and more serious effect on the credibility of the Commission’s overall cartel enforcement policy as well. Trust in the Commission’s case handling may be damaged, with a consequential negative impact on the leniency program and leading to further contestation of the Commission’s fining policies.
While different (levels of) incentives may apply to complex and straightforward cartel cases, a properly functioning settlement system could be made to work to the benefit of all parties in both instances. The Commission should not limit the settlement procedure to the ‘easiest’ cases. It has most to gain from tackling those that exhibit the most difficult features. Proper discussions between the Commission and parties to cartel proceedings in no way imply that the Commission would be giving in to the negotiating power of larger undertakings to the detriment of the consumer. In fact, the consumer (ie, taxpayer) would be the first beneficiary of the lower costs of a shorter but still effective cartel procedure.
Although the Notice might be too conservative to herald a new era in cartel enforcement, it has the potential to address and resolve certain procedural issues. However, it will be entirely up to the Commission whether it will use the tools it has available and whether it will show enough flexibility to make the settlement system as efficient as Commissioner Kroes hoped it will be.

Notes

1 Neelie Kroes, The First Hundred Days, 40th Anniversary of the Studienvereinigung Kartellrecht 1965-2005, International Forum on European Competition Law (7 April 2005).
2 Commission Notice on the conduct of settlement procedures in view of the adoption of Decisions pursuant to article 7 and article 23 of Council Regulation (EC) No 1/2003 in cartel cases, [2008] OJ C 167/1 (the ‘Notice’).
3 Commission MEMO/08/458 of 27 June 2008, Antitrust: Commission introduces settlement procedures for cartels – frequently asked questions.
4 Commission Notice on the non-imposition of fines or reduction of fines in cartel cases, [1996] OJ C 207/4.
5 Neelie Kroes, Assessment of and Perspectives for Competition Policy in Europe, celebration of the 50th anniversary of the Treaty of Rome, Barcelona (19 November 2007).
6 Under the 1996 Leniency Notice, the fact that companies received a 10 per cent discount for non-contesting facts did not prevent them from appealing even on the facts.
7 Guidelines on the method of setting fines imposed pursuant to article 23(2)(a) of Regulation No 1/2003, [2006] OJ C 210/2.
8 Although the Notice refers to a start point of the fine calculation based on a percentage of value of sales amounting to a possible 30 per cent for gravity and 25 per cent for the entry fee, the going rate so far is between 15 per cent and 20 per cent. The uplift for repeat offences at something like 30 per cent per violation is if anything on the generous side, while in some cases the Commission seems to have found a reason not to apply an increase at all.
9 Case COMP/E-1/38.823, PO/Elevators and Escalators [2008] OJ C 75/19.
10 Commission Notice on immunity from fines and reduction of fines in cartel cases, [2006] OJ C 298/17.
11 Maria Luisa Tierno Centella, EU Settlements Package, Presentation at GCLC conference (19-20 June 2008); Kirtikumar Mehta, Recent developments in anti-cartel enforcement, Presentation at Mardi Concurrence (6 May 2008); Maria Luisa Tierno Centella, Settlements Package, Presentation at Brussels Matters Conference (14 February 2008); Flavio Laina, Nouvelle procédure de transaction dans les affaires de cartels, Presentation at OBFG conference (17 December 2007).
12 Commission MEMO/08/458 of 27 June 2008, Antitrust: Commission introduces settlement procedures for cartels – frequently asked questions. Note also the Settlement Notice, indicating as follows: For the parties’ rights of defence to be exercised effectively, the Commission should hear their views on the objections against them and supporting evidence before adopting a final decision and take them into account by amending its preliminary analysis, where appropriate (paragraph 24 of the Notice).
13 Commission officials referred to a range of around 10-20 pages, which would only represent a fraction of a ‘normal’ SO.
14 See in particular paragraphs 5, 15 and 27 of the Notice.
15 There have been indications that the CFI will in future take a more active role in the assessment of the fine levels. Regarding the court’s potential increase of fines, see MLex Report of 23 May 2008, ‘Era of ‘risk-free’ antitrust appeals may be over, says CFI’s Wahl’. It also remains to be seen what position the court will take towards companies that cooperated with the Commission in the expectation of a substantial fine reduction only to receive what they see as a derisory 1 per cent.
16 While leniency applicants providing significant added value can be granted between 30 and 50 per cent; between 20 and 30 per cent; or up to 20 per cent for respectively the second, third or subsequent applicants in line (paragraph 26 of the 2006 Leniency Notice), the Commission appears to be much more reluctant to grant discounts of 50; 30 or 20 per cent respectively. Often, only smaller discounts are granted, or no reduction at all.
17 For example, in 2007, as far as can be ascertained, the Commission only granted immunity or the full leniency amount available for less than a third of the applications.
18 See also Howrey’s comments in response to the Draft Settlement Notice as published in the framework of the Commission’s consultation process, paragraph 2.25, available at: http://ec.europa.eu/comm/competition/cartels/legislation/settlements.html.
19 See ibid.
20 For example, Judge Bo Vesterdorf, Address at the Studienvereinigung Kartellrecht Conference (24 May 2007).

An extract from The European Antitrust Review 2009