Jonathan Branton and Bróna Heenan of UK law firm DWF discuss recent anti-cartel cases and the European Commission’s intention to investigate anti-competitive practices in the food and agriculture sectors
The European Commission’s efforts to combat anti-competitive practices were boosted by the introduction of leniency for whistleblowers. Its Leniency Notices were first adopted in 1996 and later revised in 2002 and again in 2006. While the 1996 Notice only guaranteed a 75% reduction in fines to the first company to report a cartel, the 2002 Notice introduced full immunity for those who were first through the door. Companies had an incentive to spill the beans on cartel activity in the EU. Different regimes applied in jurisdictions outside the EU (and indeed within the EU in cases where only national markets were affected) which in turn required a delicate and complicated analysis by competition lawyers, particularly where global cartels were concerned.
What is coming down the track?
The work of the Commission continues at a breathtaking pace, stimulated by the immunity/leniency offered to companies through its Commission Leniency Notices. Recent anti-cartel actions have taken aim at industries as diverse as manufacturers of high-voltage cables and canned mushrooms. In April, the EC imposed fines totaling EUR302 million on 11 companies which produce high-voltage transmission and distribution cables for the power sector, finding that they had coordinated their approach to markets around the world. Importantly, those who had entered into joint ventures, as well as their investors, were not spared fines. Goldman Sachs was found to have exercised decisive influence over Prysmian, a party to the cartel, and was held jointly liable for the fine as a result.
The comments of outgoing Commission Vice President of competition policy, Joaquín Almunia, are instructive: “These companies knew very well what they were doing was illegal. This is why they acted cautiously and with great secrecy. Despite this and through the joint efforts by several competition authorities around the world, we have detected their anti-competitive agreements and brought them to an end.” Greater cooperation between competition authorities such as in this case will make it harder for cartels to function.
To get a more accurate picture of antitrust activity in the food sector, it is best to consider what the National Competition Authorities (NCAs) are doing. Here you find a wealth and variety of cases across a very wide range of products, dealing with cartels and abuse of dominance, through to retail price maintenance and illegal exchange of information. Taking the pet food sector as an example, companies were fined in Poland for restricting distribution channels including online sales, in France for restricting competition in wholesale markets, in the Czech Republic and Latvia for RPM while in Belgium, investigations continue into allegations of illegal exchange of information.
Looking at it from the perspective of just one company, Colgate Palmolive’s recent SEC filing reveals the extent of its antitrust woes. It has been the subject of fines in France (detergents and pet food), Spain (shower gel), Italy (cosmetics) and is subject to on-going investigations in Belgium, France and Greece. Not to ignore parallel import fines in Switzerland and civil proceedings in Australia concerning allegations around the launch and pricing of ultra-concentrated laundry detergents.
In 2012 the European Commission announced that it had established a taskforce to look into the enforcement of competition rules in the food and agriculture sectors, ordering a study into the effect of developments in the retail sector on consumers. The report, undertaken by a consortium made up of Arcadia International, Ernst and Young, and Cambridge Econometrics, is due to be published in October 2014.
Food for thought
The food sector should expect to see a lot of cartel enforcement activity in 2014, according to a director of cartels at the European Commission, Eric Van Ginderachter. Between this and the new UK Competition and Markets Authority’s intention to step up its enforcement activities as of 1 April 2014, it signals a change in the scope and degree of scrutiny the sector will face.
With many food markets considered to be national or even local in scope, the Commission previously appeared content to assist national competition authorities (NCAs) with their investigations into suspected antitrust infringements, only starting its own investigative activities where suspected infringements had a wider EU impact.
However, the setting up of an EU Food Task Force within DG Competition in 2012 was perhaps more than just a hint of things to come. The European Competition Network (ECN), made up of the heads of the NCAs in the 28 Member States, along with the Commission, provides an excellent forum from which to understand the issues facing operators across the EU, as well as coordinating who takes the lead in relation to particular competition law investigations in the EU.
The Commission will evaluate the results of the independent report on competition in food retail markets by Ernst & Young, Arcadia International and Cambridge Econometrics due in October 2014. Depending on these results, the Commission may put forward proposals aimed at improving the functioning of European food markets.
Fines on investors too
The decision to find Goldman Sachs liable for the cartel activities of a former subsidiary of one of its investment funds, may have come as somewhat of a shock to the investor industry. Although not the first fine imposed by the Commission on investor companies, the level of the fine imposed highlighted the need for the investor community to consider the potential liabilities that may arise on acquisitions and to consider reporting anti-competitive activities in portfolio companies.
Due to the particular rules applied by the Commission on the attribution of liability for fines, legal liability may be difficult to avoid and investors and owners of companies can often find themselves trapped by their purchases.
The agriculture sector, erroneously believed by some to fall beyond the remit of competition law, has often come under scrutiny. Companies will often inadvertently fall afoul of competition regimes as they transition from planned or protected markets to more competitive models. Liberalizing markets can very easily criminalize the farmer, so to speak.
Not so sweet…
In April 2013, officials from EU and national competition authorities raided the locations of sugar producers in a few EU member states over concerns that they were engaging in cartel activity. Commissioner Almunia confirmed that the surprise inspections were part of the Commission’s broader effort to crack down on price-fixing in the food and retail industries.
This was not the Commission’s first investigation of the sugar industry, having fined four sugar producers (including British Sugar and Tate & Lyle) the equivalent of EUR50.2 million back in 1998. At the same time as these dawn raids, Commissioner Almunia expressed his intention to watch the food and consumer-goods markets closely, on the basis that “Keeping these markets free from illegal and harmful anti-competitive practices is a litmus test for us.”
On February 3rd 2014, the Commission announced the closure of its sugar investigation, just shortly before the German competition authority announced that it had settled its own investigation with fines of EUR280m on three German producers.
Meanwhile, back in the UK, Napier Brown complained to the UK’s OFT that British Sugar has broken antitrust rules by halting supplies of sugar in contravention of a 1988 EU order (that fined British Sugar and obliged it to honour certain supply conditions). This formal complaint has been passed to the UK’s new antitrust authority the Competition and Markets Authority to deal with, when it took over from the OFT on April 1st 2014.
The race to the door
The Commission’s protection for whistle-blowers has had great success in routing cartels, dooming all cartels to fail as the risk to individual companies eclipses any possible benefits from ongoing participation in the cartel. Once the Commission or NCA has wind of a cartel, it becomes a race to the door for those involved to offer support in exchange for immunity to fines, the exemption being a very attractive proposition when 10% of worldwide revenues are potentially at stake as a fine.