European Union: Novel areas under scrutiny amid dawn raid resurgence

What kinds of infringement has the antitrust authority been focusing on recently? Have any industry sectors been under particular scrutiny?

Markus Röhrig: Across Europe, the European Commission and national competition authorities (NCAs) appear to have stepped up their enforcement efforts in the labour markets, a trend which originated in the United States. Antitrust authorities are investigating a range of employment-related types of collusion, including: (i) no-poach agreements, (ii) wage-fixing, (iii) anti-competitive information-sharing between companies about employment terms and conditions, and (iv) non-compete clauses. In November 2023, the Commission carried out unannounced inspections at the premises of companies active in the online order and delivery of food groceries and other consumer goods. Initially, the focus was on alleged market sharing. The investigation was subsequently extended to cover alleged no-poach agreements. 

There has also been a more intense focus on industry associations facilitating cartels. For example, the Commission is currently investigating Eurobat for allegedly having assisted in the creation and functioning of price-setting indices used by starter battery firms to negotiate with carmakers. At the same time, EU and UK agencies are pursuing antitrust probes into carmakers and the European Automobile Manufacturers’ Association for collusion on the market for end-of-life vehicles. This is not to say that industry associations have been immune to the Commission’s enforcement activities in the past – but the latest string of cases sends a warning to the industry as a whole.

Bart de Rijke: Although the Commission’s cartel enforcement activity in 2023 was marked by a dip in the magnitude of overall fines imposed, it nevertheless managed to spread its policing better, adopting more infringement decisions and increasing the frequency of its unannounced inspections compared to 2022 levels. The Commission is not only targeting the “usual suspects” such as financial and automotive markets, but it seems to constantly recalibrate its enforcement strategy to cover markets that have traditionally not been as closely scrutinised for collusive behaviour. The Commission also continues to align its cartel enforcement priorities with the green transition that is presently underway in the European Union – a recurring trend, as evidenced by a non-settling Ethanol Benchmarks cartel participant being fined and by the ongoing investigations into the end-of-life car recycling and synthetic turf industries.

What do recent investigations in your jurisdiction teach us? 

Jordan Ellison: The leniency regime remains key in the Commission’s enforcement toolkit. Last year, the Commission increased its efforts to promote the use of its whistle-blower tool, which was introduced in 2017 and has resulted in around 100 messages per year sent via the tool since its launch. That said, the Commission and other agencies are increasingly building a portfolio of cases based on ‘own initiative’ investigations and exploring tools they can use or develop to detect potentially anticompetitive activity, even in the absence of a whistle-blower. The return of dawn raids in the past few years is also a noteworthy development. In response to the shift in working patterns post-pandemic, the Commission has signalled its appetite to make more frequent use of its powers to raid domestic premises. We are also seeing increasing coordination between the raiding authorities, with parallel raids being conducted by enforcers in their respective jurisdictions in close contact with each other. But the Commission’s dawn raid practices have also been under challenge recently. Last year, the EU Court of Justice dealt a serious blow to the Commission by annulling its inspection decisions in the French supermarkets case, on the basis that the Commission had failed to adequately record certain interviews it had conducted to collect information, and which had formed the basis for its decision to conduct the raids. This will likely push the Commission to be more meticulous in the way that it collects and records evidence going forward. 

MR: In another recent challenge, the General Court dismissed last year a request by Red Bull for interim measures in the context of a Commission raid on the company’s premises. While this related to an investigation for abuse of dominance, this has implications for cartel investigations as well. Red Bull had alleged that the Commission had not taken the necessary safeguards when dealing with personal data during its inspection. The court dismissed Red Bull’s allegations on the grounds that the Commission’s staff are under a duty of secrecy and that it would have been unreasonable to have the owner of each piece of personal data present at the assessment, when the presence of the company’s representative would have been sufficient. The court also affirmed the Commission’s protocol when handling personal data, namely a virtual data room accessible to as limited a number as possible of members of the team responsible for the investigation, in the presence (virtual or physical) of an equivalent number of the applicant’s lawyers. Ultimately, the court found that the company had failed to prove the urgency of its request for interim measures. Such requests rarely succeed. In the last few years, we have seen the European Court of Human Rights setting the tone in terms of companies’ rights of defence, rather than the European Court of Justice. The question here is whether Strasbourg will finish what it started and add a protocol to the existing Charter to broaden the scope of human rights to companies, expressly. The impact of such a move on dawn raids procedural safeguards could be significant.

How is the leniency system developing, and which factors should clients consider before applying for leniency? 

JE: In the past couple of years, the Commission has made some practical changes to its leniency programme to provide greater transparency, predictability and accessibility to potential leniency applicants and encourage leniency applications. In October 2022, it published a new leniency FAQ document that clarifies the Commission’s current practices in relation to the 2006 Leniency Notice. The Commission has also upgraded its eLeniency tool to make it easier for companies and their representatives to submit and access leniency and settlements documents online. Overall, the Commission has undertaken considerable efforts to reverse the very clear drop in leniency cases since 2015. This seems to have paid off as, for the third year in a row, the number of leniency applications has continued to increase in the European Union.

MR: Yes, we understand that this latest uptick can also be attributed to the Commission’s increased focus on and building of its pipeline of ex officio investigations, which had stalled for quite a while. Another additional incentive for leniency applicants would be for immunity to be extended to follow-on claims. Of course, that would imply amending the Damages Directive and would most likely trigger a broader discussion around the right to compensation, but adding real incentives to the current system might provide a necessary boost. 

What means exist in your jurisdiction to speed up or streamline the authority’s decision-making (eg, settlement procedure), and what are your experiences in this regard? 

BR: To accelerate the Commission’s decision-making in cartel cases, undertakings can agree to settle if the Commission considers the case suitable for the settlement procedure. While settling parties derive obvious public enforcement-related benefits, such as the opportunity to anticipate the Commission’s findings, reduced fines, and savings of time and resources due to quicker proceedings, recent experience suggests that specific private enforcement outcomes, which typically factor into the decision to settle, are not always beneficial. Cartels are exclusively by object infringements, thereby relieving the Commission from the task of demonstrating anti-competitive market effects. This absence of a proper effects analysis makes it challenging to prove or refute actual cartel effects in follow-on litigation. National courts tend to conflate high fines, admissions, and other statements in settlement decisions with causation and market effects. The lack of detail in settlement decisions, which is generally understood as a benefit of settling, may also be interpreted in favour of claimants, for example, due to alleged information asymmetry. Besides, settling is not a negotiation exercise and parties must largely accept the wording of the Commission’s settlement decision. 

JE: On the topic of settlements, the Commission will have been pleased by the Court of Justice’s recent endorsement of hybrid settlements in February 2024, when it backed the Commission’s approach and rejected Scania’s appeal of the Commission’s cartel decision. In that case, Scania (which did not settle, and had subsequently been fined) had argued that the Commission’s hybrid approach infringed its rights of defence, the principle of good administration and the presumption of innocence. The Court of Justice largely sided with the General Court in finding that the Commission’s procedure complies with the principle of impartiality. In its reasoning, the court referred to its judgment from January 2023 in relation to the Euribor cartel case, where it had dismissed HSBC’s arguments that the use of a hybrid procedure had led the Commission to infringe its rights of defence and presumption of innocence.

MR: The Commission will no doubt be reassured by this outcome. Interestingly, the General Court had peripherally suggested in the Scania case that, in some circumstances, impartiality might require that two different case teams be allocated to the procedure.  On appeal, however, the Court of Justice made it clear that having one single team handling the entire (hybrid) procedure was not per se in infringement of the principle of objective impartiality. For a claim that the Commission breached the principle of impartiality to succeed, the claimant thus needs to demonstrate with “objective evidence” that the Commission’s case team has shown specific prejudice to it during the standard procedure. Scania follows other judgments such as Timab and ICAP, which had confirmed the Commission’s ability to pursue hybrid settlements, provided it observes the principle of the presumption of innocence, in particular where the adoption of the settlement decision does not require a determination of the liability of the party which did not take part in the settlement. 

Tell us about the authority’s most important decisions over the year. What made them so significant?

MR: One of the most notable cases last year saw the Commission sanction a cartel in the pharmaceutical sector for the first time. In October, the Commission fined Alkaloids of Australia, Alkaloids Corporation, Boehringer, Linnea and Transo-Pharm a total of €13.4 million for participating in a cartel concerning the pharmaceutical ingredient N-Butylbromide Scopolamine/Hyoscine (SNBB) – an important input material to produce the abdominal antispasmodic drug Buscopan and its generic versions. The investigation revealed that the six companies coordinated and agreed to fix the minimum sales price of SNBB to customers (ie, distributors and generic drug manufacturers) and to allocate quotas. In addition, the companies exchanged commercially sensitive information. 

Another notable development was the Commission’s first decision in a defence industry cartel. In September 2023, German defence company Diehl received a reduced antitrust sanction of €1.2 million for its participation in a market-sharing cartel for the sale of military hand grenades. Diehl and its rival RUAG split national markets across the bloc between themselves for almost 14 years.

What is the level of judicial review in your jurisdiction? Were there any notable challenges to the authority’s decisions in the courts over the past year? 

JE: We have mentioned a few cases already, including on the topic of hybrid settlements. There is also a developing line of cases on the level of interest the Commission needs to pay to companies whose fines are then later overturned in the courts. This includes the Court of Justice’s judgment in Printeos and the General Court’s judgments in Deutsche Telekom and, most recently, in the Campine case last year. In the Campine case, the General Court awarded the battery recycling company just over €300,000 in interest on a fine reduction of almost €4 million. The Commission has appealed the judgment, so it will be interesting to see where the Court of Justice comes out on this point. This has implications both for cartel and antitrust cases but, given the duration of the court proceedings in both types of cases, has potentially significant financial implications for the Commission.

BR: In addition to the cases we have already mentioned, in October 2023, there was an interesting General Court ruling stemming from Swiss chemical company Clariant’s appeal. This judgment suggests that, despite the recent Court of Justice judgment in Scania, there may still be room elsewhere for contesting a cartel settlement. According to the General Court, accepting a maximum fine amount does not imply accepting the exact final amount or the calculation method. There are also other pending proceedings at the General Court concerning a settled case with two participants in the metal packaging cartel challenging the Commission’s decision on the grounds, among others, that it violated the principle of subsidiarity.  It will be interesting to see where the court lands on these issues. 

How is private cartel enforcement developing in your jurisdiction? 

BR: Private cartel enforcement continues to deter undertakings from revealing their participation in a cartel because of the obvious threat of subsequent litigation exposure. This threat is nowadays more pronounced because private enforcement actions are increasingly brought by way of collective proceedings at the national level. There are also many “known unknowns” as several private enforcement-related preliminary references are still pending at the Court of Justice, including on the Damages Directive, which, on its own, does not currently even harmonise all aspects of national law. We have already seen a Dutch court ruling that national antitrust infringement decisions of another EU member state may be construed as binding evidence in domestic proceedings. 

MR: We understand that with the new Commission taking office in 2024, some EU member states are planning to add to its agenda a public consultation and a swift and thorough assessment of the Damages Directive. The main reason for this is the dampening effect that the Damages Directive has had on cartel enforcement. Even though lately there has been an increase in the number of leniency applications, there has to be a balance between the two and perhaps the public consultation will provide solutions.

What developments do you see in antitrust compliance? 

JE: The resurgence of dawn raids is continuing to prompt many companies to make sure their own policies on inspections are up-to-date and fit-for-purpose in a hybrid working world. As the competition authorities expand their areas of enforcement focus – including on buy-side and personnel-related infringements such as “no poach” agreements – companies are also conducting fresh risk assessments and audits, as well as expanding the list of personnel within their organisations who are given targeted compliance training. 

MR: Over the last decade or so, companies have invested heavily into setting up robust and effective antitrust compliance programmes. It may be the time for the Commission (and the European Court of Justice) to acknowledge these efforts and, as other regulators do already, consider as a mitigating circumstance the fact that cartel participants had a compliance programme in place at the time of the infringement. Obviously, that could come with guidance as to what the minimum requirements of an effective antitrust compliance programme are, which may result in a lower fine. 

BR: In the meantime, however, companies do understand that having a compliance programme in place is not, by itself, a defence where antitrust infringements are concerned. As a result, internal compliance initiatives have become sophisticated and are far from a ‘tick box’ exercise. Company boards also want to be educated about how in practice a compliance framework is being implemented across the business. Clients are seeking tailored and thematic training sessions that are typically cross-expertise, providing insights from multiple regulatory perspectives relevant to their business models. Compliance training requests have also become more frequent as the general EU antitrust landscape is undergoing sustained change – including, for example, the Commission’s recent updates to its rulebook for horizontal agreements and issues related to sustainability.

What changes do you anticipate to cartel enforcement policy or antitrust rules in the coming year? What effect will this have on clients?

MR: Perhaps the most anticipated upcoming event is the evaluation of Regulation 1/2003. The consultation with stakeholders came to an end in 2023 with a stakeholders’ workshop organized in October by the Commission, in which we participated. In terms of next steps, a staff working document with the results of the evaluation is planned for the second quarter of 2024. There are some rumours circulating in our bubble regarding the innovations brought about by this reform. One of them, for example, is that companies suspected of antitrust breaches could be the target of “remote inspections” by the Commission under changes to the enforcer’s antitrust procedural rulebook. Traditionally, Commission inspections have seen officials turn up unannounced at a company and connect their own equipment to gain access to a corporation’s IT system, but most files are now held in cloud-based storage systems, which means such data could be accessed without the need to be on the company’s premises.

JE: On the enforcement side, as we already mentioned, we are seeing more and more enforcement on less traditional cartel structures such as buy-side cartels and “no poach” agreements. We are also seeing more enforcement of anticompetitive information exchange, with the authorities increasingly grappling with the question of where to draw the line on that topic. On that note, it will be interesting to see how the Court of Justice approaches the distinction between “by object” and “by effect” restrictions where a standalone exchange of information between competitors is concerned – a topic on which it is expected to rule later this year, following a request for a preliminary ruling in the Banco BPN v BIC Português case. As regards international cooperation between enforcers, in January 2024, the Commission and the US Department of Justice jointly stated that they are intensifying their efforts to share investigative leads with each other, as well as information obtained from cartel whistleblowers on both sides of the Atlantic. This is in line with what we have seen recently on the European continent, with the Commission recently coordinating with enforcers such as the UK Competition and Markets Authority or the Turkish Competition authority on several investigative leads.

BR: Ex officio investigations are certainly back in vogue and the Commission is relying more on its own capabilities to uncover cartels and making greater use of international cooperation and information-sharing. Another interesting development is the welcome inclusion of guidance in the updated EU horizontal guidelines on the distinctions between legitimate joint purchasing and buyer cartels and between legal bidding consortia and bid rigging, which shows that in certain areas, the Commission has tried to address the often thin line between legitimate cooperation and illegal cartel conduct. The Commission has also provided guidance on information exchanges in the context of the digital economy and on exchanges resulting from regulatory requirements, such as those necessitated by the Digital Markets Act.

How has the covid-19 pandemic affected cartel enforcement in your jurisdiction? 

BR: The sort of semi-hiatus in enforcement due to the COVID-19 pandemic is well past us. As we alluded to earlier, unannounced inspections by authorities have progressively picked up in the last couple of years and are well and truly back to pre-pandemic levels. We also understand that supply chain restrictions due to the pandemic caused an uptick in market segmentation practices and supply restriction arrangements. That said, the updated EU horizontal guidelines now make several references to supply chain disruptions and shortages, particularly in connection with potential efficiency gains. 

JE: On a practical note, the pandemic changed some of the Commission’s practices, for example, on how to conduct oral hearings and access to file. And no doubt the Commission was relieved to have introduced the e-leniency system well ahead of the pandemic so such applications could still be made notwithstanding their offices being closed. As we discussed earlier, the pandemic has also led to a shift in many authorities’ dawn raid practices, as enforcers have sought to adapt to the rise of flexible and home working. Many of the measures adopted during the pandemic have now become standardised and are here to stay despite the Commission and businesses having returned to the office. 

The Inside Track

What was the most interesting case you worked on recently?

BR: Confidentiality obligations preclude me from discussing some interesting matters I advised on last year. I can speak a bit about my competition advisory work in connection with a franchise cooperation agreement between two major retailers. The agreement triggered questions from the European Commission and the Netherlands Authority for Consumers and Markets (ACM) over whether a franchising set-up could confer de jure or de facto control to the franchisor. The Commission ultimately concluded that the cooperation did not qualify as an acquisition of control by our client. The ACM proceeded to conduct an unprecedented informal investigation, applying a merger control-assessment framework in an Article 101 TFEU context.

JE: Without going into specifics given the confidential nature of the work, we are seeing some interesting issues involving trade association liability and related fines, as well as the Commission’s appetite to consider settlement at differing stages of investigations. It will also be interesting to see how the Commission approaches ESG-related infringements, given the broader backdrop of an increasing policy focus across Europe (and globally) on sustainability issues.

If you could change one thing about the area of cartel enforcement in your jurisdiction, what would it be?

JE: I would be keen to see a “one-stop shop” for leniency in the European Union. I think this would serve both the enforcers and the business community much better than the current system. The introduction of ECN+ was a positive step, but does not go far enough. As we are seeing increasing coordination between competition enforcers, the Commission should be prepared to recognise that the risks from uncoordinated leniency programmes have significantly increased for companies. The Commission is commissioning a survey to gather views from practitioners on the effectiveness of its enforcement practices, including its leniency tool – so there may be an opportunity for change on the horizon. 

MR: The European Court of Justice’s 2022 judgment in Orde van Vlaamse Balies put the issue of legal professional privilege (LPP) back on the table. The court held that LPP is not limited to the defence of a client in legal proceedings, but protects the confidentiality of lawyer-client correspondence more broadly. This begs the question of whether the rather narrow scope which the Commission affords LPP, limiting its protection to EU competition law on the subject matter of the relevant proceedings, is still sustainable. The Commission should view the ongoing review of Regulation 1/2003 as an opportunity to reconsider its approach and adopt a rule which lives up to the court’s recent case law – also to set a precedent for member states. 

BR: In my view, it would be good if the Commission would consider providing at least some sort of “by effect” analysis also in by-object cases to indicate the Commission’s view on actual effects on the market. If such extra information was provided, this would potentially reduce the burden on parties to demonstrate or rebut market effects during follow-on damages proceedings.