Leniency Applications Research Articles

Removing the Tension between Public and Private Enforcement: Disclosure and Privileges for Successful Leniency Applicants

Disclosure of documents enhances the effectiveness of private enforcement but must not deter from making leniency applications. As established by the ECJ in DonauChemie absolute protection for certain documents is incompatible with the primary law principle of effectiveness. Thus the per se protection of corporate leniency statements and settlement statements must at least be reduced to a protection in principle that leaves room for a different decision in exceptional cases. The best solution, however, would be to privilege cartelists who receive immunity from fines by giving them the right to full contribution from their co-infringers. This would mean: Leniency applicants would not have to fear private enforcement, because they can recover any damages paid to victims from their co-infringers. Thus all documents could, subject to a court order in each individual case, be disclosed without deterring cartelists from filing leniency applications. The tension between public and private enforcement would be removed and both ways of enforcement would be strengthened: Public enforcement is strengthened because leniency applicants are not deterred from leniency applications but are rather given an additional incentive, namely immunity from civil liability. Private enforcement is strengthened because victims receive information necessary to claim damages and because the privileges granted to leniency applicants are not granted at the victims’ expense but at the expense of the co-infringers.

The Hybridization of Competition Law Enforcement: Some Lessons from Japan’s Introduction of the Leniency Program

Japan has, with the adoption of a leniency program in 2005, caught up with an international trend in the enforcement of competition law. This paper looks into the effectiveness of this leniency program. This exercise is instigated by the fact that the Japan Fair Trade Commission was taking more decisions regarding cartels than it was in the years after the leniency program became effective. Furthermore, latest decision involving leniency applications show a tendency to focus on cartels in which the same firms are involved. Another remarkable trend is the disproportion between the applications for leniency and the number of firms receiving leniency. By borrowing concepts and theories of criminal law, both in a general and a Japan specific context, this paper argues that the, at first sight, lax attitude towards the leniency program may actually be productive in terms of enforcement of competition law.

Recidivism in Competition Law

ACTECON Papers, in its 7th issue, focuses on the concept of recidivism within the framework of competition law. Recidivism, which is accepted as an aggravating factor in competition legislation constitutes a crucial issue especially for the undertakings subjected to sanctions in competition investigations. As a general principle of law, recidivism means a person to commit a new crime following being convicted or punished from a preceding similar crime.Both in EU or Turkish Competition Law, there is no explanation regarding the definition and the conditions of recidivism. Thus, European Commission’s decisions and general criminal law principles have become the sole guidance for the implementation of recidivism.In this article written by Basak Yilmaz, the concept of recidivism abstracted with the decisions of European Commission and Turkish Competition Authority. Furthermore, the amount of fines resulting from recidivism and the probability of leniency application is also discussed.

Delays in Leniency Application: Is there Really a Race to the Enforcer's Door?

Abstract: This paper studies cartels’ strategic behavior in delaying leniency applications, a take-up decision that has been ignored in the previous literature. Using European Commission decisions issued over a 16-year span, we show, contrary to common beliefs and the existing literature, that conspirators often apply for leniency long after a cartel collapses. We estimate hazard and probit models to study the determinants of leniency-application delays. Statistical tests find that delays are symmetrically affected by antitrust policies and macroeconomic fluctuations. Our results shed light on the design of enforcement programs against cartels and other forms of conspiracy. Journal of Economic Literature

Delays in Leniency Application: Is There Really a Race to the Enforcer's Door?

Delays in Leniency Application: Is There Really a Race to the Enforcer's Door?

Delays in Leniency Application: Is There Really a Race to the Enforcer's Door?

This paper studies cartels’ strategic behavior in delaying leniency applications, a take-up decision that has been ignored in the previous literature. Using European Commission decisions issued over a 16-year span, we show, contrary to common beliefs and the existing literature, that conspirators often apply for leniency long after a cartel collapses. We estimate hazard and probit models to study the determinants of leniency-application delays. Statistical tests find that delays are symmetrically affected by antitrust policies and macroeconomic fluctuations. Our results shed light on the design of enforcement programs against cartels and other forms of conspiracy.

Bargaining in the Shadow of the European Settlement Procedure for Cartels

In its recently implemented settlement procedure for cartels, the European Commission pledges not to negotiate the appropriate sanction. The Commission offers a take-it-or-leave-it 10% reduction of the ultimate fine only in exchange for acknowledgment of the facts. Yet there are at least three dimensions open for bargaining in cartel cases. One is the determination of the fine base to which the 10% reduction is applied. A second is the additional percentages of fine reductions that are awarded to subsequent leniency applicants. A third is the phrasing that the Commission uses in its public communications about the case - including the eventually published formal decision. The Commission’s consistent negation of any negotiation space may well be part of its bargaining strategy. The door on fine discount discussions shut, talks are channeled to the other bargaining points, where the Commission has more leeway to find an agreement. By disabling the only hard bargaining point, however, the Commission may unintentionally have put itself in a weak bargaining position. To avoid detrimental effects on the overall deterrence of cartels in Europe, the European Commission should credibly commit itself to being a tough negotiator, if not by enabling individual percentage fine reductions after all, then by embedding a binding and full independent review of all settlement proposals in the procedure.

Leniency Programmes and Protection of Confidentiality: The Experience of the European Commission

The principle of confidentiality of leniency submissions is a key point of the EU Leniency Programme. Largely drawn from the functioning of the US programme, the EU Leniency Programme gradually strengthened the protection of the confidentiality of leniency submissions, in order not to put at a disadvantage leniency applicants compared to non-applicants. Protection is nevertheless not absolute and varies depending on the entities that interact with the Commission, such as parties to the proceedings, third parties, foreign, EU Member States' judges or other authorities. The legal framework is complex: leniency submissions are covered by the notion of ‘professional secrecy’ (Art. 339 of TFEU) and considered in principle confidential, for the purposes of Regulation 1049/2001 and the publication of decisions. Their disclosure is subject to very specific conditions before judges/national authorities. Whereas EU Courts will be prompted in forthcoming key cases to scrutinize the status of confidentiality of leniency submissions under Regulation 1049/2001 and other regimes, Commission policy remains aimed at protecting the confidential status of corporate statements in all circumstances, whereas enabling disclosure of pre-existing documents only subject to certain conditions.

Screening for Conspiracies: Applications for Litigation, Pre-Litigation, Regulation and Internal Monitoring

A screen is a statistical test designed to detect conspiracies aimed at illegally manipulating a market. Competition authorities, academics and consultants have designed a variety screens to detect competition problems, and the use of such screens is increasing. In this paper, we first describe screens designed to detect bid rigging, price fixing, market allocation schemes and commodity market manipulation. Next, we discuss the ways in which screens can be used by plaintiffs and defendants in antitrust cases. These include (i) class certification, (ii) disproving the existence of a cartel; (iii) establishing the immateriality of a cartel; (iv) estimating the effects and damages of collusion; (v) assisting companies in deciding when and whether to file a leniency application; and (vi) assisting managers in large companies to monitor for data manipulation (e.g. falsified reimbursement or accounting statements) and price fixing in purchasing.

The UK Cartel Offence: Lame Duck or Black Mamba?

A criminal offence requiring Ghosh dishonesty was introduced in the UK by the Enterprise Act 2002, primarily to enhance cartel deterrence as a complement to corporate fines. Yet the first convictions resulted from a US plea bargain in 2008. This paper identifies three obstacles to enhancing deterrence through the cartel offence. First, Norris v USA and a public survey suggest relatively weak perceptions of cartels persist in the UK. It was envisaged that convictions would remedy this, but prosecutors will continue to be very selective about the cases they bring to trial if there are doubts as to whether price fixing alone is viewed as objectively dishonest. Secondly, any increase in criminal enforcement risks discouraging leniency applications to the European Commission, because corporate immunity granted on the Community level does not automatically protect employees from criminal prosecution in national courts. There is also no conclusive mechanism for direct settlement, as there is in the US. Thirdly, sizeable benefits and purportedly low detection rates mean deterrence may be weak if custodial sentences do not become the norm. Further sanctions such as Director Disqualification Orders can play an important role in ensuring cartelists do not seek immediate reemployment at a high level.

AN EMPIRICAL ASSESSMENT OF THE EUROPEAN LENIENCY NOTICE

A study of DG Competition’s 1996 ‘Notice on the non-imposition or reduction of fines in cartel cases’ suggests that it largely failed to induce members of active cartels to self-report. Instead, immunity and fine discounts were predominantly awarded in cases where cartels were failing, or had already failed. A majority of leniency cases followed (or were broadly contemporaneous to) equivalent investigations by the US Department of Justice. All but one EU only leniency case had failed before self-reporting occurred. Moreover, nearly half of leniency cases concerned closely related infringements in the chemicals industry. The majority of these US-EU leniency cases had failed (or were failing) at the time of self-reporting. A preliminary analysis of the revised 2002 notice suggests less reliance on US successes, but still more cartels connected to previous infringements in the chemicals industry. A central challenge is preventing the leniency programme from providing a way for failed cartelists to tame the end game, or to use leniency as a strategic tool in order to put former cartel members (now competitors once more) at a disadvantage. Such cases risk overwhelming DG Competition with leniency applications that do little to enhance deterrence. JEL Classification: K21; L41

Perspectives for Private Enforcement in European Antitrust Law (Perspektiven der privaten Rechtsdurchsetzung im Kartellrecht)

In April 2008 European Commission published a White Paper on Damages actions for breach of EC antitrust rules (COM2008 (165) final). This article focuses mainly on two issues: passing-on defence and standing of indirect purchasers and compatibility of efforts to enhance effectiveness of private actions for damages with leniency programmes offered by EC Commission and national competition authorities. As regards passing-on defence and standing of indirect purchasers, it is argued that EC Commission's approach in white paper is in theory best solution. Yet, due to practical reasons it is suggested that in principle passing-on defence should not be accepted and that indirect purchasers should not be encouraged to sue. In order to avoid a conflict with ECJ's decisions in Courage und Manfredi, indirect purchasers should however not be categorically denied standing but only be discouraged from claiming damages by, for example, not alleviating their burden of proof. Regarding compatibility of efforts to promote private enforcement with leniency programmes, EC Commission's suggestion to limit the civil liability of immunity recipient to claims by his direct and indirect contractual partners is not considered a viable solution. In this paper it is argued that best way to avoid a conflict of aims is to modify way liability is apportioned between cartel members, i.e. between infringers of EC competition law who are jointly and severally liable towards victims. German law apportions liability equally between joint tortfeasors, unless otherwise provided (section 426 I 1 BGB). This paper shows that for apportionment of liability between joint tortfeasors, German law can take into account both cartel member's market share (thus incorporating EC Commission's approach because damages suffered by direct and indirect purchasers reflect cartel member's market share) and cartel member's contribution to uncovering cartel. The latter aspect leads to suggestion that a reduction in fine imposed on a cartel member should lead to a parallel reduction in cartel member's share of liability as compared to other members of cartel. The joint and several liability of all tortfeasors, including successful leniency applicants', towards victims remains unchanged. De lege ferenda, however, it also seems justified to reduce successful leniency applicants' liability towards victims of cartel accordingly. This conclusion is based upon fact that leniency applicants give victims something in return: victims receive information necessary for them to recover their damages. This approach, that was developed using German law as an example, should also work in other jurisdictions. It is a common legal principle that joint tortfeasors are jointly and severally liable towards their victims and that liability as between tortfeasors is apportioned according to circumstances of case.

An Exploration of the Perceived Integrity of Information Provided by Alleged Cartel Members and Leniency Applicants

An Exploration of the Perceived Integrity of Information Provided by Alleged Cartel Members and Leniency Applicants

ON THE ALLEGEDLY INVISIBLE DUTCH CONSTRUCTION SECTOR CARTEL

This paper considers an extensive cartel contamination of markets in the Dutch construction sector. Overwhelming legal evidence of bid rigging in this sector was obtained in 486 leniency applications in which complete secret accounts were submitted. I offer a case study and a broadly based post mortem of methodologies that were applied earlier to detect malfunctioning markets in the Netherlands, but failed to identify the construction sector as problematic. It is concluded that these studies were seriously flawed. Theoretical and empirical economic forensics (if properly applied) creates value for antitrust authorities in detection of antitrust violations directly, or by informing them where to look for direct evidence.

The Role of Economics in Cartel Detection in Europe

In the wake of the successful implementation of leniency programs in and across the EU other instruments of cartel detection have become less prominent. In the period from 2002 to the end of 2005, the Commission adopted 30 statements of objections, a necessary procedural step before taking a decision in cartel cases, roughly 213 of which were based on leniency applications. While accepting the contribution of leniency in pursuing the overarching objective of antitrust policy in the context of cartels - deterrence and desistance of collusive agreements - the following article argues in favour of a more balanced tool set for cartel detection including economic methods.The paper is structured in the following way. Section 2 provides an introduction to the nature of collusion and the role of economics. Section 3 discusses the legal basis and the enforcement instruments available to the Commission for Fighting Cartels. Section 4 discusses the interdependency and the individual advantages of leniency and ex officio cartel detection. Section 5 puts forward the main challenges any economic methodology to trigger ex officio inspections has to deal with. Section 6 discusses the two main methods for cartel detection - top down and bottom up approaches. Section 7 concludes.

An Empirical Assessment of the 1996 Leniency Notice

Although the 1996 Notice on the Non-imposition or Reduction of Fines in Cartel Cases has been criticised by academics as lacking clarity and certainty, it has been described in European Commission literature as an indisputable and as having played an instrumental role in uncovering and punishing secret cartels. This paper makes an empirical assessment of horizontal cartel cases in the EC opened as a result of leniency applications under the 1996 notice. Nearly three quarters of the cartels apparently uncovered by this notice were subject to equivalent prior or simultaneous investigations in the U.S. In addition, most of the cartels that were revealed operated in the Chemical industry were all connected to each other by virtue of the same firms' involvement in more than one cartel, and all failed or ceased to operate before being revealed to the Commission by a cartel member. These two findings would suggest that the 1996 leniency notice was only of limited success in inducing firms to reveal cartels and that most applications for immunity were as a natural consequence of cartels failing and firms looking once more to their own interests rather than those of the cartel. The leniency notice largely succeeded in uncovering failed cartels, not active ones.

Cartel Prosecution and Leniency Programs: Corporate versus Individual Leniency

The paper explores the interdependencies between corporate and individual leniency programs. In a duopoly model where corporations are separated into representing owners and operating managers, conflicts between the two types of agents arise if the relative benefits of participating in the corresponding leniency programs differ. As an example of what might cause differing relative benefits, the paper considers the inclusion of damage payments for owners which are not covered by the corporate leniency program. The main findings are: (1) Individual leniency applications are never observed. (2) Threats by managers to apply for individual leniency may, however, increase the owners' incentive to carry out corporate self-reports. (3) In other cases, the individual leniency program increases the owners' tolerance for cartel activity for two reasons: Either the corporate leniency program is sufficiently unattractive to the owners, or the owners rely on the option to apply for corporate leniency after the Antitrust Authority has opened a case. (4) Finally, the more distortion decreases, the more ineffective the individual leniency program becomes.

Beyond Leniency: Enhancing Enforcement in EC Antitrust Law

This article looks at two ways that the application and enforcement of Community competition law can be enhanced in the early years of the 21st Century. It argues first that the European cartel enforcement revolution, ushered in by the 2002 EC Leniency Notice provides the basis for the first time for a major development of European civil antitrust litigation. The flood of cartel prohibition decisions adopted by the Commission as a result of leniency applications permit victim-plaintiffs of cartel members to step over the most serious barrier to civil litigation: lack of effective discovery rules, and obtain redress in the national courts. Second, it makes the case for developing a second cartel-busting instrument to stand alongside the Leniency Notice. It identifies the US Civil False Claims Act, as a legal model than can be adapted into a powerful antitrust instrument to detect and prosecute many more cartels. The adoption of a second powerful cartel-busting antitrust instrument would in turn increase the number of cartel prohibition decisions and thereby increase the scope for many more civil antitrust cases in the national courts. It is contended that together these two American innovations, leniency and the CFCA, could lay the foundations for the rise of a powerful European antitrust litigation practice which would police the antitrust rules and ensure that victims were justly compensated.