Are Eu Cartel Settlements Working

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GLOBAL COMPETITION REVIEW
EU cartel settlements: are they working?

David Vascott
Monday, 8 April 2013
Flavio Laina, head of the cartel settlement unit at the European Commissions Directorate General
for Competition, Marc Hansen, partner at Latham & Watkins and Gerwin Van Gerven, partner at
Linklaters, take an in-depth look at the EU cartel settlements system. By David Vascott
Earlier this year, EU Competition Commissioner Joaqun Almunia made the bold prediction that
around half of the commissions cartel cases would be resolved with settlements in the next few
years. But many practitioners in Brussels and beyond view the EU settlement process as slow and,
with only a 10 per cent reduction on the table, insufficiently rewarding to justify the potential downside of admitting liability. While settlements may be a worthwhile proposition for companies involved in more straightforward cases, are we really likely to see the surge that Almunia predicts?
The opinions expressed in this interview are personal and do not necessarily reflect the commissions
opinion.
OPERATION OF THE SETTLEMENT SYSTEM
Lets start by looking at the commissions recent experience. How many cartel cases has the commission settled since the entry into force of this system?
Laina: First of all, thank you for this opportunity to share the commissions experience on settlements. The number of cartel settlement cases has increased steadily and so far six different cartel
cases have been concluded under the settlement procedure. The more recent settlement decision
was adopted in 2012 in the Water Management Products case. The very first settlements were concluded in 2010 in the DRAM case and the Animal Feed Phosphates case. And in 2011, three cartel
cases were concluded with settlement: the Consumer Detergents case, the CRT Glass case and the
Refrigeration Compressors case. As recently highlighted by Vice-President Almunia, cartel settlements have proven to be a success, in particular due to the efficiency gains. More settlement cases are
ongoing.
With how many companies?
Laina: To facilitate comparison with other jurisdictions, 30 groups of companies we call them undertakings have settled their case with the commission. This represents 61 different legal entities or
companies. Twenty-four undertakings paid a fine and six did not as they were immunity applicants.
Until now only one of the companies that participated in settlement discussions has ultimately decided not to settle. None of the settling parties have appealed the commissions settlement decisions.
First published on the Global Competition Review website, 8th April 2013
www.GlobalCompetitionReview.com
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The total amount of fines imposed is more than 1.125 billion, which represents approximately one
third of all cartel fines imposed by the commission since 2010.
On average, how long after cases are opened are they resolved? How long does a settlement process take from start to finish? And how does this compare to a full decision?
Laina: For the moment the average is not representative. The first two cases had already been initiated under the normal procedure when the settlement instrument entered into force. Then, they
were reshaped as settlement cases, as they appeared to be good candidates for the settlement procedure. In the four most recent settlement cases, the settlement discussions lasted from six months
(Consumers Detergents) to 13 months (Water Management Products). To this you have to add a few
extra months to finalise the proceedings, which require a number of administrative steps, as in all
commission decisions. In each of these cases the application of the settlement procedure allowed a
significant reduction in the overall duration of the cartel procedure. The Consumer Detergents case
was concluded in less than three years, the CRT Glass and Refrigeration Compressors cases in three
years and the Water Management Products case in three years and six months. This is the duration
between the start of the case and the final decision. In the standard procedure, the handling of a cartel case can take significantly more time.
This being said, one can always improve and as there is a learning curve both on the commissions
side and on the companies side. It is likely that the average duration of the next cases will be shorter.
All cases vary in terms of number of participants, substance and evidence, and the advancement of
settlement also depends on the companies interest and motivation to settle, their attitude as well
as their internal decisional processes. Not only does it take two to tango, but the commission has to
replicate the process with all the parties in a case.
Why did the commission introduce the settlement system, when it already had a leniency programme?
Laina: In the EU system, settlements and leniency are closely tied, but serve different purposes. Leniency is an investigative tool. By providing incentives to report a cartel, it helps destabilise cartels and
facilitate the gathering of information, facts and data on infringements of competition law. It should
not be forgotten that this conduct is by definition carried out in secret, and is therefore very difficult
to detect. In the EU system, the benefits of leniency are not limited to the first company reporting a
cartel but are also accessible to subsequent companies that report relevant information on the violation. I understand this to be the main difference with the US system, where immunity is available
only to the first company reporting an infringement, while plea bargaining is available to the second
and the third, et cetera. In this case, settlement is also an investigative tool.
The rationale for introducing the EU settlement procedure was to increase procedural efficiencies.
The EU settlement is indeed an alternative and an expeditious way to conduct the proceedings if parties agree. For example, in the recent cases the commission has benefited from procedural savings,
in particular through shorter and more streamlined written communication with parties. It has also
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benefited from savings in litigation as none of the settling parties have so far appealed against the
commissions decisions. This is an aspect of efficiency that is very important for the commission and
is often overlooked by external observers. In a standard adversarial case, the duration of the litigation
of the cartel case before the European courts must also be added to the duration of the administrative proceedings. The procedural efficiencies equally benefit the settling companies. This has also
been confirmed by the feedback the commission has received following the settlement decisions.
Could you please briefly explain how the settlement works in practice? What are the practical
steps in the process?
Laina: The standard and the settlement procedures follow the same path from the start of a case
(be it immunity application or the commissions own initiative) until the investigation of the facts is
complete. At this point they diverge.
Very schematically, three steps can be identified in a settlement procedure. The first consists of the
presentation of the infringement as the commission sees it to the various involved companies. The
second is the series of discussions aiming at clarifying certain points, which culminates in the finding
of a common understanding between the commission and each of the parties on the scope and the
description of the infringement as it affects each of them. The third entails the disclosure by the commission of the maximum amount of the fine relating to the companys conduct.
If the liability for the infringement and the maximum amount of the fine are accepted by each of the
involved parties and they voluntarily acknowledge them in the form of a settlement submission,
the case can be resolved quickly with the usual but streamlined statement of objections and decision.
This procedure is carried out with each group of companies wishing to pursue the settlement process
and the progression from one step to the other depends on the advancement of the discussions with
each of them.
Why are some of the steps in the settlement process only done in writing? Are there no ways
around this?
Laina: Settlement means discussions in concrete terms and written steps are restricted to the
minimum. The commission presents the case orally and primarily expects the parties to give their
feedback orally. In order to facilitate follow-up discussions on various issues with a view to achieving a common position, the parties can submit non-papers to the commission. Companies are not
obliged to submit non-papers but if they wish to discuss specific issues these written contributions
are expected to follow a pragmatic line and focus on explaining the core issues.
The procedure cannot be conducted entirely in an oral form. As set out in the Settlement Notice,
companies need to confirm their interest to pursue settlement in good faith to the commission in
writing. It is only following this written declaration that the commission engages in settlement discussions. The key document that forms the backbone of the settlement process is the settlement
submission. It confirms the partys voluntary acknowledgement of the infringement. If a party does
not want to introduce a written submission directly to the commission, there is the possibility of
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introducing settlement submissions orally. The settlement submission is to contain specific elements
identified in the Settlement Notice and it is to form the basis for the streamlined settlement statement of objections and thereafter for the decision. For the settlement procedure to succeed, the settlement submission, the SO and the decision have to be coherent with one another and it is necessary
to be able to verify the coherence between them.
It also goes without saying that the commissions decision to initiate proceedings, the settlement SO
and the decision, which are based on Regulations 1/2003 and 773/2004, must be in writing. Naturally, the parties need to reply to the SO in writing but only in short form.
Why does the commission oblige parties not to speak about the process and, more generally,
demand confidentiality in the process?
Laina: Confidentiality is indeed one of the key rules in the settlement process. Settlement discussions are also confidential in other jurisdictions. The commission carefully monitors companies to
ensure they follow their confidentiality obligations. In the course of the public consultation on the
draft settlement procedure, very few considered that disclosures by parties of the fact that they are
involved in settlements speed up the procedure. On the other hand, communication among the involved parties could also trigger the risk of a company being subject to pressure from other involved
companies to settle. In any case, more general publicity on the existence of settlement discussions
would go against the presumption of innocence, the principle according to which one is innocent
until proven guilty. It shouldnt be forgotten that the settlement discussions take place before the issuance of an SO, which is the moment where preliminary charges are formally laid down for the first
time.
Hansen: If I may jump in here, there are two types of disclosure that are relevant one is to investors, and the other is the disclosure from US criminal amnesty applicants to civil claimants with
whom they are cooperating pursuant to the ACPERA. [In the US, under the Antitrust Criminal Penalty Enforcement and Reform Act, leniency applicants who provide satisfactory cooperation to civil
claimants receive relief from treble damages and joint-and-several liability under the Sherman Act.]
I am less concerned about the investor disclosure as I am advised that until a settlement is reached
there are good arguments for not disclosing the settlement to them. This may even extend to auditors. Of course, if there is a significant time lag in a hybrid case between the settlement and the full
decision, there may be a more serious disclosure issue.
However, where I am more concerned is that an amnesty applicant in the US has cooperation obligations under the ACPERA statute that may require disclosure to plaintiffs. Given the length of EU
cases, the US civil cases may be more advanced and an obligation to not disclose the likely outcome
(ie, what the infringement is likely to be in terms of scope, duration, product et cetera) may place an
amnesty applicant in a difficult position.
In addition, its important to note that EU settlement may become public before the final decision.
For instance, where the commission issues a press release at the time of opening formal proceedings
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as happened for Wire Harnesses an educated reader may conclude fairly quickly that the case is a
candidate for the settlement procedure. This is because in cases which are suitable for settlement, the
commission must initiate proceedings no later than the date it requests the parties to express their
interest in engaging in settlement discussions in writing, or the date on which it issues a statement of
objections, whichever is earlier pursuant to the applicable procedural rules.
How do you choose a case that is suitable for settlement?
Laina: The commission retains a broad margin of discretion to determine which cases are suitable
for settlement. It assesses the probability that the commission and each of the parties would reach a
convergent understanding on the potential objections within a reasonable time frame. In its screening for settlement the commission takes into account all those elements which are identified in the
Settlement Notice (point 5). Important factors are the number of participants, their level of cooperation with the commission, the substance and the evidence. The most favourable scenario would be a
small and short infringement, with a limited number of parties, all of which already cooperate with
the commission. In contrast, a case with a lot of parties, none of them cooperating with the commission and with a very large or long infringement may create different incentives. In between, there is
a variety of possible scenarios which have to be assessed on a case-bycase basis, keeping in mind the
objective of procedural efficiencies and a fast resolution of the case. Increasingly, companies take a
proactive attitude towards informing the commission very early in the investigation phase of their
receptiveness to settling a case.
What lessons has the commission drawn from the first experiences of settlement? Has the system
achieved shorter proceedings?
Laina: The system has clearly shown that it allows shorter proceedings. At the time of designing the
system, the idea was to have a tool that would allow a few extra decisions to be made and, with the
resources freed, to do more standard cases. Now, on the basis of its success and the general confidence that procedural rights and confidentiality are safeguarded, it is clearly becoming a mainstream
way of arriving at decisions with fines.
There is always a margin for further progress. Lessons are learned from each case and procedures
adapted. Settlement is built on trust and good communication between the commission and each
of the parties. Companies expect to be able to discuss important issues with the commission openly
and without delay. Specific attention is therefore paid to these elements. The commission has also
been able to streamline its administrative processes to speed up the process. As for the company side,
the management, including the board level should be committed to the process from the start. The
same commitment is needed from their legal representatives. Companies seem to be eager to turn
the page as soon as possible and advance in settlement but this is possible only if a certain pragmatic
and cooperative approach is adopted.
The core of the process consists of convincing companies and businessmen of the existence of an
infringement of competition law. Often, settlement discussions are the first time that they are confronted with the reality of an infringement or with its full extent. For the commission, it is also a
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process that has to be begun afresh in each case as fortunately, so far, no company has appeared more
than once in settlement cases. This takes time. There is a need for companies to develop the settlement attitude, as Vice President Almunia called it.
PERCEPTION OF PRACTITIONERS ON THE SETTLEMENT SYSTEM
How do you perceive the operation of the settlement system?
Hansen: Despite its slow start, the settlement procedure is poised to become a viable and effective
cartel resolution tool in Europe. While it is generally expected that future cases will be dealt with
more quickly, the length of the EU cartel settlements have so far exceeded 15 months on average.
This time frame is definitely too long taking into account the fact that exhaustive investigations of
several years generally precede EU settlement proceedings.
On the other hand, I consider that the shorter procedure of the EU settlement is still better than the
alternative of an ordinary procedure with a full access to the file, a fully detailed statement of objections, an oral hearing lasting almost a week, an extensive reply to the statement of objections, and
a fully motivated decision, which in most instances will be challenged before the EU courts in Luxembourg, thus adding four or five years to the entire timeline. The early exit route of the EU settlement may represent the right solution from a corporate governance perspective as well.
Van Gerven: The settlement alternative can be an interesting option for quite a number of cases. I
agree with Marc that settlement cases still take longer than I had expected. But there are attractive
features to a settlement route that defendants are certainly interested in and that go beyond the mere
10 per cent fine reduction for contributing to procedural efficiency. In particular when a company
cooperates with the commission under the Leniency Notice, my experience is that it will typically be
interested in settling. At the same time, as the commission has acknowledged from the start, some
cases are more suitable for settlement than others. I am not surprised that the commissioner hopes to
settle more than half of the cases in the coming years.
What is the incentive for a company to settle? What are the key factors and parameters that a
company needs to take into consideration when deciding whether to settle or not?
Van Gerven: The costbenefit analysis involved in settlement is not as straightforward as one may
think. The fact that it allows for a quicker regulatory resolution is a main driver but that reason
may be a proxy for quite a few considerations why early resolution is preferred. The 10 per cent fine
reduction is widely seen as not much of a carrot. Note that in the UK, for example, the reduction for
settling is in the range of 20-35 per cent.
But there is also, and more than a few years ago, the expectation that settlement discussions allow for
a more meaningful discussion with the commission staff than what would be possible in a standard
procedure and that you have a higher likelihood to have these discussions affect the outcome. If you
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compare the sometimes very high fines after a standard procedure with the fines imposed in a settlement procedure, many lawyers perceive the settlement option now as attractive and I would say
that is particularly so amongst those who have opted to go through the process, although I cannot
say that is true for everybody.
At the same time there are some downsides. The impact on private litigation and in particular on
the timing of such litigation going forward is often mentioned. With the European courts becoming
more active in scrutinising cartel decisions, some firms may be willing to take their chance in Luxembourg. I am also more sensitive than before to the issue that if you settle (early) while others fight
on, you may not have, in retrospect, the best outcome. But that is basically a question of risk taking
and of knowing the strengths and weaknesses of your case.
Hansen: First of all, a distinction should be made between parties that are cooperating with the commission under its leniency programme and parties that are not. For the former, the settlement procedure may be a very likely choice, and for the immunity applicant even an obvious choice. As Flavio
noted, six of the 30 settling undertakings in Europe so far were immunity applicants.
On the other hand, there must be clear incentives for non-cooperating parties to decide to enter into
settlement discussions and pursue them until the end. In addition to the 10 per cent settlement discount and a shorter procedure, it is important to note that the settled or streamlined decision does
not contain a full assessment of the facts as it would be for a contested case; this reduces the amount
of publicly available information that could be used by potential damage claimants. A shorter decision is also appreciated by the involved companies who are keen not to disclose confidential information about their customers or employees.
But above all, and here I agree with Gerwin, I am not so sure that settlement cases always end up
with the same fine as cases resolved in a full procedure. I do have the impression that the dialogue
with the commission in the months leading to a settlement is able to influence the scope and duration of the infringement. And certainly the dialogue on affected turnover ensures that fines are set by
reference to sales volumes that are clearly impacted by the infringement.
Last but not least, the involved companies will save significant legal fees, because a cartel settlement
will avoid a burdensome procedure before the commission as well as what could be a long appeal
before the EU judiciary in Luxembourg.
Laina: Faster proceedings, faster access to the key evidence to make an informed decision. Certain
companies want to turn the page as soon as possible, with no further litigation in front of the European courts. The importance of the 10 per cent discount in fines should not be underestimated, in
particular for those companies who have decided not to apply for leniency.
Hansen: Sure, but one should not forget that by agreeing to settle a company admits liability and
forgoes a number of procedural rights, including, though technically an appeal is possible, the option
of effectively appealing before the EU courts. Successful court challenges can yield much more than
10 per cent. Therefore, incentives for parties to settle should be substantial.
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Do you perceive the incentives as having changed since the settlement system came into force?
Hansen: This is related to the point I was just making about there being more to a settlement than a
quicker procedure and a 10 per cent discount.
My sense is that there was a fairly dogmatic approach to settlement in the early years essentially
that the benefit of settlement was the 10 per cent discount. That was the message conveyed to the
users of the system. I dont think that really provided much of an incentive to settle. One has to
realise that in many cases the company and the lawyers are also settling in the US, and the deal in the
US is supposed to be noticeably better than the outcome of litigation. In fact in Japan I have at many
conferences been asked Is it even an option not to settle after the AU Optronics case? [In September 2012, AU Optronics Corporation, a Taiwan-based liquid crystal display (LCD) producer, was
sentenced to pay a $500 million criminal fine for its participation in a five-year conspiracy to fix the
prices of thin-film transistor LCD panels sold worldwide.] The answer is that it depends on the facts
and the deal offered.
In Europe, in the early years, there was a sense that the deal would be the same whether the commission settled or went to a decision. I think it led many to say why bother to settle? Over the past
year, I hear and see that the commission may have changed tack and is focusing the case for settlement purposes on key participants, key conduct and key periods. That should in practice lead to the
deal being better in settlement.
In addition, in recent settlement proceedings the discussions on the volume of the affected turnover
seem to be more pragmatic and informal, thus avoiding elaborate reasoning in the final settled decision.
Van Gerven: I agree with Marc. The commission has a lot of flexibility with regard to the outcome of
a cartel case. The commission can use that flexibility to produce a settlement outcome that is better
than one might expect or fear the outcome might be if you insist on following the standard procedure. That means that the commission can steer cases towards settlement as a matter of policy.
Whether the settlement route will be used more or less depends on how the commission wants to use
the flexibility it has it is as simple as that.
COMPARISONS WITH OTHER SETTLEMENT SYSTEMS
Why is the EU settlement system much slower in delivering outcomes than, for instance, the US
system?
Laina: This is purely a question of perception. A valid comparison can only be made between what is
comparable. Therefore a more appropriate question would be: is there a system that is faster in settling a case against all cartel participants? If one compares the EU with the US, the reply is no.
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All systems are based on a careful balance of many complex factors. In the EU system, which is administrative and not criminal, proportionality and equality of treatment take a prominent role. This
is why the possibility of an appeal against a commission decision is open even after a settlement. This
is also why settlement discussions are conducted in parallel with all the cartel participants who are
genuinely interested in settlement. Of course, the consequence is that the speed of the whole process
is affected by the speed of the discussions with the slowest participant. As demonstrated by recent
experience, this doesnt mean that the process is hostage to the slowest participant. The fact that the
commission does a complete investigation before deciding whether a case will follow the settlement
or the standard procedure gives more flexibility in case, for one reason or another, settlement is
discontinued. The standard procedure can then kick in very quickly. The complete investigation has
also proved valuable in ensuring contrary to the view expressed in consultation on the settlement
procedure that the slowest participant would not hold up the procedure.
Hansen: I agree with Flavio that it is in a way comparing apples and oranges. The EU cartel settlement procedure is a case-closure mechanism. It happens at the end of a long investigation, unlike the
US DOJ plea bargaining, which is an investigative tool and can be reached also from very early in the
investigation.
What actually delays the EU settlement is the exhaustive and long investigation, the internal controls
such as getting the Legal Service on board, and ensuring that all the details have been established.
Lets also not forget a very European issue: preparing the access to file for all the documents of the
case, not just the ones needed in the settlement.
The Settlement Notice itself refers to the procedural efficiency of avoiding the burden of providing access to non-confidential versions of documents from the file, but when the decision that a
case may be settled is taken later in the process the involved companies may end up preparing two
non-confidential versions of the same documents ie, one version for the settlement file and another
version for the complete file, thus multiplying efforts, costs and time. And all of this has to be done
for all the companies that the commission has decided to pursue.
These are complexities that are not part of the US procedure. When ones sees the last settlement in a
US case it is really a question of when the last company that the DOJ decides to pursue is willing to
settle and if they dont whether the DOJ will bring a prosecution.
Van Gerven: There was no doubt a learning curve and it was expected that it would take time to
make the system operational in the first few cases. Interestingly, the time between the formal opening of proceedings at which time the case is selected for settlement and the adoption of the settlement decision has remained fairly constant: around 15 months (leaving aside the one hybrid case).
This is no doubt longer than many had initially expected and some of the reasons Marc provides help
to explain this. But if you take a closer look, much of that time is taken up by the actual settlement
discussions between the defendants and the commission staff. That is an indication that there is more
going on than delivering the verdict and the checking of a couple of documents. Those discussions
are important for the ultimate outcome of the case. So, people should decide what they want if they
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wish for a faster process.

Where parallel cases exist in other jurisdictions, are there times when the public nature of an EU settlement even taking account of the short form decision means that companies really cannot settle
and must drag the case on until a later development in another jurisdiction?
Van Gerven: This should not often be a significant disincentive. Of course a settlement requires the
acknowledgment of liability and of certain facts that will be disclosed in the settlement decision but
it is likely that at the time of the European settlement decision the defendant will have plea bargained
in the US and possibly in other jurisdictions. It could be that a company may feel it wants to fight the
accusations in a particular jurisdiction, in which case any settlement, with the implied admissions,
seems like a bad idea. But I dont think these fragmented strategies happen very often.
Hansen: I agree with Gerwin that because the EU settlement and the US plea bargaining timelines
are generally quite different, the issue you raise is relatively unlikely to be a significant one, and certainly in my experience not a cause to reject settlement.
EU settlement may also happen before other antitrust agencies take action. For instance, it is public
knowledge that in the global DRAM cartel investigation the commission concluded its probe with
settlements and fines in May 2010 and just one month later the Brazilian authority opened its
own investigation, based largely upon evidence gathered in the EU and US cases.
But the broader point is valid there is a need for greater coordination of case resolution, in particular as more and more agencies get into the cartel game and cases get more complex. This is an issue
that the International Competition Network might wish to focus on in coming years.
Its been said that because settlements in the EU system occur long after the plea bargains in the
US, and after the JFTC has adopted its decision, the EU is increasingly trying to draw blood from
companies that have already depleted their resources in other jurisdictions? Is that right? Is that
why the EU is seeing more inability to pay claims?
Laina: Well, in the first place parties are not obliged to settle. Secondly, there is no link between an
increased number of inability to pay (ITP) requests and the commission allegedly deciding its cases
later than other jurisdictions. Parties that request ITP are not generally pursued in other jurisdictions, so it is hard to see where this allegation of depletion of resources comes from. More specifically, since the introduction of the refined ITP methodology at the end of 2009 (the Heat Stabilisers case), ITP has been requested by companies in nine cartel investigations. Whereas five of these
investigations were also dealt with by other jurisdictions, in the Airfreight and LCD cases the ITP
requests were all rejected. None of the companies involved in the three other cases that received
an ITP reduction from the commission have, to my knowledge, been fined by any other competition authority before the commission dealt with the case. Hence, I see no obvious links between the
duration of investigations and requests for inability to pay a fine in international cartel cases because
there is none.
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Van Gerven: I am not so sure about that and thus I agree with Flavio. I think there may have been
a tendency in some past cases for the commission to seek to improve on findings in other jurisdictions. For example, the commission might have sought to establish that the cartel lasted longer
(including in a more inchoate form). But one reason why I believe strongly in settlements is because
for the settlement policy to succeed the commission must focus more on the core of infringement,
in terms of duration, scope, et cetera. That should mean that defendants are less exposed to expansive claims in a settlement procedure and that is the opposite of drawing blood. On inability to pay
claims, I see no close link between the timing of EU proceedings and ITP claims, although it is of
course possible that a cartel case has drawn down so much of the financial means that the company
might not be able anymore to pay a significant EU fine if that follows on the heels of several other
penalties.
Hansen: I agree with Flavio and Gerwin. All the cases to date involving requests for inability to pay
are cases that did not involve parallel fines in the US, Japan, et cetera. Rather the ITP cases are a sign
of the financial crisis and recession and the generally increasing fine levels.
WHAT IS STOPPING CASES FROM BEING SETTLED?
Assuming that the settlement system offers a better deal than the alternatives, what are the key
factors in choosing to settle? What are the hurdles to settling?
Hansen: My perception again from experience and what I hear from other practitioners is that
the commission needs to be careful not to overreach when using the settlement instrument. In sum,
dont try to explore new legal theories in a settlement situation.
Only apply established law and practice this applies not only to the legal characterisation of the
conduct, but also to the calculation of the fine. Also, the commission should not go for borderline
facts. I have seen settlement attempts fail where the commission tried a new theory, or overreached
on the facts. If a case requires a new theory or the commission must rely on marginal facts, then
probably that case is not suitable for settlement.
Van Gerven: I agree with that. Cases where parental liability is hotly contested, for example, are not
suitable for settlement. Likewise, Id be surprised to see a settlement soon where the fine extends to
so-called transformed products as was the case in the LCD and CRT matters. And indeed if the facts
are contested, the case is likely not suitable for settlement. Settlement seems only suitable if both
sides can find each other on the core facts, on who should be held liable and on what is a reasonable
fine. That does not even require that the outcome is negotiated.
Laina: The commission has so far settled very different types of cases. In general, settlements are a
better deal than standard cases in so far as they imply a reduction of the fine that could be cumulated
with other applicable reductions, such as leniency. The primary purpose of settlement is to quickly
resolve solid cases that do not require infinite discussions. Settlement procedure is initiated quickly
where the conditions I discussed previously are met. Furthermore, as the record shows this does not
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exclude settlement in other cases either. By the same token, where these conditions are not present,
settlement may be impeded. It is clear that the interplay between settlement procedure and subsequent private litigation needs increasingly to be factored in by parties that settle, and where this is
not done there may be less incentive to settle.
Hansen: Another area where the commission does have to be careful not to overreach is on fine calculation issues. Where the settlement offer involves turnover which is not agreed to be affected, this
can have a significant cooling effect on the incentive to settle.
We must welcome the commission disclosing the basis of the fine calculation in a settlement and
indeed since last year in statements of objections outside of settlement but ambitious determinations of the value of sales (ie, the basic amount of the fine) are today the cause of many disagreements in cartel resolution. Difficult issues such as whether indirect sales should be included in the
affected turnover that is sales outside of Europe which would allegedly have an indirect effect on
European customers are likely not suitable for settlement discussions. Unless of course the settling
company is prepared to cross that bridge for instance because alternatives may be equally unattractive.
HYBRID SETTLEMENT CASES
When the settlement system came into force there was a lot of discussion about hybrid cases
cases where not all parties settle. What is the current thinking on that issue? Its unclear whether
the commission is favourable to hybrid cases whats your view?
Laina: So far there has been only one case (Animal Feed Phosphates), where one undertaking refused the settlement so it is difficult to generalise. Settlement is a choice offered by the commission
for a faster resolution of a case. It is neither a right nor an obligation. If there are no procedural efficiencies, there is no reason to continue the settlement. On one hand, discontinuing the settlement
because of one undertaking would arguably give this undertaking an unjustified prominent position
in the process. On the other hand, procedural efficiencies would tend to disappear as the case against
this undertaking cannot be dropped and would revert to the standard procedure. A case-by-case assessment, taking into account, among other things, the specific role of the company in the cartel as
well as the reasons and the timing of the opting out, would therefore be necessary.
Van Gerven: I can see that the commission has a strong preference for pure settlements. The reasons of procedural efficiency fall largely away if you have a hybrid settlement.
However, the commission must be prepared to pursue hybrid settlements if for whatever reason a
defendant opts out. And the right to opt out is essential. It would be very hard to advise a client to go
down the settlement route if it were stuck in it whatever happened. At the same time, it is important
that the commission has sent a strong signal that it is prepared to have hybrid cases so that it can defeat attempts to hold up the process. It would also not be fair if one defendant could decide whether a
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settlement would be pursued with regard to all the others. So some more hybrid cases will be inevitable but I do not expect there to be many. I expect that the commission will continue to apply a rigorous screening in order to avoid such cases as much as possible.
Hansen: I agree with Gerwin that the right to opt out is essential; especially because the involved
companies may decide to abandon the settlement procedure when the commission begins talking
numbers ie, quite far down the settlement road as happened for the non-settling party in the Animal
Feed Phosphates case.
Generally, I have always been of the view that there is no real danger and quite some advantage to
hybrid case settlements. The commission gets a result and still has the ability to pursue the remaining
parties.
One point that is worth noting is that in hybrid cases, the decision addressed to companies that
choose not to settle may contain a longer factual description. However I am confident that the commission will be attentive to the risk of the non-settlement decision revealing additional information
that could potentially be used in damages actions against those companies that did in fact agree to
a settlement. This is confirmed by a comparison of the two decisions of the only hybrid case the
55-page settled decision in English addressed to the settling parties versus the 108-page separate
decision in French addressed to the one party which discontinued the settlement in the Animal Feed
Phosphates case. The separate decision contains more detail in the description of the facts but their
scope remains generally the same.
Finally, there is no inherent reason for insisting that the settled decision has to be issued at the same
time as the separate decision involving non-settling parties. Of course, the commission will have to
pursue at least some parties which dont settle even if at a later stage or else the attraction of the
settlement instrument is less. But this should not be any different to the problem faced by the DOJ in
plea bargaining if one focuses on the key players, those are likely to see the benefits of settling.
INTERACTION BETWEEN SETTLEMENT AND PRIVATE LITIGATION
Settlement submissions are currently protected from discovery in private damages litigations.
What is your view on this? Is it necessary to keep the two processes separate?
Laina: The commission Settlement Notice provides that settlement submissions are protected against
discovery in the same way as corporate statements provided in the framework of the leniency programme and companies rely on this protection. The Notice also states that public disclosure of documents and written or recorded statements (including settlement submissions) would undermine
certain public or private interests, for example the protection of the purpose of inspections and
investigations, within the meaning of Article 4 of Regulation (EC) No. 1049/2001. The judgments in
the Agrofert and the Odile Jacob cases have confirmed, mutatis mutandis, the approach of the commission.
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Uncertainty on the protection of settlement submissions would clearly have a negative impact on the
functioning of the settlement instrument. If the settlement instrument functions properly, the number of cartel decisions is likely to increase, which has a positive impact on deterrence. As for private
enforcement, victims of cartels can also rely on settlement decisions before national courts. Disclosure of the settlement submission is not necessary for private enforcement.
Van Gerven: Yes, I think it is important to keep settlement submissions protected against disclosure.
A settlement is often seen as a form of cooperation with the government and indeed the most suitable cases for settlement are those where all defendants have sought leniency. It remains important to
avoid putting those who cooperate with the government in a worse position than those who do not
cooperate. That principle is nowadays well understood and widely accepted.
Hansen: It is true that settlement submissions are protected against discovery as much as corporate
statements, but recent attempts by plaintiffs to have access to leniency cartel evidence show that one
should always be careful of what is included in any submissions to the commission be it a corporate statement or a settlement submission. For instance, while the commission considers that settlement submissions are exempted from the obligation of disclosure set out in the Transparency Regulation No. 1049/2001 (as indicated by the Settlement Notice at point 40), the case law on the public
access to the file is very complicated.
Even if the commission requires the settling party to acknowledge its liability in clear and unequivocal terms, settlement submissions should focus on core and clear-cut issues only, and so should
the streamlined statement of objections and the final settled decision.
IMPROVEMENTS TO THE SETTLEMENT SYSTEM
Do each of you see areas where the commissions settlement practice could be improved in the
short term and contribute to meeting the goal of 50 per cent of all cases resolved by settlement?
Laina: Although there is indeed a growing interest in settlements, not all cases are suitable for settlement. Given that speed seems to be the most important factor for the business and legal communities, it is certainly an area in which both the commission and the parties have to look into. For what
is under its control, the commission constantly works on further streamlining and improving the
administrative processes but there are obviously limits to this as the process needs to meet the conditions set out in the rules as well. Also, in the most recent current cases, the commission services have
set internal deadlines and informed the parties about them. Already now, companies are welcome to
flag their interest for settlement early in the procedure. The fact that companies cooperating with the
commission would also indicate the scope of the infringement which they would be prepared to settle is an interesting subject for reflection, but could be difficult to implement due to the often incomplete perception of the infringement that companies have at an early stage of the process.
Hansen: First, I am not sure speed is the most important factor; the deal is what drives the incentive to settle. In terms of possible improvements, I see three key solutions that should be easy to
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implement and should not meet resistance from the commissions Legal Service or the Luxembourg
courts.
First, I would encourage early and proactive engagement with the involved companies on the relevant facts before starting the settlement procedure. This would avoid the commission locking itself
into protracted negotiations where no settlement can be reached.
Second, the commissions case team should set some internal targets for expediting cases. Give yourself one year to establish the key facts, players and periods. Then two months to explore with the key
players whether a settlement is possible. If there is an agreement in principle in those eight weeks,
settlement should be pursued, otherwise the commission may want to revert to the ordinary procedure.
Third, you can shave half a year off a settlement case if you focus the access to file process on the
documents that are needed for the settlement case files, ie, a few hundred pages. If the settlement
fails, there will be enough time to do the exercise for the entire file of thousands of documents, inculpatory or exculpatory. In practical terms, this translates into determining early in the process the
hot documents to be included in the settlement case file and addressing the confidentiality claims
on them. There is no need at that stage to prepare non-confidential versions for other documents in
the commission case file.
Laina: The commission is aware that the preparation of a full access to the file may not be necessary
in settlement cases and therefore in the current cases the preparation of the access focuses on the
documents that are used in the settlement discussions.
Van Gerven: Settlements can be accelerated if the commission focuses on the core facts.
One reason why settlement discussions still take a year or more is because there is still too much
stuff to argue over in the initial proposal. In particular with regard to duration, it is important for the
commission to stick to the period for which there is strong evidence. I also note that in two or three
of the settlement decisions to date, the commission has accepted there was a period of limited cartel
activity, for which no fine was imposed. That is a typical settlement tool that might be used to facilitate a consensus in a settlement context while in a normal process the commission might stick to its
guns.

Are Eu Cartel Settlements Working

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EU cartel settlements: are they working?

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wish for a faster process.

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