[author: Howard W. Fogt]
Acting to rid European Union markets of restrictive trade practices like seemingly endemic industrial cartels, the European Commission has long sought to employ an arsenal of weapons to deter violations of European competition law.1 The Commission has prosecuted scores of cartels. It has levied very substantial fines and penalties. It has employed so-called dawn raids to capture evidence from the unwary. It has lobbied EU member states to criminalize cartel activity by business. If the statistics published by the Commission each year on its Web site are any indication, the European Commission is making some progress, however limited, to stem the tide of activity undermining the benefits of free and open markets.2
Recently, the European Commission has adopted a radically different approach to deterrence. In addition to long-standing efforts to detect and prosecute competition wrongdoers, the Commission has launched a campaign to encourage compliance as a matter of business self-interest. Since the 2004 modernization of EU competition rules, individual enterprises have been forced to assume much increased responsibility to assure compliance. To that end, the Commission is now promoting the adoption of competition compliance programs as one important means to curb illegal activity. Through its recent publication, Compliance Matters: What Companies Can Do Better to Respect EU Competition Rules, the European Commission provides a useful toolkit for company advisors and executives seeking assistance with these issues.3
This EU Commission initiative should not come as a surprise to most multinational companies, particularly U.S. firms with significant sales and market share around the world. Given the tremendous risks stemming from antitrust violations in the United States, an effective antitrust compliance policy and set of procedures has long been recognized as an essential compliance “best practice” — a central element of promoting appropriate business and reducing the risk of government criminal/civil or private treble damages litigation.
The rationale and the constituent elements of the EU Commission’s compliance policy as well would be very familiar to U.S. lawyers and business people. In terms of the rationale for compliance, there are, of course, the expected “sticks” to promote compliance — substantial fines on companies, growing risk of sanctions for individuals, damage exposure, business disruption from investigations/scrutiny, and the more ephemeral issue of potential damage to corporate image and branding. Many of the Commission’s recommended components of an effective “European” policy, as well, are typical of “best practices” compliance programs — a clear commitment to and an endorsement of a culture of compliance mandated by top management, training in core substantive issues like pricing, customer allocation, distribution, and document preparation/preservation, periodic staff certification of compliance, and monitoring/auditing.
However, beyond these elements of significant commonality between European and North American compliance models and assumptions, there are a number of distinct differences that require careful consideration in order to avoid a number of potential serious problems or unpleasant surprises. Thus, North American and other enterprises with significant European activity, whether stemming from distribution, franchise, joint venture, or direct investment through merger/acquisition or otherwise. should ensure that they have dealt with all of the essential elements of European-style compliance. Simply extending the provisions of a North American policy to operations in the European Union is a shorted-sighted course of action fraught with risk.
A natural starting point in comparing the EU model is to look to the United States Sentencing Guidelines,4 created by the Sentencing Reform Act of 1984.5 While these U.S. guidelines are just that — guidelines rather than mandatory sentencing criteria for federal judges6 — they are nevertheless very influential. The first important difference between U.S. and European norms is the issue not of the stick, but the carrot. Unlike the EU model, the U.S. Sentencing Guidelines explicitly and extensively make it clear that the existence of a well-conceived and effective compliance program should have the positive beneficial effect, all other things being equal, of reducing the penalty that would otherwise be appropriate for the offense charged.
The EU competition compliance policies do not hold out any such carrot. While the European Commission has issued guidelines on how it will impose fines in competition cases, these guidelines do not accord any weight to a compliance policy of an enterprise being sentenced.7 These guidelines do state that the Commission does have wide discretion in imposing fines. However, in explaining its discretion, the Commission references only the gravity and duration of the violation or “infringement” and, of course, the limits or ceiling of its fining authority. That is to say (if it were necessary), a Commission fine cannot exceed the upper limits imposed by the enabling legislation. Importantly, aside from the avoidance penal “sticks,” there is no positive benefit or “carrot” that would reward, through a reduction of fines, the implementation of an antitrust compliance program. The absence of a meaningful compliance “carrot” is a significant gap in the European Commission’s campaign to promote compliance, which should be addressed.
A second major difference between European and North American compliance programs goes directly to the question of a program’s effectiveness. Again, the U.S. Sentencing Guidelines pose a stark contrast. Chapter 8 of the guidelines, which deals with the sentencing of organizations, outlines the elements of an effective compliance and ethics program.8 As noted above, many of the constituent elements of an effective U.S. and a European program are the same. The two approaches part company on the issues of self-reporting and cooperation. First, it goes without saying that North American and European competition law enforcement procedures have highly refined and well-tested leniency programs.9 These programs promise significant benefits for self-reporting, including immunity from or dramatic reductions in fines.
However, the major important difference relates to the issue of whistleblowing and confidential hotlines, which can be the essential key to achieving the benefits of self-reporting and cooperation. In North America, competition compliance programs that provide for a confidential hotline to senior corporate management to report corporate misfeasance are very commonly considered standard “best practices.”
Instead of being viewed positively as a procedure to empower and protect employees with evidence of corporate wrongdoing (thus facilitating legal compliance), such polices in Europe are vigorously opposed as unlawful and unacceptable intrusions into the workplace and violations of fiercely held and defended rights of privacy. Reflecting sharp cultural and historical differences with the United States, European privacy policies, in particular, with anonymous hotlines are contended to pit employees against one another and, thus, highly suspect.
Given this reality, U.S. companies seeking to extend their “normal” corporate compliance policies and procedures to Europe need to proceed with great care, particularly given the requirements of Sarbanes-Oxley10 and Dodd-Frank11 corporate reporting legislation. Indeed, EU data privacy protection laws12 have been interpreted to virtually eliminate the possibility of a confidential hotline given what is seen as the lack of proportional value between the hotline and the benefits achieved. Beyond EU data privacy protections that constrain fulsome American-style compliance programs and procedures, EU member state labor protection laws further restrict the ability of companies to compel employees to participate in programs to facilitate legal compliance through means of hotlines and whistleblowing procedures. Accordingly, great care must be taken to avoid these potential minefields in extending a North-American-style compliance program to Europe.
Finally and perhaps often forgotten as antirust/competition authorities seek to harmonize their laws, there remain profound substantive difference between U.S. and EU antitrust principles in a number of important areas. While there are few if any significant differences on issues involving traditional cartel activity such as price-fixing/market allocation, there are significant differences in the area of vertical restraints. These differences are most profound in areas of exclusivity, resale price maintenance,13 minimum advertised pricing, Internet sales restrictions, and price discrimination.14 Moreover, there are significantly more rigid standards imposed in the EU on issues of horizontal cooperation, particularly related to information-sharing and trade association statistical programs.15 Thus, in addition to the need for careful consideration to the components of a proposed competition compliance program, there is a need for thoughtful review of the substantive differences that may affect how the compliance policy should be structured and operate.
1 See Almunia, “Competition enforcement in the EU: Beyond the Integration of Markets,” October 18, 2012 (http://europa.eu/rapid/press-release_SPEECH-12-742_en.htm).
2 See http://ec.europa.eu/competition/cartels/statistics.
3 See http://ec.europa.eu/competition/antitrust/compliance/index.
4 See http://www.ussc.gov/guidelines/index.cfm.
5 18 U.S.C. § 3551.
6 See United States v. Booker 543 US 220 (2005).
7 Guidelines on the method of setting fines imposed pursuant to Article 23 (2)(a) of Regulation No 1/2003 (OJ C 210/2 (September 1, 2006). See http://ec.europa.eu/competition/antitrust/legislation/fines.html.
8 See n. 4, supra.
9 Compare Commission notice on immunity from fines and reduction of fines in cartel cases, (OJ C 298 (December 8, 2006)) http://ec.europa.eu/competition/cartels/legislation/leniency_legislation.html with U.S. Department of Justice Antitrust Division Leniency http://www.justice.gov/atr/public/criminal/leniency.html.
10 The Sarbanes-Oxley Act of 2002, Pub. L No. 107-204. See, e.g., § 301.
11 Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, codified at 15 USC § 78u-6 et. seq.
12 EU Data Privacy Directive, (95/46/EC (October 24, 1995), OJ No. L 281/31 (November 23, 1995). Earlier this year, the European Commission proposed a new General Data Protection regulation to supersede the 1995 data privacy directive, if adopted.
13 Compare Leegin Creative Leather Products, Inc. v. PSKS, Inc. 551 US 887 (2007) with EU Commission Guidelines for the assessment of vertical restraints (OJ C 130/1 (May 19, 2010) http://eur-lex.europa.eu.
14 Ironically, price discrimination is more problematic (at least theoretically) in the United States than in the EU, which proscribes the practice only in the context of an abuse of a dominant position.
15 Commission guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements (OJ C 11/1 (January 14, 2011)).