On October 25, 2022, the European Commission (EC) published additional guidance on cartel leniency applications, in the form of Frequently Asked Questions (FAQs).1 The FAQs do not change the standard for leniency applications set out in the EC’s 2006 Leniency Policy,2 but provide further transparency to potential leniency applicants.
Background
The EC’s Leniency Policy gives companies the opportunity to confidentially disclose their participation in a cartel and cooperate with the EC during an investigation. A successful leniency applicant will either be granted full immunity (i.e., avoid any fines) or will receive a substantial reduction up to 50 percent of the fine. The Leniency Policy is available for applicants involved in typical cartel activities such as price fixing and market sharing, and less typical conduct such as wage fixing, no-poach agreements, and exchange of information about companies’ future conduct in the market.
Leniency Benefits: Beyond Fine Reductions
Successful leniency applicants receive concrete benefits that go significantly beyond the avoidance or reduction of financial penalties.
- Debarment and Access to EU Financing. Companies being fined by the EC for participating in a cartel can generally be excluded from EU and/or national public tender procedures.3 In contrast, leniency applicants may still be able to participate in tender or award procedures.
- Protection of Individuals Against National Prosecution. While there is no individual liability under EU competition law, some EU Member States (e.g., Germany) can impose sanctions on individuals participating in a cartel. However, employees (current and former directors, managers, and other members of the staff) of EC immunity applicants are protected from such sanctions provided that they cooperate with the relevant National Competition Authorities (NCAs).4
- Limited Liability for Follow-On Damages. In the EU, immunity recipients are liable to pay damages i) to their direct and indirect customers, and ii) to other cartel victims only if full compensation cannot be obtained from the other cartelists.5 EC6 and NCAs7 officials have recently advocated for a general immunity for follow-on damages. However, this would require significant changes under EU law that are unlikely to be adopted in the near future.
Enforcement Challenges: A Race to Leniency
Companies that are not the first ones to report a cartel do not qualify for full immunity. However, they may still be granted a reduction to their fine. They must i) provide evidence that brings an added value to the evidence already in the EC’s possession, and ii) cooperate with the EC in the same way as the first-in does. The reduction ranges from 30 percent to 50 percent for the second company, from 20 percent to 30 percent for the third company, and up to 20 percent for the others.
In addition, the Leniency Policy coexists with another tool designed to help the EC uncover cartel practices: the whistleblower policy.8 The latter encourages individuals to provide inside knowledge, on an anonymous basis. Companies that decide not to seek leniency or delay a leniency application could face significant fines because the conduct could be reported by a whistleblower. As an individual, a whistleblower would not face the risk of a liability under EU competition law and would be protected at the national level.
Wilson Sonsini Observations
While the FAQs essentially constitutes a restatement of the EC’s practice, it provides clarification on the risks of cartel exposure in the EU and benefits of leniency. Companies with sales in the EU should consider the risks of significant penalties, follow-on liability, or inability to participate in public tenders that can be mitigated through leniency.
Companies concerned about possible involvement in cartel conduct or contemplating a leniency application in the EU should contact external counsel to seek advice and guidance on submitting a leniency application.
Laurine Daïnesi Signoret contributed to the preparation of this Wilson Sonsini Alert.
[1]EC press release, Antitrust: Commission Provides Guidance on Its Leniency Policy and Practice, October 25, 2022, available here.
[2]EC Notice on Immunity from fines and reduction of fines in cartel cases, December 8, 2006, available here.
[3]Regulation (EU, Euratom) 2018/1046 of the European Parliament and of the Council of July 18, 2018, on the financial rules applicable to the general budget of the Union, available here, Directive 2014/24/EU of the European Parliament and the Council of February 26, 2014, on public procurement, available here, Directive 2014/23/EU for concession contracts, available here, and Directive 2014/25/EU for procurement by entities operating in the water, energy, transport postal services sectors, available here.
[4]Directive (EU) 2019/1 of the European Parliament and of the Council of December 11, 2018, to empower the competition authorities of the Member States to be more effective enforcers and to ensure the proper functioning of the internal market (ECN+ Directive), available here, Article 23.
[5]Directive 2014/104/EU of the European Parliament and of the Council of November 26, 2014, on certain rules governing actions for damages under national law for infringements of the competition law provisions of the Member States and of the European Union, available here, Article 11(4).
[6]Global Competition Review, EU is reviewing leniency policy amidst drop in first-in applications, enforcer says, April 5, 2022, available here.
[7]Global Competition Review, Mundt touts immunity from damages for leniency applicants, September 10, 2021, available here.
[8]Directive (EU) 2019/1937 of the European Parliament and of the Council of October 23, 2019, on the protection of persons who report breaches of Union law. Under the directive, the employees enjoy a high degree of protection for example against dismissal, demotion, or other forms of retaliation, available here.
