Posted by Chantal Lavoie on 15 December 2016
In two separate rulings delivered on 15 December 2016, the General Court provides an important reminder to businesses regarding the type of information which, if exchanged between competitors, can amount to a restriction by object and an outright cartel. The case is a compelling one for in-house lawyers and compliance officers. It involves four companies having taken part in bilateral contacts to discuss future pricing intentions and future capacities for the manufacture and sale of smart card chips. One of the cartel members had a few bilateral contacts with two of the cartel members but it was found to have participated in the cartel in its entirety. The General Court rejected all grounds of appeal. The judgment also emphasises the importance for businesses and their employees of understanding the risks involved in holding bilateral discussions with competitors and in having such discussions linked to similar discussions between other competitors and qualified as part of a single cartel infringement.
The European Commission adopted an infringement decision on 3 September 2014 against Infineon, Philips France and its parent Koninklijke Philips NV (referred to collectively as Philips), Renesas and Samsung. The decision was adopted under the normal cartel procedure, following failure of an attempt at settlement and discontinuation of the settlement procedure. The infringement consisted in exchanging sensitive information, particularly on future pricing intentions and capacities, by means of bilateral contacts. The cartel lasted from 2003 to 2005.
The parties were fined a total of EUR138 million. Renesas was granted immunity as it was first to apply for leniency. Samsung received a 30% reduction in the fine under the Leniency Notice for providing information of significant added value. Infineon was granted a reduction of 20% on its fine for participating only partially in the infringement. Nevertheless Infineon received the largest fine notwithstanding its limited involvement given that it had much higher turnover.
The evidence relied upon in support of the decision showed that, during bilateral contacts, the parties exchanged information on their future pricing intentions, prices proposed to some customers, minimum price levels, target prices and shared views on price developments, production capacity, capacity utilisation and future market conduct. Even though the exchange of information took place only through bilateral contacts, the European Commission was of the view that these contacts were linked one with another and together were part of a single and continuous infringement contrary to Article 101 TFEU. According to the European Commission, the contacts pursued a ‘single anticompetitive aim’, namely to contain price erosion as a result of the market entry of Samsung and Atlmel and the pressure exerted by two of the largest customers. The European Commission relied on the similarity in topics discussed during the contacts, the proximity in time of the contacts and the identity of the persons participating in the contacts to show a link between the bilateral contacts. Finally evidence was also provided that the parties were aware of the common aim (save for Infineon which was found to have had contacts only with Samsung and Renesas and therefore was liable only for these bilateral contacts).
The General Court judgment
Philips and Infineon appealed the decision of the European Commission. In two separate judgments, the General Court upheld the Commission decision and fines imposed on Philips and Infineon. The main grounds of appeal raised by one or both applicants can be regrouped as followed:
- The decision fails to show an infringement of Article 101 TFEU;
- Procedural irregularities were committed by the European Commission during its investigation; and
- Errors in the calculation of the fine.
The General Court rejected all grounds of appeal. We focus below on the General Court’s findings.
1. Was there an infringement of Article 101 TFEU?
In response to arguments raised by each of Philips and Infineo, the General Court concluded that part of the information exchanged in bilateral contacts was indeed sensitive, that it did give rise to a restriction by object and that it constituted a single and continuous infringement. The following conclusions are worth highlighting:
Market conditions and type of information exchanged
- In order to show that an exchange of information constitutes a restriction by object, the General Court held that it was not necessary for the European Commission to show that the market conditions were conducive to anticompetitive coordination. Existing case-law requires rather to show that, taking into account the legal and economic context, the very object of the exchange of information was capable of affecting the normal conditions of competition on the market.
- Even though there existed evidence that the market was dynamic (low entry barriers; recent new entrants; fluctuating market shares; rapid technological development), the General Court made clear that other market conditions existed which made it possible for the European Commission to conclude that the information exchanged would alter normal competition on the market, such as:
- prices for smart card chips were falling;
- pressure to reduce pricing and margins from the largest customers who were very few; and
- contract negotiations between the smart card manufacturers and their customers which were held in parallel.
- prices for smart card chips were falling;
- Philips recognised that some of the information exchanged may have been sensitive and discussions on prices were contrary to their internal compliance policy.
- The General Court agreed with the European Commission that the information exchanged was sensitive and reduced commercial uncertainty. In particular, the information was detailed, individualised and not in the public domain. Regarding content, it included bilateral contacts with respect to:
- the exchange of information on the following year’s estimated production capacities and commercial strategy; or
- intentions regarding pricing to be offered to respective customers; or
- communicating a general intention to increase prices for a specific category of chips (e.g. intention not to increase or intention to keep prices ‘flat’ next year); or
- exchange of estimated individualised market shares; or
- information on the intended migration of products to new technologies and intended allocation to these new technologies; or
- information on products, commercial profitability, manufacturing at full capacity and intention not to engage in price battles.
- Whether the information exchanged on prices was accurate or not or was misleading, the General Court concluded that this does not alter the finding that the information was capable of affecting normal market conditions.
Single continuous infringement and awareness of the infringement
- The appellants argue that since all of the contacts were bilateral and very few, the European Commission failed to show there was a single continuous infringement and that they were aware of the infringement.
- The General Court found that the European Commission was right to conclude that there was a single infringement. The European Commission was required to show (i) the existence of a common anticompetitive objective and (ii) links of complementarity between the bilateral contacts as evidence that they were part of the same overall plan.
- In relation to the existence of a common anticompetitive objective, the General Court agreed with the European Commission’s finding that the evidence showed that the parties pursued a common objective which was to limit the fall in prices as a result of Samsung’s aggressive pricing policy (even though the contacts might also have been held to gain a better understanding of the market). The General Court discards as irrelevant for purposes of finding that the parties shared a common anticompetitive objective the fact that Philips did not take part in all of the bilateral contacts between the parties.
- Regarding evidence of complementarity between the contacts, the European Commission was also correct in basing its conclusion on the common characteristics of the contacts, the identity of the participants and the timing of the contacts. Indeed, the discussions had in common pricing and capacity intentions, even though different other market issues might have been discussed. Regarding the identity of the participants, the fact that the same employees of the participants were involved in the contacts was useful to show the complementarity of the bilateral contacts. On timing, and even though as regards Philips there were only five bilateral contacts, the contacts were held in close proximity to one another and generally during the period when prices were set.
- As to whether the appellants were aware of the infringement, the General Court pointed out that, based on existing case law, it must be shown that the parties were aware of the “general scope and the essential characteristics of the cartel as a whole”. The General Court rejected the argument that Philips was not aware of the cartel, in particular given the evidence that Samsung and Renesas informed Philips of their discussions on prices and capacity with other competitors. The General Court also rejected arguments put forward by Infineon that it had participated in a single and continuous infringement. The General Court emphasised the importance of distinguishing the evidence of a single continuous infringement – which was proven based on the existence of a common plan even if Infineon was unaware of the practices of some other participants – from the issue of liability where Infineon had been found to participate in the infringement only for its coordination with Samsung and Renesas. Based on a combined reading of the operative part of the decision and the statement of reasons, it was clear that the liability of Infineon was imputed only for the infringement as it applied to its contacts with Samsung and Renesas.
2. Procedural irregularities
One of the main arguments presented on the ground of procedural irregularity is that the European Commission wrongly relied on evidence provided by Samsung. The General Court concluded that, whilst caution should be exercised in relying on evidence voluntarily provided by a leniency applicant due to the possible incentive to submit “distorted evidence”, this is also offset by the risk of being withdrawn the benefit of leniency. In this instance, the European Commission did not make an error in relying on information provided by Samsung which was also corroborated by Renesas and other evidence. The mere fact that information was provided spontaneously at the beginning of an investigation or at a later stage at the request of the Commission as part of a request for information or subsequently to discontinuing a settlement procedure should not in principle alter the value of the evidence provided nor shed doubt as to its credibility. In addition, the fact that the European Commission did not communicate certain documents to Philips did not breach its rights of defence because those documents could not have altered the outcome of the administrative procedure nor the content of the decision.
3. Calculation of the fine
The General Court upheld the basis used by the European Commission for calculating the fine, including the 16% gravity multiplier applied in setting the fine. In particular, no error in law was found in applying the 2006 Fining Guidelines.
The ruling of the General Court highlights the importance of not only putting in place competition compliance policies but also of regular monitoring. In this instance, the cartel was of relatively short duration and for some of the parties, the evidence was limited to a handful of contacts over a period of less than a year. In upholding the European Commission’s assessment, the General Court confirms that a small number of bilateral contacts by a single employee can implicate a company in illegal cartel behaviour.
Against the background of the smart card chips decision as upheld by the General Court, I set out below a few important points to remember when putting in place compliance programs and monitoring:
- Employees must clearly understand the type of information which can/cannot be discussed with competitors. Focus should be placed on whether the information reduces commercial uncertainty for the parties.
- The fact that discussions are held to gain a better understanding of the market can provide a false comfort. Indeed, general market discussions with competitors are highly risky as they can lead to exchanging individual information which might appear general but nevertheless reveal as aspect of the company’s commercial strategy and future intentions. Likewise, the fact that a market is dynamic does not prevent finding that the exchange of sensitive information can restrict normal competition as a result of other factors in the market.
- Extra caution must be exercised by employees participating in market conferences and trade fairs due to the heightened risk of bilateral discussions taking place in that context.
- A few bilateral contacts by an employee with one competitor for a short period of time can have wider implications beyond these contacts, particularly where other bilateral contacts are taking place to exchange similarly sensitive information and the employee is - or should be - aware of these other exchanges.
- Providing general information on future pricing intentions for a product (we will keep prices ‘flat’ next year for a given product) can be as sensitive as providing specific price information for a given product.