The intensity of remedies under Regulation 1/2003 depends to a large extent on whether they were taken in the context of infringement decisions under Article 7 or commitments under Article 9 of Regulation 1/2003. This blog post explores the question of whether this distinction is justified or should be addressed in the context of the revision of Regulation 1/2003.

Article 7 of Regulation 1/2003 provides the regulatory framework for how the Commission deals with finding and termination of infringement. Through this instrument, the Commission „may by decision require the undertakings […] to bring such infringement to an end“. To achieve this goal, the Commission may impose behavioral or structural remedies that are proportionate and necessary to end the infringement. Under Article 9 of Regulation 1/2003 however, which addresses voluntary Commitments and which in principle also address the „infringement be brought to an end“, the decision adopted by the Commission may encompass measures that go way further than those that are necessary to merely end the infringement. 

Voluntary nature as justification for this asymmetry?

Due to their far-reaching scope, decisions under Article 9 of Regulation 1/2003 allow possibly significant interventions in the future organization of a market. Measures can be taken that are not only necessary to end the infringement, but (far) beyond that. There is therefore a discrepancy in the Commission’s room for maneuver, depending on whether we are dealing with an infringement decision or a commitment.  This discrepancy could, of course, be justified by the fact that commitments only come about as a result of the voluntary co-operation of the undertakings concerned and that the undertakings themselves offer the measures and are therefore virtually responsible for their own fate. On the other hand, it is in my view a rather fundamental question whether competition law can (or should) intervene in market organization (such as investments in infrastructure: cf Svenska Kraftnät, AT.39351 or Transgaz, AT.40335) or whether the Commission’s options should be limited to ending infringements (and not taking any further measures) as provided for in Article 7 of Regulation 1/2003. 

Commitments under Article 9 Regulation 1/2003 are appealing to undertakings for reasons of procedural efficiency, fast ending of proceedings, shorter decisions, less publicity and decreased risk of follow-on private enforcement. There are therefore incentives to offer quite far-reaching Commitments to avoid a formal proceeding that would result in an infringement decision. By means of this mechanism, the Commission achieves significant influence on the market without having to ever formally find an infringement. At the same time, the Commission – through the advantages of commitment decisions that were mentioned before – possesses strong arguments to convince undertakings to produce “good” commitments so that they may avoid an infringement decision. 

No definition of competition policy goals via proposed commitments

It is a critical question whether competition law should intervene already before a violation of competition rules is found, like we may observe with the Digital Markets Act (Regulation (EU) 1925/2022) or regulated sectors such as energy or rail, where the legislator took precautions through instruments such as non-discriminatory access to infrastructure (cf for rail Article 10 of Directive 2012/34/EU).  To me this is less about proportionality for the undertakings affected by the commitment. If they propose to commit to a certain future conduct or divestiture, I assume they have the resources to analyze pros and cons of the proposed commitments versus taking the risk of a continued procedure that might end with an infringement decision. More relevant is the capability of the Commission to intervene more heavily in a market where it does not have to find an infringement but at the same time is not permitted to order more than what is strictly necessary to bring found infringements to an end – but then not being entitled to order remedies that may be well suited to accommodate likely future competition concerns in this context.

It does not seem coherent that the Commission’s room for maneuver and thus the legally permissible options on shaping a market depend on the internal decisions of a market participant and its decision as to which Commitments it is willing to take to avoid further competition law proceedings. The question whether competition law should enable the Commission to actively shape a market and define future conduct of market participants is one that should not be solved on the level of competition law procedure even without the finding of an infringement. 

And now?

It should be ensured – beyond the stricter approach to Commitments since the Canal+ judgment (C-132/19 P) – that Commitments are proportional and do not nudge undertakings into measures that go beyond the necessary. Of course, in this context the criterion of “necessity” may be very difficult for undertakings to assess themselves, this especially at a stage of proceedings where there might not yet be a full analysis of the economic consequences of a conduct. With a revised version of Regulation 1/2003 it would be recommendable to foresee clear boundaries for acceptable Commitments under Article 9 and/or enhanced room for remedies under Article 7. However, the line should be drawn based on a conscious decision by the legislator and not a rather vague administrative practice.

Leniency as set out by the commission Notice on Immunity from fines and reduction of fines in cartel cases (2006/C 298/11) primarily serves as an evidence-gathering tool. The incentives to receive immunity from or reduction of fines as well as the possibility of a subsequent settlement as opposed to a regular infringement decision pursuant to Articles 7 and 23 Regulation 1/2003, appear to be very conveying for undertakings to report infringements of Article 101 TFEU. Such a settlement decision may be notably shorter than an infringement decision, hence containing less information that could potentially be accessed for the conduct of damages claims. 

The mere fact that an undertaking could profit from leniency does however not mean that it did not itself infringe Article 101 TFEU and certainly not, that no one suffered harm due to the anticompetitive behavior of the leniency applicant. Leniency in combination with a settlement decision may lead to difficulties for parties that seek damages to compensate for such anticompetitive conduct from inter alia the leniency applicant. The question needs be asked whether such difficulties seem disproportionate when weighed against the advantages of the leniency system.

Leniency to escape cartel fines (and damage claims)

First of all, leniency is not linked to the gravity of the infringement by the applicant. According to Point 8 of the Leniency Notice, the Commission will grant immunity from any fine which would otherwise have been imposed. It is linked to being the first and providing sufficient evidence for further investigation (see Point 8 of the Leniency Notice). Conditions to qualify for leniency are further full and genuine cooperation, ending involvement in the cartel immediately following the application for leniency and not having destroyed, falsified or concealed evidence (Point 12 of the Leniency Notice). Eventually the Leniency Notice does set some limitation to the eligibility by stating in Point 13 that undertakings that took steps to coerce others to join the cartel or remain within are excluded from immunity (however not from reduction of the fine).

Next to reduction or exemption from fines, the leniency applicant receives additional benefits. Protection is granted through the Damages Directive (2014/104/EU) as it contains a prohibition of disclosure of leniency statements in national damages proceedings or proceedings before EU courts (Article 6 Damages Directive). Also, towards parties other than direct and indirect purchasers/providers, the immunity applicant is liable only in cases where full compensation cannot be obtained from other cartel members (Article 11(4) Damages Directive). For private enforcement this privileged treatment is disadvantageous as it takes away the option for the damaged party on who to hold accountable. Taking the immunity applicant to court may have procedural or substantive advantages which are taken from the damaged party while benefiting the infringer.

Additional benefits through settlement

The settlement procedure aims at procedural efficiency (cf Recital 4 of Regulation 622/2008) and grants further 10% fine reduction. Nonetheless, even in case of immunity from fines, entering into a settlement proceeding may still be advantageous to the leniency applicant as the settlement decision is notably shorter than a regular infringement decision and thus reveals less information that may be used in damages claims. As a consequence, in situations where full compensations by other cartelists is not possible, a settlement decision subsequent to immunity from fines may add additional hurdles to a successful claim for damages. 

A well-balanced system?

Resulting from the combination of leniency and settlement, a cartel member that perhaps profited the most of a cartel and caused most damage could apply for leniency as first applicant and be granted immunity from fines (as even leniency applicants that are subject to the application of the maximum amount of the fine maintain the full benefit of fine reductions (Point 12 of the FAQ Leniency)) and have settlement. It seems to be a very beneficial and comfortable position for such an infringer, while at the same time adding obstacles to already damaged parties. 

I see that incentives are needed to give cartel members good reasons to leave the cartel and report to authorities. However, in my view the granting of immunity/reduction of fines (and numerous other advantages as described above) regardless of the degree of involvement in the cartel and benefits generated, are too far-reaching. Especially the additional aspects of lack of access to the leniency statement in damages proceedings, only exceptional liability and obtaining of a settlement decision seem disproportionate. In my view however, the individual role of the leniency applicant should be included into the equation and result in a more nuanced access to the benefits through leniency and settlement. Where increased influence on the cartel or benefits thereof can be found, the conduct of damages claims should be facilitated.

It is of course always easier to criticize and complain about an established system rather than providing a fix that does not kill any incentives for cartel members to report to the Commission or National Competition Authorities. However, the current system not only creates incentives to report infringements, but in my view also equal incentives to commit infringements as there are very appealing options to avoid most negative repercussions.