The European Commission has issued hefty fines to companies that break anti-trust rules. Jonathan Rayner considers the impact of private enforcement actions and a leniency scheme


At a time when the European Commission (EC) unveiled tough new penalties for cartel price fixing last month – and recently imposed fines of up to ¤345 million (£233 million) on companies it deemed to have traded anti-competitively – competition lawyers are more valuable in their clients’ eyes than ever before.


The commission’s dedicated Directorate General (DG) Competition, along with its national representatives, such as the Office of Fair Trading (OFT) in the UK, have several potent weapons in their armoury to help identify and prosecute companies breaking anti-trust rules. These weapons range from encouraging private actions to a leniency programme, whereby firms that confess all can be granted immunity from fines.

DG Competition has also been endowed with an extraordinary raft of investigative privileges, including making unannounced inspections of business premises, and even searching the private houses of executives.

All this is enabling it to act successfully against an increasing number of international companies trading in contravention of articles 81 and 82 of the Treaty of Rome. These are designed to ensure genuine competition across the EU market-place, with article 81 outlawing cartels and other restrictive business practices, and article 82 combating abuses of dominant market position.

The competition commissioner, Neelie Kroes, has stated that no company, no matter how big, is above the law. True to her word, she announced last month that the EC had imposed a fine of ¤281 million on software giant Microsoft, claiming that it had failed to comply with a landmark ruling in 2004 that it should provide rivals with information about its Windows operating system. The fine represented a penalty of up to ¤2 million per day for each day that it had been in continued breach of article 82.

Microsoft general counsel Brad Smith said in response that the company had tried to comply, but there had been problems over clarifying what it was required to hand over. That had been done in April, and he said ‘it is hard to understand why the commission is imposing this enormous fine when the process is finally working well and the agreed-upon finishing line is just days away’. He pledged to go to the European courts ‘to determine whether our compliance efforts have been sufficient and whether the commission’s unprecedented fine is justified’.

DG Competition is currently preparing a review of article 82 to bring more clarity to its application. A discussion paper published in December 2005 attracted more than 100 responses, and has led to a move towards an approach that is more purely economics-based than previously.

One of the respondents was the 120-lawyer strong competition and anti-trust group at magic circle firm Linklaters. Bruce Kilpatrick, a managing associate in the group, reports: ‘We welcome the way the commission is moving its focus of proof towards the measurable impact of abuse on consumer welfare. This effects-based approach clarifies the way article 82 can be applied and, by reducing the heavy burden of proof, should make enforcement more certain.’

The commission has been equally robust in its pursuit of companies that infringe article 81 through involvement in cartels. Contravention of the rules outlawing cartels can result in fines of up to 10% of a company’s annual turnover. Within this limit, recently revised guidelines allow fines of up to 30% of the annual sales to which the infringement relates, multiplied by the number of years that the offence has been committed. That can add up to a substantial amount. There are also further penalties for repeat offenders, as well as a discretionary ‘entry fee’ for simply taking part in a cartel, no matter how briefly.

The commission has not hesitated in punishing transgressors. In May 2006, for example, four producers of acrylic glass were fined a total of ¤345 million for price fixing. And proving that the commission has a long arm, last month a member of an industrial gases cartel that had operated between 1993 and 1997 was fined – some nine years after the offence – a total of ¤12.6 million, plus the costs of its failed appeal.

The highest-profile UK case to date, according to Phil McDonnell, competition partner at Addleshaw Goddard in Manchester, is the investigation into British Airways (BA) by the OFT and US Department of Justice. Announced in June in the wake of a visit to BA’s premises, the OFT is looking at whether there was price fixing of fuel surcharges on long-haul flights to and from the UK, although it emphasised that the investigation is still at an early stage and ‘no assumption should be made that there has been an infringement of competition law’. BA stressed that its policy ‘is to conduct its business in full compliance with all applicable competition laws’.

Mr McDonnell notes that this is the first OFT investigation to have a criminal dimension, as well as civil. The civil investigation is being conducted under the Competition Act 1998 and article 81, and the criminal investigation of individuals under the Enterprise Act 2002. He adds: ‘Under the criminal proceedings, a guilty party could be jailed for up to five years or be liable to an unlimited fine.’

Holding that prevention is better than cure, Addleshaw Goddard aims to shield clients from an OFT dawn raid by offering a competition law compliance programme, with face-to-face training, manuals, and on-line assessments customised to their industry sector.

Much of its work involves dealing with inspection visits on behalf of clients, Mr McDonnell says. ‘Contrary to popular perception, these unannounced visits are not “dawn raids”, but typically happen around the start of the working day.

‘We’ll rush to the client’s premises as quickly as possible, allocating members of our team to shadow one inspector each. They’ll check that the inspectors stay within the mandate of their search warrant and will intervene if its scope is exceeded. And we’ll advise clients whether opting for the leniency programme and possible immunity from fines is in their best interests.’

Cartels come to the attention of the competition regulators via a variety of routes. Sometimes there is a tip-off, other times a new management team discovers that the company is involved in a cartel and decides to come clean. Another route, and one that the DG Competition is actively encouraging, is through a private enforcement for damages to recoup what has been lost through alleged unfair trading.

Mr Kilpatrick explains that the EC has long been a supporter of private enforcement, and issued a Green Paper to explore ways that the process can be improved, and costs for individual litigants reduced. Consultation on the ideas within – which raised the prospect of using contingency fees as a way to increase access to justice – closed in April and the commission’s conclusions are eagerly awaited.

He says: ‘There is scope to make the cross-border litigation environment more favourable for private actions, but there are difficulties and issues which the commission must first address. It is also considering incentives, such as doubling the amount of damages awarded, to encourage more private litigants to come forward.’

Ilan Sherr, a member of the EU and competition group at City firm Charles Russell, stresses that private enforcement is not intended to replace other forms of enforcement. He says: ‘Private enforcement actions supplement DG Competition’s activities. They are a second, additional tier aimed at deterring parties from forming cartels or generally acting anti-competitively.’


He adds that although private enforcements can be actions in their own right, they can also arise from the mainstream investigations of DG Competition. He says: ‘It’s possible to “piggyback” private enforcement actions for damages against a pre-existing anti-trust decision. So if DG Competition has found a company in breach, then it’s relatively straightforward for customers who have lost money to win private enforcement actions against that company. And that applies even if the party has opted for the leniency programme, which can only grant immunity from fines, not from claims for damages.’


Mr Kilpatrick takes up that last point, asking: ‘What will be the likely impact on the commission’s highly successful leniency programme if more and more private enforcement actions find their way to court? Will whistle blowers hold back because, by opting for the leniency programme, they are effectively pleading guilty to anti-competitive trading and are therefore an easy target for litigation?’

There are also leniency programmes, following a similar and successful US scheme, in most EU states, aimed at encouraging participants in a cartel to come forward – the first one to do so receives total immunity from fines, provided certain conditions are met. Discretionary immunity can be given to a party if they come forward after an investigation has begun, while subsequent applicants for leniency may be granted a reduction in penalties.

Lesley Farrell, a partner at City firm SJ Berwin and chairwoman of the Law Society’s European Group, explains that any company will have to weigh the risk of detection of the cartel against the consequences of making a leniency application and thus revealing their involvement in the cartel – because it cannot protect those parties against third-party claims for damages.

She says: ‘In particular, it is in the nature of cartels that they are often international and affect a number of different jurisdictions. Of particular concern to participants in a cartel would be exposure to damages claims in the US. The US has a well-established history of successful damages claims for cartel infringements.’

Ms Farrell explains that claimants in the US are usually entitled to recover three times their damages, plus costs, including – and this is very unusual in US litigation – reasonable legal fees. Liability for damages is joint and several, and claimants are able to recover all damages caused by the cartel, regardless of whether they passed on excess charges to customers.


Mr Sherr, on the other hand, wonders whether the recent House of Lords’ ruling in Inntrepreneur Pub Company v Crehan (2006) UKHL 38 may have the effect – despite the best efforts of DG Competition – of discouraging private enforcement actions (see (2006) Gazette, 27 July, 8). Publican Bernie Crehan had challenged the beer tie-in system that obliged him to buy stocks exclusively from the landlord brewery (now Inntrepreneur Pub Company). He had argued that this was demonstrably anti-competitive and infringed article 81, which specifically prohibits anti-competitive agreements. In 2004, the Court of Appeal agreed with him and duly awarded damages, for the first and only time in the UK, for a breach of article 81.


The House of Lords overturned this decision. Delivering judgment last month, Lord Hoffman ruled that domestic courts need only give priority to the decisions of European institutions where the parties before the UK court were addressees of (or specifically named in) the relevant commission decision. Neither Inntrepreneur nor Mr Crehan was an addressee.

Rupert Croft, a litigation partner in the Cheltenham office of specialist competition law firm Maitland Walker, represented Mr Crehan. He shares Mr Sherr’s concerns: ‘The Lords’ decision is likely to act as a disincentive to private enforcement claims for damages for infringement of competition law, and is thus counter to the thrust of current EC policy.’

Mr Kilpatrick neatly summarises why competition law across the EU is a demanding practice area that is constantly in flux: ‘Europe is made up of a patchwork of national procedural rules. Making sense of that is the commission’s most crucial challenge.’