This is a Speaking Note for a presentation that I gave to the New York Bar European Conference in Winterthur on 12-13 March 2015. I would like to thank those who provided input and comments on this Speaking Note. http://www.nysba.org/Sections/International/Events/2015/Zurich_Regional_Meeting/Zurich_Regional_Meeting_program_brochure.html
The EU cartel settlement procedure remains somewhat shrouded in mystery. There is very good reason for doing so, mainly because the negotiations need to be conducted in a safe framework and the settlement itself may potentially be market-sensitive. However, a more generic discussion on the difficult issues arising out of a “split” settlements, is highly desirable: In a split settlement only some of the parties subject to the investigation agree to the settlement. Other parties will continue to defend their case under the normal procedure. It can be expected that split settlements will become the norm in complex investigations, as it is unlikely that all parties will want to settle where their interests are very diverse.
THE EU CARTEL SETTLEMENT PROCEDURE (IN A NUTSHELL)
The EU settlement procedure involves six separate stages which include three formal meetings. The meetings are typically chaired by the Director.
This will be the first settlement meeting during which the Commission discloses the core evidence and explains its case. The EC will only offer limited access to the file at this stage.
At the second settlement meeting the Commission and the parties reach a « decision in principle” which will include an agreement on the case overview and the value of the affected sales.
It is only at the third settlement meeting that the Commission will disclose the range of fines it is considering.
At this stage the parties acknowledge that (a) they have been given an indication of the range of fines (b) they have exercised their right to be heard and (c) they have been informed of the Commission’s objections. A Settlement Submission based on a template provided by the Commission is agreed with the parties.
At this stage the « Settled » Statement of Objections is issued. This will endorse the settlement submissions and will be sent to the parties by the Commission. The parties reply to the Statement of Objections by confirming their settlement submissions.
A Settlement Decision will be issued to reflect the terms of the Settlement Submissions.
It is the intention of the system that a settlement procedure should be faster than a normal procedure. So speed is one of the major advantages of the procedure, even if the settlement process itself takes up to 12 months.
THE ADVANTAGES OF THE EU SETTLEMENT PROCEDURE
The advantages of a settlement in the EU Process are broadly threefold:
- A reduction of 10% in the fine (but it should be noted that this is not relevant to an immunity applicant whose fine is reduced to zero in any event);
- A shorter Statement of Objections and a shorter Settlement Decision giving more limited details on the facts;
- A relatively quicker process.
THE PROBLEMS ARISING OUT OF SPLIT SETTLEMENTS
- The first issue arises out of the fact that the immunity applicant is entitled to a 100% reduction in any event, provided that it complies with the obligation of ongoing cooperation. The incentives on the immunity applicant are therefore more limited than for the rest of the settling parties – the immunity applicant will be primarily concerned with reducing the scope of any “admission” for litigation purposes and with limiting the factual detail in any Settlement Decision.
- The other parties will be keen to receive a 10% discount on the amount of the fine. With fines running into the hundreds of millions, even that amount is worth having, especially where other parties may not qualify for any reduction under the immunity/leniency programme.
- However, in those circumstances there will be a critical tradeoff between the degree of involvement of the company concerned and the amount of the fine. If the Commission overreaches on the amount of the fine at Stage III of the settlement process, it is likely that some of the “later” parties will take a view that it is better to defend their case on (i) degree of involvement and (ii) fines – than to receive a relatively small discount on a very large fine. The method of calculation used by the Commission Services to determine the amount of the fine is normally ‘key’ in that process.
- It should also borne in mind that most of the large investigations are now multinational in nature. Where the Commission is moving towards a settlement early, it may be in certain parties’ interest not to settle pending the outcome of other administrative procedures globally. The obvious point is that once an EU settlement is announced, any global defensive strategy will be much harder to run. The scope of any admission will also dictate the approach to other jurisdictions.
- That brings me to the litigation aspects, in particular the US class-action plaintiffs. In any investigation it is likely that the US Plaintiffs will seek disclosure of the Commission documents. As has been set out above, the actual Settlement Process is supposed to be highly confidential. What is less clear is the status of the Settlement Documents after the end of the procedure. In order to retain the right incentives for Settlement, it is imperative that the Commission adopts the same rigorous approach towards protecting the Settlement Documents as it does with Leniency Documents. The content of the Statement of Objections and of the final Decision should be very controlled and measured, otherwise the incentives to settle evaporate very quickly.
- Now let me turn to EU split settlements and explain why the process is potentially problematic: For these purposes I will focus primarily on advantages 2. (Shorter SO) and 3. (Quicker Process).
- We can also assume that, in these circumstances, the Settlement Decision will be taken significantly earlier than the Non-Settlement Decision. The Commission can sometimes delay the publication of the Settlement Decision and in those circumstances the non-settling parties will seek (and sometimes obtain) access to its content. In other cases, however, the Settlement Decision is published before the Non-Settlement Decision. For instance, in the Steel Abrasives case (AT.39792), which is another example of a « split » hybrid settlement case, a public version of the final decision has already been published(http://ec.europa.eu/competition/antitrust/cases/dec_docs/39792/39792_2352_7.pdf) but the proceedings against the non-settling party are ongoing (http://europa.eu/rapid/press-release_IP-14-2361_en.htm).
- The Commission may have an incentive to « differentiate » i.e. to make the Non-Settlement Decision “worse” than the Settlement Decision. It can do so by either (i) increasing the infringement period of the non-settling parties; or (ii) aggravating the infringement for the non-settling parties.
- However, where both the Settlement Decision and the Non-Settlement Decision relate to substantially the same facts, it is important not to forget that even the settling parties will be concerned by the content and context of the Non-Settlement Decision. This is due to the potential litigation consequences and the possibility of joint and several liability in certain jurisdictions (e.g. the UK). The Non-Settlement Decision could also have significant repetitional impact for the settling parties, depending on how the actual infringement in the Decision is worded.
- The parties that have settled will no longer have any official status in the non-settlement process, which could go on for years. That is due to the fact that the Settlement Decision is addressed to them and that the Non-Settlement Decision will be addressed to others. Although that view is formally correct, it is a major issue in any split settlement.
- A related consequence is that the settling parties will not be able to make any submissions or comments to parties in relation to the non-settlement Statement of Objections, nor will they be present at the non-settlement Hearing. This is despite the fact that the ultimate Non-Settlement Decision will contain direct references to the Non-Settling Parties.
- There is Court precedent to the effect that a non-party can have its name treated as confidential in the ultimate Decision. However, where the facts and participants are known due to the combination of the Settlement Decision and the Non-Settlement Decision, that right is entirely ‘hollow’.
- So is there any way that the Settling Parties can protect their legitimate interests and also protect their position in relation to any potential appeal ti the General Court?
- The only existing route is to request to be accepted as an interested third party under Article 13 of Regulation 773/2004. It is highly likely that a settling party has « sufficient interest » and this route would not be incompatible with any on-going duty of cooperation (as long as the party does not challenge what has already been agreed in the Settlement Decision).
INTERESTED THIRD PARTY STATUS (“TPS”) (Article 13 of Reg 773/2004):
- Is premised on being able to show « sufficient interest” (a settling party is likely to satisfy that requirement);
- Entitles the settling party to be informed « in writing of the nature and subject matter of the procedure” (i.e. access to the SO or at least a full summary of the SO) and to submit comments and views;
- Allows for the possibility of the settling party to be invited, « where appropriate », to the oral hearing and to develop arguments (it is not permitted to remain silent at the Oral Hearing);
- Any comments made by the settling party will need to be addressed in the full Decision.
- It appears from the above that obtaining TPS will become an essential requirement for any settling party, as it will be the only way to somehow safeguard the interests of that party in the non-settlement procedure.
- However, that status also removes some of the advantages of settlement, in particular (I) being dragged into a longer process (ii) expense and management time (iii) potential repetitional impact of becoming more associated with the Non-Settlement Decision, especially through submissions; and (iv) potential litigation impact (US and elsewhere) of becoming more associated with the Non-Settlement Decision.
- With split settlements likely to become the norm rather than the exception, it is imperative that the Commission reviews its procedures to allow for a more effective (if limited) representation of the interests of the settling parties in any non-settlement process. It should also look again at protecting the settling parties from the litigation effects of the Non-Settlement Decision arising out of substantially similar facts.