Cartels Enforcement, Appeals & Damages Actions 2017 Fifth Edition

Contributing Editors: Nigel Parr & Euan Burrows GLOBAL LEGAL INSIGHTS – CARTELS 2017, FIFTH EDITION

Contributing Editors Nigel Parr & Euan Burrows, Ashurst LLP

Production Editor Andrew Schoﬁ eld

Senior Editor Rachel Williams

Group Consulting Editor Alan Falach

Group Publisher Richard Firth

We are extremely grateful for all contributions to this edition. Special thanks are reserved for Nigel Parr and Euan Burrows for all of their assistance.

Published by Global Legal Group Ltd. 59 Tanner Street, London SE1 3PL, United Kingdom Tel: +44 207 367 0720 / URL: www.glgroup.co.uk

ISBN 978-1-911367-34-5 ISSN 2050-7593

This publication is for general information purposes only. It does not purport to provide comprehensive full legal or other advice. Global Legal Group Ltd. and the contributors accept no responsibility for losses that may arise from reliance upon information contained in this publication. This publication is intended to give an indication of legal issues upon which you may need advice. Full legal advice should be taken from a qualiﬁ ed professional when dealing with speciﬁ c situations. The information contained herein is accurate as of the date of publication.

Printed and bound by CPI Group (UK) Ltd, Croydon, CR0 4YY January 2017 CONTENTS

Preface Nigel Parr & Euan Burrows, Ashurst LLP

Australia Sharon Henrick, Wayne Leach & Peta Stevenson, King & Wood Mallesons 1 Belgium Hendrik Viaene & Ine Letten, Stibbe 17 Brazil Ricardo Inglez de Souza, Inglez, Werneck, Ramos, Cury e Françolin Advogados 28 Canada Randall J. Hoﬂ ey, Joshua A. Krane & Chris Dickinson, Blake, Cassels & Graydon LLP 40 China Zhan Hao, AnJie Law Firm 57 Colombia Alfonso Miranda Londoño, Andrés Jaramillo Hoyos & Daniel Beltrán Castiblanco, Esguerra Asesores Jurídicos S.A. 72 Denmark Olaf Koktvedgaard, Søren Zinck & Frederik André Bork, Bruun & Hjejle 78 European Union Euan Burrows, Irene Antypas & Laura Carter, Ashurst LLP 86 Finland Ilkka Aalto-Setälä & Eeva-Riitta Siivonen, Borenius Attorneys Ltd 104 France Bastien Thomas & Cécile Mennétrier, Racine 114 Germany Dr Ulrich Schnelle & Dr Volker Soyez, Haver & Mailänder Rechtsanwälte Partnerschaft mbB 126 India G.R. Bhatia, Abdullah Hussain & Kanika Chaudhary Nayar, Luthra & Luthra Law Ofﬁ ces 139 Indonesia Anang Triyono, Rinjani Indah Lestari & Ben Clanchy, Makarim & Taira S. 149 Israel Hilla Peleg, Moran Aumann & Joey Lightstone, Agmon & Co. Rosenberg Hacohen & Co. 162 Italy Enrico Adriano Raffaelli & Elisa Teti, Rucellai&Raffaelli 171 Japan Catherine E. Palmer, Daiske Yoshida & Hiroki Kobayashi, Latham & Watkins 182 Malaysia Raymond Yong & Penny Wong, Rahmat Lim & Partners 193 Malta Richard Camilleri & Annalies Azzopardi, Mamo TCV Advocates 202 Portugal Nuno Ruiz & Pedro Saraiva, Vieira de Almeida & Associados 213 Romania Silviu Stoica & Ramona Iancu, Popovici Nițu Stoica & Asociații 223 Russia Anastasia Astashkevich, “Astashkevich and partners” Attorneys at Law 235 Serbia Raško Radovanović, Anja Tasić & Srđan Janković, Petrikić & Partneri AOD in cooperation with CMS Reich-Rohrwig Hainz 242 Singapore Daren Shiau & Elsa Chen, Allen & Gledhill LLP 253 Spain Antonio Guerra Fernández, Patricia Vidal Martínez & Tomás Arranz Fernández-Bravo, Uría Menéndez 266 Sweden Peter Forsberg, Xandra Carlsson & Haris Catovic, Hannes Snellman Attorneys Ltd 278 Switzerland Mario Strebel, Christophe Pétermann & Renato Bucher, Meyerlustenberger Lachenal 289 Taiwan Stephen Wu, Rebecca Hsiao & Wei-Han Wu, Lee and Li, Attorneys-at-Law 311 Turkey Gönenç Gürkaynak & Ayşe Güner, ELIG, Attorneys-at-Law 323 United Kingdom Giles Warrington & Tim Riisager, Pinsent Masons LLP 336 USA Mark Rosman & Jeff VanHooreweghe, Wilson Sonsini Goodrich & Rosati P.C. 350 PREFACE

e are delighted to present the ﬁ fth edition of Global Legal Insights – Cartels. This edition covers the most Wsigniﬁ cant developments in 30 jurisdictions around the world and, as before, is designed to provide in-house counsel, government agencies and private practice lawyers with a practical insight into cartel enforcement policy and procedure, including leniency/amnesty regimes, administrative settlement, sanctions and appeals.

The aim of this edition, as with other volumes in the Global Legal Insights series, is to collect the views and opinions of a group of leading competition law practitioners from around the world in a single volume. Authors continue to be encouraged to focus their chapter on what they consider to be the most important practice points and recent developments in their jurisdictions, with a free rein to determine the content of their chapter. By giving the authors the opportunity both to select the legal and policy issues which they wish to discuss, and to offer insights into the practical operation of their national regimes, this book aims to look beyond the anti-cartel provisions and enforcement procedures which apply in the various jurisdictions. It also facilitates an up-to-date comparative analysis of the approaches currently being taken by competition agencies around the world to some of the difﬁ cult issues that can arise in practice, which we hope will prove to be helpful when considering enforcement initiatives and developments in your own jurisdiction.

Nigel Parr and Euan Burrows, Ashurst LLP Australia

Sharon Henrick, Wayne Leach & Peta Stevenson King & Wood Mallesons

Overview of the law and enforcement regime relating to cartels In Australia, there are parallel civil and criminal prohibitions against cartel conduct, which are contained in Part IV of the Competition and Consumer Act 2010 (Cth) (CCA). The Australian Federal Government is proposing to amend the prohibitions and has released exposure draft legislation for consultation. A preliminary bill to amend Australia’s misuse of market power laws has already been placed before the Australian Parliament. A further bill, which will contain any amendments to Australia’s cartel laws, is expected to be placed before the Australian Parliament in the course of 2017. Division 1A of Part IV of the CCA prohibits the making of, or giving effect to, a contract, arrangement or understanding that contains a cartel provision. A cartel provision is defi ned as a provision of a contract, arrangement or understanding between actual or potential competitors that has either: • the purpose or likely effect of fi xing, controlling or maintaining a price or component of a price; or • the purpose of: • preventing, restricting or limiting production, capacity or supply; • allocating customers, suppliers or territories; or • bid rigging. The prohibition against cartel conduct is a per se prohibition, i.e. it is prohibited outright without any competition test having to be satisfi ed. The criminal and civil prohibitions are identical except for the standard of proof required. The criminal offence requires both: • an intention to make or give effect to the contract, arrangement or understanding; and • the knowledge or belief that the contract, arrangement or understanding contains a cartel provision. Although a limitation period of six years applies to civil contraventions, there is no limitation period for criminal contraventions. The CCA also contains: • a general civil prohibition on contracts, arrangements or understandings that contain provisions with a purpose, effect or likely effect of substantially lessening competition; and • civil prohibitions against price signalling, which currently only apply to the banking sector (although these prohibitions may be extended to other sectors in the future). These prohibitions provide that:

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• a corporation must not make private disclosures to competitors of pricing information if the disclosure is not in the ordinary course of business; and • a corporation must not make disclosures about prices, capacity or strategy for the purpose of substantially lessening competition. As part of the exposure draft legislation referred to above, the Australian Federal Government is proposing to repeal the prohibition on price signalling and to enact a new civil prohibition on concerted practices, which will apply to conduct with the purpose, effect or likely effect of substantially lessening competition. The Australian Competition and Consumer Commission (ACCC) is the body responsible for investigating cartel conduct and managing the immunity application process. The ACCC can initiate civil proceedings in the Federal Court of Australia for civil pecuniary penalties and other orders for a breach of the civil prohibitions on cartel conduct. The ACCC can also refer serious cartel conduct to the Commonwealth Director of Public Prosecutions (CDPP) for consideration for criminal prosecution. The CDPP is responsible for prosecuting criminal cartel offences and can initiate criminal proceedings in the Federal Court for breach of the criminal cartel prohibitions. Ultimately, it is the Federal Court of Australia that determines whether there has been a breach of the civil or criminal prohibitions on cartel conduct and makes the appropriate penalty orders. Cartel conduct may also give rise to claims for civil damages. Class actions have featured signiﬁ cantly in the private enforcement of cartel conduct.

Overview of investigative powers in Australia Australia has an immunity and leniency regime and most cartels are discovered by whistleblowers reporting them to the ACCC (discussed further below). It is very uncommon for the ACCC to investigate a cartel without the beneﬁ t of an immunity applicant’s cooperation or a report from another national competition authority. Once the ACCC is made aware of a possible cartel, it uses its wide investigative powers to determine whether one actually exists. Under section 155 of the CCA, the ACCC can require a person to provide information, produce documents or appear before it for examination where there is reason to believe that the person can provide information or documents relating to a possible breach of the CCA. The person can be required to give evidence orally under oath or afﬁ rmation when they appear before the ACCC. A person is not excused from responding to a section 155 notice simply because it would be burdensome or costly for it to do so. The only limitations are that: • the information, documents or evidence must relate to a “matter that constitutes, or may constitute, a contravention of the Act”; and • the ACCC must have reasonable grounds for believing the person can provide such information, documents or evidence. The breadth of the ACCC’s powers, and the relatively low threshold for issuing a section 155 notice, means that successful challenges to the validity of a notice have been very rare. The Federal Court has repeatedly stated that, “[T]he subsection is framed in the widest of terms… [and the] breadth of each of these terms is compounded by their use in combination.” Courts have concluded that notices issued under the section are not to be narrowly construed.

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The Full Federal Court of Australia has confi rmed the breadth of the ACCC’s power to issue section 155 notices in Obeid v ACCC. In that case, the Full Court unanimously upheld the validity of a section 155 notice issued in respect of bid rigging conduct. It held that the notice need only specify a “matter” which, after allowing for undiscovered facts, may amount to a contravention of the CCA. The Australian Federal Government is proposing, as part of the exposure draft legislation referred to above, to introduce a “reasonable search” defence in relation to section 155 notices requiring the production of documents. If this is implemented into law, parties would only need to produce documents that they fi nd after undertaking a “reasonable search”. The ACCC has also issued revised non-binding guidelines indicating its preparedness, in certain circumstances, to consult with parties prior to issuing section 155 notices about their document management and digital environment. That consultation may affect the scope of the notice that the ACCC ultimately issues. Privileges A person does not have to produce documents that are legally privileged in response to a section 155 notice. In Australia, communications with in-house legal counsel can attract legal professional privilege. Where such counsel have a dual legal and commercial function, legal professional privilege will only apply to the extent that the in-house counsel was acting in their legal capacity and was suffi ciently independent from their employer that they were engaged in the giving of independent legal advice. A person is not excused from giving answers to questions or providing documents or information to the ACCC during the investigatory process on the basis that doing so will incriminate them and expose them to a penalty. However, any self-incriminating material produced in response to a section 155 notice is not admissible as evidence against them in criminal proceedings. Sanctions for non-compliance For non-compliance with a section 155 notice, a person may be liable to pay a fi ne up to a maximum of AU$3,600 or be imprisoned for up to 12 months, and a corporation may be fi ned up to $18,000. The same sanctions apply for knowingly providing information or giving evidence that is false or misleading, or obstructing an ACCC offi cer who is authorised to enter premises to undertake a search. The Australian Federal Government is proposing to increase the maximum penalty to $18,000 for individuals and $90,000 for corporations. These sanctions have been used in the past in demonstration of the ACCC’s consistently strict approach to requiring compliance with section 155 notices. Previous penalties ordered against individuals have included a fi ne of $3,500 (ACCC v Boyle), a fi ne of $2,160 along with 200 hours of community service (ACCC v Neville) and imprisonment for six months (ACCC v Rana). Other enforcement tools Outside of section 155 notices, the ACCC may: • apply to a judge of the Federal Court for a warrant authorising it to carry out dawn raids (which involve both search and seizure powers, including the ability to copy physical documents as well as computer hard drives); and/or • seek access to telephone interception and surveillance material collected by the Australian Federal Police (or other interception agencies) under a warrant issued by the Federal Court (or the Australian Administrative Tribunal) during investigations of cartel offences.

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Overview of cartel enforcement activity during the last 12 months This year (2016) has been an extremely active one for cartel enforcement, with: • the fi rst prosecution under criminal cartel laws being brought against Nippon Yusen Kabushiki Kaisha (NYK) and Kawasaki Kisen Kaisha (K-Line): • NYK has pleaded guilty and will face a sentencing hearing in April 2017; • K-Line has not yet entered a plea – the ACCC has been ordered to serve a brief of evidence by 27 December 2016 and the matter is next listed before the Court on 7 February 2017 for reply. • the Federal Court of Australia handing down a number of signifi cant penalties in respect of cartel conduct. In particular: • in May 2016, the Court ordered a number of parties, including Cement Australia Pty Ltd, to pay penalties totalling $18.61m for anti-competitive agreements regarding the acquisition and supply of fl y ash; • in May 2016, Colgate-Palmolive Pty Ltd agreed to pay a penalty of $18m in respect of cartel conduct in the laundry detergent industry; • in June 2016, grocery retailer Woolworths Ltd agreed to pay a penalty of $9m for being “directly or indirectly knowingly concerned” in some of Colgate’s conduct; and • in December 2016, the Court ordered penalties of $9m and $6m respectively against ANZ Banking Group and Macquarie Bank, by consent, for attempted cartel conduct in relation to the benchmark rate for the Malaysian ringgit; • the ACCC commencing civil proceedings against a number of parties in respect of alleged cartel conduct in the polycarbonate roofi ng industry; • the High Court (Australia’s ultimate appellate court) allowing the ACCC’s appeal in the Flight Centre matter, upholding the ACCC’s allegation that travel agent Flight Centre attempted to induce airlines to enter into price fi xing agreements; • the ACCC succeeding in its appeal against the Court’s fi rst instance decision to dismiss its proceedings against Air New Zealand and Garuda Indonesia in the well-known air cargo litigation. An application for special leave to appeal to the High Court was heard in October 2016, with a decision (on special leave to appeal) expected in early 2017; • the Federal Court of Australia fi nding that Italian cable company Prysmian had engaged in cartel conduct in the high voltage energy cable industry. The Court has yet to make its decision in relation to penalty; and • the Federal Court of Australia hearing the ACCC’s cases against Olex Australia Pty Ltd and others for alleged cartel and exclusionary conduct also in the supply and acquisition of electrical cables. The Court reserved its judgment in March 2016. In addition, the Full Court of the Federal Court heard the ACCC’s appeal of the fi rst instance decision to dismiss its proceedings against the Australian Egg Corporation Limited, some of its directors, and egg producers associated with those directors, for attempting to induce an arrangement or understanding among egg producers to limit egg production. The Full Court is likely to deliver its decision in the coming months. The Federal Court has already ordered one director to pay a penalty of $120,000 pursuant to a settlement he reached with the ACCC.

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Penalty decisions are also awaited in respect of the Federal Court’s 2015 ﬁ ndings of cartel conduct in the supply of automotive wire harnesses against Yazaki Corporation and an Australian subsidiary.

Key issues in relation to enforcement policy The ACCC regards cartel conduct as extremely serious and it remains a long-term enforcement priority. ACCC Chairman Rod Sims observed in June 2016 that “Cartel conduct is so detrimental to consumer welfare and the competitive process that it will always be an enforcement priority for the ACCC.” This attitude is refl ected in the ACCC’s extensive cartel enforcement activity in the last year. The ACCC has made public statements about its enforcement policy which suggest that, as a matter of policy, the enforcement procedures and penalties for cartel conduct will depend on the nature of the conduct in question. If the conduct is considered to be “serious cartel conduct”, the ACCC will seek to have the parties prosecuted criminally. Less serious conduct will be pursued under civil penalty provisions. Mr Sims has also emphasised the need for penalties to be “commercially relevant”, and “high enough for businesses not to see them as merely an acceptable risk of doing business”. Notably, as referred to above, the ACCC has appealed the Federal Court’s penalty decision in cartel proceedings regarding the acquisition and supply of fl y ash, arguing that the Court’s penalty of $18.61m was manifestly inadequate and not of appropriate deterrent value. The ACCC had previously submitted that penalties of over $90m would have been appropriate. Criminal enforcement The ACCC also remains committed to pursuing cartel conduct on a criminal basis, with ACCC Chairman Rod Sims stating in August 2016 that the ACCC had 10 to 12 in-depth criminal investigations and was aiming for a steady stream of one to two criminal cases per year. It has established a serious cartel unit dedicated to examining potential “serious cartel conduct”. In August 2014, in support of the ACCC’s recently revised Immunity and Cooperation Policy for Cartel Conduct (Immunity Policy, see below), the ACCC and CDPP signed a new MOU regarding serious cartel conduct. In accordance with the MOU, the ACCC will be more likely to consider cartel conduct to be “serious cartel conduct”, and therefore refer it to the CDPP, if the conduct: • was covert; • caused, or has the potential to cause, large-scale or serious economic harm; • was longstanding or had, or could have had, a signifi cant impact on the market in which it occurred; • caused, or could have caused, signifi cant detriment to the public or a class of the public; • caused, or could have caused, signifi cant loss or damage to one or more customers of the alleged participants; • involved senior representatives authorising or participating in the conduct; • involved alleged participants that have previously been found to have participated in or have admitted to participating in a cartel; • involved the government (and thus taxpayers) as victims; and/or • involved the obstruction of justice or other collateral crimes.

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Civil enforcement In accordance with the ACCC’s Compliance and Enforcement Policy (last updated in February 2016), the ACCC is more likely to commence proceedings if conduct is particularly egregious, where there is reason to be concerned about future behaviour, or where the party involved is unwilling to provide a satisfactory resolution. Australia has a system of judicial enforcement, and the ACCC is not able to issue administrative ﬁ nes for cartel conduct. To obtain civil penalties for cartel conduct, the ACCC must institute proceedings in the Federal Court of Australia. Even where an investigation has been settled, and the level of penalty (and other orders) agreed with the persons or corporations who have contravened the Act, the question of an appropriate penalty for a contravention is a matter for, and function of, the Courts in the exercise of judicial power, and an application must be made to the Court. Parties can negotiate penalties with the ACCC to be jointly submitted to the Court. The Court will generally order the penalty as long as it is appropriate (that is, it falls within the “permissible range”), even if the Court would have otherwise imposed different penalties. In the recent ANZ and Macquarie cases regarding collusion in relation to the benchmark rate for the Malaysian ringgit, the Court noted that it would have imposed higher penalties, possibly signiﬁ cantly higher penalties, if the parties had not agreed on penalties with the ACCC.

Leniency/amnesty regime “First-in” immunity An individual or corporation can seek civil immunity from ACCC-initiated proceedings for cartel conduct, and criminal immunity from criminal proceedings under the ACCC’s Immunity Policy. The Immunity Policy was updated in September 2014 following a targeted consultation in 2013–2014. To qualify for conditional immunity, the ACCC must not, at the time of the application for immunity, have enough evidence to start proceedings in respect of the cartel, and an applicant must: • be or have been a party to a cartel (as a corporation or individual), or a director, ofﬁ cer or employee of a corporation that is or was a party to a cartel; • admit that its conduct may contravene the CCA (and any admission by a corporation must be a truly corporate act); • be the ﬁ rst party to apply for immunity in respect of the cartel; • not have coerced others to participate in the cartel; • have ceased its involvement in the cartel, or indicate that it will cease its involvement; and • provide full, frank and truthful disclosure, and cooperate fully and expeditiously when making the application, and undertake to continue to do so throughout the investigation and any court proceedings. Application process To facilitate and encourage applications for immunity, the ACCC has developed a near- paperless process under its Immunity Policy. An initial approach can be made orally to the ACCC, on a no-names or hypothetical basis, to determine whether immunity is available and request the placement of a marker. The marker allows an applicant to hold its place in the “immunity queue” for a limited period of

GLI - Cartels 2017, Fifth Edition 6 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London King & Wood Mallesons Australia time (usually 28 days) in order to allow it to collect the necessary information and complete initial internal investigations before seeking to “perfect” its marker. A marker must include a description of the cartel conduct in suffi cient detail to allow the ACCC to confi rm that no other person has applied for immunity or obtained a marker in respect of the cartel. After obtaining a marker, a party needs to perfect its marker by demonstrating that they satisfy the requirements for conditional immunity. This includes the provision of a detailed description of the cartel conduct (often referred to as a “proffer”), which can also be made orally or in writing, as well as the production of contemporaneous documents evidencing the cartel conduct. On the basis of the information provided in the proffer, the ACCC will determine whether the marker holder satisfi es the criteria for a grant of conditional immunity. The ACCC will advise an applicant in writing once it is satisfi ed that a party is eligible for conditional immunity. Ordinarily, the letter will describe the conduct for which the applicant has been granted conditional immunity, and the terms and conditions of the grant of conditional immunity. Once a corporation obtains conditional immunity it can also seek derivative immunity, available for related entities and/or its current and former directors, offi cers or employees who were involved in the cartel conduct. The requirement of full cooperation places a heavy burden on immunity applicants and their employees. However, the consequence is full immunity from ACCC-initiated civil proceedings and criminal proceedings undertaken by the CDPP. To receive fi nal immunity, the applicant must: • remain eligible for conditional immunity; • provide full and frank disclosure; and • keep confi dential its immunity applicant status, and details of the investigation and any ensuing proceedings. If a party is eligible, conditional civil immunity will become fi nal immunity once any ensuing civil proceedings brought by the ACCC against other cartel members conclude. While all applications for both civil and criminal immunity must be made to the ACCC, as described above there is a division of responsibility in relation to granting immunity: • The ACCC will grant immunity from civil proceedings in accordance with its Immunity Policy. However, if the ACCC determines that the conduct in question amounts to serious cartel conduct (see above) and refers the matter to the DPP, it will also make a recommendation to the CDPP in relation to immunity from criminal proceedings. • In accordance with the Prosecution Policy of the Commonwealth, the CDPP will take the ACCC’s recommendation into account but possesses independent discretion on whether to grant immunity from criminal prosecution. Under its new Prosecution Policy, the CDPP will inform the parties of the conditions of immunity in writing by way of a letter of comfort, and then provide an undertaking. This is intended to create greater certainty for companies as to their criminal liability. One of the limitations of the immunity regime is that it does not limit the rights of injured third parties to launch proceedings to recover damages. The status of private actions for damages is explored below. Amnesty-plus The ACCC’s Immunity Policy also includes an amnesty-plus regime for cartelists who are not eligible for immunity in a cartel already being investigated by the ACCC but who provide

GLI - Cartels 2017, Fifth Edition 7 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London King & Wood Mallesons Australia the ACCC with evidence of a second cartel of which the ACCC was not previously aware. If they satisfy the ACCC’s amnesty-plus policy, they gain immunity from prosecution for the second cartel and a recommendation from the ACCC to the Court for a further reduction in the civil penalty in relation to the fi rst cartel. If the fi rst cartel is being pursued as a criminal matter, the DPP will advise the Court of the full extent of the cooperation provided. Leniency For those corporations and individuals who fail to ‘get in fi rst’ and secure immunity, the ACCC’s Immunity Policy also provides a mechanism through which a cooperative party can receive more lenient treatment than would otherwise be the case. At the end of an investigation, the ACCC will assess the extent and value of a party’s cooperation and make submissions to the Court identifying the corporation and recommending appropriate penalty discounts and other sanctions. The Court will ultimately determine the penalties or other sanctions to be imposed. The relevant factors the ACCC will consider in assessing the extent and value of a party’s cooperation include: • the timeliness of the party’s approach to the ACCC; • the signifi cance of evidence provided; • the party’s willingness to provide full, frank and truthful disclosure and full and expeditious cooperation; • whether the party coerced others to participate in the cartel; • whether the party has ceased involvement in the cartel; and • whether the party has acted in good faith in dealings with the ACCC. In deciding whether to resolve an investigation by agreement, including agreed civil penalties or other relief, the ACCC will consider: • the extent and value of a party’s cooperation; and • for corporations, whether the contravention occurred at senior management level, and whether the corporate culture is conducive to compliance. In “rare and exceptional” circumstances, the ACCC has discretion to grant full immunity from civil proceedings to a leniency applicant. The immunity regime has undoubtedly increased the effectiveness of ACCC investigations. Since 2009 (when the previous Immunity Policy was implemented), the ACCC has received over 150 approaches seeking immunity. A signifi cant proportion of cartel investigations and proceedings have involved immunity applicants. Protection of information provided by an immunity applicant While the ACCC will create its own records in respect of all marker requests, applications for immunity and proffers received orally, the ACCC has an interest in maintaining the integrity of its immunity policy and the benefi ts it delivers in terms of enforcement outcomes. To this end, the ACCC will seek to protect the confi dentiality of all materials supplied by an immunity applicant, and: • will use its best endeavours to protect any confi dential information provided by an immunity applicant except as required by law or otherwise permitted by the CCA. The CCA includes statutory protections against disclosure of information given to the ACCC in confi dence except in limited circumstances. Notably, one of those circumstances is the disclosure of protected information to other competition authorities (section 155AAA);

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• may refuse to produce “protected cartel information” when sought by a fellow cartel member in their defence of civil penalty proceedings, after having regard to specifi c factors (section 157). Protected cartel information (PCI) is defi ned as information given to the ACCC in confi dence that relates to a breach or possible breach of the cartel prohibitions; • is protected from being required to produce PCI in court proceedings without the leave of the Court, having regard to an exhaustive list of factors (section 157B); • is protected against being required to make discovery or to produce PCI in third party proceedings for damages or other orders (section 157C); and • may claim privilege and/or public interest immunity to protect confi dential information from disclosure where appropriate (Immunity Policy).

Administrative settlement of cases As noted above, the Federal Court of Australia ultimately determines and imposes penalties and sanctions for parties that have contravened the CCA, even if the ACCC agrees on civil penalties or penalty discounts with the parties. As a result of a controversial Full Federal Court decision, for much of 2015 the ACCC and respondents to cartel enforcement proceedings were prevented from engaging in what had become a well-established practice of making submissions to the Court (either jointly by agreement or independently) as to the appropriate penalty following settlement. However, in December 2015, the High Court overturned the decision and conﬁ rmed that the ACCC may agree a civil penalty with the party that has contravened the Act and make submissions to the Court in respect of the appropriate penalty (and the ACCC and parties may make independent submissions as to the appropriate level of penalty), although the Court must ultimately determine that the penalty is appropriate. If an individual or corporation has cooperated with the ACCC in its investigation, in accordance with its Immunity Policy (described above), the ACCC will make submissions to the Court identifying the cooperation provided and may recommend an appropriate penalty discount. The ACCC may require the cooperating party to agree to a statement of facts or make admissions. Upon agreeing suggested penalties, the ACCC and cooperating party will ﬁ le a statement of agreed facts and joint submissions to assist the Court in determining the appropriate penalty. As an example, in October 2014, the Federal Court ordered penalties of $8.3m in a forklift gas cartel case following agreement between the ACCC and respondents as to appropriate penalties and other orders.

Third party complaints Any person can bring a complaint, on a conﬁ dential basis, to the ACCC regarding a potential breach of the cartel laws. The ACCC may then initiate an investigation if appropriate, but is under no obligation to do so. This is an easy way for individuals or companies to report parties whom they believe are engaging in cartel conduct which is detrimental to their businesses, and to have that behaviour investigated and prosecuted without having to go to court themselves. If the ACCC investigates and chooses not to bring an action or chooses not to investigate, the third party may still bring a private action against the company for breach of the civil cartel provisions for loss or damage as a result of the suspected cartel conduct.

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In 2012, the ﬁ rst private action in Australia against a company for breach of the civil cartel provisions was brought and won (Norcast v Bradken).

Civil penalties and sanctions Any particular instance of cartel conduct may give rise to two types of contravention: the fi rst for the making of the contract, arrangement or understanding containing the cartel provision; and the second for each instance in which it is given effect. As penalties are a calculation for each contravention, the total quantum of penalty can increase quickly if the cartel conduct continues over a period. The Federal Court can impose civil pecuniary penalties on a corporation for each breach of the civil prohibitions of up to the greater of: • $10m; • three times the value of the benefi t attributable to the conduct (if it can be ascertained); and • if the benefi t cannot be ascertained, then 10% of the corporate group’s annual turnover attributable to Australia. To date, reliance has been placed largely on the $10m maximum, given the diffi culties in isolating and determining the value of any benefi t gained from a particular contravention. Individuals knowingly involved in a breach of the civil prohibitions on cartel conduct can be liable for civil pecuniary penalties of up to $500,000 per contravention. Declarations, injunctions, adverse publicity orders, probation orders, community service orders, or orders excluding them from company management, can also be imposed on individuals. These sanctions may be sought concurrently. In its recent enforcement action relating to an egg producers’ cartel, for example, the ACCC is currently seeking declarations, injunctions, fi nancial penalties, imposition of consumer and competition law compliance programs, publicity orders and disqualifi cation orders against the directors of the company. No formal cartel sentencing or penalty guidelines exist for breaches of the CCA, and the Court has a broad discretion to determine the extent of the pecuniary penalty to be imposed. The Court acknowledges that the “fi xing of a penalty is not an exact science”, and so determines whether the amount is appropriate, taking into account the circumstances of the conduct. The following factors have been considered broadly relevant in deciding the amount of the penalty to be imposed for the breach of competition provisions: • the nature and extent of the contravening conduct; • the amount of loss or damage caused; • the circumstances in which the conduct took place; • the size of the contravening company; • the degree of power it has, as evidenced by its market share and ease of entry into the market; • the deliberateness of the contravention and the period over which it extended; • whether the contravention arose out of the conduct of senior management or at a lower level; • whether the company has a corporate culture conducive to compliance with the Act, as evidenced by educational programs and disciplinary or other corrective measures in response to an acknowledged contravention;

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• whether the company has shown a disposition to bid rigging with the authorities responsible for the enforcement of the Act in relation to the contravention; • whether there has been similar conduct by the company in the past; • the effect of the conduct on the functioning of the market and other economic effects of the conduct; • the fi nancial position of the contravening company; and • whether the conduct was systematic, deliberate or covert. Companies are specifi cally prohibited from indemnifying individuals against their legal costs or any fi nancial penalty imposed for their contravention of the civil prohibitions.

Right of appeal against civil liability and penalties The decision of a single judge of the Federal Court determining liability and ordering relief can be appealed to a court of three or more judges sitting as the Full Court of the Federal Court of Australia by way of a re-hearing. Any further appeals are, by leave only, to the High Court of Australia. As the hearing to determine liability is often conducted separately to the hearing to determine the penalty, an appeal on liability may be made before the fi nal penalty hearing. In practice, this means that penalties may not be determined until all appeals on liability have been exhausted by an unsuccessful party. In a number of recent cases, however, hearings on penalty have proceeded concurrently with the preparation of appeals on liability; most notably, the Flight Centre and ANZ mortgage broker matters. The fi ling of an appeal will not ordinarily stay the requirement to pay any penalty that has already been imposed by the Court. The appeal process does not allow for cross-examination of witnesses, which would have occurred in the fi rst instance proceedings. As a signifi cant proportion of cartel proceedings are resolved by settlement, there have been relatively few appeals in cartel cases.

Criminal sanctions Criminal sanctions are available in Australia for serious cartel conduct. Individuals knowingly involved in a criminal breach of the cartel prohibitions can face a maximum of 10 years’ imprisonment, a criminal record and/or fi nes of $360,000 for each contravention. Similarly to civil sanctions, a corporation found in criminal breach of the cartel prohibitions can face a fi ne of up to the greater of $10m, three times the value of the illegal benefi t from the conduct or, where the benefi t cannot be calculated, 10% of the corporate group’s annual turnover attributable to their Australian business. Upon the recommendation of the ACCC, the CDPP determines which matters are to be prosecuted. To date, only two criminal prosecutions have been brought in respect of cartel conduct. In July 2016, global shipping company NYK pleaded guilty to criminal cartel conduct in connection with the transportation of vehicles to Australia. NYK is yet to be sentenced. Notably, although imprisonment was one of the key deterrents highlighted in the push for the introduction of criminal sanctions for cartel conduct, no NYK executives will be imprisoned as part of this prosecution. A second entity, K-Line, has since been prosecuted for the same alleged cartel but is yet to enter a plea.

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Given that there have been only two criminal cartel prosecutions to date, and neither company has yet been sentenced, there is minimal guidance on how the Courts will approach the enforcement of these sanctions. Unlike civil prohibitions, however, criminal cartel prohibitions can be heard in front of a jury or before a judge.

Cross-border issues The CCA has considerable extra-territorial application, and the ACCC cooperates regularly with competition and other regulatory authorities in a number of jurisdictions. Application to global conduct Under section 5 of the CCA, the CCA’s jurisdiction extends to any conduct undertaken outside Australia where: the persons or corporations involved are incorporated in Australia or carrying on business in Australia; are Australian citizens; or ordinarily reside within Australia. Two recent cases have shed contrasting light upon the extraterritorial application of the old and new cartel provisions. • Under the current cartel prohibitions, there is no explicit requirement that the cartelists must compete in (or have an effect on) markets located within Australia. In a recent private damages action, the Court found that bid rigging conduct contravened the CCA despite the conduct relating to the sale of a foreign corporation taking place wholly overseas. The fact that the corporation involved was carrying on business in Australia was the only territorial nexus required. • Under the previous regime, there was an explicit requirement that the “competition” between the cartelists take place in a market in Australia. In ACCC v Air New Zealand, the Court concluded that cartel conduct that diminished competition between airlines, where such competition occurred wholly outside Australia, was not caught by the CCA. As a result, and despite fi nding that the elements of the contravention were otherwise established, no fi nding of contravention was made out. On appeal, the Full Court of the Federal Court of Australia found that the conduct did occur in a market in Australia and, accordingly, the airlines had contravened the CCA. As noted above, this judgment is being appealed. The exposure draft legislation referred to above would, if implemented, result in a number of amendments to Australia’s cartel laws. Most signifi cantly, the legislation would confi ne Australia’s cartel laws to cartel conduct occurring in trade or commerce within Australia, or between Australia and places outside Australia. International cooperation The ACCC is an active member of the International Competition Network and has several bilateral co-operation agreements or MOUs with many regulators, including with the: United States Federal Trade Commission; New Zealand Commerce Commission; Commissioner of Competition, Competition Bureau (Canada); UK Offi ce of Fair Trading; European Commission; Fair Trade Commission of Japan; Korea Fair Trade Commission; National Development and Reform Commission and Ministry of Commerce (China); Taiwan Fair Trade Commission; Competition Commission of India; Commerce Commission of the Fiji Islands; and Consumer Affairs Council of Papua New Guinea. The agreements provide for reciprocal notifi cation of enforcement activities, co-operation of enforcement activities, avoidance of confl icts, exchange of certain information, and periodic meeting.

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Australia has also signed a bilateral treaty on mutual antitrust enforcement with the United States, and provisions of the Australia-United States Free Trade Agreement require cooperation on investigation and enforcement matters. This enables the two countries to reciprocally exchange evidence for use in competition law enforcement. In the air cargo investigation, each regulatory authority investigating the cartel around the world had weekly conference calls to discuss their strategy in investigating and prosecuting the cartel. On 14 February 2006, each authority co-ordinated worldwide dawn raids on each airline implicated in the cartel. The obligations set out in these treaties are supported by a number of pieces of domestic legislation, particularly the Mutual Assistance in Business Regulation Act 1992 (Cth) and the Mutual Assistance in Criminal Matters Act 1987 (Cth). Under section 155AAA of the CCA, the ACCC is empowered to exchange information with foreign antitrust authorities which would enable or assist that regulatory body to perform or exercise its functions. As noted above, however, it is the ACCC’s policy to refrain from sharing information provided by cartel immunity applicants with regulators in other jurisdictions without the consent of the applicant for immunity, unless required to do so by law. It is the ACCC’s general practice to seek waivers from its immunity applicants prior to sharing information with other agencies.

Developments in private enforcement of antitrust laws Any person who suffers loss or damage from cartel conduct can bring a private claim for damages in the Federal Court against a party that engaged in, or any other person involved in, the contravening conduct. In Australia, damages are assessed on a compensatory basis. A claimant can only recover the amount of loss or damage suffered by them by reason of the cartel conduct, and punitive or exemplary damages are not available. Under section 83 of the CCA, a fi nding of any fact by a Court made in previous proceedings in which the contravention was established can be used as prima facie evidence of that fact for the purposes of civil damages claims. Such a fi nding may be proved by production of a document under the seal of the Court from which the fi nding appears. The exposure draft legislation referred to above, if passed, would resolve the current uncertainty about whether section 83 extends to admissions of fact by explicitly covering both fi ndings and admissions of fact. Actions for damages for cartel conduct must be initiated within six years after the day on which the cause of action accrues. While the law is far from settled on this issue, arguably a cause of action will only accrue (and the loss or damage is only suffered) when the claimant becomes aware of the cartel and the fact it has been overcharged. Levels of private enforcement in Australia remain at approximately 30% of all competition proceedings fi led in the Federal Court, which stands in stark comparison to the United States, where 90% of claims concerned with competition law breaches are brought by private litigants.1 As such, jurisprudence on the calculation of damages in Australia remains sparse. In March 2013, however, the Federal Court awarded damages of US$22.4m for a private action brought against a company for bid rigging. While the judgment was appealed both on liability and quantifi cation grounds, the parties reached a confi dential settlement prior to the appellate hearing before the Full Federal Court. Australia has a well-developed class action regime that operates by virtue of Part IVA of the Federal Court of Australia Act 1976 (Cth). The legislation details the requirements for the commencement and conduct of class action claims:

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• At least seven persons must have claims against the same person or persons. • The claims must arise out of the same, similar or related circumstances. • The claims of all of those persons must give rise to at least one common issue of law or fact. Australia’s class action regime operates as an “opt-out” system, in which all persons who meet the description of the “group” will be represented by the lead claimant in the proceeding unless they take a positive step to exclude themselves from the proceeding. There is a presumption that litigation will continue on a representative basis unless the respondent establishes that it would be inappropriate for claims to be pursued in this way, with no certiﬁ cation or competency hearing as a matter of course. As for unitary proceedings, a class action may only recover the amount of loss or damage suffered by the claimants due to the cartel conduct. Four cartel class actions have been commenced in Australia and all have settled, the most recent of which alleged a cartel between airlines to ﬁ x the price of cargo services and settled for AU$38m.2

Reform proposals As referred to above, the Federal Government has released exposure draft legislation which would result in a number of amendments to Australia’s competition laws (including cartel laws). These amendments arose from a review of competition law and policy in Australia which was undertaken in 2014 and 2015, and is known by reference to its Chair as the “Harper Review”. In March 2015, the Harper Panel issued its Final Report, recommending an overall simplifi cation of Australia’s cartel laws, as well as a number of specifi c amendments. While the Government indicated in November 2015 that it accepted the Harper Panel’s recommendations in relation to Australia’s cartel laws, its exposure draft legislation would not result in the sort of wholesale redrafting and simplifi cation that was envisaged by the Harper Panel. The exposure draft legislation does, however, refl ect a number of the specifi c recommendations of the Harper Panel. Key amendments to Australia’s cartel laws that will result if the exposure draft legislation is passed are set out below: • The cartel laws would be confi ned to conduct in trade or commerce within Australia, or between Australia and places outside Australia. The intended effect of this amendment is to confi ne cartel laws so that they only cover conduct affecting competition in Australia. • A pre-condition to the application of the cartel provisions is that parties need to be actual or likely competitors. The CCA currently specifi es that “likely” includes a mere “possibility that is not remote” that the parties are in competition. The exposure draft legislation removes the cartel-specifi c defi nition, leaving the general law interpretation of “likely” (which appears in other provisions of the CCA) to apply. • The joint venture exceptions to the cartel provisions would be broadened so that they would apply to: • contracts, arrangements and understandings (as opposed to just contracts); • joint ventures for the acquisition of goods (as opposed to just production and supply); and • cartel provisions that are for the purposes of a joint venture, or reasonably necessary for undertaking a joint venture (as opposed to only cartel provisions that are for the purposes of a joint venture).

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• The existing exception to the cartel provisions in respect of exclusive dealing (which is separately prohibited under section 47 where it has the purpose or likely effect of substantially lessening competition) would be replaced by an exception that explicitly sets out and broadens the types of vertical trading restraints to be excluded from the operation of the cartel provisions.

* * *

Endnotes 1. Caron Beaton-Wells and Kathryn Tomasic, “Private enforcement of competition law: time for an Australian debate”, (2012) 35(3) UNSW Law Journal 648. 2. A ﬁ fth proceeding, in relation to the supply of concrete, was not permitted to continue as a class action.

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Sharon Henrick Tel: +61 2 9296 2294 / Email: [email protected] Sharon Henrick is the Head of King & Wood Mallesons’ Australia-based Competition Law and Regulatory Group. She principally advises clients on large-scale commercial transactions and investigations which have a competition law application in Australia or the Asia Pacifi c Region. Sharon works for clients across a number of sectors, including in manufacturing, construction, mining, energy, aviation, technology, pharmaceutical, health, fi nancial services, food and beverages, technology and media sectors. Sharon is widely recognised as a leader in her fi eld. She is listed as one of the world’s top 100 advisors by Deal Makers; one of the world’s top 500 lawyers by Intercontinental Finance Magazine; recently won Global Competition Law Review’s Merger Control Matter of the Year – Asia Pacifi c, Middle East and Africa; Euromoney’s Women in Business Law Award for Competition – Australia as well as Lawyer Monthly’s Competition / Antitrust Lawyer of the Year – Australia. Wayne Leach Tel: +61 2 9296 2327 / Email: [email protected] Wayne Leach is a Partner in the Competition Law Group at King & Wood Mallesons in Sydney. He regularly advises large corporations, and liaises with the Australian Competition & Consumer Commission, in relation to competition law issues associated with mergers, joint ventures, industry collaborations, access to essential infrastructure, conduct by dominant companies and other market conduct issues. He represents clients in a wide range of industries, including the coal, gas/LNG, export infrastructure, telecommunications, agricultural, FMC, fi nancial, broadcasting and aviation sectors. Wayne is recognised as a “highly regarded” competition lawyer (Global Competition Law Review, 2013), a “Rising Star” (Chambers and IFLR 1000), “extremely hard working” and “totally dependable” (Legal 500), and is recognised by AFR Best Lawyers – Competition & Regulatory, Doyle’s, Euromoney and in GCR’s Who’s Who Legal: Competition 2015. Peta Stevenson Tel: +61 2 9296 2492 / Email: [email protected] Peta Stevenson is a Partner in the Dispute Resolution team in the Sydney offi ce of King & Wood Mallesons, where she specialises in competition litigation. Peta is considered a trusted adviser in the highly technical area of competition law. She is recognised for her ability to lead complex litigation including coordinating large teams, meeting tight deadlines and identifying and resolving key issues early. She regularly advises clients on competition regulatory investigation and enforcement matters, as well as acting in private enforcement proceedings for damages and other relief (including class actions). Most recently, she has been advising British Airways in its defence of cartel class action proceedings relating to the air cargo industry, and representing a major listed corporation in its defence of the fi rst private enforcement proceedings under Australia’s new cartel laws. King & Wood Mallesons Level 61, Governor Phillip Tower, 1 Farrer Place, Sydney, NSW, Australia Tel: + 61 2 9296 2000 / Fax: + 61 2 9296 3999 / URL: http://www.mallesons.com

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Hendrik Viaene & Ine Letten Stibbe

Overview of the law and enforcement regime relating to cartels Article IV.1 of the Code of Economic Law (“CEL”) is the Belgian equivalent to Article 101 of the Treaty on the Functioning of the European Union (“TFEU”). Similar to the TFEU, Article IV.1 CEL prohibits agreements between undertakings and concerted practices that have as their object or effect the restriction of competition on the relevant Belgian market, or a signiﬁ cant part thereof. It applies to both horizontal and vertical agreements. If such actions also affect trade between Member States, Article 101 TFEU can be applied simultaneously. Competition law enforcement bodies Competition law in Belgium is enforced through an administrative and/or civil law procedure. The two main bodies responsible for enforcing competition law are the Belgian Competition Authority and the national courts. The Minister of Economy likewise plays a (modest) role. 1. Belgian Competition Authority (“BCA”) The BCA, initially an administrative court, was transformed into an independent administrative authority in 2013. The new BCA is responsible for investigation, prosecution and decision-making in relation to anti-competitive practices. Although there is no institutional separation between the investigation and decision phase, other procedural guarantees were put in place to ensure the BCA’s impartiality. The main organs of the BCA in its current form are the Public Prosecution Service (‘Auditoraat’/‘Auditorat’) and the Competition College. Whereas the former is responsible for the investigation and prosecution of anti-competitive behaviour under supervision of the Auditor-General, the latter is responsible for the consequent decision- making and – as the case may be – for the imposition of sanctions. Upon submission of a motivated draft decision by the Public Prosecution Service, the procedure before the Competition College commences. Ultimately, the Competition College decides whether an infringement of competition law is present. If so, it will order its cessation and – if appropriate – impose a ﬁ ne. It is also possible that the Competition College declares the parties’ proposed commitments binding, without formally ruling upon the existence of an infringement. 2. Minister of Economy Based on Article IV.41 §1 CEL, the Minister of Economy is granted a limited role in competition law enforcement. In particular, it has a positive injunction right, i.e., it can order the Auditor-General to investigate a certain case. The Public Prosecution Service

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or (if the case proceeds) the Competition College remains nonetheless at liberty to dismiss the case. 3. National courts Competition law may be privately enforced through national courts (see infra), which are competent to assess damage claims brought before them by victims of competition law infringements. They also hear cases where an infringement of competition law is invoked. Typically, that would be the case where one of the parties invokes the nullity of an agreement. The Brussels Court of Appeals is the only court competent to hear an appeal against a decision by the Competition College. Afterwards, only an appeal on points of law remains possible, and can be submitted to the Court of Cassation. Finally, in case commitments were made binding by the Competition College, as a result of which there is no longer reason for it to proceed, national courts are still competent to rule upon the presence of an infringement in the past. Sanctions for cartel infringements The Competition College can impose ﬁ nes upon the undertakings concerned when ordering cessation of a restrictive competition practice, as well as accompany the cessation order with a periodic penalty payment (see infra). Under certain circumstances, individuals can also be ﬁ ned by the Competition College. No criminal sanctions are available under Belgian law.

Overview of investigative powers in Belgium The Public Prosecution Service is charged with investigating anti-competitive practices. Investigations can be initiated either ex ofﬁ cio, upon complaint, or upon ministerial request. The BCA’s investigative powers resemble the European Commission’s investigative powers as enshrined in Regulation No. 1/2003 – an important difference being the capability of the BCA to carry out searches at private individuals’ homes. As discussed below, most cartels are discovered by an ex ofﬁ cio investigation following a leniency application. General investigative powers The prosecutors may request the undertakings concerned for information, upon which the undertakings have to respond within a certain indicated time limit. If the required information is not provided after such period has elapsed, a motivated decision can be adopted requiring the undertakings to provide the requested information. The prosecutors are furthermore competent to conduct interviews and take written or oral statements. They may also request and copy all documents or information deemed necessary in order to carry out their investigative duties. Dawn raids By far the most intrusive measure is a dawn raid. Prosecutors are empowered to carry out inspections in any premises, means of transport, or other land of the undertakings concerned where the presence of data relevant for their investigation can reasonably be presumed. Inspections in the private homes of the undertakings’ directors, managers and other staff are also possible but rarely conducted (since 2007, only two dawn raids in private premises have been carried out). Assistance to conduct the inspection can be requested of the police and of experts. The inspections require prior authorisation of an investigating judge as well as a warrant specifying the subject matter and purpose of the inspection, issued by the prosecutor in charge of the investigation.

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During the course of the inspection, the prosecutors may interview persons in charge as well as staff members in relation to the subject matter of the inspection and in relation to the internal organisation of the undertaking in order to facilitate the inspection. The prosecutors may also seize and seal, but in case such actions are carried out in premises other than those of the undertakings concerned, their duration may not exceed 72 hours. Regarding the examination of electronic documents, the BCA has put forward transparent guidelines they abide by when examining such documents. Accordingly, a prima facie examination of the content and structure of the electronic data is made in order to identify the persons and fi les possibly related to the subject matter. Subsequently, either key terms are used within copies of these fi les in order to facilitate the selection of individual documents relevant to the investigation, or the data is examined manually on site. In the fi rst scenario, the documents are selected without examining their content. The list of used key terms is, in any event, provided to the undertaking concerned. In principle, the undertaking concerned or its advisers should be present during such selection. Unfortunately, the prosecutors seem to have developed a different practice where only the classifi cation into three categories (‘in-scope’, ‘out-of-scope’, or ‘legal-professional-privilege (“LPP”)’) is conducted in the presence of the undertaking or its advisers, while the selection is made in their absence. Evidently, such a practice does not allow for control over which documents are or are not examined by the prosecutors. The ‘in-scope’ documents can be examined immediately by the investigation team, while the other documents are sealed pending an examination by an independent prosecutor. It is nonetheless possible that a document is consulted immediately to identify its possible out- of-scope or LPP character. Sanctions related to the investigation Failure to comply with certain obligations during the investigation phase may lead to an additional fi ne of up to 1% of the turnover for undertakings. Although legislation specifi cally refers to individuals as well as undertakings, the fact that the fi ne is based on the undertaking’s turnover seems incompatible with imposing such fi nes on individuals. It therefore remains to be seen whether these fi nes can and will be imposed on individuals. Fines can be imposed in case one deliberately or negligently provides inaccurate, incomplete, misleading or untimely information following a request by reasoned decision, as well as in cases where investigations are prevented or impeded.

Overview of cartel enforcement activity during the last 12 months To date, the BCA is not particularly active in the context of cartel enforcement. In 2016, only two cartel decisions were taken: one concerning the market for industrial batteries1, the other concerning day cruises on Belgian rivers2. Both cases were settlement decisions. The total amount of the ﬁ nes imposed was approximately €3.9 million. Similarly, in 2015, only one cartel decision was adopted, which was once again concluded via a settlement procedure.3 The BCA nonetheless imposed a record ﬁ ne of €174 million. The relatively low number of decisions is not surprising given the BCA’s decision practice in the past, where the number of cartel decisions was not necessarily higher. Furthermore, the BCA still had to deal with a larger number of cases started under the old authority. Many of those were dismissed. Reasons for dismissal may be ‘limited resources and priorities’, lack of evidence or prescription. For instance, in 2015, 17 cases were dismissed by the college of auditors.

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Furthermore, based on its recent investigative practice, these numbers are not expected to increase signiﬁ cantly in the near future. In particular, only three dawn raids were conducted in 2016. These took place in the premises of: (i) certain undertakings selling OTC medicines to pharmacies; (ii) an undertaking selling infrared cabins; and (iii) certain mass distributors of pharmaceutical and para-pharmaceutical products. A number of other cartel investigations are still believed to be ongoing, however, no exact number is known to date. Regardless of these modest ﬁ gures, a slight increase can be noted compared to 2015, during which no inspections were conducted at the BCA’s own initiative and only one cartel decision was taken. The BCA also assisted the European Commission in two investigations.

Key issues in relation to enforcement policy As in most jurisdictions, the BCA has the discretionary power to decide whether or not to pursue cases brought to its attention ‘in light of the available resources and priorities’. The BCA announces its priority policy for the following year in an annual report. For 2016, the BCA intended to undertake action within the following fi ve sectors (mainly coinciding with its priority policy in 2015): the liberalised sector of network-industries; the sector of mass distribution, including relations with suppliers (cf. inspections in the premises of mass distributors of pharmaceutical and para-pharmaceutical products); the sector of media and digital economy; the services sector; and the sector of public procurement. The BCA adds that it will investigate all serious competition law violations it deems necessary, regardless of its priority policy. In practice, the BCA will mostly pursue cases brought to its attention (through leniency applications or complaints) rather than initiating ex offi cio investigations into specifi c sectors. The likelihood that a complaint might lead to a full-on investigation is nonetheless higher when it concerns a priority sector. As to the nature of the infringements primarily pursued, no general trend can be identifi ed. Both cartel decisions in 2016 concerned agreements or concerted practices relating to price-setting, and were directly organised amongst competitors, either in the form of formal agreements or in the form of meetings and contacts leading to a common understanding. The cartel decision in 2015, however, concerned an indirect information exchange (hub and spoke) leading to a concerted practice. In particular, information concerning price increases was exchanged through a common supplier, which negotiated and arranged the ultimate concerted practice amongst distributors.

Key issues in relation to investigation and decision-making procedures A couple of issues in relation to the investigation and decision-making procedures, as implemented by the 2013 competition legislation, are worth mentioning. An issue that has particularly occupied practitioners since 2013 concerns the means of appeal during the investigation phase. As the enforcement procedures are now conducted through a monistic rather than dual system, the Court of Appeal is considered to be an essential factor in the checks-and-balances in order to safeguard the procedural rights of the parties concerned. Evidently, the law provides for means of appeal against cartel decisions or dismissals by the Competition College. Regarding the investigation procedure, certain safeguards are put in place as well, for instance the possibility to have the Competition College review decisions of the Public Prosecution Service regarding conﬁ dentiality. The 2013 competition legislation has nonetheless been criticised for not properly

GLI - Cartels 2017, Fifth Edition 20 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Stibbe Belgium safeguarding the parties’ procedural rights during the investigation phase. Especially the fact that no immediate means of appeal are available against a dawn raid has been the subject of a lot of debate. According to Article IV.79 §1 CEL, an undertaking can contest a decision of the Public Prosecution Service to use data obtained through an inspection, but only after the grievances (i.e. statement of objections) are communicated and only as far as such data is used to prove said grievances. As expected, case law has been abundant on this matter. In 2014, the Constitutional Court ruled Article IV.79 §1 CEL to be compliant with the Constitution and the relevant human rights, as nothing in the CEL precludes national courts from suspending the decision in question pending the appeal, thereby preventing the Competition College from obtaining access to the disputed data in the meantime.4 One could read a recent judgment of the Brussels Court of Appeal as continuing to take issue against this point of view, and arguing for earlier appeal potential.5 It remains to be seen how case law will evolve on this matter. Other issues in relation to the current legislative framework can also be identifi ed. For instance, according to Article IV.45 §3, parties are not allowed to submit additional documents – not submitted during the investigation phase – to the Competition College (subject to certain exceptions). This may lead to inequality, as the Public Prosecution Service is not subject to any time limit to formulate its grievances, while the undertakings are expected to submit all necessary documents within a short period of time after the grievances are communicated. Furthermore, criticism has been expressed against the lack of a possibility to appeal by third parties against commitments and by the undertakings in question against cartel decisions concluded through a settlement procedure (a possibility which is nonetheless provided for under European competition law). Finally, it is worth mentioning that Belgian case law accepts LPP for Belgian in-house counsel. Indeed, the Court of Cassation confi rmed6 that advices provided by in-house counsels (members of the Belgian Institute for in-house counsel) are confi dential, as a result of which such documents cannot be seized or examined by the BCA within the framework of a dawn raid. However, the privilege does not apply in case the BCA assists the European Commission in conducting inspections.

Leniency/amnesty regime As in most jurisdictions, Belgian competition law provides for a leniency regime similar to that of the European Commission. An undertaking is able to obtain immunity for, or reduction of, the fi ne it would normally risk, if it contributes to proving the prohibited practice and in identifying its participants, either by providing intelligence the BCA did not yet possess, by proving a prohibited practice the BCA did not yet know of, or by acknowledging the existence of such practice. The specifi c conditions in order to qualify for immunity for, or reduction of, the fi ne are set out in the BCA’s recently amended leniency guidelines and are identical to those of the European Commission. The reduction of the fi ne is proportionate to the undertaking’s contribution to proving the infringement. In 2016, the BCA’s leniency guidelines were amended to extend the possibility of leniency to private individuals. As a result, private individuals can likewise request immunity for their fi nes, under similar conditions as undertakings. As immunity may also be granted to individuals cooperating with a leniency application of the undertaking he or she works for, applying for individual immunity is, in any event, advised if the individual’s undertaking decides to submit a leniency application. Importantly, an immunity request of an individual does not preclude undertakings from obtaining immunity.

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The leniency regime can be considered a relatively important aspect of cartel enforcement in Belgium. Since 2013, there have been considerably more leniency applications than third party complaints or ex ofﬁ cio investigations. For instance, the total amount of complaints in relation to restrictive practices (therefore including cartels as well as abuses of dominance) in 2014 was six, compared to a total of 17 leniency applications (in ten cases). Similarly, a total number of four complaints were lodged in 2015, compared to eight leniency applications. In addition, all major cartel cases that have been successfully prosecuted in recent years involved a leniency applicant. Indeed, in all three 2016 and 2015 cartel decisions, one undertaking was granted full immunity. Some of the other undertakings consequently obtained a ﬁ ne reduction of between 50% and 20%, depending on their contribution and timing.

Administrative settlement of cases As stated above, all three 2015 and 2016 cartel decisions were ultimately concluded through a settlement procedure (‘transaction’ according to the CEL). In any given investigation (but prior to submitting its draft decision to the Competition College), the Public Prosecution Service may propose a time limit within which the parties can communicate their readiness to hold transaction talks. If so, a short version of the grievances are communicated and access is given to the relevant evidence. If a transaction turns out to be a possibility, the undertakings in question give a statement of transaction, wherein they admit their involvement, assume responsibility for the quoted infringement and accept the proposed sanction. The transaction is ‘rewarded’ by a reduction of up to 10% of the initially calculated ﬁ ne. In practice, the maximum of 10% is almost always granted. The settlement procedure ends with a transaction decision of the Public Prosecution Service addressed to all settling undertakings, against which no appeal is possible (see supra). The Competition College is therefore not involved in the procedure. The settlement procedure is clearly distinct from the leniency procedure, both in law and in practice. They may also be combined, as a result of which the relevant ﬁ ne reductions will be combined.

Third party complaints According to Articles IV.41 and 42 CEL, complaints can be submitted to the Auditor- General by anyone who demonstrates their direct and immediate interest in the claim. There is no obligation to initiate a formal investigation procedure, but a formal dismissal decision nonetheless has to be adopted. The Public Prosecution Service is free to dismiss complaints based on its priority policy and the available means (see supra). In addition, complaints may be dismissed as unfounded, inadmissible or due to their prescription. When the Public Prosecution Service is considering dismissing a complaint, it may decide to hear the complainant. In case of dismissal, the complainant is notifi ed and provided with the possibility to consult the procedural fi le and bring an appeal before the President of the Competition College. Informal complaints are also possible. They will be analysed and inquired into by the Public Prosecution Service if so requested by the Auditor-General. Contrary to formal complaints, informal complaints can remain unanswered. Interestingly, whereas formal complaints are communicated to the undertakings concerned, informal complaints are not. As a result, if the Public Prosecution Service decides to investigate upon informal complaint, a request for information will be sent to the undertakings without necessarily indicating the specifi c

GLI - Cartels 2017, Fifth Edition 22 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Stibbe Belgium reasons for its sudden interest. Undertakings can therefore be tempted to be less careful in responding to such requests. As stated above, there are very few complaints per year: only six complaints were submitted in 2014 and four in 2015 (including both cartel and abuse of dominance complaints). The precise number for 2016 is yet to be announced. Furthermore, in recent years, no cartel case was successfully prosecuted based on a complaint.

Civil penalties and sanctions As stated above, the Competition College can impose a fi ne upon the undertakings concerned when ordering cessation of a restrictive competition practice, capped at 10% of their respective turnovers. Furthermore, it can accompany the cessation order with a periodic penalty payment, capped at 5% of the average daily turnover. According to the guidelines of the BCA, the Competition College will follow the ‘2006 Guidelines on the method of setting fi nes’ of the European Commission, with a few (evident) alterations. The cap of 10% (respectively 5% for the periodic penalty payment) is calculated based on the company’s turnover generated on the Belgian market and through export. The aggravating or mitigating circumstances that might increase or decrease the fi ne are identical to those listed in the Commission’s guidelines. However, in relation to the aggravating circumstance of repetition, only infringements that have been the subject- matter of a Commission decision, or a decision by a national competition authority in one of Belgium’s neighbouring countries, are taken into account. The draft decision, including the fi ne claimed by the Public Prosecution Service, is sent to the parties simultaneously with its submission to the President of the Competition College. In case parties are prepared to settle, the minimum and maximum amount of the fi ne the Public Prosecution Service is considering to propose is communicated earlier, along with the grievances it is raising. In relation to the imposition of administrative fi nes upon individuals, a fi ne of €100 to €10,000 can be imposed for negotiating or agreeing to, and on behalf of an undertaking with its competitors, to fi x prices, limit production or sales, or allocate markets. As stated above, no criminal sanctions are available under Belgian law.

Right of appeal against civil liability and penalties Parties can lodge an appeal against a cartel decision taken by the Competition College, including against the fi nes imposed therein. Such an appeal has to be lodged with the Brussels Court of Appeal and is a ‘full merits’ appeal regarding both the facts and the law. The Court assesses the situation as it existed at the time of the decision, based on the investigation fi le and formulated grievances of the Public Prosecution Service. It may not inquire into additional facts or evidence, nor reformulate the initial grievances. The Court may substitute the cartel decision of the Competition College with its own decision, including a negative statement that no infringement is present. When the Court comes to the conclusion that an infringement of Article 101 VWEU is present (contrary to the BCA decision), it can only annul the relevant decision without rendering a substitute decision. Furthermore, in relation to an appeal against the fi nes imposed, it can be inferred that the Court is free to decrease the fi ne based on reasons of expediency, proportionality or legitimacy. However, it can be inferred that if it considers the fi ne too low, its only option is to annul the decision of the Competition College.

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An appeal cannot be lodged against a transaction decision (see supra). As a result, and given that cases are often concluded through a settlement procedure, there is not a lot of case law on this matter. One appeal in relation to the fi ne calculation is nonetheless worth mentioning. In 2016, the Court of Appeal ruled that the principle of ne bis in idem might be relevant if another national competition authority has already imposed a fi ne, taking into account the Belgian turnover. In those cases, the BCA is in principle not precluded from imposing a fi ne in relation to the effects on the Belgian market. The Court nonetheless stated that the BCA had to calculate the fi ne in relation to the Belgian market, and could not therefore impose a lump sum penalty.7 The Court was quite active in overturning decisions taken during the investigation phase. As such, there have been cases wherein the Court ruled dawn raids conducted by the Public Prosecution Service illegitimate, primarily because no prior authorisation of an investigating judge was required under the previous legislation, and means of appeal were uncertain.8 Similarly, the Court – as confi rmed by the Court of Cassation9 – ruled on the illegitimacy of seizing documents containing advice of in-house counsels or based on a ‘fi shing expedition’ without predetermining their relevance to the subject matter.10

Cross-border issues To date, neither the BCA, nor national courts attempt to exert their competition law jurisdiction extraterritorially. Decisions are therefore limited to the infringing facts related to (a part of) the Belgian territory. Cooperation efforts within the European Competition Network should be mentioned, however. In particular, the BCA has already assisted in several inspections of the European Commission, conducted multiple inspections upon request of other national authorities, and answered numerous questions of other national authorities. The BCA rarely seems to ask assistance of other national authorities itself, however. Regardless, cartels have already been successfully prosecuted in the past, (partly) based on information provided by the European Commission.11

Developments in private enforcement of antitrust laws As in most EU jurisdictions, private enforcement is still a developing area rather than a signiﬁ cant source of competition law cases. Private enforcement of Belgian or European competition law through national courts is nonetheless an existent feature. However, more prominent in this regard are actions attempting to achieve the annulment of an agreement contrary to competition law (as opposed to third party enforcement actions).12 To date, victims of competition law infringements can either rely on Article VI.104 CEL to lodge a cessation order or on national tort law in order to obtain damages. Whereas the former is frequently used, the latter is the only option to obtain damages. Unfortunately, although the possibility of damage claims in cases of competition law infringements was already acknowledged more than 20 years ago,13 Belgian case law still provides little guidance on the matter. In theory, Belgian tort law is in many aspects already compliant with the EU Directive on antitrust damages actions (‘Damages Directive’). Some amendments – which are still to be implemented – might nonetheless facilitate damages claims more efﬁ ciently. The weak points in Belgian tort law rose to the surface when damages claims were brought following the infamous elevator cartel.14 Although the concept of full compensation, the possibility to estimate the harm, and the concept of causality are all present in Belgian tort law and

GLI - Cartels 2017, Fifth Edition 24 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Stibbe Belgium compliant with their meaning in the Damages Directive, three important presumptions are absent: the rebuttable presumption that the cartel gave rise to damages remains to be implemented; an irrefutable presumption that there has been a competition law infringement when a BCA or Commission decision is present; and a rebuttable presumption for indirect purchases (if certain elements are demonstrated) that there has been a passing-on of the overcharge. The absence of a rebuttable presumption that the cartel gave rise to damage is particularly problematic in the elevator cases (i.e. the follow-on actions to the Commission decision regarding the elevator cartel), to which the Damages Directive does not yet apply. In ﬁ rst instance, the relevant courts indeed ruled that the claimants did not succeed in proving the damage to which the cartel gave rise. An appeal is currently pending and an interlocutory judgment regarding access to evidence has already been rendered. Interestingly, access to numerous documents of the investigation ﬁ le, referred to in the Commission decision, was permitted. Although corporate leniency statements were not asked to be disclosed, discussion nonetheless arose whether or not annexes to these statements can always be considered ‘pre-existing’ documents. These presumptions will nonetheless be implemented as a result of the Directive, as can be inferred from the preliminary design of the implementation legislation. As a result, damage claims such as those in the elevator cases will be more easily granted. However, although the Directive was meant to be implemented prior to 27 December 2016, a formal legislative proposal is yet to be submitted. Another development in this regard is the possibility to bring collective claims in cases of competition law infringements, as provided for in Articles XVII.35 CEL and following since 2014. Accordingly, certain associations representing consumer interests can bring a collective claim on behalf of a group of consumers that suffered damages as a result of an anti-competitive infringement. The association can request an opt-in or opt-out approach in its submission to the court. The court subsequently determines the approach that will be adopted depending on the circumstances. However, as collective redress is only recently available, to date no competition law cases have been submitted by means of such claims. It thus remains to be seen how courts will deal with such actions and, as a corollary, whether collective redress will become a popular means of action. Nevertheless, it is already to be deplored that the actual judicial treatment of the collective claim only commences after an obligatory negotiation phase between the association and the undertaking has been concluded.

Reform proposals A preliminary design of law has been drafted by experts, meant to replace Book IV of the CEL (i.e. the book containing the competition law provisions). The new law aims at increasing the efﬁ ciency of the BCA by amending its procedures. Given the discussion concerning the means of appeal against (a decision to execute) a dawn raid, one might expect an amendment of the legislation in this regard, possibly providing for a timelier means of appeal. However, as this design has not yet been published, further speculations relating to its content are still premature.

* * *

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Endnotes 1. BCA Decision of 23 February 2016, Case MEDE-I/O-14/0003 – Prijsafspraken in de sector van de industriële batterijen, No. BCA-2016-I/O-04-AUD. 2. BCA Decision of 27 May 2016, Case CONC-I/O-14/0018 – Croisières sur la Meuse et la partie navigable de la Lesse, No. ABC-2016-I/O-15-AUD. 3. BCA Decision of 22 June 2015, Case CONC-I/O-06/0038 – Hausses coordonnées des prix de vente de produits de parfumerie, d’hygiène et de droguerie, No. ABC-2015- I/O-19-AUD. 4. Constitutional Court, 10 December 2014, No. 179/2014. 5. Brussels Court of Appeal, 9 July 2015, No. 2014/MR/1, TBM 2016, vol. 1, p. 48, §31. 6. Court of Cassation, 22 January 2015, AR C.13.0532.F. 7. In relation to the ﬂ our-cartel, see Brussels Court of Appeal, 30 June 2016, No. 2013/ MR11-15, not published. 8. See i.a. Brussels Court of Appeal, 9 July 2015, No. 2014/MR/1, TBM 2016, vol. 1, p. 48 and Brussels Court of Appeal, 18 February 2015, No. 2013/MR/19, 22, 24–25, TBM 2015, vol. 1–2, p. 73. 9. Court of Cassation, 22 January 2015, AR C.13.0532.F. 10. Brussels Court of Appeal, 5 March 2013, 2011/MR/3, not published. 11. See e.g. BCA Decision of 30 August 2013, Case CONC-I/O-05/0075 – Cimenteries, No. 2013-I/O-24. 12. See e.g. Brussels Court of Appeal, 28 April 2010, TBH 2011, vol. 8, p. 808; Antwerp Court of Appeal, 2 December 2013, No. 2010/AR/1938, TBM 2014, vol. 4, p. 335. 13. Brussels Court of First Instance, 18 February 1994, No. 17.731/90, not published. 14. Brussels Chamber of Commerce, 24 April 2015, No. A/12/02291-3, TBM 2015, vol. 3, p. 212; Brussels Chamber of Commerce, 24 November 2014, No. A/08/06816, TBM 2015, vol. 1–2, p. 37.

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Hendrik Viaene Tel: +32 2 533 54 21 / Email: [email protected] Hendrik Viaene is a partner at Stibbe Brussels, where he mainly focuses on European and Belgian competition law (merger control, cartels and abuse of dominant position), state aid and EU internal market provisions. He regularly assists clients before the Court of Justice, the General Court, the European Commission, national courts and administrative authorities. Mr Viaene published various contributions relating to the application of European and Belgian competition law, he is a member of the board of editors of the Revue de la Concurrence Belge and an editor of the EU Competition Law Handbook. He also teaches competition law in the framework of the Brussels Bar Association.

Ine Letten Tel: +32 2 533 52 38 / Email: [email protected] Ine Letten is a junior associate at Stibbe, working in the EU Law, Competition and Regulation practice group. After graduating from the University of Leuven (Master of Law) and Liège (LL.M. in EU Competition and Intellectual Property Law), she joined the Brussels Bar in 2016. Her expertise includes all aspects of Belgian and European competition law. Furthermore, she advises clients in the area of state aid and with respect to other aspects of European law, including free movement of goods, services, people and capital as well as institutional matters.

Stibbe Rue Loksumstraat 25, 1000 Brussels, Belgium Tel: +32 2 533 54 21 / Fax: +32 2 533 53 97 / URL: http://www.stibbe.com

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Ricardo Inglez de Souza Inglez, Werneck, Ramos, Cury e Françolin Advogados

Overview of the law and enforcement regime relating to cartels The Brazilian Competition Law1 (“BCL”) contains specifi c provisions which deem cartels to be an antitrust violation. The BCL is clear in forbidding any type and format of agreement, arrangement, manipulation or adjustment between and/or among competitors on prices, input or output (quantity or quality), raising barriers to the entrance of new players, among others, that harm or could harm free competition. The BCL provides for a non-extensive list of acts which, among others, may be deemed as a violation, such as2: (i) to set or offer, in any way − in collusion with competitors − prices and conditions for the sale of a certain product or service; (ii) to obtain or otherwise procure the adoption of collusive business practices among competitors; (iii) to limit or restrain market access by new companies; or (iv) to engage in bid rigging, among others. The BCL also provides3 that a specifi c conduct cannot be considered illegal per se. Therefore, it adopts a broad rule of reason, according to which a conduct shall only be considered unlawful if it can, even if potentially: (i) limit, restrain or in any way harm competition or free enterprise; (ii) result in the dominance of a relevant market; (iii) increase profi ts on a discretionary basis; or (iv) constitute an abuse of a dominant position in a certain market. Notwithstanding the above, in hardcore cartel cases, Brazilian cartel enforcement is increasingly adopting a more ‘illegal per se’ approach. The Administrative Council for Economic Defence (“CADE”) is the authority in charge of cartel enforcement in Brazil. It is an administrative authority composed of CADE’s General Superintendence (“SG”) – responsible for carrying out the investigations and issuing non-binding opinions – and the Administrative Tribunal (“Tribunal”) – responsible for the fi nal decisions. CADE’s jurisdiction does not exclude the possibility of any interested party bringing a cartel claim directly before the Judiciary. On the contrary, it is expressly permitted, although not often applied. CADE may initiate an investigation voluntarily (ex offi cio) or due to accusations and evidence brought by a third party. SG carries out an in-depth investigation and issues a non-binding opinion to be considered by the Tribunal in its decision. In addition to SG’s opinion, the Tribunal may receive (or request) opinions from the Public Attorney’s Offi ce, the Federal Prosecutor’s Offi ce and CADE’s Department for Economic Studies. The Tribunal is composed of one chairperson and six commissioners. After the case is investigated and analysed by SG, one of the commissioners is appointed as reporting commissioner, who will submit his/her assessment to be trialled by the Tribunal. Other commissioners may submit contrary or complementary assessments. The cases are

GLI - Cartels 2017, Fifth Edition 28 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Inglez, Werneck, Ramos, Cury e Françolin Advogados Brazil decided by majority of votes, and, in case of a tie, the chairperson has the casting vote. The minimum quorum for a judgment session is of four commissioners with at least three valid votes. Cartel cases may take several years to be judged by CADE – currently, CADE is taking, in general, up to fi ve (5) years to fi nally decide a cartel case. International cartel cases usually take longer to be concluded, due to the additional diffi culty in serving (notifying) all defendants. This is because the deadline for submitting defences is only set once all defendants are served. The BCL provides4 for the following penalties in case of anticompetitive behaviour: (i) For companies: a fi ne ranging from 0.1% to 20% of the gross revenue (tax included) of the latest fi nancial year before the initiation of the administrative proceeding. The fi ne shall under no circumstances be lower than the benefi t obtained from the underlying violation, if assessable. (ii) For individuals directly or indirectly liable for their company’s violation: a fi ne ranging from 1% to 20% of the fi ne imposed on his/her respective company. (iii) For other individuals and other public or legal entities, as well as any de facto or de jure associations of entities or individuals, that do not engage in business activities or for whom the use of the gross sales value is not feasible, the fi ne will range from approximately R$ 50,000 to R$ 2bn. In addition to the pecuniary fi nes set forth above, additional sanctions may also be applied5: • half-page publication, at the violator’s expense, of the summary of the sentence in a court-appointed newspaper; • disbarment from offi cial fi nancing or participation in bidding processes involving purchases, sales, work, services or utility concessions with the public authorities and related entities, for a period equal or superior to fi ve years; • inclusion of the violator in the Brazilian Consumer Protection List; • recommendation, to the competent authorities, to grant compulsory licences for patents held by the violator; • recommendation, to the competent authorities, to deny authorisation for the violator to pay federal overdue debts in instalments, or to order total or partial cancellation of tax incentives or public subsidies; and • the company’s spin-off, transfer of corporate control, sale of assets, partial discontinuance of activities or any other measure required to minimise the negative impacts of the infringement.

Overview of investigative powers in Brazil CADE may initiate an investigation voluntarily or receive accusations from a third party. Due to the difﬁ culty in detecting cartels, CADE mostly initiates investigations based on information and evidence provided by a third party or through leniency applications − which is getting more common. Once it receives notice of an antitrust violation, CADE (SG and also the Tribunal) has several instruments to investigate antitrust violations6. It may, for example, request information and documents from any party (entity or individual), as well as carrying out oral depositions from defendants and witnesses.

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However, the most effective instrument used by CADE to collect evidence of a wrongdoing are dawn raids, which may only be carried out upon judicial authorisation. Dawn raids are jointly carried out by CADE and the federal police. This can be quite a disturbing experience for businesspeople in Brazil, as the federal police generally enter into the facilities of the companies armed with heavy weapons, and the judicial order, contrary to what it should be, is very generic, leading to a broad seizure of documents and equipment from the company subject to such proceeding. The new BLC also provides that CADE may proceed with inspections at the facilities and/ or offi ces of the investigated parties without a judicial order, upon a previous notice. This is, however, a controversial power granted by the 2011 BLC, and has limited benefi ts for the investigation. Finally, CADE also collects evidence from settlement agreements entered into with defendants. In such cases, the defendant usually has to hand out evidence in exchange for a reduction of fi nes.

Overview of cartel enforcement activity during the last 12 months For several years, CADE has been signalling cartel enforcement as its major priority in competition enforcement in Brazil. During the last 12 months, cartel enforcement has increased abruptly in terms of the number of cases, number of defendants and importance to the country. Several investigations were initiated thanks to the Lava Jato Operation carried out by Brazilian authorities against corruption. Furthermore, such investigations gave rise to new cartel investigations due to the application of the leniency plus instrument, which allows greater discounts in settlement agreements if a second conduct is reported. In 2015, CADE issued 39 condemnatory decisions (including 21 cartel cases) among 53 judged cases, which represents a 73.5% conviction rate. Until the end of November 2016, CADE had issued 18 condemnatory decisions (including 11 cartel cases) among 30 judged cases. Furthermore, in 2015, CADE applied more than R$ 1bn in fi nes for anticompetitive behaviour, while in 2016 (until November) the fi nes amounted to R$ 500m. Although it seems CADE’S conviction rate and fi nes are decreasing, it is necessary to consider that the number of settlements is increasing signifi cantly (as detailed below), and several cases were fi led due to multiple settlement agreements. Until the end of November, all defendants entered into settlement agreements in fi ve cartel cases. The biggest fi ne applied to date referred to the cement cartel, convicted in 2014. The fi nes applied to the defendants amounted to R$ 3.1 bn. In 2015, one of the highlights was the conviction of the hospital laundry cartel. According to CADE, seven companies agreed on dividing bids for hospital laundry services. CADE had direct pieces of evidence, obtained from call intercepts and dawn raids. The fi nes reached a total amount of R$ 27.3m. Also in 2015, CADE condemned an international cartel in the refrigeration compressors market, which involved companies such as Household Compressors, Danfoss and Panasonic Electric Works. The case had been initiated by a leniency agreement entered into by Tecumseh and CADE, and included any dawn raids carried out in Brazil, USA and Europe, where the conduct took place. Before the condemnatory decision, in 2009, three companies of the Whirlpool Group entered into settlements with CADE. The total amount of fi nes applied to the remaining defendants amounted to approximately R$ 21.5m.

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It is likely that in the near future CADE will break further fi ne and settlement records, as emblematic cases are yet to be judged. Some of these cases are: (i) the subway/trains cartel – involving Alstom, Bombardier and Siemens, among others; (ii) the Petrobras cartel (“Lava Jato” – investigation) involving Camargo Corrêa, Odebrecht, OAS, among others; (iii) Angra 3 – nuclear energy cartel – involving Camargo Corrêa, Odebrecht, Andrade Gutierrez, among others; (iv) Belo Monte hydroelectric power plant – involving Andrade Gutierrez, Camargo Corrêa, Odebrecht, among others. All such cases are still being analysed by SG. As mentioned before, in 2016, CADE initiated several cartel investigations, many deriving from the Lava Jato operation, and involve major Brazilian infrastructure companies such as Camargo Corrêa, Odebrecht, OAS, Andrade Gutierrez, among others. Other investigations initiated in 2016 involved alleged cartels in the market for production (mills) and distribution of wheat fl our in the North and Northeast of Brazil, and bids for the acquisition of supplies for offi ces and public schools.

Key issues in relation to enforcement policy CADE has a good legal framework and has been issuing some regulations to try to ﬁ ll blanks. However, there are still improvements that could be made. CADE still has a problem of structure and due to the economic crisis, it is likely that it will not be solved in the short run. There is a lack of staff or a more stable career plan for public agents who are part of CADE. The lack of structure is also true for the composition of the Tribunal. The Federal Government could pay more attention to competition policies, or prepare a plan to avoid letting the Tribunal have a reduced quorum. This lack of structure may reduce the effectiveness of enforcement and sometimes, cases may take a long time to be decided. Another factor that jeopardises more effective enforcement is the fact that the Brazilian authorities are not allowed to select speciﬁ c sectors to be subject to more focused enforcement. This is no different in cartel enforcement.

Key issues in relation to investigation and decision-making procedures The safeguarding of procedural rights has been (and still is) a key issue in cartel enforcement in Brazil. But there are some aspects that deserve special attention. First, there is the generic accusation. In some cases, the accusation made against defendants is vague and generic, without making a concrete link between the defendant and each of the accusations. The Brazilian constitution obliges the authority to raise accusations and include individuals due to their participation in the illegal conduct. The lack of precision in the accusations and in the individualisation of the conducts may compromise the validity of the entire case. Second, SG is asking for very generic search and seizure judicial orders. According to the Brazilian Procedural Code, the search and seizure order must be specifi c. From one side, CADE is trying to give more effectiveness to the order. However, on the other hand, there is a specifi c legal rule that prevents authorities from fi shing for evidence. This is more problematic in cases in which there is a leniency agreement. In principle, the benefi ciary of the leniency agreement should have provided information and documents that could help CADE in drafting its request for the search and seizure procedure. In these cases,

GLI - Cartels 2017, Fifth Edition 31 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Inglez, Werneck, Ramos, Cury e Françolin Advogados Brazil there is even less excuse for CADE not to be precise in its request. Precise means to identify what CADE is looking for, from whom, and where it should be. Third, there is a growing concern with judicial orders for CADE to share information and documents obtained from search and seizure procedures. Given the concern related to the broad scope of the orders, such sharing is even more problematic. Among other problems, the risk of leaking information is higher. This is a sensitive topic not only to preserve the rights of defendants, but also affecting the case as a whole. Finally, CADE is using documents protected by privileged communication between attorney and client as pieces of evidence in cartel cases. This will certainly be subject to judicial review. According to the current legal framework, communication between lawyers and their clients is protected and cannot be violated, even by a public authority.

Leniency/amnesty regime The Brazilian leniency program is quite similar to the programs adopted in other jurisdictions. Leniency agreements may benefi t legal entities and/or individuals who denounce a cartel practice, even if it was the leader of the cartel. If the benefi ciary meets all obligations set forth in the agreement, it will be granted full administrative and, in case of individuals, criminal immunity. In case the benefi ciary fails to comply with its obligations, it will only be subject to a fi ne reduction, and will be prevented from executing other leniency agreements for three years. Unlike other jurisdictions, in Brazil the leniency application is only available to the fi rst entity/individual (alone or jointly) coming forward with regard to a specifi c conduct. Other agreements following the leniency agreement are called settlements and may only reduce the defendants’ fi ne, without eliminating criminal liability to individuals. Among the obligations set forth in the leniency program, is the identifi cation of all other participants of the cartel, as well as providing suffi cient evidence to convict them. Also, the benefi ciary must immediately cease the illegal conduct. Finally, one of the most important conditions of the leniency program is that all benefi ciaries (legal entities and individuals) must acknowledge the wrongdoing. To be entitled to the benefi ts of the leniency program, the benefi ciary must continuously cooperate with CADE. At its fi nal decision, the Tribunal will evaluate the benefi ciary’s compliance with the agreement before confi rming (or not) the benefi ts. CADE has confi rmed all leniency agreements judged so far. It is worth highlighting that, in 2016, CADE judged the fi rst case initiated by a “partial leniency agreement”. The leniency proposed by NEC Corporation was considered ‘partial’ by the authorities due to the fact that one of the legal requirements for the admission of the leniency was not fulfi lled: CADE had previous knowledge of the conduct, but had insuffi cient evidence to pursue it. The leniency agreement also covers criminal liability. It seems important to mention that criminal liability in cartel cases only affects individuals. Legal entities are not subject to criminal liability in cartel cases. The current leniency regulation provides for immunity over cartel criminal charges and any other criminal accusation connected to the cartel practice – for instance, fraud to the bid process. CADE continues to encourage and intensify negotiations for leniency agreements. In 20167, CADE entered into eight leniency agreements and executed four amendments to leniency agreements:

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Source: CADE CADE’s regulation provides that the leniency agreement shall be executed within 11 months as from the signature of the marker, which is the document by which CADE certifi es that the proponent is the fi rst one to apply for leniency in a specifi c market. According to the regulation, the proponent should submit the agreement proposal within one month after the signature of the marker, and the fi nal version of the leniency agreement should be signed within one year of negotiations (including time extensions). Notwithstanding, it is known that CADE has been fl exible in some cases with regard to the term for negotiations, due to the lack of structure from the authority’s side and poor applications submitted by proponents. One of the informal measures adopted by CADE to allow a longer negotiation period is granting a second marker, or a time extension of the fi rst marker. The BCL provides for leniency plus. This means that a defendant in a case already initiated based on a leniency agreement, may settle with CADE to denounce another cartel in exchange for a reduction in the fi ne in the fi rst case and immunity in the second one. Since 2015, when the Lava Jato case was initiated, six leniency-plus agreements were signed by three defendants. In case CADE is not convinced of the existence of the violation, the proponent fails to provide suffi cient evidence or the parties do not agree with the terms and conditions, the agreement is not executed. In this scenario, CADE is forbidden from using the information and documents received during the negotiation of the leniency, including for the initiation of an investigation. In order to provide more transparency and to increase competition culture in Brazil, CADE has issued a public guideline on leniency agreements. It is a very positive initiative and the guide is very comprehensive. It includes some generic clarifi cations on conceptual aspects of the leniency, and some specifi c understandings on procedural rules.

Administrative settlement of cases The BCL provides for the possibility of settlement agreements during the course of investigations. The settlement (locally called “TCC”) may be requested by any of the

GLI - Cartels 2017, Fifth Edition 33 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Inglez, Werneck, Ramos, Cury e Françolin Advogados Brazil defendants, or even be suggested by CADE. It is worth mentioning that TCCs are accepted in all administrative proceedings that investigate the wrongdoing (preparatory, preliminary and defi nitive procedures). Each defendant can only submit one settlement proposal during the investigation8. If no agreement is reached after negotiations, the defendant is prevented from submitting a new proposal in that particular investigation. Although such restriction may seem unreasonable and against the public interest, it is used as a tool for pressuring the defendants to submit their best offer from the outset. The TCC must include the payment of a pecuniary contribution by the defendant. The amount of such contribution is calculated based on a gradual discount on the expected fi ne that would have been applied, had the defendant been convicted at the end of the investigation. CADE’s regulation provides that the signature of the fi rst TCC may grant a discount ranging from 30% to 50% of the expected fi ne. The second TCC grants a discount from 25% to 40%, while the following TCCs grant discounts up to 25% of the expected fi ne9. In cases initiated by leniency applications, the BCL also requires that the defendant confesses to the wrongdoing at the signature of TCC agreement. In other cases that do not include leniency applications, CADE may decide on the suitability of such requirement. In recent years, CADE has been requiring such confession in all cartel cases. Such obligation worries defendants and attorneys, as the settlement does not grant criminal immunity for individuals, nor does it grant civil immunity. Consequently, the defendants are exposed in civil damages claims, and individuals may be exposed criminally. The BCL also requires that TCC proponents collaborate with the investigations. In recent years, and in the majority of recent cases, CADE has been requiring that proponents submit evidence that effectively helps CADE to convict the remaining defendants. This requirement has made the negotiation of TCCs harder, as CADE is using the level and quality of evidence submitted by the proponent as a measure to defi ne the pecuniary contribution and even decide on the suitability of the signature of the TCC. The proposal and negotiation of TCCs may be handled confi dentially upon request from the interested party. In the majority of cases, CADE treats TCC on a very confi dential basis. However, once CADE and the defendant execute the fi nal version of the agreement, it is considered a public document to the remaining defendants and, after fi ve years of its execution, it is disclosed to the general public. Similarly to the provisions of leniency applications, CADE is prevented from using any document or information received during the negotiation of TCCs, in case negotiations are unsuccessful. Likewise, in case negotiations are successful, the benefi ciary of the TCC also has to participate and collaborate with the investigations until the confi rmation of the benefi ts at the Tribunal’s fi nal decision. CADE has been signing a huge amount of settlement agreements. Until November 2016, CADE entered into forty-fi ve (45) settlement agreements (from a total of 49 requested settlements), and has collected more than R$ 500m in such agreements. Besides, as mentioned above, the settlement agreements are helping CADE to enhance the strength of its decisions, since the benefi ciaries are obliged to acknowledge the wrongdoing and also to submit further information and/or pieces of evidence. One of the most relevant cases in 2016 involved seven settlement agreements entered into by defendants in the same cartel investigation (the orange juice cartel). Such agreements

GLI - Cartels 2017, Fifth Edition 34 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Inglez, Werneck, Ramos, Cury e Françolin Advogados Brazil were responsible for approximately 60% of the total amount collected by CADE by means of TCCs in 2016.

Source: CADE It is interesting to mention that settlement seems to be worth a great deal in Brazil. In the cement cartel10, the case which resulted in the highest fi nes to date, a TCC executed by a company at an early stage resulted in the payment of a contribution of R$ 43m. Such amount was considered “huge” at the time. However, at the end of the investigations, the defendants were fi ned a total of R$ 3.1bn. One company alone was fi ned R$ 1.5bn, while R$ 88m was the lowest fi ne applied to a company. At the end of the case, the TCC was a great deal for that defendant.

Third party complaints In the administrative proceeding, it is not common to have third parties’ participation. In general, third parties that have any interest in the issue would ﬁ le a judicial claim. The private enforcement of antitrust law is still not well developed in Brazil.

Civil penalties and sanctions The BCL provides that any interested party may ﬁ le a judicial claim to seek damages11. It is also possible to have the public prosecutor ﬁ le a public civil action to seek collective damages. We do not have treble damages. Any damage claim should seek the reimbursement of the actual damage suffered by the plaintiff. In addition to the damages, there is a civil sanction that can be applied in cartel cases over the individuals. In case of a conviction before CADE, an individual may be prevented from acting as a legal representative or manager of legal entities in Brazil during the period in which the conviction is in force12. Damage claims in Brazil are still rare. However, due to the increase of international

GLI - Cartels 2017, Fifth Edition 35 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Inglez, Werneck, Ramos, Cury e Françolin Advogados Brazil cartels being investigated in Brazil, multinational companies are starting to look into their rights against cartel defendants. This is also a tendency given the high-profi le local cases being investigated in Brazil, which hugely affect multinational companies. There is currently a discussion regarding the deadline for suing due to damages arising from anticompetitive practices. The Brazilian Civil Code is clear at setting a three-year limit to an injured party to claim damages, unless there is a contractual relationship between the parties. In such case, the term could be of up to 10 years. The controversy refers to the event that determines the initiation of such term. According to the Civil Code, the three-year period should start counting as from the effective date of the damage, or the date on which the damage was discovered. Some understand that this general rule should apply to damages regarding antitrust violations as well. However, specifi cally regarding cartel cases, it is very diffi cult to measure and prove damages. Reimbursement is frequently requested based on the general estimates of the Organisation for Economic Co-operation and Development (OECD) that cartels cause an approximate increase of 20% of prices in the affected market, but a more precise assessment should be required by the courts in order to determine the collection of damages. It is essential, therefore, to determine the existence of the cartel in order to infer the existence of damages. In view of that, some argue that that the three-year term to claim damages should only start counting as from the condemnatory decision rendered by CADE. A defi nitive answer to such controversy will only be given by the courts, although there are some legislative proposals to regulate such situation.

Right of appeal against civil liability and penalties It is always possible to appeal against civil penalties. In general, defendants may have access to second-level Tribunals (Tribunais de Justiça) or even to the Superior Court of Justice and the Supreme Court of Justice. It is also possible to appeal against penalties imposed by CADE. In fact, it is very common to have defendants appealing to the judicial courts against CADE’s conviction. Over the past years, we had several important decisions in this fi eld. The most important case was the nullifi cation of the decision issued by CADE in the industrial gas case13. This was one leading cartel case in which CADE had applied a billionaire fi ne. According to the judge, CADE based its decision on illegal pieces of evidence. In March of 2016, a Supreme Court decision overruled CADE’s a decision denying access, by a supposed injured party, to the case fi les of the refrigeration compressor cartel, especially to the contents and evidence of the leniency agreement. CADE’s decision stated the injured supplier could not access the cartel case fi les, justifying that the fi les contained confi dential trade secrets. The Superior Court reverted CADE’S decision that the confi dentiality of the leniency agreement should only subsist until the end of the antitrust investigations; it cannot be in force for an unlimited time. Finally, we mention a case that does not involve a cartel case but may be used as a reference for cartel cases. CADE settled with AMBEV in a unilateral misbehaviour due to a loyalty program adopted by that company (i.e. “Tô contigo”). AMBEV challenged the fi ne before the judicial courts and after a couple of years, it entered into an agreement with CADE. The interesting aspect of this settlement was the fact that CADE agreed to reduce the fi ne originally imposed due to a mistake in the basis of calculation used by CADE in its original decision.

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Cross-border issues CADE is part of the International Competition Network and has a cooperation agreement with several authorities around the world. In this sense, there are great exchanges of experience that promote the education of Brazilian investigators and enhance the quality of our local enforcement. Although in the past we had some coordinated actions between Brazil and other countries in cartel cases, there has been no relevant case in the last year in which CADE has acted together with other international authorities.

Reform proposals There is no relevant reform for cartel enforcement under discussion in Brazil. In fact, the legal framework is quite comprehensive. The great challenge today is to provide more institutional stability and a better career plan for the offi cials working at CADE. The turnover of experienced offi cials has signifi cantly hampered enforcement. Nonetheless, there are always some aspects that could be better regulated. There are several different kinds of administrative proceeding. The BCL provides for: preparatory proceeding; administrative proceeding; and administrative proceeding for the analysis of merger cases, among others14. If SG and CADE were to apply a stricter rule for the admission of new cases, such differentiation would not be required. There could be more clear rules for driving CADE’s obligation to specify the alleged illegal conduct of each defendant at the beginning of each new cartel case. Although this is a constitutional right of any defendant, it is quite common to have generic accusations that do not specifi cally identify the involvement of each defendant in the investigated practice. The leniency program is developing in Brazil. It is not possible to say that it is not working. On the contrary, it is becoming more and more common to have a leniency agreement to initiate a case in Brazil, even for local cartel cases. However, there seems to be a need to increase collaboration by the leniency benefi ciary. The benefi ciary could help Brazilian authorities to cover their lack of structure and resources to strengthen the case, and CADE underuses such support.

* * *

Endnotes 1. Please refer to Law No. 12.529, of November 30, 2011 (a English version is available at http://en.cade.gov.br/topics/topics/legislation/laws, last visit on December 5, 2016). 2. Please see article 36 §3 of the BCL. 3. Please see article 36, of the BCL. 4. Please see article 37 of the BCL. 5. Please see article 38 of the BCL. 6. Please see article 13 of the BCL. 7. Data updated up to December 06. 8. Please see article 85, §4, of the BCL. 9. Please see article 187 of CADE’s Internal Code (Regimento Interno).

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10. Please see Cement Case; CADE’s File No. 08012.011142/2006-79. (Please see the ﬁ les of the case at: http://www.cade.gov.br/Default.aspx?a8889b6caa60b241d345d0 69fc, last visited October 27, 2014.) 11. Please see article 47 of the BCL. 12. Please see article 38, VI of the BCL. 13. Please refer to Ordinary Action No. 004916062.2010.4.01.3400. 14. Please see article 48 of the BCL.

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Ricardo Inglez de Souza Tel: +55 11 4450 5001 / +55 11 9 7191 4085 / Email: [email protected] Ricardo Inglez de Souza is based in São Paulo. He is one of the name partners of Inglez, Werneck, Ramos, Cury e Françolin Advogados, founded in early 2015. Besides his extensive experience on local competition, international trade and compliance issues, he has also an international practice background. He worked in Argentina (Buenos Aires, working for Marval, O’Farrell & Marial) and in Switzerland (Genève, working for the Brazilian Mission at the World Trade Organization). He currently heads the Competition Law, International Trade and Compliance Practice Areas of the ﬁ rm. Brazilian and international publications recognise him as a leading professional in his ﬁ eld, and it includes a nomination as one of the GCR 40 Under 40 (2016). Although his practice focuses on Brazilian competition, international trade and compliance laws, he is also consulted by Brazilian and multinational clients in mergers and general legal advice. He is currently dealing with issues/cases related to horizontal and vertical agreements, individual or collective abuse of dominance and cartel cases in various sectors, such as chemical, energy, auto- parts, telecommunication, pharmaceutical and basic industries.

Inglez, Werneck, Ramos, Cury e Françolin Advogados Av. Engenheiro Luís Carlos Berrini, 105 e – 17th ﬂ oor – Berrini One Bldg. – 04571-010 – São Paulo/SP - Brazil Tel: +55 11 4550 5000 / Fax: +55 11 4550 5000 / URL: http://www.iwrcf.com.br

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Randall J. Hofley, Joshua A. Krane & Chris Dickinson Blake, Cassels & Graydon LLP

Overview of the law and enforcement regime relating to cartels Statutory regime Cartel conduct is a serious criminal offence in Canada, attracting both penal and fi nancial sanctions (indeed, the imposition of the highest fi nes in cases of any “corporate crime” in Canada). Canada’s cartel prohibitions are set out in sections 45 to 47 of the Competition Act (the “Act”),1 which is a federal law of general application that applies to all conduct which either occurred in, or has effects in, Canada.2 Section 45 criminalises agreements between competitors or potential competitors to fi x or control prices or output, or to allocate sales, territories, customers or markets for the supply of any good or service. Prior to amendments which entered into force in March 2010, it was an indictable criminal offence to conspire or otherwise agree with another person (not just a competitor) to prevent or lessen competition “unduly” with respect to a good or service in Canada. Today, section 45 is a per se offence, such that proof of an undue lessening of competition (or anti-competitive effects) is not required to establish culpability. Given the amended provision’s reference to supply, the Canadian Competition Bureau (the “Bureau”) has indicated in guidelines that section 45 does not apply to agreements which relate only to the purchase of products, i.e., joint purchasing agreements.3 Section 46 of the Act makes it a criminal offence for any corporation, wherever incorporated, which carries on business in Canada, to implement a “directive, instruction, intimation of policy or other communication” from a person outside of Canada, in order to give effect to a “conspiracy, combination, agreement or arrangement” that would have contravened section 45 had it occurred in Canada. The communication must come from a person who is “in a position to direct or infl uence the policies of the corporation”. Section 47 of the Act makes it an offence for two or more parties, in response to a request for bids, to: (i) agree to submit pre-arranged bids; or (ii) agree that one or more of the parties will not submit a bid or withdraw a bid. As with the conspiracy provision, bid rigging is per se a criminal offence. The Commissioner of Competition (the “Commissioner”) and his department, the Bureau, are responsible for investigating alleged violations of the Act, including with respect to the cartel provisions. If they determine that a violation has occurred, they will refer the matter to the Public Prosecution Service of Canada (the “PPSC”) for prosecution. The conspiracy and bid rigging provisions apply both to fi rms and individuals, though the foreign directives provision applies to corporations only. Since cartel cases are prosecuted criminally, Canadian constitutional protections afforded to fi rms and individuals being

GLI - Cartels 2017, Fifth Edition 40 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Blake, Cassels & Graydon LLP Canada investigated for, or accused of, a crime will apply (e.g., the presumption of innocence, the protection against self-incrimination, the right to counsel, etc.).4 While cases may be prosecuted in either the provincial superior courts or the Federal Court Trial Division, contested cartel cases in Canada are uncommon and more typically, prosecutions are resolved by way of a plea agreement submitted to a provincial court.5 In the case of international cartels, a company typically will enter into a plea agreement in Canada once it has pled guilty to conspiracy in the US, or sometimes elsewhere. While there is no limitation period for the prosecution of cartel conduct in Canada, the Bureau can exercise its discretion to discontinue an investigation and not refer past conduct to the PPSC.6 The Bureau has published several guidelines in respect of its enforcement approach to the cartel provisions of the Act. In May 2009, the Bureau published its Competitor Collaboration Guidelines which describe the Bureau’s approach in applying the cartel and competitor collaboration provisions of the Act, and outline the competition issues that may arise from collaborations.7 The Bureau has also published bulletins regarding its Immunity and Leniency Programs, which it updates frequently to refl ect the Bureau’s current approach to the administration of these programmes. The most recent bulletins for the Immunity and Leniency Programs were released in June 2010 and September 2010 respectively, with the addition of a new set of Frequently Asked Questions in September 2013.8 In June 2015, the Bureau published an updated Corporate Compliance Programs bulletin, setting out the Bureau’s view of the essential components of a credible and effective program and appending a model compliance program framework for companies to use, a certifi cation letter for employees, and a due diligence checklist.9 The Bureau also released a fi nal version of its Competition and Compliance Framework bulletin in November 2015, which explains the outreach, enforcement and advocacy instruments the Bureau utilises to promote compliance with the Act.10 Penalties The penalties for a violation of the cartel provisions are severe. A violation of section 45 or section 47 carries a possible term of imprisonment of 14 years. Maximum fi nes for conspiracy are now Can$25m per count (and a person may be charged with multiple counts), and there is no maximum fi ne for bid rigging or the implementation of a foreign directive. A plea agreement may contemplate sanctions other than those prescribed by the Act, including the disqualifi cation of individuals from holding certain offi ces within a company. The fundamental principle of sentencing in Canada is that a sentence must be proportional to the gravity of the offence and the degree of responsibility of the offender. The general principles of sentencing law in Canada require that judges consider sentences imposed on similar offenders in similar circumstances; however, there are no formal sentencing guidelines or rules. It is standard practice in Canada for the PPSC to make formal submissions on sentencing to the court considering the plea agreement, if one exists.11 The magnitude of the economic harm caused by a cartel goes to the gravity of the offence. The usual notion of “economic harm” from a cartel is the “overcharge”. This is the amount paid by victims of the cartel over-and-above what they would have paid for the products in the absence of the conspiracy. The Bureau will normally recommend that the fi ne be greater than the overcharge to ensure that the fi ne is not “simply a cost of doing business” and to ensure that an appropriate level of punishment and deterrence is achieved.

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In most cases it is diffi cult to quantify the overcharge resulting from cartel behaviour. In such cases, the Bureau typically will use 20% of the volume of commerce affected in Canada (e.g., the value of the conspirator’s sales of the products in Canada over the relevant time period) by the cartel participant as a proxy for the economic harm and as the starting point for its sentencing assessment (provided it is not above the maximum allowable fi ne); this is said to be made up of 10% for the assumed overcharge and 10% for deterrence. In a conspiracy matter involving multiple counts, the resulting fi nes may exceed the statutory maximum for one count. In dealing with multiple counts, the Bureau will consider the totality of the conduct and surrounding circumstances to arrive at the appropriate sentencing recommendation. In reasons delivered in R v. Maxzone Auto Parts (Canada) Corp,12 Crampton C.J. emphasised in obiter the need for a full evidentiary record and detailed submissions for the court to become satisfi ed that a sentence arrived at by plea agreement is in the public interest and would not bring the administration of justice into dispute.13 In this regard, the submission should set out the aggravating, mitigating and other sentencing considerations, some of which are not always submitted as a matter of course, including the amount of illegal profi ts attributable to the conduct, the “deadweight loss” attributable to the conduct, and whether the corporate defendant has paid restitution. Additional requirements may need to be met with respect to individual defendants. The Commissioner has stated publicly that despite the greater detail required in sentencing submissions, companies have continued to come forward seeking leniency, and the Bureau and cooperating parties have managed to work with the framework set out by Crampton C.J. Indeed, since the release of the decision, there does not appear to have been a signifi cant change in the number or type of cases resolved by plea in Canada. In addition to criminal penalties, plaintiffs in third-party civil actions can recover damages, as well as investigation costs and costs to bring the proceeding. Moreover, provincial asset forfeiture statutes allow for the confi scation by the Crown of proceeds of crime as well as offence-related property.14 There are business implications to convictions, as well. For example, bidders for federal government contracts must comply with the requirements set down by Public Works and Government Services Canada (“PWGSC”), the department which provides procurement services to the Canadian Federal Government.15 These requirements prohibit any bidder from bidding on a contract where it has (or its affi liates have) been convicted of certain offences, including criminal offences under the Act (such as conspiracy and bid rigging) and even equivalent foreign offences. These requirements are part of the Government of Canada’s Integrity Regime, which was updated in April 2016 in an effort to provide more clarity with respect to how it is administered (described in more detail below).16 Administrative settlement Convictions in the context of cartels have to date been obtained almost exclusively through the plea bargaining process. In addition to, or in lieu of, a plea agreement (or conviction) for criminal conduct, section 34(2) of the Act provides a mechanism whereby a person can consent to a prohibition order. The order may appear very similar to a plea agreement (e.g., include conditions for the payment of a monetary penalty, a prohibition on individuals holding certain offi ces, etc.), but will not result in a criminal conviction or criminal record. The Bureau typically will not seek prohibition orders in lieu of plea agreements.

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Alternative track Parliament amended the Act in 2010 to include a new civil or administrative provision at section 90.1, which permits the Commissioner to commence proceedings before a specialised competition court, the Competition Tribunal (the “Tribunal”) in respect of an agreement or arrangement between persons (two or more of whom are competitors or potential competitors). Responsibility for enforcing section 90.1 lies exclusively with the Commissioner, and a decision to commence proceedings under section 90.1 bars the PPSC from prosecuting the conduct criminally.17 The Tribunal may prohibit the parties from implementing or continuing to implement an agreement between them that prevents or lessens, or is likely to prevent or lessen, competition substantially in a market. The Tribunal may not, however, impose other penalties (e.g., ﬁ nes or imprisonment) and no private right of action for damages exists (strictly speaking) with respect to conduct governed by section 90.1.18

Cartel investigations Fact-gathering tools Cartel conduct typically will come to the Bureau’s attention in one of two ways. Most commonly, a person or fi rm will approach the Bureau under the Immunity Program (described below) and seek immunity in respect of cartel conduct. Sometimes companies that are affected by a cartel will complain to the Bureau about cartel conduct involving their suppliers or customers. If the Bureau fi nds the complaint to be credible, it can investigate the complaint using its many information-gathering powers. Where cartel investigations in other foreign jurisdictions become public, the Bureau is increasingly pursuing investigations of its own accord. The Commissioner also has extensive powers to obtain information through search warrants, orders for the production of data, and records and wiretaps. Search warrants may be obtained by means of an ex parte application pursuant to section 15 of the Act. Under this section, the court must be satisfi ed that there are reasonable grounds to believe a criminal offence has been committed and that relevant evidence is located on the premises to be searched. It is a criminal offence to prevent access to premises (in Canada) or otherwise obstruct the execution of a search warrant. The Act also provides special procedures for sealing privileged documents and for determining the validity of privilege claims within a certain time frame. Warrants are not subject to appeal, but can be reviewed where there has been material non- disclosure or misrepresentation in the affi davit supporting the Commissioner’s ex parte application. Targets may also request a retention or privilege hearing. The Bureau also has the power to investigate cartel behaviour through wiretaps, although it requires prior judicial authorisation in order to do so. The Bureau also may apply to the courts for production orders or orders for oral examination under section 11 of the Act. The Bureau may only use section 11 while in the initial fact- gathering stage. If the Bureau has a reasonable belief that a crime has been committed, it must obtain a search warrant instead. Section 11(2) of the Act also provides that the Bureau may seek (on an ex parte basis), and the courts may issue, a production order in respect of a foreign affi liate of a Canadian corporation when: (i) the Bureau has sought a similar order in respect of the domestic subsidiary; and (ii) the Bureau can establish that the foreign affi liate has records that are relevant to an inquiry.

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In Canada (Commissioner of Competition) v. Pearson Canada Inc.19 and Canada (Commissioner of Competition) v. Indigo Books & Music Inc.,20 Crampton C.J. provided guidance on the Bureau’s burden in obtaining production orders and respondents’ ability to challenge such orders, notably rejecting challenges based on discovery being available in other ongoing proceedings or the existence of other persons who might have relevant information or records. In 2015, Crampton C. J. provided further guidance regarding the relevant time period for and what constitutes an excessive, disproportionate or unnecessary burden on respondents in relation to a production order in Canada (Commissioner of Competition) v. Bell Mobility Inc.21. Crampton C.J. explained that the Commissioner’s information requirements should be tailored to the individual investigation and where a “reasonable efforts” standard is feasible (i.e., where a “reliable, representative amount” of information, as opposed to an order to produce all information over a lengthy time period, would be suffi cient to prove the Commissioner’s case), it should be negotiated by the parties and applied.22 Section 29 of the Act also protects the identity of informants and requires that the Bureau hold confi dential any information provided by informants under the search and seizure powers of the Act. In international cartel cases, the Bureau will work closely with other competition agencies either through formal procedures, involving the application of mutual legal assistance treaties (“MLATs”), or through reliance on Canada’s competition cooperation agreements to obtain information. Currently, Canada has MLATs or competition cooperation agreements with most major jurisdictions including the US, the EU, Japan, Australia, Brazil and others. Immunity and Leniency Program Canada’s Immunity and Leniency Program is of integral importance to cartel enforcement. Although no statistics are available publicly, it can be safely assumed that the Immunity and Leniency Program assists the Bureau in the vast majority of its investigations. In Canada, the Bureau will assign an “immunity marker” to an individual or a company that is “fi rst-in”, or fi rst to request immunity, often called the “immunity applicant”. Where a party does not qualify for immunity (i.e., the party is not “fi rst-in”) but the party cooperates with the Bureau, often called the “leniency applicant”, the Bureau typically recommends that the prosecution grant some form of leniency, in the form of a reduced fi nancial penalty and/ or deferral of prosecution of any individual related to the leniency applicant. To obtain immunity or leniency, the requesting party must provide evidence of an offence of which the Bureau is currently unaware, or of which the Bureau is aware but on which the Bureau has not yet obtained enough proof to mandate a criminal referral to the prosecution (a “proffer”). The party also must terminate its participation in the illegal activity and must not have coerced others to be a party to the illegal activity. The party must commit to full cooperation throughout the entirety of the Bureau’s investigation and the PPSC’s prosecution of the case vis-à-vis any other party. Once a party has received a marker (on a “no-names” basis by indicating the relevant product) and has indicated to the Senior Deputy Commissioner of Competition of Criminal Matters (“SDC”) that it wishes to participate in the Immunity and Leniency Program, the SDC will confi rm the continuation of the marker, usually for a period of 30 days, in order for the applicant to provide a proffer. If the proffer is not provided on a timely basis, the marker may be lost. Participation in the Immunity and Leniency Programs is voluntary, confi dential, and on a (as against the participant) “without prejudice” settlement privileged basis. Applicants should be aware, however, that in 2015, the Ontario Superior Court in R. v. Nestlé held that “factual information” disclosed (as opposed to legal arguments or procedural submissions

GLI - Cartels 2017, Fifth Edition 44 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Blake, Cassels & Graydon LLP Canada made) by a participant in the Immunity and Leniency Program is not settlement-privileged and, even if it were settlement-privileged, an exception must be allowed to accommodate the Crown’s duty to disclose relevant evidence to a defendant in a criminal proceeding.23 Immunity is granted only to the fi rst participant involved – including its employees, offi cers and directors – in a conspiracy to come forward. After that, the fi rst leniency applicant in Canada generally is eligible for up to a 50% reduction in the fi ne that would otherwise have been recommended by the Bureau to the prosecution, and individuals related to the applicant are not generally subject to prosecution. Subsequent leniency applicants are eligible for a reduction of up to 30%, but later applicants will not be eligible for a greater leniency discount than prior applicants. In addition, the length of the offence period is typically a matter of negotiation with the authorities where the party co-operates with the investigation; the period determined to be relevant, for example, in US proceedings, can have a bearing on the period used in Canada. In addition, the Bureau may consider (and recommend that the courts consider) the pre-existence of a “credible and effective” compliance program as a mitigating factor when assessing a fi ne against a fi rm charged with a cartel offence. Immunity Plus is available should a company provide the Bureau with probative evidence of a second conspiracy or other criminal conduct unrelated to the Bureau’s current investigation, or in respect of products not presently being examined by the Bureau under its current investigation. Immunity Plus status provides immunity with regard to the “additional” conspiracy or criminal conduct, as well as an additional discount (generally in the range of 5% to 10%) for the initial criminal conduct (although this amount may increase depending on the extent of the party’s cooperation). The Bureau typically will not share the identity of an immunity or leniency applicant, or the information provided by the applicant with a foreign law enforcement agency, unless the applicant provides a waiver giving the Bureau consent to do so (or it is required by law to do so). As part of an applicant’s ongoing cooperation, under either the Immunity or Leniency Program, the Bureau expects the applicant to provide waivers allowing communication of information with jurisdictions to which the applicant has made similar applications for immunity or leniency. The request for a waiver, however, is typically limited to the jurisdictions which are most relevant to the case and Canada. At times, the Bureau may be willing to accept a limited waiver (e.g., allowing the agencies to discuss only certain information), if legitimate reasons for doing so are provided. Eventually, however, the applicant may be required to provide a full waiver allowing for the sharing of any information the Bureau obtains in the course of co-operation, including documents. As a matter of practice, there tends to be minimal document exchange (the agencies have often received production of the same documents) and moderate oral exchanges between the agencies. Strict confi dentiality as to the identity of informants limits exposure to civil actions for immunity and leniency applicants. However, once guilty pleas are entered, leniency applicants are readily exposed to third-party actions for damages. The information provided by immunity and leniency applicants is subject to strict confi dentiality agreements with the Bureau. Third parties seeking damages cannot require, without a court order which the Bureau will resist, the Bureau to disclose information obtained from leniency and immunity applicants in their investigations, and thus their exposure to damage actions is limited to the material made publicly available.24 Potential immunity and leniency applicants should be aware that plaintiffs in private actions may rely on the SCC’s decision in Imperial Oil v. Jacques (discussed below) to obtain access to certain Bureau fi les and information obtained during a criminal investigation.

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The Commissioner has indicated that a review of the Immunity and Leniency Program is under way within the Bureau, and that consultations on any proposed changes will form part of the review process; there is no timetable for the duration of the review, as yet. Duration of investigations The duration of time from the receipt of an immunity marker to the end of the immunity applicant’s cooperation obligations, is highly case-speciﬁ c. Indeed, the timing has ranged anywhere from 1 to 10 years following the initiation of an investigation through, for example, a dawn raid(s).25 This timing will depend on a number of factors including: the number of participants in the cartel; the duration of the conduct; the affected volume of commerce; the extent to which that commerce directly or indirectly affects Canadian consumers; the jurisdiction where the conduct occurred; the location of the principal witnesses and evidence; and the timing considerations of other enforcement agencies (principally, the US Department of Justice).

Overview of cartel enforcement activity during 2016 Cartel enforcement activity can be measured in terms of new charges laid, convictions obtained, and the number of investigations under way. Pleas and fi nes obtained were higher in 2016 than 2015. The PPSC obtained guilty pleas and fi nes against two individuals and fi ve companies (compared to one individual and four companies in 2015) in fi ve bid rigging matters relating to: sewer services contracts;26 private sector ventilation contracts;27 electronic power steering gears in automobiles;28 information technology services to Library and Archives Canada;29 and an infrastructure repair project in Québec.30 The guilty pleas resulted in fi nes that ranged from $10,000 for the individual in the ventilation contract matter to $13m for Showa Corporation for bid rigging involving the supply of electronic power steering gears to Honda. On the international front, close collaboration between the Competition Bureau and the Antitrust Division of the United States Department of Justice resulted in Nishikawa Rubber Co., Ltd. pleading guilty and paying a fi ne of US$130m for its participation in an international bid rigging conspiracy, related to the supply of body sealing products for automobiles, that affected Canada and the United States.31 Importantly, the Bureau did not obtain any fi ne in Canada for the conduct in issue. In 2016, the Bureau also advanced its inter-agency cooperation agenda, signing Memorandums of Understanding that facilitate coordination of investigation and enforcement and promote resource and information sharing with fi ve other enforcement agencies foreign and domestic, including the Inspector General of Montreal, the National Development and Reform Commission of the People’s Republic of China, the Competition Commission of the Hong Kong Special Administrative Region of the People’s Republic of China, the New Zealand Commerce Commission, and Transport Canada’s Policy Group.32

Private enforcement of cartel laws The primary cause of action for the private enforcement of cartel laws is found under section 36 of the Act, which confers a private right of action on any person (in Canada)33 that has suffered a loss or damage as a result of a breach of one of the criminal provisions of the Act. In addition to damages suffered, plaintiffs can sue to recover investigation costs and costs to bring the proceeding, but unlike the US, a plaintiff is not entitled to treble damages.

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Proceedings may be commenced in the provincial courts or the Federal Court and typically arise by way of class action. Limitation periods apply but case law is not settled on whether the discoverability principle applies to toll the period until concealed conduct is discovered.34 The lack of a conviction or even the refusal of the Commissioner to investigate a potential violation of the cartel provisions does not bar a third-party action. That being said, a prior conviction for the offence is (absent evidence to the contrary) proof of liability. As a consequence, once a person or ﬁ rm admits to cartel conduct as part of the Bureau’s Immunity and Leniency Program, with such conviction, prima facie proof is made of the violation of the law. In practice, where an investigation becomes public or a conviction is announced all potential participants, including an immunity applicant, become the subject of a class action in one (and normally more) provincial court in Canada.

Key issues in Canadian cartel policy Limits placed on use of documentary evidence by Ontario court In R v. Durward, the Ontario Superior Court of Justice struck down the use of subsection 69(2) of the Act in criminal proceedings.35 This provision created, among other things, an evidentiary presumption that a record found in the possession of an accused or on premises used or occupied by an accused, could be admitted into evidence without further proof and was prima facie proof that the accused had knowledge of the record and its contents, and that anything recorded in the record as having been done, said or agreed on by any accused, did in fact occur. (This provision went beyond the common law and statutory rules governing the admissibility of business records.) Charges had been laid against the accused as a result of an investigation by the Bureau that focused on emails and other documents extracted from computers seized from business premises occupied by the applicants.36 Two of the accused challenged the constitutional validity of the provision on the basis that in a criminal proceeding it could result in a person or corporation being convicted of a criminal offence despite the existence of reasonable doubt. The court ultimately ruled that the provision violated the Canadian Charter of Rights and Freedoms (“Charter”)37 and was of no force or effect in criminal cases. It found that knowledge is an essential element of the offence of conspiracy, so requiring the court to accept as proven that an accused had knowledge of certain documents and information breached the presumption of innocence guaranteed by section 11(d) of the Charter. Additionally, the court found that in the context of a criminal proceeding, where a person faces the potential loss of liberty, allowing the Crown to use a procedural shortcut would force the accused to respond, potentially before the Crown had actually proven guilt beyond a reasonable doubt, which was a violation of section 7 of the Charter. Indirect purchaser actions In October 2013, the Supreme Court of Canada (“SCC”) issued its most anticipated decisions regarding competition law related private actions, allowing indirect purchasers to bring civil cases against upstream suppliers. In a trilogy of cases, Pro-Sys Consultants Ltd v. Microsoft Corporation, Sun-Rype Products Ltd v. Archer Daniels Midland Company and Inﬁ neon Technologies AG v. Option consommateurs, the SCC held that indirect purchasers are not foreclosed from claiming losses passed on to them, and that the risk of double or multiple recoveries in actions brought by both direct and indirect purchasers could be managed by the courts.38 However, the SCC noted that in bringing their actions, the indirect purchasers assume the burden of establishing that they have suffered loss.

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Whether they have met their burden of proof is a factual question to be decided on a case- by-case basis. The SCC rejected the “robust and rigorous” standard used in the US to establish a common claim of loss at the certifi cation stage and affi rmed that the plaintiffs, in British Columbia and Ontario, need only advance a “suffi ciently credible” methodology to do so. Although plaintiffs can point to multivariate regression as an accepted methodology to establish overcharge, establishing a methodology for pass-through will prove more diffi cult. In addition, the SCC required that the plaintiffs demonstrate the availability of underlying data to support the methodologies advanced by the certifi cation expert. Such data may not always be in the defendants’ possession (and could very well be in the possession of foreign persons/companies), particularly if the defendants are located several levels up the distribution chain. Since the SCC decisions, courts have certifi ed class actions in cases involving contested issues, signifi cantly complicating the determination of commonality of injury, such as network effects and differences in bargaining power.39 In 2016, courts in both British Columbia and Ontario considered whether the ability to bring civil cases against upstream suppliers under the Act extended to so called “umbrella purchasers”, i.e. individuals who did not buy products directly from the defendants but nonetheless claim damages based on the fact that the alleged conspiracy drove market prices up, including the prices they paid to non-conspirators. The British Columbia Supreme Court held that it is not plain and obvious that umbrella purchasers do not have a cause of action under the Act and certifi ed a class action including all purchasers, with non-umbrella purchasers as a sub-class.40 In August, the Ontario Divisional Court granted leave to appeal the decision of a motions judge to deny certifi cation of an umbrella purchaser claim on the basis that it confl icted with the decision in the companion action in British Columbia.41 Recently, in the decision Ewart v. Nippon Yusen Kabushiki Kaisha, the Supreme Court of British Columbia dismissed an application by foreign defendants challenging the territorial competence of the Court to hear a class action brought against them.42 The defendants argued that since they did not ship any new vehicles to, or have a business presence in, British Columbia, a real and substantial connection had not been established. The Court disagreed, holding that it had jurisdiction over the matter and the foreign defendants on the basis that an agreement to divide up international markets results in harm to all affected markets, and a party is no less liable for damages in a jurisdiction simply because it is not one of the markets allocated to it in the agreement.43 Limitations on civil liability The Act imposes a limitation period for civil actions. It begins from the later of two years from the day on which the conduct was engaged in, or the day on which any criminal proceedings relating thereto were fi nally disposed of, and runs for two years. The way the limitation period is defi ned produces uncertainty since it is possible for a defendant to be faced with a civil lawsuit more than two years after the infringing conduct has ceased. In practice, however, private antitrust class actions are increasingly commenced at the early stages of related criminal proceedings, thereby reducing some of the uncertainty for defendants. Another point of ambiguity in establishing limitation periods for civil actions under the Act is the concept of “continuing practices”. Garford Pty Ltd v. Dywidag raised the question of what behaviour constitutes a continuing offence under the Act.44 The Federal Court held that in order for an offence to be “continuing”, such that the limitation period had not yet

GLI - Cartels 2017, Fifth Edition 48 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Blake, Cassels & Graydon LLP Canada commenced, on-going acts in contravention of the statute would be required. A continued lessening of competition due to acts that are no longer occurring would not be suffi cient to extend the limitation period.45 Most Canadian statutory limitation periods include a “discoverability” provision whereby the limitation period begins to run from the time that the behaviour was discovered by the plaintiff. The Canadian courts have provided confl icting jurisprudence on the applicability of the discoverability principle to the Act. Notably in Garford, the Federal Court held that discoverability does not apply to actions brought under the Act. Given that section 36(4) of the Act is expressed as running from a particular date (the date of the impugned conduct or of the disposition of criminal proceedings), the Court concluded that the limitation period commences on that date, regardless of the plaintiff’s knowledge of a potential claim.46 The SCC’s reasons in the indirect purchaser trilogy also seemed to support the view that the limitation period is strict, as it noted, in obiter, that the short, two-year limitation period makes the quantifi cation of cartel damages a manageable exercise. In 2016, the Ontario Court of Appeal in Fanshawe College of Applied Arts and Technology v. AU Optronics Corporation released a judgment that confl icts with the “strict” limitation period view. In the process of affi rming a Superior Court judgment that explicitly rejected the view in Garford, the Court ruled that the discoverability principle applies to sub-paragraph 36(4) (a)(i) of the Act due to the fact that it expressly links the limitation period to conduct that gives rise to any damage or loss.47 After noting that sub-section 36(4)(a)(ii) provides an alternative event for the limitation period that is arguably not connected to the plaintiff’s cause of action or knowledge, the Court acknowledged that it was probably not subject to discoverability, but that this was not necessarily a problem as there is no rule that suggests both limitation periods must operate in the same way.48 The uncertainty resulting from these confl icting judgments may ultimately be resolved by the SCC, as an application for leave to appeal was fi led on 2 November 2016. Information fl ow Controlling the fl ow of information to and from the Bureau can have important implications for fi rms that are involved in a cartel investigation. First, where a foreign-incorporated fi rm has a branch offi ce in Canada, the Bureau may invoke its authority (currently being challenged) under section 11(2) of the Act to issue Production Orders to the Canadian branch offi ce for records or information, even if those records are in the possession or control of the foreign parent. In addition to the penalties for non-compliance (discussed above), the issuance of a Production Order under section 11(2) is a matter of public record and the accompanying affi davit from the Bureau will set out, typically in great detail, the alleged criminal conduct being investigated and the involvement of the fi rm being investigated. These affi davits have formed a roadmap for class counsel, even if a conviction has yet to be secured from the fi rm. Second, the proffer process in Canada is conducted orally to ensure that the discussions remain subject to privilege. Although this adds extra time and cost to settle an investigation with the authorities, it minimises the scope of productions in an eventual class proceeding, although immunity and leniency applicants are required, upon request, to produce all documents potentially relevant to the matter. The Bureau’s current position is to refuse production requests by plaintiffs’ counsel in the absence of a court order, although those counsel continue to push for access to the materials and information provided to the Bureau as part of the Immunity and Leniency Program, particularly in the form of the Bureau notes and work product.

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Finally, Bureau investigations are conducted in private, are subject to the confi dentiality protections afforded by the Act, and are treated as highly confi dential by the Bureau. In addition to raising claims of settlement and work-product privilege, the Bureau and immunity and leniency applicants rely on section 29 of the Act to maintain confi dentiality of any information voluntarily disclosed during proffers. That being said, following the Nestlé ruling (discussed above), immunity and leniency applicants must be cognisant of the fact that the Bureau may ultimately disclose the information they produce to the accused, notwithstanding the confi dentiality assurances that were given when the information was originally provided.49 In the decision Imperial Oil v. Jacques,50 the SCC allowed the disclosure of records of private communications intercepted by the Bureau in the course of a criminal investigation into allegations of a conspiracy affecting gasoline pump prices in Québec. In the course of its investigation, the Bureau obtained judicial authorisations from the court in Québec under the Criminal Code (not the Act) that enabled it to intercept and record more than 220,000 private wiretapped communications. Ultimately, a series of charges were laid against various entities. Plaintiffs commenced a class action in the Québec Superior Court alleging that the defendants had, among other things, engaged in anti-competitive practices and sought the disclosure of the recordings that had already been disclosed to the accused in the criminal proceedings. The SCC found that the specifi c circumstances of this particular case favoured the disclosure of the wiretap evidence. It referenced the Québec Code of Civil Procedure rule, which expressly allows records within the possession of a third party to be produced, but noted that whether records should be produced often involves a number of considerations, such as a determination of relevancy together with the consideration of confi dentiality rights, privacy rights and the effi ciency of the judicial process as against facilitating the search for truth. The court noted that (at least implicitly) before third-party records are produced, the court should engage in an analysis to ensure there are no factual or legal impediments that should militate against disclosure of the records requested and that courts always have the ability, responsibility and control to impose such measures and conditions on any disclosure as may be appropriate in the circumstances. It should be noted that while section 29 of the Act prevents the Bureau from disclosing, among other things, information provided to the Bureau on a voluntary basis to third parties except “for the purposes of the administration and enforcement” of the Act, the wiretap evidence in this case was collected under the Criminal Code rather than the Act. Hence, section 29 was held not to apply. This decision should therefore not affect the Bureau’s ability to resist third-party discovery efforts of information it obtains under its Immunity and Leniency Programs.

Legislative and policy changes No amendments to the Act were promulgated in 2016. Six years on, the amendments to section 45 (making it a per se offence) which came into effect in March 2010 do not appear to have substantially altered the Bureau’s or PPSC’s practices or success in enforcing the criminal provisions of the Act, rather than simply aligning the criminal provisions of the Act with those in place in the U.S. The amendments are likely to have the most effect in the context of private class actions, as plaintiffs will no longer need to show any harm to the market for conduct that occurred after 12 March 2010, but on the other hand may only plead section 45 (horizontal) conspiracies between or among competitors (as opposed to competitors and suppliers).51

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With regard to criminal defendants, the most recent legislation of note remains the Safe Streets and Communities Act, which entered into force on 30 November 2012, and amended the Criminal Code to remove judges’ discretion to sentence a defendant to community supervision (also called a conditional sentence, equivalent to probation or house arrest), as opposed to prison time for indictable offences with a maximum prison term of 14 years or life, such as exist for sections 45 (cartels) and 47 (bid rigging) of the Act.52 To date, individuals convicted under these provisions have only received conditional sentences (if any jail time was imposed at all). Should this law survive constitutional scrutiny, any Canadian court that imposes jail time (as opposed to a fi ne alone) under sections 45 or 47 of the Act may have to require that the defendant serve the sentence in a correctional facility, although there would appear to be tools available to sanction individuals without requiring incarceration. The Bureau released its updated Intellectual Property Enforcement Guidelines (“IPEGs”) in March, 2016, the fi rst substantive revision since 2000.53 As relevant to section 45, the IPEGs advise that in the context of patent litigation settlements, the Bureau will not subject a patent litigation settlement to criminal or civil investigation if it is an “entry-split” agreement where a generic pharmaceutical agrees to delay entry to a date prior to the brand patent’s expiration and no “consideration” from the brand-name company is provided to the generic substitute. If consideration is provided, then the agreement will be scrutinised under the civil provisions. The Bureau will only investigate an agreement as a potential criminal conspiracy under section 45 where a settlement involves delayed entry beyond the patent expiration date, restricts competition for products unrelated to the patent subject to the Patented Medicines (Notice of Compliance)54 proceedings, or where there is direct evidence of per se illegal conduct (e.g., delay when both parties know the patent is invalid and are in essence engaging in market allocation, with the generic receiving a share of monopoly profi ts for non-entry).55 In April 2016, PWGSC updated the Ineligibility and Suspension Policy (“ISP”) and the Integrity Provisions that make up the government-wide Integrity Regime.56 Major changes include: • requiring that suppliers provide a complete list of all foreign criminal charges and convictions that may be similar to the Canadian offences listed in the ISP pertaining to itself, its affi liates and its proposed fi rst tier subcontractors; • expanding the list of required certifi cations that suppliers must provide when submitting a bid to include a number of additional statements related to the Integrity Regime; • introducing an automatic 10-year ineligibility period for any supplier that has provided a false or misleading certifi cation or declaration; • introducing new anti-avoidance provisions to prevent entities from circumventing the regime through corporate reorganisations, including expanding the scope of “affi liate” to capture amalgamations and mergers; • reducing the period that will be considered to determine whether a supplier’s affi liate has been convicted of certain prohibited offences, such as fraud against the government, to three years from indefi nitely; • introducing a continuing disclosure obligation to inform the Registrar of Ineligibility and Suspension within 10 days of any charge, conviction or other circumstance relevant to the policy with respect to the company, its affi liates and its fi rst tier subcontractors; and • providing clarifi cation or greater details regarding a number of issues, including the types of contracts that are exempt from the ISP, the process used to make a

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determination of ineligibility or suspension, and supplier obligations regarding their ﬁ rst tier subcontractors. While these amendments are intended to provide more clarity, they do little to change some of the more substantive provisions, which are quite punitive. In addition, some of the changes, such as those regarding providing information on foreign convictions, may introduce additional administrative burdens for suppliers who are submitting bids to tender with the federal government.

* * *

Endnotes 1. Competition Act, RSC 1985, c C-34, as amended. 2. Fairhurst v. Anglo American PLC, 2011 BCSC 705. The British Columbia Supreme Court has reiterated that foreign defendants are subject to the jurisdiction of Canadian courts for cartel conduct where harm is sustained in Canada. The Court found that its jurisdiction extended to a group of foreign defendants in a proposed class action, claiming that the defendants conspired to increase the price of diamonds. It was suffi cient that harm was suffered in B.C. and that the defendants knew or should have known the diamonds would be shipped to B.C. in the ordinary course of distribution. See also Libman v. The Queen, [1985] 2 SCR 178. The Supreme Court held that in order for an offence to be subject to the jurisdiction of Canadian courts, it is suffi cient that there exist a “real and substantial link” between the offence and Canada. 3. Competition Bureau, “Competitor Collaboration Guidelines” (8 May 2009) at 11, online: http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03177.html. A purchase side agreement could give rise to a section 45 offence if, for example, the parties enter into the agreement as a sham to control the production of a downstream product. 4. For example, prosecutors cannot use admissions made in the context of settlement discussions in future prosecutions against the fi rm or individuals making the admission. 5. For all convictions obtained under the Act, there is an automatic right of appeal to a provincial court of appeal or to the Federal Court of Appeal, depending on which court tried the indictment. The decision of any court of appeal generally may be brought, by leave, to the Supreme Court of Canada (although there is an automatic right of appeal when there is a dissenting opinion on the Court of Appeal). Given that convictions for cartel offences in Canada are obtained most often through the plea bargaining process, appeal courts do not generally hear cases concerning matters of cartel enforcement. 6. Competition Bureau, “Remarks by Melanie L. Aitken, Commissioner of Competition − Canadian Bar Association Competition Law Section 2012 Competition Law Spring Forum: Best Practices in a Time of Active Enforcement, Toronto, Ontario (2 May 2012), online: http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03474.html. 7. Competitor Collaboration Guidelines, supra note 3. 8. Competition Bureau, “Immunity Program under the Competition Act” (7 June 2010), online: http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03248.html; Competition Bureau, “Leniency Program Bulletin” (29 September 2010), online: http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03288.html. Competition Bureau, “Competition Bureau Publishes Revised Immunity and Leniency FAQs”

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(25 September 2013), online: http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/ eng/03609.html. 9. Competition Bureau, “Corporate Compliance Programs – Bulletin” (3 June 2015), online: http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03942.html. 10. Competition Bureau, “Competition and Compliance Framework – Bulletin” (10 November 2015), online: http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/ eng/03999.html. 11. See discussion in R v. Maxzone Auto Parts (Canada) Corp, 2012 FC 1117, [2012] FCJ No 1206 [Maxzone]. 12. Maxzone, supra note 11. 13. Maxzone, supra note 11, at para. 4. 14. See, e.g., Civil Remedies Act, 2001, SO 2001, c 28. 15. PWGSC, “Government of Canada’s Integrity Regime”, online: http://www.tpsgc- pwgsc.gc.ca/ci-if/ci-if-eng.html. In Québec since 2013, the Integrity in Public Contracts Act has required bidders for government contracts to obtain authorisation from the Autorité des marchés fi nanciers (“AMF”) before entering into provincial government contracts. The AMF can withhold authorisation for entities found guilty of certain offences (including Competition Act offences) in the past fi ve years. The AMF’s decisions are reviewable by courts and must meet the minimum requirements of procedural fairness, including disclosing the information on which it bases its decisions to allow an applicant to make a defence. See Terra Location inc. c. Autorité des marchés fi nanciers, 2015 QCCS 509. 16. The specifi cs of these requirements and the 2016 amendments are discussed in more detail below. Similar “debarment” regimes also exist in certain Canadian provinces with respect to procurement by provincial governments. 17. Competition Act, supra note 1, s. 45.1. 18. Private parties could try to frame a section 90.1 matter as a conspiracy and seek damages on that basis. 19. Canada (Commissioner of Competition) v. Pearson Canada Inc, 2014 FC 376, 119 CPR (4th) 313. 20. Canada (Commissioner of Competition) v. Indigo Books & Music Inc., 2015 FC 256. 21. Canada (Commissioner of Competition) v. Bell Mobility Inc., 2015 FC 990 22. Note that the decision was issued in the context of the Bureau’s investigations into reviewable (non-criminal) practices in potential violation of the Act – though the principles articulated may apply for criminal investigations as well since sections 10 and 11 of the Act make no distinction between civil and criminal investigation in terms of enforcement or review standards for production orders. 23. R. v. Nestlé Canada Inc., 2015 ONSC 810 at paras. 69, 83 [Nestlé]. 24. Middlekamp v. Fraser Valley Real Estate Board, [1992] BCJ No 1947, 96 DLR (4th) 227 (BCCA). 25. Competition Bureau, Press Release, “Embraco North America Inc. Pleads Guilty to Price-Fixing Conspiracy” (27 October 2012), online: http://www.competitionbureau. gc.ca/eic/site/cb-bc.nsf/eng/03307.html; Competition Bureau, Press Release, “SEC Carbon Pleads Guilty to Conspiracy” (9 November 2007), online: http://news.gc.ca/web/

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article-en.do?crtr.sj1D=&mthd=advSrch&crtr.mnthndVl=&nid=360319&crtr.dpt1 D=&crtr.tp1D=&crtr.lc1D=&crtr.yrStrtVl=2008&crtr.kw=&crtr.dyStrtVl=26&crtr. aud1D=&crtr.mnthStrtVl=2&crtr.yrndVl=&crtr.dyndVl=. 26. Competition Bureau, “Québec company fi ned $118,000 for participating in sewer services cartel” (8 February 2016), online: http://www.competitionbureau.gc.ca/eic/ site/cb-bc.nsf/eng/04028.html. 27. Competition Bureau, “Bid-rigging scheme leads to $140,000 fi nes for Québec company and its President” (14 March 2016), online: http://www.competitionbureau.gc.ca/eic/ site/cb-bc.nsf/eng/04042.html. 28. Competition Bureau, “Japanese auto parts company fi ned $13 million for participating in a bid-rigging conspiracy” (1 April 2016), online: http://www.competitionbureau. gc.ca/eic/site/cb-bc.nsf/eng/04058.html. 29. Competition Bureau, “Second Individual sentenced for rigging bids for federal government contracts” (24 August 2016), online: http://www.competitionbureau.gc.ca/ eic/site/cb-bc.nsf/eng/04131.html. 30. Competition Bureau, “CB in Brief – A Québec company fi ned $35,000 for participating in a bid-rigging conspiracy” (January 2016), online: http://www.competitionbureau. gc.ca/eic/site/cb-bc.nsf/eng/04022.html; see also Competition Bureau, “Guilty plea in bid-rigging conspiracy in Saint-Jean-sur-Richelieu, Québec” (11 October 2016), online: http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/04138.html. 31. Competition Bureau, “Unprecedented cooperation with US antitrust enforcement authority leads to major cartel crackdown” (20 July 2016), online: http://www. competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/04122.html. 32. Competition Bureau, “Memorandums of Understanding” (2016), online: http://www. competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/h_03696.html. 33. In the 2015 case of Airia Brands v. Air Canada, Justice Leitch considered whether plaintiffs could bring claims for a class including persons residing outside Canada, ultimately fi nding they could not due to the lack of any jurisdiction of the court over foreign class members not residing in Ontario or consenting to the court’s jurisdiction. Justice Leitch held in the alternative that even if such jurisdiction existed, she would stay the claims based on the real and substantial connection test (if applicable) not being met and based on forum non conveniens. Airia Brands v. Air Canada, 2015 ONSC 5332. 34. Compare Garford Pty v. Dywidag Systems International, 2010 FC 996 at para. 33 [Garford] (fi nding discovery principle does not apply) with Fanshawe College v. AU Optronics, 2015 ONSC 2046 at para. 115 (fi nding discovery principle does apply). 35. R v. Durward, 2014 ONSC 4194, [2014] OJ No 3844. 36. Seven individuals and four corporations had been charged with bid rigging under the Competition Act and conspiracy to bid rig under the Criminal Code. 37. Canadian Charter of Rights and Freedoms, being Part I of the Constitution Act, 1982, Schedule B, Canada Act 1982, 1982, c 11. 38. Pro-Sys Consultants Ltd v. Microsoft Corporation, 2013 SCC 57; Sun-Rype Products Ltd v. Archer Daniels Midland Company, 2013 SCC 58; Infi neon Technologies AG v. Option consommateurs, 2013 SCC 59. 39. Watson v. Bank of America Corporation, 2015 BCCA 362 at paras. 153–173.

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40. Godfrey v. Sony Corp., 2016 BCSC 844 at paras. 66–82. 41. Shah v. LG Chem. Ltd., 2016 ONSC 4670 at paras. 20–29. 42. Ewart v. Nippon Yusen Kabushiki Kaisha, 2016 BCSC 2179 [Ewart]. 43. Ewart, supra note 42, at para. 25. 44. Garford, supra note 34. 45. Garford, supra note 34, at para. 39–45. See also, Eli Lilly and Co v. Apotex Inc, 2009 FC 991 at 736, aff’d 2010 FCA 240, leave to appeal to SCC ref’d [2010] SCCA No 434. 46. See Garford, supra note 34, at 31–33, following the same conclusion expressed in obiter in Laboratoires Servier v. Apotex Inc, 2008 FC 825 at 488, aff’d 2009 FCA 222, leave to appeal to SCC ref’d, [2009] SCCA No 403. 47. Fanshawe College of Applied Arts and Technology v. AU Optronics Corporation, 2016 ONCA 621, aff’g 2015 ONSC 2046 at paras. 32–49 [Fanshawe]. 48. Fanshawe, supra note 47, at para. 47. 49. Nestlé, supra note 23. 50. Imperial Oil v. Jacques, 2014 SCC 66, [2014] SCJ No 66. 51. See Watson v. Bank of America Corporation, 2015 BCCA 362 at paras. 108–116. 52. Safe Streets and Communities Act, S.C. 2012, c 1 (Bill C-10), online: http://www.parl. gc.ca/HousePublications/Publication.aspx?Language=E&Mode=1&DocId=5465759. 53. Competition Bureau, Intellectual Property Enforcement Guidelines (31 March 2015), online: http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/04031.html [IPEGs]. 54. Regulations Respecting a Notice of Compliance Pertaining to Patented Medicines, SOR/93-133. 55. IPEGs, supra note 53, at section 7.3. 56. Government of Canada, “Update to the Ineligibility and Suspension Policy and the Integrity Provisions announced on April 4, 2016” (4 April 2016), online: https:// buyandsell.gc.ca/update-to-the-ineligibility-and-suspension-policy-and-the-integrity- provisions-announced-on-april-4-2016.

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Randall J. Hofl ey Tel: +1 416 863 2387 / Email: randall.hofl [email protected] For over 25 years, Randall has been a trusted counsel for leading companies and trade associations operating in Canada, advising on all aspects of competition law, with a focus on contentious matters. Randall has worked on many of the most high-profi le competition law matters, substantially infl uencing competition laws and policies as they apply to companies doing business in Canada. These matters include the fi rst abuse of dominance case to reach the Federal Court of Appeal and the Supreme Court of Canada, the only Federal Court of Appeal decision to address the application of the Competition Act (Act) to patents, the only case considering the (then) new price maintenance provisions of the Act, the only case considering the (then) new competitor collaboration provisions of the Act and the only appellate level decision in Canadian history on the compliance of agreements between purchasers of products with the criminal provisions of the Act. Randall is consistently ranked as a leading competition lawyer and litigator in Canada.

Joshua A. Krane Tel: +1 416 863 4187 / Email: [email protected] Joshua advises domestic and foreign ﬁ rms on all aspects of Canadian competition law, including cartel investigations. He has extensive experience working with companies on internal investigations, preparing submissions to the Competition Bureau, responding to subpoenas under the Competition Act and negotiating resolutions with the Competition Bureau and civil plaintiffs. Before joining Blakes, Joshua worked for several government agencies, including the Competition Bureau − Legal Services Branch, the Ministry of the Attorney General of Ontario − Constitutional Law Branch, and the Federal Prosecution Service (now the Public Prosecution Service of Canada).

Chris Dickinson Tel: +1 416 863 3254 / Email: [email protected] Chris advises on all aspects of Canadian competition law, including cartel investigations and regulatory compliance matters.

Blake, Cassels & Graydon LLP 199 Bay Street, Suite 4000, Commerce Court West, Toronto, Ontario M5L 1A9, Canada Tel: +1 416 863 2400 / Fax: +1 416 863 2653 / URL: http://www.blakes.com

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Zhan Hao AnJie Law Firm

Overview of the law and enforcement regime relating to cartels The AML delineates the legal framework for the prohibition of cartels In China, the Anti-Monopoly Law (‘AML’), which was promulgated on 30 August 2007 and entered into force on 1 August 2008, delineates the legal framework for the prohibition of cartels. Prior to the adoption of the AML, there existed several laws and rules regulating competition issues, such as the Anti-Unfair Competition Law (1993), the Pricing Law (1998) and the Law on Bid Invitation and Bidding (2000). Most of them remain in force after the enactment of the AML. These laws set out provisions to govern price-related cartel behaviours as well as other anti-competitive practices. The AML does not explicitly repeal those existing laws and regulations; instead, it coexists with them, and together they comprise the PRC competition law system. As the foundation of China’s antitrust regime, the AML provides several fundamental rules regarding cartels. According to Article 13 of the AML, competing undertakings are prohibited from entering into the following monopoly agreements:1 1. fi xing or altering prices of commodities; 2. restricting the production or sale volume of commodities; 3. dividing the sales market or procurement market of raw materials; 4. restricting the procurement of new technologies and new equipment or restricting the development of new technologies and new products; 5. jointly boycotting transactions; and 6. any other monopoly agreements as defi ned by the anti-monopoly enforcement agency of the State Council. Article 14 of the AML governs vertical monopoly agreements, inter alia, the price resale maintenance practice, so it falls outside the scope of the present analysis. In addition, Article 16 of the AML makes explicit that industry associations are prohibited from organising undertakings in the respective industries to engage in cartel conducts. Besides, Article 15 of the AML stipulates the circumstances in which an exemption may be granted to specifi c cartel behaviour. Specifi cally, a cartel may be exempted if it simultaneously fulfi ls the following three conditions. (a) The agreements have (one of) the following contents: 1. improving technology, or researching and developing new products; 2. improving product quality, reducing costs, enhancing effi ciency, harmonising product specifi cations and standards, or dividing work based on specialisation;

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3. enhancing the competitiveness of small and medium-sized enterprises; 4. serving social public interests such as energy saving, environmental protection and disaster relief; 5. alleviating decreases in sales or cuts in production overcapacity in periods of economic downturn; 6. protecting legitimate interests in foreign trade and economic cooperation; or 7. any other circumstances stipulated by the laws and the State Council. (b) For agreements having the contents of (1)–(5), they shall not restrict competition substantially. (c) Such agreements shall also be able to share the benefi ts with consumers. Furthermore, the AML provides the basic rules on investigation procedures and sanctions of China’s antitrust enforcement agencies for cartel violations. Regulations issued by enforcement agencies enrich the regime relating to cartels As the public enforcement agencies responsible for cartel cases as well as other antitrust behaviours, the National Development and Reform Commission (‘NDRC’) and the State Administration for Industry and Commerce (‘SAIC’) have enacted a series of substantive and procedural rules regarding the implementation of the AML. The relevant rules and regulations include: 1. the NDRC’s Regulations on Anti-Price Monopoly; 2. the NDRC’s Regulations on Procedures for Enforcement of Administrative Law on Anti-Price Monopoly; 3. the SAIC’s Regulations on the Prohibition of Monopoly Agreements; 4. the SAIC’s Regulations on Procedures for Enforcing the Prohibition on Monopoly Agreements and Abuse of Dominance; and 5. the SAIC’s Provisions on the Prohibition of Abuse of Intellectual Property Rights for the Purpose of Eliminating or Restricting Competition. Sanctions for cartel behaviours and role of the courts Under the AML, the enforcement agencies may impose cease and desist orders, confi scate the illegal gains, and/or impose fi nes between 1% and 10% of an undertaking’s annual turnover in the preceding year for an infringement of the AML rules on horizontal/vertical monopoly agreement. However, based on antitrust enforcement practice and the draft “Guidelines on Recognizing the Illegal Gains Obtained by Business Operators from Monopolistic Acts and Determining the Amount of Fines” (“the draft illegal gain penalty guidance for monopolies”), published by the NDRC in June, 2016, where there are no mitigating circumstances and the monopoly agreement has been implemented, the fi ne may not be lower than 3% of the relevant turnover for the previous fi nancial year (for price cartels, cartels on restriction of production or sales volume, as well as cartels on market division). Despite not yet having come into effect, the draft Guidelines further provide that illegal gains can be taken as referring to the additional income obtained, or expenditure saved, as a result of the cartel conduct, subject to the further methods outlined for their recognition. Fines, on the other hand, can be determined by setting a base percentage depending on the nature and duration of the cartel, and adjusting it up or down depending on other aggravating or mitigating factors. It remains to be seen if and how the rules will be laid out in the fi nal and offi cial version of Guidelines to be released.

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In the case that an industry association has violated the rules by organising the member companies to enter into a cartel, the enforcement agencies may impose a ﬁ ne of not more than RMB 500,000. It is worth noting that there is no criminal sanction for cartel violations under the AML. According to Article 50 of the AML, the People’s Courts are entitled to hear antitrust cases brought by individuals and entities harmed by anti-competitive conducts. However, considering the plaintiffs’ heavy burden to prove the existence of cartels, public enforcement is still the major instrument to curb cartels, though the institutional arrangement of private damages action is available to victims.

Overview of investigative powers in China For most companies in China, the big and scary threats come from the two agencies responsible for policing anti-competitive behaviours, the NDRC and the SAIC. Even though the two authorities can initiate a formal investigation by serving a notice of investigation, the fi rst time many targets learn they’re under investigation is when investigators from the two agencies show up at their offi ces demanding information. These “dawn raids” currently are getting popular among regulators, and they have used them to collect information from the investigation targets: Microsoft, Qualcomm, and Mercedes, just to name a few. Regulators are fond of these raids because they preserve the element of surprise, preventing companies from disposing of evidence. Moreover, dawn raids in China are relatively easy to initiate, since the NDRC and the SAIC don’t need to get a warrant from a judge or any other outsider beforehand. Targets of the raids are allowed to consult with their lawyers After a dawn raid, regulators will review the collected documents and sometimes demand more where it is deemed necessary. Usually at this stage, the regulators will reveal what issues they are investigating. They will also allow the investigated companies to submit explanations and defences in written form. In case of refusing to submit relevant materials, information or submitting fraudulent materials, information, or concealing, destroying or removing the evidence, or refusing to be investigated during the course of examination and investigation by enforcement authorities, the authorities are entitled to impose a fi ne above RMB 0.2m and below RMB 1m on entities. In October 2015, China’s Anhui Provincial AIC fi ned a Shanghai software company RMB 0.2m for its failure to cooperate with the agency in an antitrust investigation. This is the fi rst published penalty decision on refusing to cooperate with an enforcement authority ever, since the AML’s entry into force. There is no limit to how long investigations can last, so probes can drag on for months or years. For instance, the Milk Powder case was closed within six months of commencement of the investigation, while the Tetra Pak case and Microsoft case investigated by the SAIC lasted more than three years. If the regulators fi nd companies have violated the AML, penalties can range from 1% to 10% of their turnover of the last year, as aforesaid. A penalised company is entitled to apply for an administrative review if they are not satisfi ed with authorities’ decisions. However, according to Article 14 of the Administrative Reconsideration Law, when refusing to accept a specifi c administrative act taken by a department under the State Council, such as the NDRC and the SAIC, the applicant shall apply to the said departments for administrative reconsideration. Article 14 also provides that when refusing to accept a decision made after administrative reconsideration, the applicant may bring an administrative lawsuit before a People’s Court, or apply to the State Council for the fi nal decision. However, it is not easy to sue the regulators or to get the State Council to overturn its department’s decisions.

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Overview of cartel enforcement activity during the last 12 months Since October 2015, in light of the numbers of published cases, it seems that the frequency of cartel-related law enforcement cases, initiated by both the NDRC and the SAIC, has increased compared with that of the previous 12 months. This is partly due to the increased scrutiny the antitrust enforcement agencies are paying to a broader range of industries, including the automobile, shipping, pharmaceutical and insurance industries. Another reason for the increase in the number of cases being investigated by the authorities may be that more and more enterprises affected by cartel conduct, are gradually learning to protect themselves by complaining to the antitrust enforcement agencies. Cartel cases disclosed by the SAIC and NDRC in the last year

Cases Date Investigating Authority Penalty in Total (RMB, Yuan) Seven Concrete Manufacturers’ Cartel2 2015-11-3 AIC of Hunan Province 0.18 million Ocean Shipping Cartel3 2015-12-15 NDRC 407.44 million The Jiangxi Branches of Insurance 2015-12-28 AIC of Jiangxi Province Companies’ Cartel4 Allopurinol Tablets Manufacturers’ Cartel5 2016-1-15 NDRC 3.99 million Accounting Firms’ Cartel6 2016-3-21 AIC of Shandong Province Natural Gas Companies Cartel7 2016-7-12 Price Bureau of Hubei 2.99 million Province Estazolam Manufacturers’ Cartels8 2016-7-22 NDRC 2.60 million

Key issues in relation to enforcement policy Draft antitrust-related guidelines have been released for public opinion Since October 2015, both the NDRC and the SAIC have released draft antitrust-related guidelines to the public for opinion. The several draft guidelines released by the NDRC relate to abuse of intellectual property rights, antitrust commitments, leniency applications, the auto industry, the general conditions and application procedures for exemption from monopoly agreements, and determining illicit gains and penalties concerning monopolistic conducts. In February 2016, the SAIC also released its version of draft IP misuse guidelines. The release of a ﬁ nal version of the aforesaid guidelines would facilitate the structuring of a more transparent antitrust regulatory environment of China, which could provide both enterprises and the public with greater legal certainty.

IPR-related issues and SEPs become hotspots Due to monopoly concerns rapidly raised in relation to intellectual property ﬁ led within the past years, which have attracted agencies’ attention both nationwide and internationally, the Chinese agencies have been proactive towards IP-related issues. The SAIC has promulgated provisions to deal with matters connected to antitrust and intellectual property issues, namely Provisions on Prohibiting the Abuse of Intellectual Property Rights to Exclude and Restrain Competition. It is noteworthy that the SAIC’s Provisions provides a “safe harbour” principle for IP-related cartel behaviours. According to Article 5 of the Provisions, the exercise of intellectual property rights (‘IPRs’) may not be determined as cartels or vertical monopoly

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Key issues in relation to investigation and decision-making procedures From a procedural perspective, protection of procedural rights of the undertakings concerned is a key issue in relation to cartel investigation and decision-making under the AML. Rights of the concerned undertakings in laws and regulations Article 43 of the AML stipulates that: The undertaking(s) concerned and third interested parties being investigated have the right to express their opinions to the administrative enforcer(s) of the AML. The administrative enforcer(s) shall verify the facts, reasons and proofs being given by undertakings concerned and/or third interested parties being investigated. The rights of the investigated undertakings are stipulated by the Administrative Punishment Law of the People’s Republic of China (‘Administrative Punishment Law’). 1. The concerned parties have the right to be informed before the issuance of a decision containing sanction upon the party concerned.9 2. The concerned parties have the right to defend themselves before the administrative enforcer.10 3. The Law provides a relatively detailed procedure of hearing.11 4. After the investigation, if the administrative enforcer decides to impose a sanction, the concerned parties must be informed in writing.12 5. The Administrative Punishment Law as well as the AML stipulate that the investigated parties are obliged to cooperate with the administrative enforcer and may not reject or hamper the investigation.13 It can be seen that the main rights of the concerned parties under the AML are the right to be informed and the right to defend. Rights of the concerned parties in practice In practice, several antimonopoly cases handled by the NDRC and the SAIC provide some clues about the protection of the rights of concerned parties in antitrust enforcement procedures. In Lianyungang Concrete Association case,14 the investigator had collected key evidence in pre-investigation because the concrete association “did not recognize that their agreement might violate the law”. A hearing was then held for the concrete association. It is noteworthy that the hearing was held by the regulator itself. The concerned parties in this case did not know the purpose or subject matter of the investigation until the key evidence had been collected by the antitrust authority. In addition, although a hearing was held for the concrete association, it was organised and chaired by the antitrust authority itself, which conducted the investigation.

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It is notable that there is no explicit expression of the right to access the enforcers’ ﬁ le, the legal professional privilege or the right against self-discrimination under the AML’s investigation, which are provided in both EU and US antitrust enforcement regimes. Hopefully, more detailed rules on the rights possessed by the parties in the investigation could be provided in the near future, so as to bestow undertakings with more legal certainty.

Leniency/amnesty regime The leniency rules provided by the NDRC and the SAIC are quite similar. The SAIC may grant full immunity or reduction of fi nes in the following circumstances: 1. The administrative authorities for industry and commerce may exempt or reduce fi nes imposed on the company if it voluntarily stops the conclusion of monopoly agreements. 2. The administrative authorities for industry and commerce may decide to grant full immunity to the fi rst company that voluntarily reports on the monopoly agreement. 3. To obtain such leniency, the company should provide important evidence to the agencies and cooperate fully with the investigation. “Important evidence” refers to evidence that is crucial for the agencies to launch an investigation or to determine conclusion of a monopoly agreement, including companies involved in the monopoly agreement, the scope of products involved, the content of the monopoly agreement and the way in which agreement is to be reached, implementation of the agreement, etc. It should be noted that the organiser of a monopoly agreement is expressly excluded from the benefi ts of the leniency. The NDRC may grant full immunity or reduction of fi nes in the following situations: 1. For the fi rst company which voluntarily reports on conclusion of the price-related monopoly agreement and provides important evidence, punishment may be fully exempted. 2. For the second company which voluntarily reports on conclusion of the price-related monopoly agreement and provides important evidence, a reduction of no less than 50% punishment may be granted. 3. For other companies which voluntarily report on conclusion of the price-related monopoly agreement and provide important evidence, a reduction of no more than 50% punishment may be granted. In addition to the foregoing, the NDRC published the draft Guidelines for Application of the Leniency Regime to Cases of Horizontal Monopoly Agreements (‘the Draft Leniency Guidelines’) on 3 February 2016. The Draft Leniency Guidelines were formulated based on Article 46 of the AML, and stipulate that any business operator voluntarily reporting the fact of reaching a horizontal monopoly agreement and providing important evidence to the anti-monopoly authority, may be exempt from penalties or receive a smaller penalty. The Draft Leniency Guidelines address further issues, including how the application order is to be determined, the number of business operators that can obtain leniency treatment, how to defi ne “signifi cant evidence”, the extent to which the fi nes can be reduced, factors affecting the extent of reduction, and whether the evidence submitted in the leniency application may have adverse effects in any potential follow-up antitrust litigation. The Draft Leniency Guidelines represent a signifi cant step forwards in increasing the transparency, predictability and certainty of China’s leniency program. With regard to the amnesty rules in China, the NDRC published a draft of the ‘Guidelines on the General Conditions and Application Procedures for Exemption for Monopoly

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Agreement by the State Council’s Anti-Monopoly Commission’ (‘the Draft Exemption Guidelines’) on 12 May 2016. The Draft Exemption Guidelines identify the factors to be considered in deciding whether an agreement falls under any of the circumstances for exemption, whether an agreement severely restrains competition in the relevant market, and whether an agreement enables consumers to share the beneﬁ ts it produces, etc. It should be noted that the Draft Leniency Guidelines and the Draft Exemption Guidelines have not yet taken effect, and the extent to which these provisions will be incorporated into the ﬁ nal released versions remains uncertain.

Administrative settlement of cases Legal basis for administrative settlement of antitrust cases Article 45 of the AML provides that, as for a suspicious monopolistic conduct that the enforcement authority is investigating, if the undertaking under investigation promises to eliminate the effects of the conduct through the use of concrete measures within the time limit accepted by the authority, the authority may decide to suspend the investigation. Where the antitrust authority decides to suspend an investigation, it shall supervise the implementation of the commitments offered by relevant undertakings. If the commitments are properly and fully implemented, the authority may decide to terminate the investigation. However, under any of the following circumstances, the antitrust enforcer shall resume the investigation: 1. the undertaking fails to implement the commitment; 2. signifi cant changes have taken place to the facts on which the decision to suspend the investigation was made; or 3. the decision to suspend the investigation was made on the basis of incomplete or inaccurate information submitted by the undertakings. With a view to guiding the application of the procedures for business operators’ commitments as well as the suspension and termination of investigation, the NDRC formulated the Guidelines for Business Operators’ Commitments in Anti-monopoly Cases (“the Draft Guidelines for Business Operators’ Commitments”) in February 2016. The draft Guidelines for Business Operators’ Commitments specifi es that antitrust regulators shall not accept commitment proposals from business operators if the relevant monopolistic behaviour has already been verifi ed in an investigation. The draft Guidelines for Business Operators’ Commitments also stipulate that regulators shall not accept commitment proposals or suspend investigations if a case involves horizontal agreements on price fi xing, production or sales restrictions, division of markets or material purchasing. Administrative settlement in practice In China’s antitrust regime, there is no administrative settlement in the US or the EU. However, according to Article 45 of the AML, with respect to suspected monopolistic conduct which is under investigation by the authority, if the undertakings under investigation commit themselves to adopt specifi c measures to eliminate the consequences of their conduct within a certain period of time which is accepted by the said authority, the authority may decide to suspend the investigation. In the decision, the details of the undertakings’ commitments shall clearly be stated. Where the authority decides to suspend an investigation, it shall oversee the fulfi lment of the commitments made by the undertaking. Where the undertaking fulfi ls its commitments, the authority may decide to terminate the investigation.

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In any of the following circumstances, the authority shall resume investigation: 1. the undertakings concerned fail to fulfi l their commitments; 2. material changes have taken place in respect of the facts on which the decision to suspend investigation was based; or 3. the decision to suspend investigation was based on incomplete or untrue information provided by the undertaking concerned. The public information related to China’s suspended investigations is very limited. Nevertheless, the settlement between the NDRC and InterDigital Communications (“IDC”) is quite notable. In June 2013, the NDRC launched an antitrust investigation against IDC and acquired evidence, on suspicion of the company being involved in monopolistic conducts. It is reported that the NDRC decided in May 2014 to suspend the investigation against IDC, as the company had submitted detailed measures to eliminate the effect of suspected monopolistic conduct. The NDRC states that the company will not charge Chinese enterprises discriminatory high-priced patent licensing fees, not require Chinese enterprises to grant their patent licences to IDC for free, and not force Chinese enterprises to accept unreasonable licensing conditions through the threat of injunction actions. The NDRC said that it will supervise the IDC’s execution of its promised corrective measures.15 Furthermore, in 2015, the NDRC and local branches of the SAIC suspended investigation against state-owned enterprises. In May, the NDRC suspended an antitrust investigation against China UnionPay which was initiated in November 2013 and related to potential antitrust violations in bank card payment clearance services. With the newly released policy on liberalisation of the yuan-denominated bank card clearance services market, China UnionPay may not hold a dominant position any more, which eases the authority’s competition concerns. In July, Ningxia Provincial AIC published a notice on its offi cial website, stating that it had suspended investigations against alleged tie-in sales by the regional branches of three major state-owned telecommunications companies, namely China Tietong, China Unicom and China Telecom, after accepting the remedies proposal of all three companies. In September, Inner Mongolia AIC suspended an investigation against the local branch of China Mobile. According to the published notice, the authority concluded that China Mobile had actively cooperated during the investigation, and the proposed remedies as well as the following rectifi cation activities would eliminate the negative effects on competition in the relevant market. Concluding remarks The foregoing analysis suggests that a suspension mechanism exists in China’s antitrust enforcement regime. At the current stage, however, we have not seen any examples of resumed investigations. The three criteria listed by Article 45 of the AML are quite general. The absence of detailed guidelines and published cases makes potential violators who want to make commitments worry about whether the investigation will be resumed when the antitrust authority deems that the commitments are not implemented properly. To this end, the result after a suspension of an antitrust investigation is not clear: the investigation may be terminated or resumed. The discretion is largely in the hands of the antitrust authority.

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Third party complaints Article 38 of the AML provides the general principle of third party complaints; namely, “all units and individuals shall have the right to report to the authority for enforcement of the Anti-monopoly Law against suspected monopolistic conducts and the latter shall keep the information confi dential. If the report is made in writing and relevant facts and evidence are provided, the authority for enforcement of the Anti-monopoly Law shall conduct necessary investigation”. With regard to the procedures for a third party to fi le a complaint with an antitrust agency, according to Article 5 of the NDRC’s Regulations on Procedures for Enforcement of Administrative Law on Anti-Price Monopoly, any organisation or individual may report acts allegedly involving price monopoly to the price regulatory authority, and the authority shall keep the complainant’s information confi dential. Where the reporting is in writing and relevant facts and evidences are provided, the authority shall conduct necessary preparatory investigation. The items for preparatory investigation shall include: 1. whether the complainant has reported the same issue to another administrative agency or brought a lawsuit before the People’s Court for this issue; 2. basic information on the reported person; 3. related facts and evidence provided by the complainant; and 4. other items that need to be investigated. Article 5 of the SAIC’s Provisions on the Procedures for the Administrative Organs for Industry and Commerce to Investigate Cases Concerning Monopoly Agreements and Abuses of Dominant Market Positions also renders a more detailed instruction: “Where the informant comes forward with information in the written form, the following shall be included: 1. Basic information of the informant Where the informant is an individual, he/she shall provide such information as his/her name, address and contact information. Where the informant is a business operator, it shall provide such information as its name, address, contact information, major industry, products or services, etc. 2. Basic information of the entity suspected of monopoly Such information shall include the name, address, major industry, products or services of the business operator suspected of monopoly. 3. Relevant facts with respect to the monopoly Such facts shall include those with respect to the implementation of the monopoly conduct by the suspected entity in violation of laws, regulations and rules and the time and place of the said conducts, etc. 4. Relevant evidence Such evidence shall include documentary evidence, physical evidence, witness testimonies, visual and audio materials, computer data and authentifi cation conclusions, etc., and the relevant evidence shall be signed by the provider and the source of the evidence shall be indicated. 5. Whether the same facts have been reported to another administrative organ or a lawsuit with respect thereto has been lodged with the relevant People’s Court.”

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The agencies will have to send feedback on what the decision is to the real-name complainant, but there is no clear time requirement for the feedback. In consideration of the rampant anti- competitive behaviour in China and the hard-pressed enforcement capacity, it is inevitable that the authorities will set priorities on the enforcement focus. A variety of factors may come to the function of an enforcement decision, but it appears that, among others, the ties to the people’s daily livelihood, the sufﬁ ciency of evidence and the coordination with industrial policies, have played important roles. With regard to the procedures for a third party to ﬁ le a complaint with a court, according to Article 56 of the Civil Procedure Law, if a third party considers that he has an independent claim to the subject matter of action of both parties, he shall have the right to bring an action.

Civil penalties and sanctions According to the AML, the enforcement agencies may impose cease and desist orders, confi scate the illegal gains, and/or impose fi nes between 1% and 10% of an undertaking’s annual turnover in the preceding year for reaching cartel agreements. On 17 June 2016, the NDRC published the draft illegal gain penalty guidance for monopolies, as aforementioned. While the fi nal and offi cial version has yet to be released, it provided an analytical framework and basic methods for anti-monopoly law enforcement agencies to recognise illegal gains and determine the amount of fi nes when investigating and handling cases under which business operators reach and implement monopoly agreements or abuse market dominance. In China, the key sanctions on horizontal monopolistic behaviours include the following cases: • RMB 2.6m – In 2016, a fi ne totalling RMB 2.6m was imposed on three pharmaceutical fi rms for reaching estazolam monopoly agreements. • RMB 407m – In 2015, a fi ne totalling RMB 407m was imposed on eight companies in an ocean shipping cartel investigation. • RMB 6.88bn – In 2015, a fi ne totalling RMB 6.88bn was imposed on Qualcomm Incorporated for abuse of dominant market position. • RMB 123m – In 2015, a fi ne totalling RMB 123m was imposed on Dongfeng-Nissan for reaching and implementing a monopoly agreement on market segmentation. • RMB 407m – In 2015, a fi ne totalling RMB 407m was imposed on Nippon Yusen co. and seven other companies for implementing price monopoly agreements. • RMB 278m – In 2014, FAW-Volkswagen and some Audi distributors were fi ned RMB 278m for conducting a price-related monopoly agreement. • RMB 114m – In 2014, a fi ne totalling RMB 114m was imposed on three cement companies in Jilin Province for concluding a horizontal monopoly agreement. • RMB 110m – In 2014, a fi ne totalling RMB 110m was imposed on Zhejiang Insurance Association and several insurance companies for conclusion of a horizontal monopoly agreement. • RMB 1.24bn – In 2014, a fi ne totalling RMB 1.235bn was imposed on 12 Japanese auto parts manufacturers for colluding over prices of auto parts and bearings. • RMB 353m – In 2013, six multi-national LCD panel makers were ordered to disgorge RMB 172m illegal gains, and a fi ne was imposed of RMB 353m. In general, the investigated party gets to know the likely amount of fi ne when the antitrust enforcement agency issues the Pre-notifi cation on Administrative Penalty. After receipt of

GLI - Cartels 2017, Fifth Edition 66 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London AnJie Law Firm China the pre-notifi cation, the investigated is entitled to submit a written statement or application for a hearing within three days if it does not agree with the potential penalty. In practice, it is possible that the antitrust enforcement agency may cut the fi ne if grounds proposed by the investigated before formal issue of the administrative penalty prove to be appropriate and reasonable. The auto parts case is a good example, in which Sumitomo received a fi ne reduction of around RMB 50m by presenting convincing reasons. Additionally, the fi ne will generally not be increased by submitting a written statement or application of hearing.

Right of appeal against civil liability and penalties Regarding the administrative decision with penalties and sanctions, theoretically speaking, the investigated can apply for an administrative review or bring an administrative lawsuit before the court, after the administrative penalty is offi cially issued. According to the Administrative Review Law and the Administrative Procedure Law, the subject may apply for administrative review within 60 days from the date when it receives the offi cial administrative penalty, or directly bring an administrative lawsuit before the court within three months from the date when it receives the offi cial administrative penalty. In addition, the investigated can bring the administrative lawsuit before the court or apply to the State Council for arbitration where it does not agree with the result of the administrative review. In case of applying to the State Council for review, the State Council shall give a fi nal ruling in accordance with the provisions of the Administrative Review Law. Theoretically, in the administrative review and administrative proceeding, both the procedure and the substance of the decision will be reviewed, which is known as a comprehensive review. In practice, however, the investigated party rarely launches an administrative review or lawsuit to challenge the decision of the antitrust enforcement agency in China. There have been administrative lawsuits before – such as that brought by cement manufacturers before a local court. But as reported, the court ended up dismissing the case on the grounds of exceeding the statute of limitation. And in March 2016, a fi ne was imposed on Shandong Tianyuantongtai Accounting Firm and six other accounting fi rms for reaching and implementing monopoly agreement on market segmentation, by the Shandong AIC. The fi rms subsequently fi led a lawsuit demanding that the court order the agency to revoke the penalty decision. However, the local court issued a ruling dismissing the lawsuit on the grounds that the penalty decision by the Shandong AIC had ensured procedural fairness and was based on sound facts and evidence, and correct application of law and regulations.

Criminal sanctions Even though there are no criminal sanctions available in respect of antitrust infringements in China, obstruction of law enforcement during the antitrust investigation may result in criminal liability. Article 52 of the AML provides that, “Where, during the review and investigation conducted by the authority for enforcement of the AML, a unit or individual refuses to provide relevant materials and information, or provides false materials and information, or conceals, destroys, transfers evidence, or refuses and obstructs investigation in any other manner ...; and if a crime is constituted, criminal liability shall be investigated for in accordance with law.”

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Cross-border issues Extraterritorial effect of the AML Article 2 of the AML renders a general principle that the law can apply not only to monopoly acts in the domestic market but also monopoly acts outside China which eliminate or restrict domestic market competition. Accordingly, China’s antitrust regime has adopted an extraterritorial effect doctrine. However, currently, neither China’s legislative department nor its enforcement agencies have promulgated any speciﬁ c regulations on interpretation or implementation methods. More communication and cooperation with counterparts in other jurisdictions The NDRC and the SAIC attach importance to international information exchange and cooperation with agencies of other antitrust regimes. Both of them have respectively or collectively come to MOUs with the enforcement powers in the US, EU, UK, South Korea, Russia, Australia, Brazil, etc., and thereby established the institutional frameworks for international cooperation and coordination. Currently, most of the cooperation is focused on general matters, such as the communication of competition policies and the joint organisation of competition-related conferences or forums, etc. In some of the MOUs, such as those with the US and the EU, the agencies agree to exchange information and coordinate their enforcement activities directly. So far, this direct exchange of information appears to be fairly effective.

Developments in private enforcement of antitrust laws As mentioned above, the AML also provides a mechanism for individuals and entities to bring antitrust cases before the courts. The most closely watched cases have been focused on abuse of dominant position, such as YingDing v. SINOPEC, Qihoo 360 v. Tencent and Huawei v. IDC. A limited number of cases have involved vertical agreements, such as Beijing Ruibang Yonghe Technology & Trade Co., Ltd. v. Johnson & Johnson, and Rijing Electric v. Panasonic. Cartel-related private litigation is still a developing area. Several follow-up private lawsuits initiated by downstream undertakings and consumers have been reported. For instance, it is reported that one consumer brought a lawsuit against an insurance company which has been punished by the NDRC for implementing cartel behaviours. Another notable case is related to a cartel case investigated by the NDRC involving cathode ray tubes (CRTs). However, according to the press releases, most cases were settled through mutual negotiations. In regard to the regime of private enforcement against cartels, there are some notable issues. The defendant takes the burden of proof The Supreme People’s Court provides some explicit interpretations with respect to hearing antitrust private cases in Provisions on Several Issues Relating to Laws Applicable for Trial of Civil Dispute Cases Arising from Monopolies. According to Article 7 of the Provisions, in cartel litigation, the defendant shall bear the burden of proof to show that the alleged agreement does not exclude or restrict competition. Documents submitted in the process of leniency application might not become the potentially crucial evidence Although there is no speciﬁ c rule in effect on whether documents submitted as part of a leniency application may be treated as evidence in private enforcement against cartels, according to the Draft Leniency Guidelines, materials submitted when applying for leniency

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Reform proposals The enforcement against cartels in China is developing towards a deeper level and more diverse areas. However, as a young antitrust regime, China is expected to carry out the following reforms: • Enhance transparency. As mentioned above, both the NDRC and the SAIC are in charge of enforcement against cartels. The SAIC launched an anti-monopoly case release platform dating back to 29 July 2013. Previously, the NDRC merely rendered press releases giving limited details and reasoning of the cases. Since September 2014, the authority has started to make public a series of fi nal decisions − on the 2013 insurance cartel cases and the 2014 auto parts cartel cases − which cover the fact fi ndings and the rationales underlying the fi nal decisions. However, it seems that the publication of offi cial decisions has not become the norm, as the most recent decisions on the vertical resale price maintenance cases, though made by local DRCs, are not released on the NDRC’s offi cial website, and only partially released on local DRC websites.16 Given that Article 44 of the AML stipulates that where the enforcement authority makes a decision that a suspected conduct constitutes a monopolistic conduct, the said authority may make the matter known to the public, regular and full publication of offi cial decisions, no matter whether made by central or local authorities, is highly likely. • More suffi cient, professional, and stable manpower. There are hundreds of staff working in prestigious antitrust agencies such as the US’s DOJ and FTC, the EU’s DG COM, and South Korea’s FTC, and most of them are trained in either law or economics. The reality in China is that the human capital of the authorities is relatively thin compared to their counterparts in advanced antitrust regimes. Thus, the reform of human resources aimed at forming a suffi cient, professional and stable human capital is expected. • More specifi c and clear regulations. The AML is about to enter its ninth year. Compared with the US and EU, China’s antitrust regime is still in its developing phase. Comprehensive and explicit rules and regulations are the fi rst step towards maturity. There is a clear need for the authorities to provide additional details on their enforcement activities, and more procedural guidelines.

* * *

Endnotes 1. Under the AML, cartels are named ‘horizontal monopoly agreements’, which are deﬁ ned as ‘agreements, decisions and other concerted conducts between competitors’. 2. http://www.saic.gov.cn/zwgk/gggs/jzzf/201512/t20151229_165504.html. 3. http://jjs.ndrc.gov.cn/fjgld/201512/t20151231_770027.html. http://jjs.ndrc.gov.cn/fjgld/201512/t20151231_770028.html.

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http://jjs.ndrc.gov.cn/fjgld/201512/t20151231_770029.html. http://jjs.ndrc.gov.cn/fjgld/201512/t20151231_770030.html. http://jjs.ndrc.gov.cn/fjgld/201512/t20151231_770031.html. http://jjs.ndrc.gov.cn/fjgld/201512/t20151231_770032.html. http://jjs.ndrc.gov.cn/fjgld/201512/t20151231_770033.html. http://jjs.ndrc.gov.cn/fjgld/201512/t20151231_770039.html. 4. http://www.saic.gov.cn/zwgk/gggs/jzzf/201602/t20160203_166468.html. 5. http://jjs.ndrc.gov.cn/fjgld/201602/t20160202_774107.html. http://jjs.ndrc.gov.cn/fjgld/201602/t20160202_774108.html. http://jjs.ndrc.gov.cn/fjgld/201602/t20160202_774110.html. http://jjs.ndrc.gov.cn/fjgld/201602/t20160202_774113.html. 6. http://www.saic.gov.cn/zwgk/gggs/jzzf/201605/t20160517_168642.html. 7. http://jjs.ndrc.gov.cn/fjgld/201607/t20160712_811023. 8. Released on 12 July 2016. 9. Article 31 of the Administrative Punishment Law. 10. Article 32 of the Administrative Punishment Law. 11. Article 42 of the Administrative Punishment Law provides that public hearings are to be organised according to the following procedure: 1. if a public hearing is requested by the parties concerned, the request shall be submitted within three days after the parties concerned are notifi ed by the administrative organ in charge; 2. the administrative enforcer(s) shall notify the parties concerned of the time and venue of the hearing seven days before it is held; 3. with the exception of cases involving state secrets, business secrets or individual privacy, hearings shall be held in public; 4. public hearings are to be chaired by a person appointed by the administrative enforcer(s) in charge and who is not one of the investigators of the case in question, if the parties concerned deem that the person chairing the hearing has a straight connection to the case, they have the right to submit a request for withdrawal; 5. the parties concerned may personally attend the hearing or may ask one to two persons to represent them; 6. at the hearings investigators present the facts and evidence of violation of law by the parties concerned, and suggest administrative punishments; the parties concerned defend themselves and confront the investigators; and 7. a transcript on the public hearing shall be made, checked by the parties concerned, and signed by them or affi xed with their seals. 12. Article 39 of the Administrative Punishment Law. 13. Article 42 of the AML and Article 37 of the Administrative Punishment Law. 14. See F. Yao, “The fi rst AML case enforced by the SAIC has been sealed: the market segmentation agreement of Lianyungang’s association”, Legal Daily, 2 March 2011, last visited on 9 December 2014. 15. See Global Times, published on 22 May 2014, available at http://www.globaltimes.cn/ content/861740.shtml, last visited on 8 December 2014. 16. The Shanghai Municipal Development and Reform Commission has publicised all decisions regarding the Chrysler resale price maintenance case, but on the Hubei Price Bureau’s website, there is only a press release.

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Zhan Hao Tel: +86 10 8567 5966 / Email: [email protected] Dr Zhan Hao is the managing partner of AnJie Law Firm. He received his doctorate degree in law from Peking University and completed post- doctoral research on microeconomics. Dr Zhan has extensive experience in representing companies against the public investigation of cartels and abuse of dominance. He has represented domestic and foreign enterprises in the NDRC and the SAIC’s antitrust investigation in multiple sectors including aviation, telecommunication, insurance, baby formula, LCD, and auto parts. Dr Zhan has successfully defended clients in antitrust litigation in Chinese courts and has also offered competition law training and conducted antitrust analysis for numerous companies, including Fortune 500 companies, listed companies and SOEs. Dr Zhan has authored many academic books on the AML and acquired abundant experience in academic research. He has been extensively involved in the drafting, advising, discussion and formulation of the AML and its supporting regulations.

AnJie Law Firm 19/F, Tower D1, Liangmaqiao Diplomatic Ofﬁ ce Building, No. 19 Dongfangdonglu, Chaoyang District, Beijing 100600, P.R. China. Tel: +86 10 8567 5988 / Fax: +86 10 8567 5999 / URL: http://www.anjielaw.com

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Alfonso Miranda Londoño, Andrés Jaramillo Hoyos & Daniel Beltrán Castiblanco Esguerra Asesores Jurídicos S.A.

Overview of the law and enforcement regime relating to cartels The Colombian Competition Regime’s fi rst regulations were incorporated in Law 155, 1959, whose general prohibition on anticompetitive conducts is still applied by the Competition Authority. After the enactment of the new National Constitution in 1991, which established free competition as a principle and a collective right, the Decree 2153, 1992, was issued. This body of rules contains: (i) a defi nition section of the competition regime; (ii) the list of conducts considered anticompetitive agreements, anticompetitive acts, as well as conducts that amount to abuse of dominant position; (iii) the exceptions to the application of the regime; (iv) the fi rst development of the merger rules; and (v) some procedural aspects. In 2009, Law 1340 modernised the competition regime and introduced more complete dispositions about mergers, increased the imposable fi nes, strengthened the State’s efforts related to competition advocacy, and modifi ed some procedural matters (for instance, the current statute of limitation is fi ve years and not three, as it was before). Also, the Superintendence of Industry of Commerce (hereinafter, “SIC”) became the exclusive competition authority in Colombia. Finally, the Law created the leniency program, whose development is contained in the Colombian Unifi ed Decree for Commerce, Industry and Tourism, also known as UDCIT (Decree 1074, 2015), as modifi ed by Decree 1523, 2015. With the current regulations, the Competition Authority may impose fi nes up to the equivalent of 100,000 monthly minimum wages (equivalent to US$ 24,000,000). Additionally, the agreement deemed to be anticompetitive is considered null and void ab initio. Civil claims following anticompetitive behaviours can be pursued using class actions or civil lawsuits. However, this area of the law has not developed. Cartels in public procurement procedures have been considered criminal offences after the enactment of Law 1474, 2011.

Overview of investigative powers in Colombia As previously stated, the SIC is the exclusive Competition Authority in Colombia. It has the administrative powers to decide over anticompetitive investigations and merger control. Since 1998, it has been invested with judicial powers to decide over unfair trade and consumer protection claims. The SIC has the discretionary power to launch ex ofﬁ cio administrative investigations. However, most cases have started with third party accusations. During the ﬁ rst phase, called “preliminary investigation”, the Competition Authority has the power to perform dawn raids to obtain statements from individuals and gather evidence. In this stage, there are no formal investigated parties, thus the dossier is reserved and cannot

GLI - Cartels 2017, Fifth Edition 72 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Esguerra Asesores Jurídicos S.A. Colombia be accessed by persons other than the SIC’s offi cers. The company can only refuse to produce: (i) personal documents unrelated to the business; and (ii) documents protected by the attorney-client privilege. There is discussion with the authority, whether the company’s in-house attorney is considered an employee and therefore must render all his information to the authority. When investigating electronic documents, the SIC tends to create a copy of the company’s server (including emails), which may be problematic if documents protected by the attorney- client privilege fall within the raid. Cooperating with the SIC during this procedure is advised, since the entity has the power to impose fi nes on those who do not cooperate. The aforementioned limit of 100,000 monthly minimum wages is applicable for these fi nes as well. If, after the preliminary investigation, the SIC decides to abstain from opening a formal investigation, the SIC usually, though not always, informs the parties of this decision. By defi nition, there will be no fi nes in a case like this. During the formal investigation, the Deputy Superintendent of the SIC decides the admissibility of the evidence presented by the investigated parties and may request new evidence (such as testimonies, interrogatories, etc.) that could be helpful to determine whether there was an infringement of antitrust rules. Parties can only oppose decisions of the SIC Delegate denying the submission of evidence.

Overview of cartel enforcement activity during the last 12 months 2016 was a year when important decisions were taken. For instance, the fi rst successful cases in which the leniency program was applied were decided throughout the year. These cases were started due to a leniency application that uncovered three price-fi xing cartels present in the diapers, tissue paper and notebook markets. The fi rst applicant obtained full immunity, and other applicants a reduction in the fi ne. In one of the investigations, the SIC excluded some of the subsequent applicants from the program since it found inconsistencies in their declarations, and noted that they refused to fully cooperate. This sets a precedent for future applicants regarding the way they should interact with the Competition Authority. There was another leniency application in the private security industry. In this case, the leniency applicant was a natural person that reported a bid rigging conspiracy in contracts with state entities, which triggered both an antitrust and a criminal investigation.

Key issues in relation to enforcement policy Under the current administration, the SIC has stopped accepting commitments (i.e. Consent Decrees), since there is a belief that these are an unfair prize for wrongdoers. Furthermore, investigations related to anticompetitive practices in public procurement processes have increased, and the SIC has started to cooperate with the Attorney General’s Offi ce to promote criminal investigations. In fact, this year the fi rst criminal accusation took place, against alleged members of the private security cartel mentioned above. Finally, the fi rst class actions related to antitrust infringements have appeared. However, some cases are still in a preliminary stage while others (notably the sugar case) was desisted by the plaintiffs. In that sense, details of the manner in which the Courts will handle private enforcement of competition policy are yet to be determined.

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Key issues in relation to investigation and decision-making procedures Important debates regarding the protection of due process of the investigated parties have been made by practitioners. In several cases, the Competition Authority has introduced practices that tend to diminish the parties’ right to defence (for instance, gathering information protected by attorney-client privilege during dawn raids, modifying the accusation after the formal investigation has been launched, or using evidence in the ﬁ nal decision that was not brought to the attention of the parties when they had the opportunity to challenge or even refer to it). These are some of the key issues that are argued by the parties when they ﬁ le nullity actions before the administrative jurisdiction against decisions issued by the SIC, because due process and defence are rights protected by the Constitution. However, several judicial decisions have recognised that the SIC is invested with administrative investigation powers that allow the entity to pursue its investigation more freely in comparison to criminal prosecutors. In that sense, there is current uncertainty as to the extent to which parties can actually protect themselves from the SIC during the investigation.

Leniency/amnesty regime Article 14 of Law 1340, 2009 introduced the leniency program in Colombia, which was later developed, and current regulation is found in the Colombian Unifi ed Decree for Commerce, Industry and Tourism, also known as UDCIT (Decree 1074, 2015), which was later modifi ed by Decree 1523, 2015. Its content will be analysed taking into account the following factors: • Both natural and legal persons may present leniency applications. If a Company presents the application, benefi ts granted to it are automatically extended to the facilitators (e.g. employees). On the contrary, if a facilitator presents his own personal leniency application fi rst, without acting on behalf of the enterprise, he could be granted several benefi ts that will not be extended to the Company. • The applicant must: (i) accept the participation in the anticompetitive practice; and (ii) provide complete and thorough information and evidence about the purpose of the conduct, the circumstances of the practices, the parties involved and the markets affected. The cooperation must be real not only during the preliminary stage but also during the formal investigation. • UDCIT states that the application may be fi led even if the SIC has already started the administrative procedure. In any case, the application to the leniency program can only be presented during the twenty (20) working days period granted to respond to the Opening Resolution of the formal investigation, at the latest. • The benefi t for the fi rst leniency applicant can go up to full exoneration of the fi nes that the SIC can impose pursuant to Law 1340, 2009. In accordance with UDCIT, total immunity can only be granted to the fi rst applicant conditional on compliance and fulfi lment of the requirements described above. If the fi rst applicant fails to fulfi l those conditions, the next applicant can be granted the fi rst position. • Nevertheless, other applicants continue to be eligible for a signifi cant reduction of the fi nes. The second applicant may be granted a reduction of the fi ne between 30% and 50%, and the remaining applicants may receive a partial exoneration up to 25% of the fi ne. In addition, UDCIT allows the SIC to grant an additional benefi t of an extra 15% reduction of the fi ne to a leniency applicant that was not granted full immunity in the

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investigation but got fi rst-in position in another leniency application of another cartel. To obtain such benefi t, the applicant must inform the SIC about the second cartel before signing the leniency agreement in the fi rst cartel investigation. • The confi rmation of immunity granted in the leniency agreement by the Deputy Superintendent is conditional upon complete compliance with the requirements stated in UDCIT. The Superintendent of Industry and Commerce grants the benefi t. Before this confi rmation is issued, there is no certainty about the application of the leniency benefi ts. • There are different ways to reach the SIC to make an effective marker and apply for leniency. The applicant can contact the SIC by presenting a written submission, by sending an electronic mail, or even personally. In this last case, the moment of access to the program will be the one stated in the minute prepared by the SIC.

Administrative settlement of cases The resolution that opens the formal investigation is notifi ed to the accused persons, who will have twenty (20) working days to present and request evidence and, if they decide so, to offer commitments, a procedural benefi t that allows the investigated parties to request the anticipated termination of the investigation, without fi nes, by committing to modify their current conduct in a manner that is consistent with the SIC’s interpretation of the antitrust regulations. It is important to say that by offering commitments, the investigated parties are not obliged to accept any wrongdoing. The benefi t of such commitments is that the investigation is terminated immediately without fi nes and without a defi nition regarding the legality or illegality of the investigated conducts. The Superintendent can accept or decline commitments at his sole discretion, depending on its suffi ciency to convince him of the compliance of the investigated companies with competition law. Finally, as previously mentioned, the current administration of the SIC considers that the authority should only accept the commitment in very exceptional cases (this administration has not accepted commitments yet).

Third party complaints Third parties can approach the Competition Authority to report anticompetitive practices. The administrative proceeding allows for third parties to become a party to the investigation. The requirement to be recognised as an “interested third party” deals with the demonstration of a direct and individual interest in the investigation. Pursuant to Law 640, 2001, in those cases in which an investigation is initiated following an accusation (i.e., not at the SIC’s initiative), the SIC will call for a settlement hearing between the investigated parties and the accusers to promote an agreement regarding the settlement of their private interests. If such settlement is achieved, it will not affect the continuation of the investigation, for the SIC is protecting the public interest (since free competition is a collective right protected mainly via public enforcement). In practice, these hearings have not been very effective for that reason.

Civil penalties and sanctions Contractual claims: according to Articles 19 of Law 155, 1959 and 46 of Decree 2153, 1992, anticompetitive conducts are considered null and void ab initio (in Colombian terms,

GLI - Cartels 2017, Fifth Edition 75 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Esguerra Asesores Jurídicos S.A. Colombia absolutely null because of their illicit object). Thus, contractual claims may be sought by plaintiffs before the civil jurisdiction. Arbitration tribunals have studied this matter, even concluding that the function of the Superintendent of Industry and Commerce is not exclusive and judges (and arbitrators) may take a position regarding the anticompetitive character of a conduct in order to decide contractual claims. This does not mean that civil judges may impose administrative sanctions. Damages actions: Articles 2341 to 2360 of the Colombian Civil Code, as well as Article 16 of Law 446, 1998, allow and regulate damages actions. Since no special regime regarding this matter has been created, ordinary rules shall apply. Additionally, due to the nature of the conduct, Law 472, 1998, regarding class actions needs to be taken into consideration. Statute of limitations for bringing a civil case: • For contractual claims seeking the declaration of absolute nullity: 10 years. • For damages claims: 10 years in most cases.

Right of appeal against civil liability and penalties Civil liability and penalties are decided in procedures before civil judges, independent from the outcome of the administrative investigation. Therefore, respondent parties in the said cases have the normal right to defence that every person has in trial. Since private enforcement is yet to be developed in Colombia, it is difﬁ cult to present details of the manner in which right of appeal in issues regarding competition policy applications will function.

Criminal sanctions The only anticompetitive conduct considered criminal is bid rigging (Article 410 A of Law 599 of 2000, Criminal Code, introduced by Law 1474 of 2011). Sanctions: Prison from 6 to 12 years and criminal ﬁ ne from 200 to 1,000 statutory monthly minimum wages. Inability to contract with state entities for a period of eight years.

Cross-border issues Cross-border issues have not been part of Colombia’s competition agenda during the past years. However, Decision 608 issued by the Andean Community was designed as a long-arm law to prosecute conducts that fall outside the reach of national competition authorities and whose effects affect the Andean market. The Secretariat does not pre-empt the activities of the national authorities, rather it is an entity designed to investigate and ﬁ ne regional collusion.

Developments in private enforcement of antitrust laws The current state of private enforcement of antitrust laws was discussed in previous sections.

Reform proposals Currently, there are no reform proposals. There was a Bill that was discussed a couple of years ago, but was not discussed in the Senate.

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Alfonso Miranda Londoño Tel: +57 1 312 2900 / Email: [email protected] Alfonso Miranda Londoño leads the competition law practice at Esguerra Asesores Jurídicos. He is a graduate of the Universidad Javeriana School of Law, specialised in socioeconomic sciences at the same university, in banking law at Universidad de los Andes and obtained his Master’s degree in Law (LL.M.) from Cornell University, where he pursued his studies under a Fulbright Scolarship. From 1987 to 1988 he worked as an attorney at the Latin American Caribbean Division of Bank of America. Mr Miranda started his private practice in Colombia in 1989, mainly in the areas of Competition Law and M&A. He has acted as adviser and represented numerous clients in some of the most important cases related to antitrust legislation, competitive practices, mergers, unfair anti-competition, and consumer protection. Moreover, he has advised public and private entities in Colombia and abroad on telecommunications issues, and has taken part in legal and arbitration proceedings in business and corporate affairs. Andrés Jaramillo Hoyos Tel: +57 1 312 2900 / Email: [email protected] Mr. Jaramillo received his Law degree from Universidad Javeriana Law School (Bogotá, Colombia) and specialised in Business Law at Universidad Externado de Colombia (1996) and in Administrative Law at Universidad Javeriana (2005). Mr. Jaramillo’s areas of expertise are Competition and Antitrust Law, Administrative Law, Telecommunications and Public Contracting and Infrastructure. In his practice he has specialised in consulting in the areas of business law and administrative contracts. He has also been engaged in litigation, mainly related to unfair competition, anticompetitive practices, mergers, commercial issues and government contracts under State jurisdiction, the Superintendence of Industry and Commerce (Competition Authority) and arbitration. He was a legal analyst for the preparation of the publications, “General Contracting Statute for Public Administration”, “Code of Administrative Procedure”, and the “Contract Yearbooks” for the years 1995 and 1996 (Derecho Vigente Ltda). Daniel Beltrán Castiblanco Tel: +57 1 312 3900 / Email: [email protected] Daniel Beltrán Castiblanco obtained his law degree from Universidad de Los Andes Law School (2009). He studied his Master of laws (LL.M.) at University of Florida – Levin College of Law (2012). He has worked as Professor of Law for Entrepreneurs at the Universidad de La Sabana and as Associate Lecturer of Competition Law at the Universidad Javeriana. During 2010 he was consultant of Deloitte’s Legal Area. He also was Ofﬁ cer of the Credit Risk Area of the Financial Superintendence. Since 2013, Daniel has worked as an associate attorney in the Competition Law department of Esguerra Asesores Jurídicos. Esguerra Asesores Jurídicos S.A. Av. Calle 72 # 6–30 Floor 12, Bogotá D.C., Colombia Tel: +57 1 312 2900 / Fax: +57 1 310 4715 / URL: http://www.esguerra.com

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Olaf Koktvedgaard, Søren Zinck & Frederik André Bork Bruun & Hjejle

Overview of the law and enforcement regime relating to cartels Danish competition law is to a large extent equivalent to EU competition law. Sections 6 to 8 of the Danish Competition Act correspond to Article 101 TFEU, and are interpreted in accordance with practice from the European Commission and the European Court of Justice. However, sanctions for infringement of competition law are criminal under Danish law, and the sanctioning procedure is largely governed by the Danish rules on criminal procedure. The Danish competition authorities consist of: the Danish Competition and Consumer Authority (“the DCCA”); the Danish Competition Council (“the Council”); and the Danish Competition Appeal Tribunal (“the Appeal Tribunal”). In general, the DCCA investigates and prepares competition cases for the Council, which decides competition cases in the fi rst instance. Decisions from the Council may be appealed to the Appeal Tribunal, and in turn to the ordinary courts. The Danish competition authorities have the power to decide whether agreements and concerted practices are in breach of competition law, and they may order undertakings to end practices found to be contrary to competition law. The competition authorities do not have the power to impose criminal sanctions or to fi ne undertakings or individuals administratively, but may offer – with the acceptance of the State Prosecutor for Serious Economic and International Crime (“the State Prosecutor”) – undertakings and individuals a fi ne in lieu of prosecution. If the Danish competition authorities fi nd that competition law has been breached intentionally or grossly negligently, and if the case cannot be closed with a fi ne in lieu of prosecution, the authorities may report it to the State Prosecutor who may charge the undertaking and/or the responsible individual formally and bring the case to court. The Danish authorities increasingly bring charges against involved members of the management, and more senior employees where possible. In recent years, management members have been fi ned in approximately half of the cases where undertakings have been sanctioned. All cases where sanctions are imposed are published on the website of the DCCA; the names of any individual(s) being omitted. In 2013, a reform of the Danish Competition Act implying stricter sanctioning was carried out. As of 1 March 2013, the level of fi nes was raised dramatically, and custodial sentences for cartel activities of up to one-and-a-half years of imprisonment (and up to six years of imprisonment for particularly serious cartels) were introduced. Custodial sentences for

GLI - Cartels 2017, Fifth Edition 78 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Bruun & Hjejle Denmark cartel offences can only be imposed if the necessary speciﬁ c intent can be proven. It is expected that custodial sentences will primarily be used against members of the board and members of the management.

Overview of investigative powers in Denmark In most Danish cartel investigations, the DCCA conducts a dawn raid to secure evidence. The DCCA is entitled to conduct dawn raids at the premises of undertakings (or associations of undertakings), including making a forensic copy of the company’s IT system, upon presenting a written decision (an authorisation) or a court order containing information on the subject-matter and purpose of the inspection. Further, the authority may request employees to present the contents of their pockets and briefcases, and may access company vehicles. However, contrary to dawn raids conducted under EU law in accordance with Regulation 1/2003, the DCCA has no access to private homes or private cars when conducting dawn raids under Danish law. The DCCA can demand that the company’s employees answer questions of a factual nature, e.g. where speciﬁ c documents are stored. The DCCA may also request oral statements from the employees. However, no-one is obliged to answer questions involving any acceptance of guilt. The DCCA may report a suspected cartel to the State Prosecutor. The State Prosecutor may choose – subject to court approval – to conduct searches, including at private homes, pursuant to the Danish rules of criminal procedure. This has happened in several cases where the DCCA has previously conducted a dawn raid to investigate the same alleged offence. As an important corollary to the introduction of custodial sentences for cartel offences, the State Prosecutor was in 2013 given new and more invasive powers of investigation. Subject to court orders, these powers include the possibility of: wiretapping; searches at the premises of individuals not suspected of participating in a cartel; monitoring (including ﬁ lming persons at non-public locations and registration of individuals’ locations based on mobile phones); and the installation of “sniffer programs” on computers. There is no public information on the possible use of these new measures.

Overview of cartel enforcement activity during the last 12 months During the last 12 months, the following decisions on horizontal agreements have been published by the Danish competition authorities. The decisions are based on the old sanction regime: The construction cartel In the beginning of 2010, the DCCA conducted a dawn raid at the premises of fi ve undertakings in the construction industry. The fi ndings led to the opening of the “major construction cartel” case, in which the State Prosecutor fi led charges against 33 building contractor companies for their involvement in one of the largest ever cartels in Denmark. The cases concerned the breach of competition law by coordination of bid prices on both private and public construction projects, including the construction of schools, nursing homes and day care centres, for public funds. The companies and the responsible employees were suspected of entering into price agreements (exchanging information on prices and terms) for construction works with a total value of DKK 400–500m. In the period from 2014 to

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2016, the State Prosecutor issued fi ne notices to 26 companies and 23 leading employees. Among these, only one company and one leading employee managed to get acquitted in court. Combined, the fi nes issued amount to almost DKK 31m. Customers have reported that they intend to follow up with compensation claims, but the cases have not yet been heard by the courts. The construction cartel is the largest Danish cartel case to date. Real estate agents fi ned for colluding to boycott property fi nding website Five Danish real estate agents accepted fi nes amounting to DKK 12m in February 2016 and furthermore, a senior executive from each of the fi ve companies accepted a personal fi ne of DKK 25,000. The case concerns an agreement between the real estate agents to boycott a property-fi nding website, Boliga.dk – a competitor to the real estate agents’ own property fi nding website, Boligsiden.dk – by discouraging their employees from providing photographs to Boliga.dk. According to the DCCA, the boycott activity constituted a breach of competition law as it protected the real estate agents’ own property-fi nding website from competition. The case originated in 2010 when a complaint was submitted by Boliga.dk, leading the DCCA to carry out a series of dawn raids. In 2012, the case was referred to the State Prosecutor as a result of the dawn raids; a decision which the real estate agents failed to have overturned by the Appeal Tribunal in late 2012. In addition to the fi ve above-mentioned fi nes, two other real estate agents have rejected fi nes and are expected to challenge the State Prosecutor in court. Road market consortium In June 2015, the Council found that the two largest competitors on the market for road marking, LKF Vejmarkering and Eurostar Danmark, had entered into an anticompetitive agreement by placing a joint bid in a public procurement by the Danish Road Directorate for a period of four years, covering road marking in most of Denmark. According to the Council, the consortium restricted competition as it was not objectively necessary to form a consortium in order for the two companies to participate in the procurement. The decision of the Council was upheld by the Appeal Tribunal in April 2016. In this regard, the Appeal Tribunal accentuated that the tender documents allowed for companies to submit tenders on different lots of the contract – covering only part of the geographical area – and that the companies could thus have made such tenders instead of a joint tender.

Key issues in relation to enforcement policy Given the low number of published decisions by the DCCA on cartel enforcement, it is difﬁ cult to point to key issues in relation to enforcement policy. However, the DCCA has for several years focused on trade associations. In 2014, the DCCA published a set of guidelines on information activities in trade associations in order to provide an overview of the most important criteria for the Authority’s assessment of the exchange of information within trade associations. The guidelines state that when assessing the exchange of information, it is relevant whether the information provided to the members is aggregated, or whether data for individual competitors can be identiﬁ ed. Collusion will be less likely if only aggregated data is provided. Information of a less recent date is also less likely to have an impact on competition than information of a more recent date. Finally, the availability of the information is taken into account, and the sharing of publicly available information is thus less likely to violate competition rules. Further, in September 2015, the DCCA started an investigation into the competition between medicine wholesalers in Denmark, which shall be seen in connection with the DCCA’s focus in recent years on the pharmaceutical industry. On the same note, the DCCA

GLI - Cartels 2017, Fifth Edition 80 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Bruun & Hjejle Denmark has recently looked into the competition between general practitioners and possibly anti- competitive conduct through their trade organisation. Finally, in recent years, the DCCA has displayed an increased focus on consortia and the distinction between a legal consortium and an illegal cartel. In 2014, the DCCA issued guidelines on consortia which were followed up by speciﬁ c cases in 2015.

Key issues in relation to investigation and decision-making procedures Corresponding to the EU rules on legal privilege, the DCCA does not have the right to review correspondence with an undertaking’s external legal counsel regarding the undertaking’s compliance with competition rules. The same applies to documents that summarise or pass on such information. Though the exact delimitation of the legal privilege under Danish law may in speciﬁ c cases give rise to discussions with the DCCA, the limits have not been tested on appeal yet. During searches by the State Prosecutor in a criminal case, the State Prosecutor does not have access to any correspondence between the company and the company’s defence counsel. It has, however, not been settled in case law whether the State Prosecutor will have access to prior correspondence with the company’s external counsel concerning the company’s compliance with competition law (as covered by legal privilege).

Leniency/amnesty regime A leniency regime much like the EU leniency regime was introduced in Denmark in 2007. However, until now, the Danish leniency regime has only been used to a limited extent. According to a government report from 2012, the Danish competition authorities and the State Prosecutor had received, during the period from the introduction of the leniency regime in 2007 until the end of 2011, only 11 leniency applications, of which fi ve were summary applications in cases where the applicants had originally applied for leniency to the European Commission. We have seen no statistics on the development subsequent to 2012. Under the Danish leniency regime, the fi rst leniency applicant may obtain total immunity from fi nes, whereas subsequent applicants may only have their fi nes reduced provided they submit new, relevant information. There is no “marker” system under Danish law; only a “full” leniency application counts to establish priority. In its recent peer review report, the OECD recommended that the DCCA and the State Prosecutor consider whether instituting a marker system would make the programme more effective and encourage leniency applications. Leniency from custodial sentences is possible, but full immunity can only be obtained by the fi rst applicant. Any subsequent applicant may only receive a reduction of the penalty. Plea bargaining as such does not exist under Danish law, thus any reduction in custodial sentences to those who report a cartel subsequent to the fi rst report will be decided by the courts.

Administrative settlement of cases Undertakings and individuals may accept a ﬁ ne in lieu of prosecution before either the State Prosecutor or the DCCA, and thereby avoid criminal trial in open court. Undertakings that contact the DCCA in order to settle will generally receive a reduction of the ﬁ ne.

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Third party complaints The Council may initiate cartel investigations on its own initiative or based on complaints from, inter alia, third parties. In 2013, the DCCA introduced a new feature on its webpage, which makes it possible for employees – or others who may have knowledge of a cartel – to inform the DCCA anonymously. An IT system operated by a third party enables the submission of evidence and two-way communication without revealing the identity of the whistle-blower. The DCCA has not published information on the actual use of the system. In practice, the Council’s investigations are conducted by the DCCA. Decisions from the Council on the initiation or closing of an investigation cannot be appealed to the Appeal Tribunal.

Civil penalties and sanctions Civil or administrative penalties do not exist under Danish competition law, but criminal sanctions may be imposed on both undertakings and individuals for intentional or grossly negligent breaches of competition law. The DCCA may report cartels to the State Prosecutor at any time. A substantial increase in the level of ﬁ nes, and an introduction of custodial sentences for cartel offences, were introduced with effect from 1 March 2013.

Right of appeal against civil liability and penalties Cartel infringement decisions can be made either by the Council; based on investigations by the DCCA; or directly by the courts in a criminal trial. The Council’s decisions may be appealed to the Appeal Tribunal, which conducts a full and thorough review and may substitute/change the Council’s decision. Decisions from the Appeal Tribunal may, under strict time limits, be challenged before the courts. The courts seem to be moving towards a more rigorous review, and seem more willing to substitute the authorities’ decisions, if the courts ﬁ nd it necessary. Concurrently, the Director General of the DCCA has the authority to report a cartel to the State Prosecutor. This will in practice either be done at an early stage or, in more complicated matters, upon a decision from the Council (with possible appeals to the Appeal Tribunal and on to courts) on the substantive competition law issues. Such decisions are not formally binding on the court in a criminal trial, but they will have a substantive persuasive effect. In relation to subsequent actions for damages, a ﬁ nal decision on the existence of a cartel from either the competition authorities or a court will generally be considered evidence that the participating undertakings have acted negligently. Causality and loss, however, still have to be shown.

Criminal sanctions In 2012, the Danish Parliament passed a new act on sanctions for competition law violations. The object of the new act was to increase the ﬁ nes for undertakings and individuals, and to introduce custodial sentences in cartel cases. The change entered into force on 1 March 2013; the rules apply both to incidents after 1 March 2013 and to incidents commenced before 1 March 2013 and continuing after this date. Many of the incidents recently investigated by the DCCA, including the major construction cartel, relate to events prior to 1 March 2013.

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Increased ﬁ nes With regard to the increased ﬁ nes, the following table shows the changes in the basic amounts from 1 March 2013:

Gravity Examples Previous New indicative Indicative level indicative level of ﬁ nes for level individuals Less Restrictions of passive sales. Up to DKK Up to DKK 4 Minimum DKK grave Exclusive purchase obligations 400,000 million 50,000 lasting more than ﬁ ve years.

Grave Resale price maintenance. DKK 400,000 DKK 4 million to Minimum DKK Non-compete clauses in joint to 15 million 20 million 100,000 production agreements. Very Coordination of prices, production, More than DKK More than DKK Minimum DKK grave customers or bids. Certain types of 15m 20m 200,000 abuse of dominance.

Imprisonment In addition to increased fi nes, custodial sentences in cartel cases were introduced. Cartel agreements are punishable by imprisonment if the participation in the cartel was deliberate, and if the offence is grave due to its scale and the adverse effects it is capable of causing. The maximum sentence is one-and-a-half years of imprisonment or, in case of aggravating circumstances, up to six years of imprisonment. The custodial sentence is expected primarily to be directed towards involved members of the management and members of the board. The State Prosecutor has unoffi cially stated that he will, in general, ask for unconditional imprisonment in cartel cases. In his view, the custodial sentence of up to one-and-a-half years applies if the estimated total value of the crime (e.g. a price-fi xing cartel) is more than DKK 10,000, whereas the custodial sentence of up to six years applies if the estimated value of the crime is more than DKK 500,000. However, no cartel cases have been heard by the courts since the new act came into force. It remains to be seen what level of sanctions the State Prosecutor will ask for in the specifi c cases, and whether the courts will follow the views of the State Prosecutor.

Cross-border issues The Danish competition authorities generally investigate cartel behaviour taking place in or outside Denmark to the extent that such behaviour affects the Danish market. Further, Denmark is part of the European Competition Network (ECN) and thus participates in the cross-border cooperation between the national competition authorities of other Member States and the European Commission. Additionally, the DCCA participates in the informal cooperation of the European Competition Authorities. On a Nordic level, the Danish competition authorities cooperate with Norway, Sweden, Finland, Iceland, Greenland and the Faroe Islands with the main purpose of exchanging legislative experience and discussing cases and subjects of common interest. In this context, an annual meeting between the national authorities of each nation is held. Furthermore, a formal agreement on the exchange of conﬁ dential information between Denmark and the national competition authorities in Sweden, Norway and Iceland has been entered into.

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Developments in private enforcement of antitrust laws In a judgment from January 2015, the Danish Maritime and Commercial Court awarded DKK 10.7m in damages to the chemical company, Cheminova A/S, for fi nancial losses related to a cartel operated by the companies, Akzo Nobel Chemicals BV, and Akzo Nobel Base Chemicals AB, between the years 1986 and 2000. The awarded damages were signifi cantly below Cheminova’s claim of approximately DKK 50m plus interest rates. Akzo Nobel had coordinated prices, customers and market shares, exchanged trade secrets and participated in meetings on a regular basis. The Commission had found the cartel to have been particularly grave, taking into account the duration and geographical extent of the infringement, and imposed a fi ne of DKK 630m on Akzo Nobel. The damages case is interesting in that Cheminova was awarded interest from the time when the damage occurred, i.e. the time of payment. Other compensation cases are pending, too, but they primarily relate to other types of competition law infringements than cartel conduct. In general, our view is that the awareness of the possibilities as regards compensation is rising in Denmark. This development is further enhanced by case law at the EU level such as the Kone judgment (C-557/12) which prohibits Member States from rejecting compensation claims based on umbrella pricing argumentation.

Reform proposals In July 2015, the composition of the Council was changed by an amendment to the Danish Competition Act. The Council now constitutes a professional board of the DCCA, consisting of seven members appointed by the Minister for Business and Growth, with practical and theoretical expert knowledge on competition matters, business management and consumer affairs. The Council was previously constituted of 18 members, nine of whom were appointed by industrial and trade organisations. The decisions of the Council are expected to be less inﬂ uenced by politics following the new composition, and more characterised by professional insight and expertise. As previously mentioned, the Danish competition authorities have displayed an increased focus on consortia and the distinction between a legal consortium and an illegal cartel in recent years. Guidelines on consortia were issued in 2014 and were followed up by speciﬁ c cases in 2015. The DCCA is expected to review and amend the guidelines on consortia in 2017.

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Olaf Koktvedgaard Tel: +45 33 34 52 24 / Email: [email protected] Partner Olaf Koktvedgaard advises on a wide range of issues under EU and competition law with a main focus on disputes. He has extensive experience in dominance issues, State aid and cartel investigations including criminal defence and follow-on damages litigation. He is admitted to the Danish Supreme Court and regularly acts before the Danish competition authorities, the Danish Courts, the Commission and the European Courts. Highlights include acting for TV2/Danmark and FIH Erhvervsbank in State aid cases before the General Court and the ECJ. Olaf has a Master of Laws from the University of Copenhagen (1989) and a Master of Laws from Harvard Law School (1992). He has worked as a referendaire at the European Court of Justice (1996–1999).

Søren Zinck Tel: +45 51 21 19 34 / Email: [email protected] Partner Søren Zinck renders specialist advice within all aspects of competition law. He regularly litigates before the European Court of Justice and the Danish courts, and during recent years, he has litigated several of the major leading Danish competition cases, including follow-on damages cases. Søren is extremely solution-oriented, pragmatic and business-minded in his approach on how to solve matters in the most efﬁ cient and best possible manner. Highlights include representing Post Danmark A/S in the Post Dan- mark I and the Post Danmark II case.

Frederik André Bork Tel: +45 29 90 15 03 / Email: [email protected] Partner Frederik André Bork provides specialist advises on all aspects of EU and Danish competition law. Frederik’s experience includes several very large and multi-jurisdictional follow-on damages cases, several criminal cases, and some of the most well-known abuse cases in the EU. Frederik was the former Head of Division at the Danish Competition Authority and has a comprehensive insight in the authorities’ administrative and business procedures. Highlights include representing Post Danmark A/S in both the Post Danmark I and the Post Danmark II case.

Bruun & Hjejle Nørregade 21, 1165 København K, Denmark Tel: +45 33 34 50 00 / URL: http://bruunhjejle.dk

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Euan Burrows, Irene Antypas & Laura Carter Ashurst LLP

Overview of the law and enforcement regime relating to cartels Article 101(1) of the Treaty on the Functioning of the European Union (“TFEU”) prohibits any agreement or concerted practice between undertakings, or decision of an association of undertakings, which has as its object or effect the prevention, restriction or distortion of competition, and which has an effect on trade between EU Member States. This prohibition applies across the 28 Member States (including the UK, until it formally leaves the EU) and may also apply to anti-competitive activity taking place outside the EU if it has an impact within the EU (which is not uncommon, for example, in relation to international cartels). Article 101(1) TFEU may be engaged by a range of horizontal or vertical arrangements, but cartel activity is considered to be confi ned to the most serious forms of horizontal infringement. It is illegal simply to enter into a cartel, regardless of its subsequent “success” or even its implementation. Although a prima facie anti-competitive agreement may theoretically still benefi t from an exemption where the cumulative conditions in Article 101(3) TFEU are met (i.e. the effi ciencies generated by the agreement outweigh the restriction of competition), in practice, it is extremely rare for cartel-type arrangements to be justifi able and fulfi l the exemption conditions. The key legislation governing the powers of the European Commission (“Commission”) to enforce Article 101 is Council Regulation (EC) No 1/2003 (OJ (2003) L1/1) (“Regulation 1/2003”). The Commission has wide-ranging powers to investigate suspected cartels and other competition law infringements, to order that the illegal agreement be brought to an end. It also has powers to fi ne an infringing business up to 10% of its aggregate worldwide group turnover. Jurisdiction to enforce Article 101 TFEU is shared between the Commission and the national competition authorities as well as the courts of the Member States. In broad terms, the Commission tends to handle cartels with a signifi cant cross-border element and international cartels stretching beyond the EU borders, leaving cartels with a narrower geographic reach to national competition authorities (“NCAs”).

Overview of investigative powers in this jurisdiction The Commission’s investigative powers are set out in Regulation 1/2003 and include: • Requests for information: The Commission may request information either by formal decision or (more commonly) by an informal request. Requests for information may be directed at businesses which are suspected of an infringement and also third parties. The Commission’s powers to request information extend to “all necessary information” for the purposes of enforcing the prohibition contained in Article 101.

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• Unannounced inspection of business premises – “dawn raids”: The Commission has wide powers to “conduct all necessary inspections of undertakings and associations of undertakings”. These include the power to: • enter any premises, land and means of transport used for the business; • examine business books and records; • take or obtain copies or extracts of such books or records (whether hard copy or electronic), including forensic copies of entire hard drives for subsequent review. The inspectors are accompanied by forensic IT experts and bring forensic IT tools (software or hardware) to collect, search and copy relevant data; • seal business premises and books or records where the dawn raid lasts more than one day; and • ask a person for explanations of facts or documents relating to the inspection, and record the answers. The Commission may conduct inspections empowered either by an authorisation, or a formal Commission decision. A person may refuse to submit to an inspection on the basis of an authorisation, but not to an inspection based on a formal decision. The Commission is usually assisted by offi cials from the national competition authority of the Member State in which the raid is taking place, who will often obtain a warrant or other judicial authorisation permitting the Commission to enter and search premises by force if necessary. • Inspection of non-business premises: The Commission may be authorised by formal decision to inspect any other premises, land or means of transport, including the homes of directors, managers and other members of staff, where there is a “reasonable suspicion” of a “serious violation” of Article 101. However, these powers cannot be exercised without prior authorisation from the judicial authority of the relevant Member State (e.g. via the issue of a warrant). • Asking questions and interviews: The Commission can ask questions or seek explanations about documents, but this is a limited power which arguably does not permit the Commission to ask questions that go beyond the contents of the document concerned. Where the person consents, the Commission has a further power to take a statement by voluntary interview from a natural or legal person about the subject matter of the investigation. The statement must be recorded and the person being interviewed given an opportunity to correct or approve the record of the statement. The Commission’s investigative powers are subject to three overarching limits. First, the Commission has no power to seek or access any information which is not relevant to the subject matter of its investigation, as set out in its authorisation document or decision, in terms of product/service, geographic area and timeframe. This is a signifi cant protection for businesses in practice, as it prevents “fi shing expeditions” beyond the scope of the Commission’s existing evidence. However, as discussed further below, inspection decisions will usually be drafted very broadly, and this approach has been accepted by the EU courts. Secondly, legal professional privilege will apply to the investigation. The EU rules of privilege (which apply when the powers under Regulation 1/2003 are being exercised, regardless of the Member State territory in which the raid is taking place), protect written communications (including emails) between a client and an independent EU qualifi ed lawyer, provided that it is closely linked to the subject matter of investigation. Communications between a business person and in-house counsel are not protected as the in-house lawyer is not considered to be independent, given his contractual obligations to

GLI - Cartels 2017, Fifth Edition 87 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Ashurst LLP European Union the business as an employee. Advice from an external lawyer who is not qualifi ed in one of the EU Member States will also not be protected under the EU privilege rules, although in practice the Commission does not generally insist that privileged advice from external lawyers established outside the EU should be disclosed. Thirdly, individuals and legal persons subject to the investigation benefi t from the privilege against self-incrimination, under which the Commission cannot require an answer which constitutes acknowledgment of participation in illegal activity. This privilege does not, however, extend to pre-existing incriminating documents. It should be noted in this context that confi dentiality does not provide grounds for refusing to disclose information to the Commission. Confi dential information may be reviewed and copied by the Commission inspectors, and must be provided in response to a formal information request. However, the Commission is generally prevented from disclosing such information to third parties pursuant to the duty of professional secrecy, subject to certain exceptions, as discussed further below. Failure to comply with a formal Commission decision requesting information; the supply of incorrect, incomplete or misleading information; or failure to respond within the required time limit may be punished with fi nancial penalties of up to one per cent of worldwide aggregate group turnover, as can breaches of procedural requirements during dawn raids (discussed further below). In addition, the Commission can choose to treat interference, resistance or non-co-operation as an aggravating factor when it is calculating the fi ne to be imposed for the substantive infringement, increasing the fi ne accordingly. Further details about the law, procedure and policies applied by the Commission to cartel enforcement are set out in the sister volume to this book, the International Comparative Legal Guide to Cartels and Leniency 2017, at chapter 8.

Overview of cartel enforcement activity during the last 12 months Number of dawn raids: The Commission does not publish statistics on the number of dawn raids undertaken, but press releases indicate that unannounced dawn raids took place in relation to at least three cases involving suspected cartel activity in 2016 (multiple dawn raids are often carried out simultaneously on various parties in respect of the same case, so many more than three businesses will have been raided). Number of on-going investigations: Publicly available information indicates that, as at 19 December 2016, there are at least 40 on-going Commission investigations into alleged cartel activity, of which fi ve were initiated in 2016. This fi gure may omit newer cases which are not yet in the public domain. Number of fi nal cartel decisions and total value of fi nes imposed: As at 19 December 2016, six cartel decisions have been issued by the Commission in 2016, with total fi nes of €3,727m (a tenfold increase on the total for 2015). In 2015, fi ve cartel decisions were issued and total fi nes of €365m were imposed. In 2014, ten cartel decisions were issued and total fi nes of €1,685m were imposed. In 2013, four cartel decisions were issued and total fi nes of €1,664m were imposed. Leve l of individual fi nes imposed: As at 19 December 2016, the highest individual cartel fi ne imposed so far in 2016 was a fi ne of €1,008.8m imposed on Daimler for its involvement in the Trucks cartel. In 2015, the highest individual cartel fi ne was a fi ne of €68.2m imposed on Eberspächer for its involvement in the Parking Heaters cartel. In 2014, the highest individual fi ne was a fi ne of €370.5m on Schaeffl er for its participation in the Automotive Bearings cartel. In 2013, the highest individual fi ne actually imposed was a fi ne of €465.9m

GLI - Cartels 2017, Fifth Edition 88 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Ashurst LLP European Union on Deutsche Bank for its participation in the Interest Rate Derivatives cartel. It is notable that UBS avoided an individual fi ne of around €2.5bn in respect of the same cartel as it benefi ted from full immunity under the Commission’s leniency programme. The 2016 fi ne of €1,008.8m on Daimler is now the highest fi ne ever imposed by the Commission, with the second highest being €752.7m imposed on DAF and also resulting from the Trucks cartel. Previously, the highest fi ne was €715m, imposed on Saint Gobain in 2008 for its part in the Car Glass cartel (reduced from €880m on appeal in 2014).

Key issues in r elation to enforcement policy Most of the key issues which have arisen recently regarding cartel enforcement in the EU relate to investigation and decision-making procedures and fi ning policy, as discussed in other sections of this chapter. However, there are a few wider “policy” issues which practitioners should be aware of. Proposals to enhance enforcement powers of NCAs The European Co mmission conducted a consultation in 2015 on whether NCAs in EU Member States should be given additional powers to enforce EU competition law. The 2015 consultation considered whether and how the powers of NCAs should be enhanced to ensure that NCAs: • can act indepen dently when enforcing EU competition rules and have the staff and resources required to do their work; • have an adequate “competition toolbox” to detect and tackle infringements; • can impose effective fi nes on companies which break the rules; and • have leniency programmes that work effectively across Europe. In May 2016, th e Commission published a summary of the replies received, which reported a consensus that although a majority of respondents considered that the EU rules were being effectively enforced at national level, a stronger majority considered that there was scope for more national-level enforcement. In particular, a very strong majority of respondents considered that action should be taken, at both EU and national level, to boost enforcement at national level. More specifi cally, respondents considered that: • The independence of NCAs should be guaranteed and they should have suffi cient resources, including: adequate and stable human and fi nancial resources; guaranteed independence of action without direction from government or any other public or private body; no dismissal from offi ce for reasons related to enforcement activities; and rules about confl icts of interest, accountability, budgetary autonomy and transparent appointment procedures for an NCA’s management. • Some NCAs need more enforcement tools and, generally, there should be greater consistency of NCA’s powers across the EU. The enforcement tools considered to be the most important included inspection and general evidence-gathering powers, including interview powers; as well as the ability to close cases in a variety of ways, including commitments decisions and prohibition decisions. Powers to conduct a sector inquiry were also ranked as important. • The divergences in fi ning powers between NCAs are problematic, as regards differences in: (a) whether fi nes are imposed on a civil or a criminal basis; (b) the approach to which entity should be fi ned, including differences in the approach to

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parental liability; and (c) differences between Member States in the legal maximum for ﬁ nes. • As regards leniency, the lack of a legal basis for EU leniency was considered a problem, as was the divergence in leniency programmes between NCAs. Respondents also considered that action should be taken in relation to the divergences in NCAs’ approaches to summary national leniency applications, made alongside a full EU leniency application. There was some support for extending the protection of leniency and settlement materials beyond that given under the Damages Directive. There was a wide consensus that it was a problem that only a few Member States make provision to protect individuals from sanction where a leniency application is made. The Commission has since indicated that it will be making proposals to address the concerns raised in response to the consultation. This work is included in the Commission’s Work Programme for 2017 (published in October 2016): proposals are expected to be issued at some point in 2017. Public comments made by the Commissioner for Competition, Margrethe Vestager, suggest that the Commission will propose new legislation in the form of a directive. This form of legislation typically sets out a common minimum level of measures which all Member States must then ensure their national legislation complies with, issuing new law or amending existing national law as required. Close co-opera tion with other regulators Many cartels are now cross-border in nature, which means that effective enforcement increasingly requires co-operation between regulators around the world. The European Competition Network provides a very useful forum for the exchange of information between the Commission and NCAs of EU Member States. The Commission also actively co-operates with regulators outside the EU, through bilateral co-operation agreements, memoranda of understanding, and also more informal co-operation. There is a clear policy at EU level to promote international co-operation between regulators, and it is anticipated that the level of co-operation, in particular information sharing, will continue to expand in the years to come. During the course of 2016, the European Commission entered into a new memorandum of understanding with the Competition Commission of South Africa.

Key issues in r elation to investigation and decision-making procedures Scope of Commission’s information gathering powers The scope of the Commission’s information-gathering powers under Regulation 1/2003 has been the subject of a number of challenges before the EU courts, as discussed in previous editions of Global Legal Insights: Cartels – Enforcement, Appeals and Damages Actions (“GLI: Cartels”). Appeals against dawn raids are relatively rare but, in 2015, Deutsche Bahn successfully appealed against a Commission inspection decision. In 2016, the Czech national railway operator brought two actions before the General Court seeking annulment of two Commission decisions to conduct inspections (Cases T-325/16 and T-621/16, both České dráhy v Commission). Judgment is awaited in these cases. The key current issues are: • the legality of broadly drafted requests for information; • the legality of broadly drafted inspection decisions;

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• the legality of dawn raids carried out on the basis of information obtained by the Commission in the course of carrying out an earlier dawn raid, in the context of a very broad inquiry; and • whether the powers of the Commission extend to taking away forensic copies of entire computer hard drives for subsequent review at the Commission’s premises. Each of these is discussed further below. • Legality of broadly drafted requests for information When making a written request for information (“RFI”), the Commission must set out the legal basis and purpose of the request, what information is required, and the time-limit within which it is to be provided. This is important in order to show that the request for information is justifi ed but also to enable companies to judge the scope of their duty to co-operate and their rights of defence. In, inter alia, Case C-247/14 P HeidelbergCement and others v Commission (EU:C:2016:149), the ECJ assessed the adequacy of the Commission’s statement of reasons in its decision to issue formal RFIs in an investigation into a possible cartel in the cement industry. The ECJ found that the Commission’s RFIs (which were over 100 pages in length and requested the provision within 12 weeks of detailed data covering a ten-year period) did not, clearly and unequivocally set out the suspicions which justifi ed their adoption, and did not make it possible to determine whether the requested information was necessary for the purposes of the investigation. The level of detail required in a statement of reasons will depend on the stage of the investigation at which the RFI is sent. At an early stage, it is not essential for an RFI to set out a precise market defi nition, or the exact legal nature, or period of, the infringement, as this information may not yet be available to the Commission. However, if, as in the cement cases, the investigation has been open for several months, or the Commission has already gathered information through previous RFIs and inspections, a succinct, vague and generic statement of reasons is unlikely to meet the requisite legal standard. • Legality of broadly drafted inspection decisions On 18 June 2015 the ECJ confi rmed in Case C-583/13 P Deutsche Bahn AG v Commission (EU:C:2015:404) that the Commission is required to restrict its searches during a dawn raid to activities relating to the matters covered in the inspection decision: if it locates documents not relevant to these matters, as a general rule it cannot review or copy these. The court confi rmed that the Commission is not entitled to go on a “fi shing expedition”, and the scope of the suspected cartel indicated in the inspection decision must be limited to what is supported by the Commission’s case fi le at the time of the inspections. However, the courts have nonetheless accepted very broadly drafted inspection decisions, both in terms of the relevant product market and the geographic scope of the suspected infringement (see for example, the ECJ judgment in Case C-37/13 P Nexans France SAS and others v Commission (EU:C:2014:2030)). Similarly, in Deutsche Bahn AG v Commission the ECJ appears to have accepted the GC’s view that there is no reason to reject outright the possibility that an inspection could cover all of a company’s activities (particularly where it has a limited number of such activities) (GC: Joined Cases T-289/11, T-290/11 and T-521/11 (EU:T:2013:404); ECJ: Case C-583/13 P (EU:C:2015:404)). The Czech national rail operator’s appeal against the Commission’s fi rst inspection decision (Case T-325/16 České dráhy v Commission referred to above) claims, inter alia, that the dawn raid decision set out insuffi cient reasons, and defi ned the subject-matter and purpose of the inspection too broadly in breach of the rail operator’s rights of defence.

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• Lega lity of using information obtained in one dawn raid to justify further dawn raids In t he Deutsche Bahn case referred to above, the ECJ was also required to consider the scope of an exception to the general rule against “fi shing expeditions”, fi rst established in Case 85/87 Dow Benelux (EU:C:1989:379), namely that Commission inspectors are not required to be blind to evidence of a previously unsuspected violation if they “happen to obtain” such evidence during a dawn raid (and may use any such evidence to start an investigation into the new matter). However, the ECJ confi rmed in Deutsche Bahn that this exception must be narrowly interpreted and is only applicable in cases of genuine coincidence. The Czech national rail operator’s appeal against the Commission’s second inspection decision (Case T-621/16 České dráhy v Commission referred to above) asserts, inter alia, that the decision to carry out an inspection was based on materials obtained during a previous, allegedly illegal inspection, which the Commission was not entitled to use. • Powers to take forensic copies of entire computer hard drives As discussed in more detail in the second edition of GLI: Cartels, it is (in the authors’ view) highly debatable that the Commission’s dawn raid powers extend to removing and copying entire computer hard drives for subsequent review at the Commission’s premises without any new empowering legislation, given the breadth of scope of information which any PC or laptop will typically contain, including personal data, human resources and internal management documents, information about commercial activities and possibly privileged external legal advice. However, this practice continues to be envisaged and applied in the Commission’s revised Explanatory Note on its dawn raid procedures (paragraphs 12 and 14). In the absence of a judgment from the EU courts on this issue, the Commission is expected to continue with its current practice of taking copies of entire hard drives for subsequent review in cases where it is not possible to complete the dawn raid at the undertaking’s premises within a few days. In this regard, 89% of respondents to the Commission’s recent consultation on empowering national competition authorities to be more effective enforcers (summary report of replies published 12 May 2016) considered that NCAs must have powers to effectively gather digital evidence (powers which potentially include the ability to seize hard drives). Acce ss to the fi le and protection of confi dential business information Access to the Commission’s administrative case fi le is granted to the parties (and their lawyers) as part of their rights of defence, prior to responding to the Commission’s statement of objections, pursuant to Article 27(2) of Regulation 1/2003 and Articles 15 and 16 of Regulation 773/2004. The framework for the exercise of this right is set out in the Commission’s Access to File Notice. Access to the fi le generally includes access to all documents which the Commission has obtained or produced in the course of its investigation, except for internal working documents, communications about the case between the Commission and any NCAs, corporate statements from leniency applicants and settlement submissions in cartel cases. However, access to the fi le may be restricted where documents contained in the fi le contain business secrets or other confi dential business information (CBI) which the Commission is required to protect under its duty of professional secrecy (Article 339 TFEU). In such circumstances, access will usually only be given to non-confi dential versions of the relevant documents. Alternatively, a data room may be set up to provide limited access to the confi dential information to a restricted group (usually external counsel or the economic advisers of the party being granted access).

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Third parties do not benefi t from rights of defence in this context (see the ECJ judgment of 16 June 2016 in Case C-154/14 SKW v Commission (Calcium Carbides cartel) (EU:C:2016:445), fi nding that the GC erred in holding that the Hearing Offi cer could refuse to hold a hearing in camera on the grounds that such a hearing could have harmed the rights of defence of Degussa, a third party). Therefore, third parties are not entitled to access to the case fi l e under the same rules as addressees of the statement of objections, althou gh they may be involved in competition investigations, usually on a consensual basis, for ex ample through written submissions and/or attenda nce at oral hearings . However, third parties may request access to the Commission’s case fi le under t he general EU legal framework on access to documents held by EU institutions, which is set out in Regulat ion 1049/2001 (the “Transparency Regulation”). The Tra nsparency Regulation provides that, as a general starting point, the wi dest possible public access should be given to documents held by EU institut ions. However, this is subject to certain limitations designed to protect public or private interest s (in parti cular, to protect CBI of the parties involved). In this regard, the Commission is entitled to rely on general presumptions relating to the protection of the commercial interests of the undertakings involved in the investigation and the protection of the purpose of the investigations relating to the proceedings, in order to deny requests from third parties for access to the fi le (confi rmed by the ECJ in Case C-365/12 P Commission v EnBW (EU:C:2014:112)). It is often diffi cult in practice for third parties to obtain access to the fi le through reliance on the Transparency Regulation: the mere fact that the request for access to the fi le is being made in order to mount a private damages action is not suffi cient to establish an overriding general interest in disclosure; the necessity of accessing the documents to bring the damages action must be demonstrated. In this context, it is noted that German supermarket chain Edeka is currently appealing the Commission’s decision to refuse it access to documents relating to the Euribor cartel investigation for a damages action. However, in November 2016, it was reported that the Commission had sent a copy of the unpublished Euribor cartel decision to lawyers representing mortgage holders on behalf of Italian consumer association Sos Utenti. Another possible route for complaints regarding access to the Commission’s fi le in cartel cases may be emerging, through the European Ombudsman, which investigates complaints about maladministration by EU institutions, including the Commission. In European Ombudsman Case 520/2014/PMC, a fair-trade certifi cation association had asked the Commission to issue a decision or an informal guidance letter under Article 10 Regulation 1/2003 as to the compatibility of its commercial practices with EU competition law. Following the Commission’s rejection of the request, the association applied for public access to the Commission’s fi le under the Transparency Regulation. The Commission refused to grant full access to its internal correspondence and an internal note on the grounds that disclosure would seriously undermine its decision-making process. The association referred the case to the Ombudsman. Following a preliminary fi nding that the Commission “redacted more information than necessary to protect the legitimate interests set out in EU access to documents rules”, the Commission decided to grant wider access to the documents and the case was closed. However, the Ombudsman found that the association had failed to prove the necessity for obtaining the names of the Commission case-handlers, as required under EU data protection rules. Co-operation between the Commission and NCAs and access to their communications The Commission and Member State NCAs have parallel powers for the purpose of the

GLI - Cartels 2017, Fifth Edition 93 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Ashurst LLP European Union application of EU competition rules. A system of close co-operation has been laid down in Regulation 1/2003 and further detailed in the Commission Notice on co-operation within the Network of Competition Authorities (the “Network Notice” (OJ C 101, 27.04.2004)). The objective is to have an effective network of competition authorities in the EU (the European Competition Network (“ECN”)) to ensure an optimal attribution of cases and ultimately an effective application of EU competition rules. The Commission and Member State NCAs enjoy considerable discretion as to how they deal with complaints relating to alleged competition law infringements and, subject to national procedural rules, may reject complaints on policy/prioritisation grounds. Neither Regulation 1/2003 nor the Network Notice create rights or expectations for an undertaking to have its case dealt with by a specifi c competition authority. Given the broad degree of discretion, review by the courts is necessarily only marginal, i.e. limited to verifying whether the decision is based on materially incorrect facts or is vitiated by an error of law, a manifest error of appraisal or misuse of powers. The EU Courts are competent to review the legality of decisions taken by the Commission, whereas the review of NCA decisions is a matter for national courts alone. Deve lopments in relation to legal classifi cation of infringements in cartel cases • Developments in relation to object infringements Article 101(1) TFEU can apply to agreements on two different bases, namely where either their “object” or “effect” is anti-competitive. These two possibilities are alternatives and not cumulative. One of the signifi cant advantages from a competition authority’s point of view of an “object” analysis is that there is no requirement to undertake a detailed economic analysis of the effects of the alleged restriction on competition. Important clarifi cation of the legal concept of an “object” infringement and how it must be established was provided by the ECJ in its judgment of September 2014 in Case C-67/13 Cartes Bancaires v Commission (EU:C:2014:2204). As discussed in more detail in the third edition of GLI: Cartels, the ECJ made clear in its Cartes Bancaires judgment that the restriction must reveal “a suffi cient degree of harm” in order for it to fall within the scope of the by-object “box”. The expectation of a suffi cient degree of harm should be clear from the restriction itself (and essentially experience showing that such behaviour harms consumers), but seen also in “the economic and legal context of which it forms part”. An effects analysis is thus required only where analysis of the conduct does not in itself reveal a suffi cient degree of harm to competition. Importantly, the ECJ also confi rmed that the concept of a restriction by object should be interpreted restrictively. In the recent Case C-373/14 P Toshiba v Commission (EU:C:2016:26), Toshiba argued that the GC had erred in law by characterising a “gentlemen’s agreement” as a restriction of competition by object between companies that were not, in Toshiba’s view, potential competitors. The ECJ agreed with the GC’s analysis that the Japanese and European companies could be considered potential competitors, in particular because barriers to entry into the European markets were not insurmountable, and the existence of the gentlemen’s agreement represented a “strong indication that a competitive relationship existed” between the two companies. • Thoroughness of judicial review in cartel cases The EU judicature has a jurisdiction that empowers it to substitute its own appraisal for the Commission’s and, consequently, to cancel, reduce or increase any fi ne or periodic penalty

GLI - Cartels 2017, Fifth Edition 94 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Ashurst LLP European Union payment imposed by the Commission for infringement of the EU competition rules. An effective system of judicial review is particularly important where competition law enforcement is in the hands of the Commission, which acts simultaneously as investigator, prosecutor, jury and fi nal decision-maker. This structure raises important questions about undertakings’ right to a fair trial under Article 6 of the European Convention on Human Rights (“ECHR”), incorporated into EU law by the Charter of Fundamental Rights of the European Union (“Charter”). As discussed in more detail in the third edition of GLI: Cartels, in 2013 and 2014 the EU Courts issued two key judgments which advocated a more intensive review of Commission infringement decisions (Case T-442/08 CISAC v Commission (EU:T:2013:188) and Case C-67/13 P Groupement des Cartes Bancaires v Commission (EU:C:2014:2204)): • In the CISAC case, the GC considered that the Commission had failed to demonstrate an infringement to the required standard of proof. The GC closely examined the evidence used by the Commission in support of its infringement fi nding and found it inadequate to render implausible the defendants’ alternative explanation for the parallel conduct. • In the Cartes Bancaires case, the ECJ criticised the GC for failing to conduct a suffi ciently intensive review of the Commission fi ndings, referring to the principle of effective judicial protection enshrined in Article 47 of the Charter. The ECJ emphasised that, in light of this principle, when examining whether the legality of an infringement fi nding under Article 101 TFEU is made out, the GC must undertake: “on the basis of the evidence adduced by the applicant in support of the pleas in law put forward, a full review of whether or not the conditions for applying that provision are met” (paragraph 44 of the judgment). In December 2015, the GC annulled the 2010 Commission decision fi ning 14 airlines €790m for coordinating fuel and security surcharges (inter alia, Case T-9/11 Air Canada (EU:T:2015:994, see further below)). The GC held that the Commission had failed in particular to clearly and precisely state in the operative part of the decision the infringement attributed to each company, which is a requirement to protect undertakings’ rights of defence. However, this trend towards more intensive review of Commission decisions appears not to have continued into 2016. Since the Air Canada decision, the GC has dismissed a number of appeals, including in relation to the re-imposition of fi nes in the gas insulated switchgear cartel (dismissed 19 January 2016), the freight forwarders cartel decision (dismissed on 29 February 2016, with the exception of one plea by UTI), the pre-stressing steel cartel decision (dismissed on 2 June 2016), and the North Sea shrimps traders cartel decision (dismissed 8 September 2016). • Notion of concerted practice In Eturas and others v Lithuanian Competition Authority (Case C-74/14, EU:C:2016:42), the ECJ delivered a preliminary ruling on the question of whether the imposition of a restriction on discounts through a common online booking system used by a number of travel agents constitutes a concerted practice for the purposes of Article 101 TFEU. This is a rare example of the ECJ being asked to clarify the concept of a concerted practice. The case originated in Lithuania, where the national competition authority held a number of travel agents liable for price-fi xing conduct that had been facilitated by the administrator of an information system, intended to enable the travel agents to sell travel packages on their

GLI - Cartels 2017, Fifth Edition 95 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Ashurst LLP European Union websites using a uniform booking method. The system administrator sent a message to the travel agents, which could only be consulted in the ‘Notices’ section of the system and to which the agents did not expressly respond, informing them that the discounts available through the system would be capped at 3%. A technical restriction was implemented to cap discounts applied via the system, although travel agents could apply greater discounts by taking additional technical steps. The Lithuanian competition authority concluded that the travel agents, “had informed each other of the discount rates which they intended to apply in the future and thus indirectly – by way of implied or tacit approval – expressed their common agreement with regard to conduct on the relevant market”. The ECJ held that Article 101(1) TFEU must be interpreted as meaning that, in these circumstances, the travel agents may, if they were aware of that message, be presumed to have participated in a concerted practice, unless they publicly distanced themselves from that practice, reported it to the administrative authorities or adduced other evidence to rebut that presumption, such as evidence of the systematic application of a discount exceeding the cap. However, the ECJ said that it is a matter for the national court to examine, on the basis of the national rules governing the assessment of evidence and the standard of proof (subject to the European law principles of equivalence and effectiveness), whether, in view of all the circumstances before it, the dispatch of a message may constitute suffi cient evidence to establish that the addressees of that message were aware of its content. The presumption of innocence, enshrined in Article 48(1) of the Charter, precludes a national court from considering that the mere dispatch of that message constitutes suffi cient evidence to establish that its addressees ought to have been aware of its content. However, in light of other objective and consistent indicia, the dispatch of the message may justify a presumption that the travel agencies were aware of the content of that message from the date of its dispatch, provided that those agencies still have the opportunity to rebut that presumption. Developments in relation to the concept of “single and continuous infringement” The concept of “single and continuous infringement” is used by the European Commission to treat a series of illegal actions as a single cartel, rather than as a series of separate cartels. Thus a cartel which operates continuously on the same basis for many years is clearly a single and continuous infringement, but so also is a series of related actions where the cartel arrangements change and evolve over time, but have a common anti-competitive objective and there is a link of complementarity between the various actions, meaning that they all contribute to the common objective. The concept has signifi cant ramifi cations for liability, since a party to one aspect of the cartel during one period of its duration can be treated as liable for the whole cartel. Also, it impacts on the defi nition of the cartel since it allows, for example, more than one product to be covered by the cartel. It also impacts on the calculation of the fi ne because it drives the duration of the cartel. However, the concept can also create complexities in the analysis. This was highlighted in the judgments of the General Court in December 2015, when it annulled the Commission’s Air Cargo cartel decision (Cases 9, 28, 36, 38-40, 43, 46, 48, 56, 62-63 and 67/11, Air Canada and others v Commission (EU:T:2015:984-996)). The General Court ruled that the decision was fatally fl awed because the operative part of the decision (containing the conclusions and ruling of the Commission) referred to four separate cartels, but the reasoning treated all the parties and all the actions as part of a single and continuous infringement. The operative part of the decision specifi ed the air cargo carriers involved in

GLI - Cartels 2017, Fifth Edition 96 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Ashurst LLP European Union each of the four cartels, but only 11 were mentioned in relation to all four cartels – whereas under the single and continuous infringement principle, all the carriers were liable for the whole cartel. Moreover, the General Court found inconsistencies within the reasoning as regards the existence of a single and continuous infringement. Overall, the General Court concluded that the extent of the contradictions in the decision meant that the statement of reasons was defective and that the decision should be annulled.

Leniency/amnesty regime Access to the fi le/inclusion of information provided in leniency applications in infringement decisions The ability of damages claimants to obtain copies of leniency applications or related information has been a major “hot topic” in EU competition law, raising tensions between the push to encourage private enforcement and the need to ensure that leniency regimes remain an effective way for competition authorities such as the Commission to detect cartels. In particular, there have been a number of challenges before the EU courts relating to the inclusion of information in non-confi dential versions of Commission infringement decisions which was originally obtained from a leniency applicant. This is considered further below, in the context of developments in private enforcement of antitrust laws. Application of the Leniency Notice: adding “signifi cant value” to the Commission’s investigation A Commission offi cial has recently emphasised (in a speech on cartel enforcement given to the 7th Annual Chicago Forum on International Antitrust Issues in June 2016) that a company is not entitled to a reduction simply because it provides evidence at a certain point in time in the order of those confessing their involvement, or because it uses its best endeavours to co-operate. A leniency applicant must provide the Commission with evidence which offers signifi cant added probative value relative to the information which it already has at that time on its fi le. Whether the information offered by a business is of signifi cant value to the investigation is therefore treated as a relative concept, and is judged by reference to what the Commission has already received. The relativity of the value of new evidence to evidence already collected was highlighted in the Gas Insulated Switchgear cartel appeal, where the General Court observed that “the added value of the contribution from an undertaking that decides to co-operate with the Commission, and therefore its reward, will always be dependent on what knowledge the Commission already has of the cartel(s) at issue” (Case T-251/12 EGL Inc v Commission (EU:T:2016:114) at para 182). Co-operation between the European Commission and NCAs in relation to leniency applications The Commission co-operates with NCAs in relation to leniency applications, through the “summary application” procedure, which is provided for under the Model Leniency programme, issued by the ECN. Summary applications are short form leniency applications submitted to NCAs at the same time as a full leniency application to the Commission, in order to protect an applicant’s place in a national leniency queue if the Commission subsequently decides not to pursue the case. The Commission’s recent consultation on empowering national competition authorities (referred to above) found that divergences in the way summary applications are applied were considered to be a problem by nearly half of respondents, in terms of the effective and consistent application of EU rules, legal certainty for business and incentives to apply for leniency. Only 19% of stakeholders had experience or knowledge of the system of summary applications. It remains to be seen

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Administrative settlement of cases Under the Commission’s 2008 Settlement Notice, cartelists may benefi t from a modest 10% reduction in fi nes in return for conceding guilt, waiving certain rights of defence, and accepting the Commission’s outline of the key elements of the infringement. This enables the Commission to adopt faster decisions under a simplifi ed and shortened procedure. A settlement does not protect cartel members against follow-on damages claims brought before national courts by companies harmed by the cartel (e.g. customers and suppliers). Since its introduction in June 2008, the number of settlement cases has been steadily growing with a total of 21 cartel settlement decisions adopted to date. In 2016, the Commission settled with fi ve leading European truck manufacturers for a record fi ne of €2.93bn (Case AT.39824 – Trucks; the normal cartel procedure continues against Scania who did not settle) and with three Japanese car parts manufacturers, imposing a fi ne of €137.8m for operating a cartel for alternators and starters (Case AT.40028 – Alternators and Starters). The Com mission generally seeks to agree settlement with all parties, and avoid so- called “hybrid” cases, where some but not all of the parties choose to settle. Such cases signifi cantly reduce the benefi t of settlement from the Commission’s perspective since, rather than conducting one pared-back procedure, the Commission team still has to run a full procedure respecting the rights of the defence for the non-settling addressees. Although the Commission tries to avoid settlement discussions in cases where it appears unlikely that all parties are prepared to co-operate, this has not prevented cases where one or more parties decided to opt out of settlement at a late stage. Seven “hybrid” settlement cases exist to date: Animal Feed Phosphates (Case AT.38866); Yen Interest Rate Derivatives (Case AT.39861); Euro Interest Rate Derivatives (Case AT.39114); Steel Abrasives (Case AT.39792); Canned Mushrooms (Case AT.39965); Trucks (Case AT.39824); and Alternators and Starters (Case AT.40028). A persistent issue in “hybrid” settlement cases is the Commission’s degree of impartiality in its normal cartel investigation into the non-settling parties after settling with the other parties. The fourth edition of GLI: Cartels reported on the General Court’s judgment upholding the nearly €60m fi ne imposed on Timab, which withdrew from settlement negotiations in the Commission’s fi rst “hybrid” cartel settlement (Case T-456/10 Timab Industries and CFPR v Commission (EU:T:2 015:296)). The case is now on appeal awaiting fi nal judgment by the ECJ (Case C-411/15 P Timab Industries and CFPR v Commission). In his July 2016 Opinion, the Advocate General (AG) recommends the appeal should be dismissed in its entirety. The AG believes in particular that a cartel participant which decides to withdraw from the settlement procedure cannot invoke any legitimate expectations from the “likely fi ne” ranges communicated by the Commission in the course of the settlement procedure. In 2016 the General Court confi rmed, in the Schenker, Deutsche Bahn and Panalpina World Transport judgments, the Commission’s broad discretion to determine whether a cartel case is suitable for settlement (Case T-270/12 Panalpina World Transport (Holding) and Others v Commission; T-267/12 Deutsche Bahn and Others v Commission and T-265/12 Schenker v Commission (EU:T:2016:109-111)), all on appeal before the ECJ). In other words, companies cannot claim a right to settle. The Commission is not even required to contact companies to verify their willingness to settle.

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Civil pe nalties and sanctions The Commission’s extensive fi ning powers Fines re main the most important tool in the Commission’s “enforcement toolbox” to sanction cartel behaviour. The EU Courts have consistently held that the Commission enjoys considerable discretion in setting cartel fi nes, although the exercise of that discretion is limited by the fi ning methodology set out in the 2006 Guidelines on the method of setting fi nes (OJ (2006) C 210/2). The Port ugal Telecom and Telefonica judgments illustrate that companies may successfully challenge the Commission’s calculation of fi nes in court. In these cases, the companies argued that the Commission had wrongly included certain sales in the amount used as the starting point for the fi ne calculation. The General Court agreed and held that the Commission must defi ne the infringement in a precise manner, where the fi ne is calculated on the basis of sales directly or indirectly concerned by the infringement (Cases T-208/13 Portugal Telecom v Commission and T-216/13 Telefonica v Commission (EU:T:2016:368-369)). Parent l iability A parent company can be held jointly and severally liable for the cartel conduct of its subsidiary where it can be demonstrated that, at the time of the infringement, the parent could in fact exercise decisive infl uence over its subsidiary (or joint venture). As a consequence, the Commission can hold the parent jointly and severally liable for payment of the fi ne imposed on the subsidiary, in which case the 10% upper fi ne limit is calculated using the parent’s turnover. In line with settled EU case law, the Commission systematically establishes parent liability on the basis of a rebuttable presumption of actual exercise of decisive infl uence where the parent owns (nearly) 100% of the subsidiary’s share capital (Case 97/08 Akzo Nobel v Commission (EU:C:2009:536)). The presumption has proven virtually impossible to rebut in practice since it requires proof that the subsidiary acted independently at the material time. This requires evidence on the organisational, economic and legal links between parent and subsidiary showing that they do not form a single economic entity. In the E vonik Degussa judgment, the ECJ clarifi ed that the presumption cannot be rebutted only by showing that the subsidiary acted against its parent’s instruction (including the explicit instruction not to engage in anti-competitive conduct). This confi rms previous case law according to which decisive infl uence does not require the subsidiary to carry out all the parent’s instructions, as long as the failure to carry out instructions is not the norm (Case C-155/14 P Evonik Degussa and AlzChem v Commission (EU:C:2016:446)). In a rare damages action (currently pending before the General Court), pre-stressing steel cartelist Ori Martin has claimed that its rights of defence have been breached because the ECJ failed to duly consider the arguments it had put forward to rebut the presumption. Ori Martin argues that it is only an “empty shell”, established for tax purposes in Luxembourg, and therefore lacked decisive infl uence over its 90% owned subsidiary (Case T-797/16 Ori Martin v European Union, judgment awaited). In any event, it has been clarifi ed that a parent’s fi nancial exposure, where its liability is based exclusively on the subsidiary’s conduct, cannot exceed that of its subsidiary. Accordingly, the General Court held in its UTi Worldwide judgment that it was wrong for the Commission to impose a fi ne on UTi Worldwide, as parent company, which was higher than the sum of the amounts for which its subsidiaries were liable (the difference was due to the rounding down of the duration of the subsidiaries’ participation resulting in a reduction of about one month) and on this basis reduced the fi ne for the parent (Case T-264/12 UTi

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Worldwide and Others v Commission (EU:T:2016:112)). The General Court ruled in Parker Hannifi n that a parent company may not be held liable for a 30% increase in the amount of the fi ne on the basis of the aggravating circumstance of the role of leader played by the subsidiary in the pre-acquisition period (Case T-146/09 RENV Parker Hannifi n Manufacturing and Parker-Hannifi n v Commission (EU:T:2016:411)). Successo r liability A parent company can be held liable only for conduct committed when it controlled the subsidiary. Successive parent companies thus cannot themselves be held jointly and severally liable for cartel conduct pre-dating their acquisition of the subsidiary (although see the comment on the principle of economic continuity below). The former parent company may remain jointly and severally liable for the conduct of its subsidiary whilst under its ownership, even if, when the decision fi nding the infringement is adopted, another person has subsequently assumed responsibility for operating the company. Accordin g to the principle of personal liability, liability for cartel conduct in principle follows the entity that actually committed the infringement. On the basis of this principle, the EU courts have taken the view that, as a rule, the infringing undertaking is liable as long as it remains in existence and has signifi cant economic activities. However, the need to ensure an effective enforcement of competition law may sometimes justify a derogation from this general principle, in particular in the case of intra-group restructuring. If, as a result of internal reorganisations, the infringing business unit disappears as a legal entity, its legal successor will normally be held liable. If the latter ceases to exist (e.g. in case of liquidation), its economic successor (i.e. the company of the group taking over its activities) will normally be held liable in application of the principle of economic continuity. In the Parker Hannifi n judgment, the General Court applied the successor liability principles as clarifi ed by the ECJ in a case referred back to it (Case T-146/09 RENV Parker Hannifi n Manufacturing and Parker-Hannifi n v Commission (EU:T:2016:411)). The Court found that the Commission had correctly held a company liable for the conduct of its economic predecessor with regard to the structural links that existed at the time of transfer of the infringing assets. In particular, such links existed because the transfer occurred between a parent and its wholly owned subsidiary over which it was presumed to have actually exercised decisive infl uence.

Criminal sanctions The Commission has no jurisdiction to impose criminal sanctions on individuals or businesses. However, ﬁ nes imposed for competition law infringements have been characterised by the European Court of Human Rights as “quasi-criminal”, and the requirement of a full review by an independent court under Article 6 of the ECHR must be respected. Many Member States have criminal sanctions for competition law infringements, but it is not common for a national criminal prosecution to follow on from civil infringement proceedings at EU level. This may be because the national rules of evidence for a criminal prosecution are stricter than the procedures followed by the Commission. However, cross- border investigations, particularly those involving the US authorities, will often collect evidence to the criminal standard from the outset. In such cases it is not uncommon for criminal charges to be brought against European individuals in the US courts, and European citizens have served time in US jails for their part in international cartel activities. In the Marine Hose case, three individuals were sentenced in the UK as criminal cartelists, following on from their prosecution and conviction in the US.

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Develop m ents in private enforcement of antitrust laws As discussed in the previous editions of GLI: Cartels, there is a policy at both EU and Member State levels to promote the private enforcement of competition law and encourage individuals who have suffered harm as a consequence of a competition law infringement to take direct action before national courts to enforce their rights before the national courts by way of a declaration of illegality, an action seeking injunctive relief, or an action seeking damages for loss suffered. Against this background, key issues at EU level in relation to private enforcement of competition law in 2016 have related to: • disclosu re (in particular, disclosure of leniency information); • requests by damages claimants for access to the Commission’s case fi le; and • requests for confi dential treatment of leniency information in infringement decisions. Disclosu re The extent to which incriminating documents provided to the Commission to obtain leniency should be disclosed to damages claimants in proceedings before national courts falls within the scope of the Damages Directive (discussed in detail in the third and fourth editions of GLI: Cartels). Thus Member States are required to ensure that under national law, corporate leniency statements and settlement submissions are immune from disclosure (both directly from the addressee and the Commission), and that a grey list of other documents prepared for and submitted during the administrative procedure should also be required to be held back, subject to assessment of the appropriateness and proportionality of disclosure. Member States were required to implement the Damages Directive by 27 December 2016 (although not all have completed the legislative steps). Quite how these protections will be deployed in practice at the national level remains to be seen. In many jurisdictions the provisions of the Damages Directive will not take effect on cartels subject to existing infringement decisions, so there is likely to be considerable delay before the new procedures take effect. Moreover, in practice, the corporate leniency statement is not required to bring a successful damages action: for example, in England & Wales, the courts now regularly require a redacted version of the Commission infringement decision and other “non- leniency” documents from the Commission’s case fi le (in the possession of the addressees) to be disclosed into a confi dentiality ring (which includes legal representatives of the claimants and addressees). This process appears to be suffi cient to permit such actions to proceed and, in the main, settle. The issue of disclosure of documents to damages claimants also arises in the context of proceeding before courts outside the EU, in particular, class actions brought in the US (where the disclosure process is known as “discovery”). Many international cartels investigated by the Commission are active in the US as well as in the EU, and civil class actions will often be fi led in the US whilst an investigation by the Commission is still on-going. Request s for access to the fi le As noted above, third parties are increasingly seeking to rely on the Transparency Regulation to obtain access to documents contained in the Commission’s case fi le to assist them in bringing damages actions. Such requests are generally rejected by the Commission on the basis of the general presumptions relating to the protection of the commercial interests of the undertakings involved in the investigation and the protection of the purpose of the investigations relating to the proceedings.

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Request s for confi dential treatment of informa tion in infringement decisions A related issue which has continued to be a “hot topic” in 2016 is the Commission’s treatment of requests for confi dential treatment of information in infringement decisions. Cartel participants will often seek to restrict the inclusion of information in the non-confi dential version of the infringement decision which could be helpful to damages claimants, in particular information submitted as part of a leniency application. In determin ing the extent to which such requests should be accepted, the Commission is faced with a diffi cult balancing act between its pol icy objective of encouraging private enforcement and its obligat ions of professional secrecy.

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Acknowledgment – Catherine Hammon Catherine Hammon is Counsel in Ashurst LLP’s Expertise department and works with the Competition and Antitrust team globally, supporting the European ofﬁ ces in particular. She specialises in UK and EU competition law, including cartels, dominant businesses, merger control and investigations by the competition authorities. Her Expertise role includes gathering and disseminating knowhow, running and presenting training programmes and generally ensuring technical excellence and ﬁ rst-class resources and documentation for her colleagues. Catherine also develops client training and technical marketing literature.

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Euan Burrows Tel: +44 207 638 1111 / Email: [email protected] Euan Burrows is a partner and Head of the Ashurst EMEA Competition & EU law department, based in London and Brussels. He specialises in all aspects of EU and UK competition litigation and competition law. He has considerable experience in dealing with the English Courts, European Commission and national competition authorities. He has acted on a number of high- proﬁ le cartel cases before the European Commission, including leniency and settlement cases. Euan is Vice Chairman of the UK Competition Law Association and also sits as a member of the Competition Appeal Tribunal User Group Advisory Panel.

Irene Antypas Tel: +32 2 641 9966 / Email: [email protected] Irene Antypas is a Counsel in Ashurst’s Competition & EU law department, based in Brussels. She has extensive knowledge and experience advising on EU competition and regulatory matters and acts for major companies in a variety of sectors, including agrochemicals, pharmaceuticals and consumer goods. Litigation before national and EU Courts forms an integral part of Irene’s work.

Laura Carter Tel: +44 207 859 2885 / Email: [email protected] Laura Carter is a solicitor in Ashurst’s EU & Competition team based in London. She advises on all aspects of EU and UK competition law including antitrust investigations, merger control, competition compliance and regulatory matters. Her experience includes advising on matters before the European Commission, UK Competition and Markets Authority, Financial Conduct Authority and Ofcom.

Ashurst LLP Broadwalk House, 5 Appold Street, London EC2A 2HA, UK Tel: +44 20 7638 1111 / Fax: +44 20 7638 1112 / URL: http://www.ashurst.com

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Ilkka Aalto-Setälä & Eeva-Riitta Siivonen Borenius Attorneys Ltd

Overview of the law and enforcement regime relating to cartels Legislation Cartel prohibition is based on both national statutory law and EU law. At the national level, cartels are prohibited in the Competition Act (Kilpailulaki 948/2011). At the EU level, Article 101 of TFEU prohibits cartels. The cartel prohibition in the Finnish Competition Act is of an administrative nature and the law does not prescribe any criminal sanctions to undertakings or individuals. There have been some major changes in Finnish competition legislation in the past 10 years. In 2004, the Finnish competition legislation of the time was harmonised with EU legislation (current Articles 101 and 102 of the TFEU). In 2011, the former Competition Act, the Act on Competition Restrictions (Laki kilpailunrajoituksista 480/1992) was repealed and the current Competition Act entered into force. The purpose of the Competition Act is to protect sound and effective economic competition from harmful restrictive practices. Section 5 of the Competition Act provides that “[a]ll agreements between business undertakings, decisions by associations of business undertakings and concerted practices by business undertakings which have as their object the signiﬁ cant prevention, restriction or distortion of competition or which result in the prevention, restriction or distortion of competition shall be prohibited.” In addition to the general prohibition on anti-competitive contracts, an example list of agreements, decisions and practices that are always deemed to be especially anti-competitive is provided. The example list is in line with Art 101 of TFEU and prohibits, for instance, direct and indirect price ﬁ xing, and limiting or controlling production, markets, technical development or investment. In Sections 8–11 of the Competition Act, the Finnish Competition and Consumer Authority (“the FCCA”, Kilpailu- ja kuluttajavirasto) has been given jurisdiction to: 1) prohibit the implementation of a restraint on competition; 2) order a competition restriction to be terminated and obligate an undertaking to deliver a product to another with non- discriminatory conditions; 3) impose commitments to be binding on undertakings or associations; and 4) withdraw the application of a block exemption regarding an undertaking. A new act 1077/2016 governing actions for damages for infringements of the competition law will enter into force on 26 December 2016 (“Damages Act”). The Damages Act is based on the “Damages Directive” (2014/104/EU) and it does not have retroactive effect. The Damages Act will be applied to actions based on infringements of national and EU competition law. It aims to, inter alia, clarify and ease the prosecution of actions for damages and to ensure full compensation for the harm suffered. Actions for cartel-based

GLI - Cartels 2017, Fifth Edition 104 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Borenius Attorneys Ltd Finland damages are brought before civil courts. In practice, the existence of a cartel is fi rstly evaluated in an administrative process by the FCCA; it is followed by court processes in the Market Court and possibly in the Supreme Administrative Court, and the damages are thereafter evaluated in a separate civil court process. In general, the right to claim damages expires within 10 years of the date on which the violation ended. There may also be other grounds for compensating damages than those provided in the Competition Act. Main bodies responsible for investigation, prosecution, decision-making and imposing sanctions The FCCA is the main investigative authority regarding cartels in Finland. Section 41 of the Competition Act provides that, in addition to the FCCA, the Regional State Administrative Agencies (Aluehallintovirasto) shall investigate competitive conditions and restraints on competition, and with the FCCA’s authorisation, take other measures to promote competition within their region. The role of the Regional Administrative Agencies has been insignifi cant in competition law-related investigations and it has been limited to conducting some minor measures regionally. The FCCA does not have the power to impose competition infringement-related sanctions on undertakings. The FCCA is, however, the only authority that has the right to propose a penalty payment to be imposed on an undertaking. The Market Court renders the actual decision on a penalty payment, and the payment is made to the Finnish State. Regardless of the important role of the FCCA as an investigative authority, the Market Court is not bound by the FCCA’s proposals and considers competition matters independently. A judgment of the Market Court can be appealed to the Supreme Administrative Court, as enacted in the Administrative Judicial Procedure Act. The Supreme Administrative Court’s judgment is the fi nal decision on the matter. As there are only a few cartel cases in the history of Finnish competition law, cartel cases are usually appealed to every instance. Damage claims are handled in civil courts; such claims could, thus, be handled in three instances, as infringement claims are handled in only two instances. The process of handling damage claims is a separate legal process from the administrative process. In the civil process the courts shall, inter alia, rule on a cartel victim’s right to claim damages, and the possible and proper amount of damages to be paid by the undertakings that have been involved in a cartel. Sanctions The Market Court may impose, on the proposal of the FCCA, a penalty payment for an undertaking or association of undertakings infringing provisions of Sections 5 or 7 of the Competition Act or Art 101 or 102 of TFEU. The maximum amount of a penalty payment is 10% of an infringing undertaking’s or association of undertaking’s annual turnover. The Market Court may also impose, either on the proposal of the FCCA or on its own proposal, a periodic penalty payment to an undertaking or association of undertakings to enforce a condition set, or an order, prohibition, or obligation issued by the FCCA. The amount of a periodic penalty payment is not enacted in the Competition Act. A periodic penalty payment may not be imposed on a natural person.

Overview of investigative powers in Finland The FCCA can investigate competition restrictions either on its own initiative or in response to a request for action. A competitor or any other legal or natural person can make a request for action on the FCCA’s website or through other means. During past

GLI - Cartels 2017, Fifth Edition 105 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Borenius Attorneys Ltd Finland years the initiative to cartel investigations has generally been triggered through tipoffs, but also the FCCA’s own operation reveals anticompetitive behaviour. The FCCA can obtain information on the alleged anti-competitive behaviour through inspections (usually referred to as dawn raids). Inspections on all premises are carried out by offi cials of the FCCA or by the Regional State Administrative Agencies. Offi cials can also authorise other persons to participate in the inspections. If needed, the police may provide executive assistance during the inspections. Inspections can also be carried out by the European Commission. The inspections in business premises are subject to an authorisation from the head of the FCCA and, for inspections elsewhere than in business premises, the FCCA and Regional State Administrative Agencies shall have an authorisation from the Market Court. Dawn raids can be targeted to business premises, storage facilities, land and means of transport controlled by an undertaking. The offi cials of the FCCA and the Regional Administrative Agencies may also gain access to other premises (e.g. homes of the management of a company) if there is a justifi ed reason to suspect that e.g. bookkeeping or other documents related to the business are held in such premises and the documents are of material relevance to the investigation of the alleged competition infringement. During inspections, the offi cials of the FCCA shall be permitted to assess business correspondence, bookkeeping, computer fi les and other relevant data and to take copies of documents under investigation. The FCCA may also utilise special search software to investigate the content of computers. Since 2015, the FCCA has the right to obtain information from outsourced services, such as business information stored on external service providers’ servers and cloud services. The FCCA may seal business premises or data if it is necessary to secure the execution of the inspection. The personnel can also be interviewed during inspections and the authorities are allowed to record the interviews. When conducting an inspection in premises other than business premises, the FCCA can enter the premises, examine materials and take copies. In other than business premises, the FCCA is not allowed to seal the premises or request explanations or make records during inspection. The undertaking under investigation has the right to have a legal representative present during an investigation but the presence of the representative is not a precondition for the execution of an investigation. An undertaking or association of undertakings is obliged to submit, on request of the FCCA, all the relevant information and documentation needed for the investigation of a competition restraint to the FCCA or to the Regional Administrative Agencies. The FCCA has the right to hear a representative of an undertaking or association of undertakings or another person if there is a justifi ed reason to suspect that a representative or a person has been involved in the execution of a cartel. The hearings are generally recorded.

Overview of cartel enforcement activity during the last 12 months During 2015, neither the Market Court nor the Supreme Administrative Court gave decisions on cartels, and the FCCA submitted only one penalty payment proposal. The submission concerned a suspected anti-competitive behaviour of a trade association. The FCCA also gave decisions not to investigate alleged cartels. The decisions concerned alleged cartels in the regional taxi market and in the market for sign language interpretation.

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Key issues in relation to enforcement policy The FCCA shall prioritise cases brought to its attention but it does not have a legal duty to act on every request for action. A case shall not be investigated if it is likely that no competition restriction has taken place, competition in the relevant market is considered functional even though a competition restriction has taken place, or the request for action is manifestly unjustifi ed. The FCCA has held that the prioritisation norm has been successful and enabled the FCCA to intervene with hard-core competition restraints. The FCCA’s strategic focus is to intervene when there is harmful market behaviour, which can relate to, inter alia, cartels, abuse of dominant position, and concentrations. As cartels usually endanger effective competition in the market, it is improbable that the FCCA would deprioritise a cartel investigation in Finland. As the case law illustrates, the FCCA usually intervenes with cartels even when they are smaller in their scope. The FCCA has not concentrated its investigative measures on any specifi c key sectors. The recent cartel enforcement judgments have been in the fi eld of industry, for instance, the raw wood cartel, the asphalt cartel and the alleged power line manufacturing cartel. Recent investigations of the FCCA shows that also alleged smaller scale infringements, which include hard-core restrictions like cartels, are monitored and intervened.

Key issues in relation to investigation and decision-making procedures Investigation procedure An undertaking or association of undertakings is obliged to provide all the relevant information on request to the FCCA. An undertaking has a duty to give all such information and documents as are needed to investigate the content, purpose and impact of a competition restraint, and to assess a concentration. An undertaking under inspection has the right to defence and to be heard. An undertaking is to be informed of its position in the investigation and the inspected infringement. In practice, an undertaking is to be informed at the earliest possible stage on what infringement it is accused of and what its status is in the investigation. An undertaking has the right to receive information from the documents concerning the investigation and on the phase of the proceedings insofar as it cannot harm the investigation in the matter. The information the FCCA has obtained during its investigation shall be utilised only for the purposes for which it has been gathered (unless the FCCA has initiated another investigation). The FCCA shall not force an undertaking or association of undertakings to confess to an infringement violating the Competition Act. An undertaking under investigation has the right to keep legally privileged documents (confi dential correspondence between an external legal consultant and the undertaking) confi dential. An undertaking under investigation has the right to be heard before a proposal on penalty payment is submitted to the Market Court. The “statement of objections” procedure was introduced in 2011. In practice it is unlikely that an undertaking’s comments on the FCCA’s proposal have a signifi cant infl uence on the FCCA’s evaluation but at least the undertakings have the possibility to correct possible misleading information and to safeguard the secrecy of their business secrets. Decision-making procedure There is a separate cartel unit at the FCCA which concentrates on the investigation of

GLI - Cartels 2017, Fifth Edition 107 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Borenius Attorneys Ltd Finland hard-core cartels and assessing leniency applications. The unit also develops the FCCA’s investigation procedures. When deciding whether an undertaking or association of undertakings has been involved in a cartel, the FCCA analyses evidence gathered during inspections. The evidence could be, for instance, fi nancial statements, bookkeeping, IT devices, other documents and data that could be of particular relevance in showing that a cartel has taken place. The FCCA may also hear representatives of an undertaking under investigation. The FCCA also utilises information and documentation provided by leniency applicants in its decision-making. The Competition Act does not provide any time frames during which a cartel investigation or a proposal for penalty payment shall be made. The procedures are generally long (may last for several years) but the FCCA has been focusing on shortening its processing times. Even though the FCCA is the main investigative authority regarding anti-competitive behaviour, it is not entitled to impose any sanctions on undertakings or associations of undertakings. Only the Market Court and the Supreme Administrative Court have jurisdiction to impose penalty payments and periodic penalty payments regarding cartels and other competition infringements. On the other hand, the Market Court may impose a penalty payment only on the basis of the FCCA’s penalty payment proposal. The right to appeal is enacted in Section 44 of the Competition Act. Only the undertakings to whom the decision is addressed or whose rights, obligations or interests are directly affected by a decision, can appeal. In general, a competitor is not able to appeal the FCCA’s cartel decision, because the decision is not addressed to it. Also, only the fi nal decisions of the FCCA are subject to appeal. The Act on Openness of Government Activities (julkisuuslaki, 621/1999) applies to the documentation utilised in the FCCA’s investigation and the written statements of the parties during court proceedings. The documentation shall, however, not be publicised before the investigation has offi cially ended and for as long as it could jeopardise the investigation or the handling of the case. In addition, business secrets are held confi dential throughout the FCCA’s investigation, the court proceedings and even afterwards as long as the information is relevant (e.g. pricing information of year 2014 can be held confi dential during that year and possibly also the next, but the information can no longer be relevant from the point of view of an undertaking’s business secrets in 2020). The penalty payment A penalty payment can amount to a maximum of 10% of an undertaking’s or association of undertakings’ annual turnover. Under the FCCA’s guidelines, penalty payments are targeted to reach two aims. On the one hand, a penalty payment shall be of punitive nature, and punish undertakings that have breached the competition norms. On the other hand, imposing a penalty payment should effectively hinder an undertaking’s or association of undertakings’ consideration of getting involved in a cartel, or from renewing any anti- competitive behaviour on the market. Penalty payments are regarded to have a general preventive purpose and an individual preventive purpose. When the FCCA assesses the proper amount of a penalty payment, it takes into account all the relevant aspects on the subject matter. The nature, extent, degree of gravity, degree of participation, renewal and measures to end the infringement are taken into account when the FCCA makes its proposal to the Market Court on the right amount of the penalty payment. The FCCA can mitigate and adjust the amount of penalty payment in cartel and in other competition restriction cases by case-by-case analysis. In practice, the Market Court

GLI - Cartels 2017, Fifth Edition 108 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Borenius Attorneys Ltd Finland has wide discretion in assessing the amount. In certain circumstances, the Market Court may also decide not to impose a penalty payment even if an undertaking was held to have infringed competition laws. Under the Administrative Judicial Procedure Act, the Market Court is entitled to reduce or even withdraw a penalty payment if the administrative and investigation process of the FCCA has been delayed and an undertaking’s right to access to justice has been infringed. A penalty payment may also be imposed on an undertaking or association of undertakings to whom a business activity involved in the infringement has been transferred due to a transaction.

Leniency regime The leniency procedure enables the fi rst undertaking or association to reveal a cartel to obtain full immunity from penalty payment. Granting full leniency requires that an undertaking submits an application for leniency to the FCCA and provides the FCCA new information on a cartel. Information provided by the applicant must present suffi cient grounds for the FCCA to conduct a dawn raid or, after an executed dawn raid, present such evidence as enables the FCCA to state that a cartel has taken place. Regardless of leniency granted, the undertaking subject to leniency may later be obliged to compensate damages caused by the cartel. In addition to the criteria relating to the quality of information, certain behavioural commitments may be demanded from a leniency applicant. To obtain leniency, the applicant shall immediately end its participation in the cartel. It shall also co-operate with the FCCA through the whole investigation and provide additional information when necessary. The applicant shall not destroy any evidence before or after the delivery of its leniency application. Finally, the applicant shall keep the submission of its leniency application confi dential. The FCCA grants conditional leniency to an applicant until the investigation has been fi nished. The fi nal decision on full or conditional leniency is concluded at the end of the investigation. Leniency can be either full or partial. The fi rst leniency applicant to provide suffi cient information to the FCCA obtains full immunity. Any possible succeeding applicants with new information may be granted partial leniency. The second, third and fourth undertakings or associations to unveil a cartel may obtain rebates amounting to 30-50% (to the second applicant), 20-30% (to the third applicant) and a maximum of 20% of a penalty payment to the fourth applicant. The criteria to submit information and other behavioural obligations apply to both partial and full leniency. Consequently, the Finnish leniency policy is in line with that of the European Commission. There is no defi ned form for an application for leniency. However, it is essential that the moment of the provision of information to the FCCA can be determined in order for it to defi ne the order of priority in granting leniency. Therefore, an application should be delivered either in person (by a representative of the undertaking or an external counsel) or electronically to the FCCA. The leniency regime is applied occasionally in Finland. In 2014, Empower Ltd revealed a cartel in the power line market and was granted immunity from the penalty payment. In the spare part cartel of 2009, Arwidson Ltd acted as a whistle-blower and a penalty payment was not proposed by the FCCA.

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One of the biggest Finnish cartels, the asphalt cartel, was revealed without any of the cartel members coming forward. The FCCA initiated investigations based on tipoffs.

Administrative settlement of cases The Competition Act does not entitle the FCCA to enter into a settlement with an undertaking. According to the preparatory works of the Competition Act, such procedures would not offer substantial beneﬁ ts for handling infringement cases and would not ﬁ t well into the existing legal framework or the Finnish legal tradition.

Third party complaints In addition to leniency applications, third parties may also reveal a cartel to the FCCA. In principle, anyone can make a request for action to the FCCA or unoffi cially tip off the FCCA. A private person would, however, not benefi t directly from making a request for action as there is no threat of competition law sanctions for private individuals. Moreover, an offi cial tip-off does not necessarily lead to the initiation of an investigation, as it is at the FCCA’s discretion to decide whether or not to open an offi cial investigation.

Civil penalties and sanctions The main penalty for breaching the Competition Act is the administrative sanction of penalty payment which is imposed by the Market Court. Apart from penalty payments and despite granting leniency, a member of a cartel may be ordered to pay damages to cartel victims affected by a cartel. The only sanction that may be passed in the civil process is this duty to pay damages to cartel victims. The Finnish legal system differs from some other jurisdictions in which a criminal sentence is also possible as a result of a competition law infringement. The damage claims are brought before civil courts and usually handled after the administrative process has ended. The District Courts are reluctant to evaluate whether a cartel has taken place as they are not specifi ed in competition matters. If a damage claim is exceptionally fi led in a district court before an administrative investigation on the matter has been fi nalised, it is likely that the court will delay its ruling until the FCCA has conducted its investigations and (at least) the Market Court has ruled on the case. Under the Damages Act, any natural or legal person who has suffered harm caused by an infringement of competition law is able to claim and to obtain full compensation for that harm. Full compensation shall cover the right to compensation for actual loss and for loss of profi t, plus the payment of interest. Under the Damages Act, an infringement of competition law found by a fi nal decision of a national competition authority (the FCCA) or by a review court is deemed to be irrefutably established for the purposes of an action for damages brought before their national courts under Article 101 or 102 TFEU or under national competition law. And where a fi nal decision is taken in another Member State, it should be presented before their national courts, at least as evidence that an infringement of competition law has occurred. There is a new Section about the qualifi cation of harm. Under the Damages Act it shall be presumed that cartel infringements cause harm. The infringer shall have the right to rebut that presumption. It shall also be ensured that neither the burden, nor the standard of proof required for the quantifi cation of harm, render the exercise of the right to damages practically impossible or excessively diffi cult.

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Joint and several liability is also something new. It means that undertakings which have infringed competition law through joint behaviour are jointly and severally liable for the harm caused by the infringement of competition law; with the effect that each of those undertakings is bound to compensate for the harm in full, and the injured party has the right to require full compensation from any of them until he has been fully compensated. There are some exceptions for small or medium-sized enterprises. An infringer may recover a contribution from any other infringer, the amount of which shall be determined in the light of their relative responsibility for the harm caused by the infringement of competition law. The amount of contribution of an infringer which has been granted immunity from ﬁ nes under a leniency programme shall not exceed the amount of the harm it caused to its own direct or indirect purchasers or providers. The passing-on of overcharges means that ensuring the full effectiveness of the right to full compensation, compensation of harm can be claimed by anyone who suffered it, irrespective of whether they are direct or indirect purchasers from an infringer, and that compensation of harm exceeding that caused by the infringement of competition law to the claimant, as well as the absence of liability of the infringer, are avoided. The burden of proving that the overcharge was passed on shall be on the defendant.

Right of appeal against civil liability and penalties As damage claims are brought before civil courts, they can ultimately be handled in three instances, ﬁ rst in the district court, and thereafter appealed to the Court of Appeal and the Supreme Court. Usually the administrative process takes place before the damage claim process, which means that cartel-related proceedings can take up to several years.

Criminal sanctions Cartels are not criminalised in Finland. There has, however, been discussion on the criminalisation of cartels, and two reports on the issue were published in spring 2014.

Cross-border issues The ECN (the European Competition Network) consists of the European Commission and the competition authorities in the Member States. The FCCA, as the national competition authority, is part of the ECN. The FCCA also co-operates actively with the other competition authorities in the Nordic countries and the OECD (Organization for Economic Cooperation and Development). Participating in international co-operation enables the FCCA to provide and receive executive assistance in relation to competition restriction investigations. According to the FCCA’s website, the FCCA handles annually several competition matters that have a cross- border element. In addition, it participates in ca. 50 international working groups’ activities.

Developments in private enforcement of antitrust laws There are three signiﬁ cant, legally valid cartel decisions given by either the Market Court or the Supreme Administrative Court in the past years: the raw wood cartel judgment; the asphalt cartel judgment; and the spare part cartel judgment. However, the question relating to private enforcement of cartels is not yet very developed in Finland. In the asphalt cartel case, the Helsinki District Court’s judgment covered over 140 damage claims. The Court ruled that most of the claimants were entitled to claim

GLI - Cartels 2017, Fifth Edition 111 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Borenius Attorneys Ltd Finland damages but dismissed, for instance, the damage claims of the Finnish State as the State was considered to have known of the cartel. The Court developed important interpretations on the applicable compensation norms, the general statutory limitation norms and the distribution of liability of undertakings which have ceased their operations. In the raw wood cartel case, over 600 cartel victims have fi led claims for damages. The District Court, as the court of fi rst instance, dismissed in total 13 damage claims in March 2014 as they were considered to fall under the statute of limitations. In November 2014, the Helsinki Court of Appeal held that the cartel victim’s right for compensation had, in fact, not expired. The Helsinki Court of Appeal stated in its recent decision that the statute of limitations period had begun only after the Market Court’s cartel judgment had become legally valid on 4 January 2010, whereas the Helsinki District Court had interpreted that the statute of limitations period had commenced when the FCCA published its news release on 25 May 2004. The matter was, thus, returned to the Helsinki District Court which is expected to rule on the main legal question on whether a forest owner is entitled to compensation for damages caused by the cartel. In the spare part cartel case, the damage claims against the leniency receiver Arwidson Ltd were rejected. The Court ruled that Arwidson’s participation in the cartel lasted only an insignifi cant period and there was no causal link between the caused damages of the cartel and Arwidson’s conduct in the market. The case was appealed to the Court, and the Court gave its ruling in spring 2016. The Case has been appealed to Supreme Court so it is still uncertain what will be the result. The concept of private enforcement regarding competition infringements remains open for discussion because the damage claims are follow-on cases, and they have been handled only in the fi rst instance. The Supreme Court will rule on the cartel-based damages in the future. Another issue regarding these damage claims is that the mentioned cartels have existed before the adoption of the Competition Act and the courts have applied, among other legal grounds, the legal provisions of the repealed Competition Restriction Act to the damage claims. The Competition Restriction Act entitled only undertakings to claim damages arisen from competition restraints. As the Competition Act does not set restrictions on the party which can claim damages for competition restriction, the legal protection of cartel victims is now wider than before. The upcoming rulings of courts of second and third instance in the mentioned cartel cases shall determine whether the victims of the cartels, who are not undertakings, have right to claim damages pursuant to the Competition Restriction Act. This case law will, however, not have signifi cant impact on rulings concerning cartels which have existed during the Competition Act, due to the different defi nition of cartel victims in the two pieces of legislation.

Reform proposals The Ministry of Employment and the Economy has appointed a working group to investigate a reform of the Finnish Competition Act. The matters to be examined include, among other issues, legal security regarding the amount of ﬁ nes companies are ordered to pay in relation to competition law infringements and the possibility to challenge the legality of a dawn raid decision. The working group also examines the possibility for the FCCA to prevent a person suspected of participating in a cartel from carrying on in business, or to order structural changes in the market in order to restore functioning competition. The working group’s term of ofﬁ ce ends in spring 2017.

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Ilkka Aalto-Setälä Tel: +358 20 713 3545 Email: [email protected] Ilkka Aalto-Setälä has worked for over 20 years with antitrust and merger control matters. Ilkka successfully defended his client against the Finnish Competition Authority’s ﬁ rst attempt (Digita/Yle/Telia) to prohibit a merger deal. Ilkka advises companies and governmental agencies on competition and marketing law issues at national and EU level, including merger control, abuse of dominant position, cartels, state aid and public procurement. Ilkka also litigates on a regular basis before the Finnish Market Court and the European Commission. Ilkka has advised numerous domestic and foreign clients on M&A transactions and cooperation arrangements. Important authority bodies, such as the National Emergency Supply Agency, have also been among his clients. Ilkka is currently a member of the working group investigating changes to the current Competition Act which came into force in November 2011. The Ministry of Employment and Economy appointed the working group on 28 August 2015.

Eeva-Riitta Siivonen Tel: +358 20 713 3294 / Email: [email protected] Eeva-Riitta advises clients on public procurement, competition law, state aid and public law related matters. Eeva-Riitta is specialised in public procurement law, and has completed a post-graduate LL.M. degree on Public Procurement Law and Policy at the University of Nottingham. Before graduating from the University of Turku and joining Borenius as a Lawyer, Eeva-Riitta worked as a trainee at Borenius and as a thesis trainee in a defence and security technology company. She has also gained working experience from an insurance company.

Borenius Attorneys Ltd Eteläesplanadi 2, FI-00130 Helsinki, Finland Tel: +358 20 713 333 / Fax: +358 20 713 3499 / URL: http://www.borenius.com

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Bastien Thomas and Cécile Mennétrier Racine

Brief overview of the law and enforcement regime relating to cartels Article L 420-1 of the French Commercial Code (the “FCC”) is equivalent to Article 101 of the Treaty on the Functioning of the European Union (the “TFEU”). It prohibits “concerted actions” or “agreements or coalitions”, whether “express or tacit”, implemented by undertakings or associations of undertakings, that have as their object or may have as their effect to prevent, restrict or distort competition. Article L 420-1 FCC applies to both vertical and horizontal agreements. When the internal market is affected by a practice, i.e. when trade between Member States of the European Union (“EU”) is affected, Article 101 TFEU can apply cumulatively. Several entities are in charge of enforcing competition law in France. The French Competition Authority The French Competition Authority (FCA) is an independent administrative body that has jurisdiction, pursuant to Article L 462-5 FCC, to enforce EU and French competition law. Its decisions are adopted by a college (the “Collège”) headed by a president. As an administrative body, the FCA is entitled to impose ﬁ nes on companies violating national and/or EU competition law, and to issue orders or interim measures either to end or modify the anti-competitive behaviour. However, the FCA is not in charge of granting damages to the victims of anti-competitive practices. The FCA also has an advisory role. Its opinion can be requested by national courts on a pending case1 (known as the “amicus curiae” procedure), by other administrative bodies2, by the Government or by professional associations. The FCA can also issue ex ofﬁ cio opinions on certain issues relating to competition law3. It has used this tool twice in 20164: in the internet advertising sector (investigations are pending); and in the hearing aid retail sector. National courts French courts are also in charge of enforcing EU and national competition rules. Appeals against FCA cartel decisions must be brought before the Paris Court of Appeal (the “Court of Appeal”). Appeals against decisions of the Court of Appeal can be brought before the Supreme Court (the “Cour de cassation”). Commercial or civil courts that have special jurisdiction over competition matters may award damages to victims of anti-competitive practices. Administrative courts may also award damages insofar as public contracts have been impacted by anti-competitive practices (this applies mostly to bid-rigging practices)5.

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The Minister for the Economy Since 2009, the Minister for the Economy has only had residual powers to enforce competition law rules. Its Directorate General for Competition, Consumer Affairs and Prevention of Fraud (the “DGCCRF”) is entitled, pursuant to Article L 464-9 FCC, to investigate and ﬁ ne anti- competitive practices, insofar as the following conditions are met: • the market affected by the practice has a “local dimension”; and • the turnover of each of the undertakings concerned does not exceed €50m in France and their aggregate turnover does not exceed €100m. In addition, the Minister for the Economy can bring cases before the FCA and may submit observations in any procedure before the FCA, in particular cartel cases. The Minister for the Economy may also appeal FCA decisions before the Court of Appeal. In practice, the Minister for the Economy has never appealed any cartel decision of the FCA since 2009.

Overview of investigative powers in France Under Article L 450-1 FCC, competition law investigations can be carried out either by the investigation team of the FCA, or ofﬁ cials of the DGCCRF. Their investigative powers, set out in Articles L 450-1 to L 450-8 FCC, vary in accordance with the type of investigation conducted. Ordinary investigations Ordinary investigations carried out on the basis of Article L 450-3 FCC do not require a prior judicial authorisation. Investigations can be undertaken in any professional premises or means of transport from 8.00 am to 8.00 pm, or during public opening time, or during production, manufacture, transformation, packaging, transport and marketing activities. The powers of the investigators were increased in 2014 (“Hamon Law” of 17 March 2014) and 2015 (Law for Economic Growth, Economic Activity and Equality of Economic Chances, so-called “Macron” Law, of 6 August 2015). They can now require, of anyone who may hold it, the provision of any information − including any professional document such as books, invoices, professional agenda, meeting reports, etc., but also any software, stored data and information in intelligible form − that may help them in completing their investigation. It means not only that investigators may take copies of such documents, but they may also collect any information necessary to the inspection and that they require from employees. Investigators may also organise hearings on the basis of this article. This provision (paragraph 4 of Article L 450-3 FCC) has been declared compliant with the French Constitution by the Conseil Constitutionnel in 20166. In practice, investigators may inform the targeted company of their coming and communicate a list of the documents they will request. There is no speciﬁ c procedure for challenging ordinary investigation operations or minutes of a hearing. They can only be challenged during the procedure before the FCA or later on appeal. Dawn raids Article L 450-4 FCC grants the FCA and the DGCCRF the power to carry out dawn raids under judicial authorisation given by a special judge in charge of liberties and custody (“juge des libertés et de la détention”).

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These investigations can be carried out from 6.00 am in any premises (including means of transport), whether professional or personal (investigators can visit executives or employees’ domiciles). Investigators, who are assisted by police offi cers (contrary to European Commission dawn raids where no police offi cer attends), can search the premises, place seals and seize original documents (unlike the European Commission, which can only take copies of documents). They may seize any document or any information support in connection with the alleged practices. Concerning the seizure of electronic data, investigators take away either the physical medium or a copy of the data. When the physical support is seized, which is rather rare, a copy of the data contained must be given to the company. The French Supreme Court has validated the global seizure of electronic data, considering that the data contained in a mailbox or a hard drive is indivisible. Therefore, restitution of some electronic data (in particular, data that is irrelevant to the investigation or legally privileged) can only be claimed ex post (i.e. after the dawn raid). As for the process of selection of electronic documents that investigators are interested in seizing, a list of key words is used. The French Supreme Court held that this list does not have to be communicated to the company. Investigators may hear the premises’ occupant or his/her representative(s) on site in order to collect useful information for their investigation. On the basis of press releases published by the FCA, four dawn raids have been carried out by the FCA in 2016: in the fi re safety equipment business7; in the postal franking machine business8; in the sandwiches processing business9; and in the energy services business10. According to Article L 450-8 FCC, obstructing an investigation can lead to a €300,000 fi ne and a two-year term of imprisonment. To date, there has been an extremely limited number of cases where these rules have been enforced.

An overview of cartel enforcement activity during the last 12 months In 2016, the FCA adopted nine decisions in six different cases concerning practices that may be qualifi ed as cartels. The total amount of fi nes for these cartels was €17m − much less than the total amount of fi nes of 2015 (€881.3m), although the latter was mostly due to one single case11. School buses12 Four competitors implemented bid-rigging practices in the school bus sector in Eastern France over three years. Each year, these companies pooled together in order to jointly participate in the call for tenders launched by local public authorities. The aim of this artifi cial pooling was to allocate bus lines between competitors, thereby freezing their market shares. The total amount of fi nes was €193,000. It is worth mentioning that this was the fi rst time that the FCA had to rule on a case brought before it after the companies had rejected a proposal of settlement by the Minister for the Economy. Should a settlement with the Minister for the Economy have taken place, the level of fi nes would have been substantially lesser. An appeal is pending. Construction and public works on La Réunion island13 Between June 2006 and April 2008, two major suppliers and the main distributor of welded mesh and metal frames processors on the island entered into an agreement with a new entrant according to which the latter would act on the market only as subcontractor and not as a competitor. In addition, between 2005 and 2011, a large part of the players of

GLI - Cartels 2017, Fifth Edition 116 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Racine France the business (transporters, processors, traders/resellers) implemented a number of practices aimed at ensuring that the price of welded mesh was less favourable for resellers which were not members of the cartel. The FCA qualifi ed these practices as a serious infringement insofar as they have frozen competition in this overseas territory. The total amount of the fi ne was €5,021,000. An appeal is pending. Liquid fuel backup heating units cartel14 Between March 2005 and September 2008, PVG and Ligne Plus colluded in order to fi x prices on the wholesale market and the consumer market for low-cost liquid fuel backup heating units sold to supermarkets. At that time, PVG was a dominant actor with a 79% market share. Ligne Plus held the remaining 20%. Moreover, these two companies agreed on a pact consisting in the sharing of customers. PVG and Ligne Plus did not challenge the objections. Both undertakings therefore benefi ted from a 16% reduction of the fi ne incurred. Considering PVG’s fi nancial diffi culties, the FCA applied a 50% reduction of its fi ne. The total amount of fi nes was €8,218,000. An appeal is pending. Modelling sector15 From 2000 to 2010, the main modelling agencies’ trade associations drafted and distributed pricing grids as guidance for their members. These pricing grids covered minimum salary and the total price that clients were invoiced for modelling services. They mentioned the model’s remuneration and the agencies’ margin. Thirty-seven modelling agencies (representing almost the entire market players) took part in statutory meetings during which they voted on increasing union prices. This was the last time the FCA used its former settlement procedure. The total amount of fi nes was €2,381m. An appeal is pending. Professional kitchen equipment sector16 From 1994 to 2004, GIF, a cooperative of companies active in the supply, installation and maintenance of professional kitchen equipment, organised an anticompetitive agreement between its members. The rules governing the cooperative contained exclusivity clauses and organised market allocation; indeed, any member which did not comply with the rules of procedure could be fi ned or excluded from the cooperative. This was the fi rst time that the new settlement procedure was applied, and it was a hybrid case (i.e. where not all the companies opted for settlement). As a result, the fi nes of the two companies which opted for such procedure were reduced to €45,00017 and €120,00018. GIF was fi ned with €400,000. The time-limit for appeal is still open. Property management sector19 Between April 2012 and January 2013, two companies exchanged information on prices in the framework of public calls for tender. The FCA considered that such exchanges violated competition law. Insofar as one of the companies involved in the cartel agreed to settle, the fi ne imposed was €40,000. The other company which did not settle was fi ned €560,00020. The time-limit for appeal is still open for both decisions. Four of these cases were initiated by the FCA itself. Two had been initiated further to a referral by the French Minister for the Economy21. The Court of Appeal issued seven decisions regarding cartels in 2016. The Court of Appeal confi rmed all the decisions of the FCA, although slightly reducing the level of fi ne in four of them. In three other cases, it entirely dismissed the appeal22. In the hygiene and cleaning products case, in which several suppliers of hygiene and cleaning products exchanged information on the negotiations and commercial conditions granted to retailers23, the Court of Appeal confi rmed almost all of the 2014 FCA’s decision

GLI - Cartels 2017, Fifth Edition 117 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Racine France and overturned it only concerning the amount of fi ne applied to two companies24. This resulted in the total fi ne being reduced by €2m for two members of the cartel, taking into account their low participation or their commitments. In the wallpapers case, in which several companies exchanged information concerning their commercial conditions, market forecasts and the evolution of their turnover25, the Court of Appeal overturned the 2014 FCA’s decision only on the amount of fi ne for six companies26,, taking into account the fact that they were mono-product. In the third case, concerning the electric works sector27 in which the companies participated in bid-rigging practices, the Court of Appeal overturned the 2011 FCA’s decision on the amount of the fi ne28. It ruled that belonging to a group is not itself suffi cient to increase the fi ne of a company. Reviewing an old case of the former Conseil de la Concurrence29, the Court of Appeal quashed a 1996 decision concerning bid rigging practices in the public works business in southern France30 on procedural grounds (violation of article 6 § 1 of the ECHR). Judging the case itself, the Court of Appeal reduced the fi ne decided by the FCA given that the company had participated in only one infringement and not two, contrary to what had been decided by the Conseil de la Concurrence. The Supreme Court issued two decisions concerning cartels in 2016. In November 201631, it overturned a decision of the Court of Appeal32 that had itself overturned a 2012 fi ning decision of the FCA concerning the French-German fl our cartel33. The Supreme Court ruled that some of the undertakings did not take part in the cartel aiming at fi xing prices for packaged fl our. However, the Supreme Court upheld the FCA’s decision concerning the French-German cartel (but only for one company). In October 2016, the Supreme Court dismissed the appeal of mobile phone company, Orange34. The Supreme Court ruled that Orange, which was a competitor of the companies fi ned by the FCA, was not entitled to attend the hearing before the Collège. Moreover, Orange was not entitled to access to confi dential documents.

Key issues in relation to enforcement policy generally Bruno Lasserre was replaced by Isabelle De Silva as head of the FCA on 15 October 2016. The new president has announced that her enforcement priorities will focus on the digital economy. The retail distribution sector and the food sector will also continue to be at the heart of the FCA’s action. This has already been the case in 2016; for instance, the FCA carried out a dawn raid in September 2016 in the sector of manufacturing and distribution of sandwiches intended for mass distribution. In the coming months, it is very likely that all the sectors that have a direct link with the price paid by fi nal consumers will continue to be the focus of the FCA. For instance, an investigation is pending in the optical lenses sector and, as mentioned above, the FCA will soon issue its ex offi cio opinion on the hearing aid retail sector. In addition, other sectors may be investigated, depending on the complaints. Indeed the FCA, unlike other European competition authorities, does not benefi t from a discretionary prosecution system that would enable it to decide whether to initiate proceedings over a case or not. Once a complaint is brought before the FCA, it is compelled to investigate and issue a decision on the merits of the case. Nevertheless, the FCA may, on its own initiative, decide to open an investigation on a particular suspected anti-competitive practice. In practice, it is the head of the investigation team (the “Rapporteur General”) who suggests opening an investigation. He may also decide to open a case when prior investigations have been led by the DGCCRF.

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Key issues in relation to investigation and decision-making procedures The implementation of the new settlement procedure coming from the above-mentioned “Macron” Law of 6 August 2015 is the most interesting issue in 2016. This new procedure had replaced the former one which consisted in not challenging the objections raised in exchange for a reduction of the fi ne incurred, this reduction being higher in case of commitments entered into by the companies. Under the new regime, after the issuance of the statement of objections, the companies are offered the possibility to discuss a potential fi ne range with the investigation team of the FCA. The level of this fi ne will ultimately be decided by the College of the FCA on the basis of a proposal of fi ne range agreed by the company and the head of the investigation team. The FCA applied this text by anticipation in a case concerning an abuse of dominance implemented by Orange in 201535. Since then, three antitrust cases have been settled under this provision: one related to exclusive imports in the French overseas territories (prohibited by Article L 420-2- 1 FCC)36, while the two other cases concerned cartels. Two decisions concerned the professional kitchen equipment sector cartel37 and the third one concerned a property management sector cartel38. The fi nes applied by the FCA in settlement cases are relatively low. Nonetheless, since settlements are confi dential, it is not possible to precisely compare the fi ne imposed with the potential fi ne which would have been allocated without settlement. Moreover, since the practice is new, it is too early to draw a general conclusion. It is worth mentioning that if a case is split into several decisions because one of the competitors does not want to settle, all the decisions will be published by the FCA once the last decision has been released. The issuance of a notice on this new settlement procedure has been announced by the FCA.

Leniency/amnesty regime In France, the Leniency Program was introduced in 2001 by the Law on New Economic Regulations. So far, the FCA has issued 11 decisions based on leniency applications. In recent years, leniency cases have remained quite rare. Indeed, only two decisions based on leniency were issued in 2015 (only one leniency application has been made), and none in 2016. To enhance the attractiveness of this proceeding, the FCA published a revised procedural notice on leniency on 3 April 2015, describing in detail how the French programme works and under which conditions companies can beneﬁ t from it (see above). At this moment, it is still too early to assess the results of this reform, no decision having applied these new rules yet.

Administrative settlement of cases and plea bargaining French law provides for two distinct settlement procedures. Classic settlement As mentioned above, a new settlement procedure has been introduced in France by the “Macron” Law. It replaces the former procedure allowing companies which did not challenge the statement of objections to benefi t from reduction of the fi ne up to 25%. The new procedure introduced at Article L 464-2 III FCC still enables companies to benefi t from a reduction of the fi ne, but under different conditions which are supposed to encourage them to engage more in settlement procedures (see above).

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Commitments procedure Under Article L 464-2 FCC, companies suspected of anti-competitive behaviour can propose to the FCA, prior to the issuance of a statement of objections, to enter into commitments that are likely to put an end to the practices at issue. However, the FCA stated in its 2009 notice on commitments that it would not apply this procedure to cases where damage to the economic public order required ordering a ﬁ ne. Thus, cartels are a priori excluded.

Procedure for third party complaints Companies can fi le a complaint before the FCA, but individuals cannot. They can only draw the FCA’s attention on alleged anti-competitive behaviour, potentially leading the FCA to open an investigation ex offi cio. As mentioned above, the FCA has no discretionary prosecution power. It has an obligation to consider any complaint that it receives, as long as it is suffi ciently detailed and falls within the scope of its jurisdiction. Nevertheless, the FCA is free to organise its schedule and prioritise the cases depending on their level of harmfulness. Complainants can appeal the decision of the FCA before the Court of Appeal.

Latest developments and key current issues in relation to civil penalties and sanctions Pursuant to Article L 464-2 FCC, calculation of the fi ne is based on the following criteria: • the seriousness of the facts; • the gravity of the damage to the economy; • the situation of the company or the group that holds it; and • the possible reiteration, if any, of anti-competitive practices. In order to bring more transparency to the calculation of its fi nes, the FCA published on 16 May 2011 a procedural notice on the method of calculation of fi nes. In its notice, the FCA details the steps leading to the determination of the fi nal amount of the fi ne: • First, the FCA determines the basic amount of the fi ne for each company, taking into consideration the seriousness of the facts and the gravity of the damage to the economy. In order to do so, the FCA generally takes into consideration a certain percentage (up to 30% in cartel cases) of the turnover achieved by the company over the last-ended fi nancial year of participation in the anti-competitive practice through the sale of the products or services in relation to the anti-competitive practice (specifi c rules apply for bid-rigging, however). To date, the maximum rate applied in cartel cases has been of 20%39. • Then, this basic amount is modulated to take into consideration elements that are specifi c to the behaviour and the individual situation of each company (reiteration is, however, considered as an autonomous criterion). Thus, if a company had a leading role in the implementation of an anti-competitive practice, this will be considered by the FCA as an aggravating circumstance justifying increasing the fi ne. Belonging to a large group can also lead to an increase in the fi ne. By contrast, if a company’s role has been limited, the amount of its fi ne can be decreased. Moreover, the FCA can reduce the fi ne for a single-product company. This was the case, for instance, in the construction and public works in La Réunion Island case in which Arma Sud Reunion was entitled to a 60% reduction.

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• In case of reiteration, the amount can be increased up to 50%, the exact percentage depending on the time elapsed between the previous infringement and the beginning of the practice at issue, and on the nature of the infringements at issue. When the latest infringement dates back more than 15 years, the FCA does not take reiteration into account. • The result is compared to the legal maximum which is, for each company, 10% of the highest tax-free global turnover over one of the ended fi nancial years preceding the fi nancial year during which the anti-competitive practice occurred. Finally, the company can benefi t from a full immunity or a reduction of the fi ne if the leniency program is applicable, and the amount may be adjusted according to the company’s ability to pay. For instance, in the liquid fuel backup heating units case, the fi ne incurred by PVG was reduced up to 50% by the FCA to take into account their severe fi nancial diffi culties. It is worth mentioning that the FCA can depart from this method in specifi c cases. Under Article 82 of the Law against organised crime, terrorism and aiming at reinforcing the effi ciency of the French criminal procedure of 3 June 2016, all the fi nes allocated by the FCA (and some other public authorities) can potentially be increased up to 10%, to fund victims’ assistance.

Right of appeal against civil liability and penalties in a cartel infringement decision Cartel infringement decisions of the FCA can be appealed before the Court of Appeal. Four cartel decisions issued by the FCA in 2016 have been appealed and for the four others, the time-limit for appeal has not come to an end. Three of these decisions being settlement procedures, it is therefore unlikely that these decisions would be appealed. The Court of Appeal can always lower the amounts of sanctions imposed by the FCA. According to the principle of non-aggravation of the ﬁ ne, the Court of Appeal cannot raise the amount of the ﬁ ne, except if the Minister for the Economy appeals the decision and asks the Court to do so (which is extremely rare). The table below shows the number of appeals against cartel decisions of the FCA since 2011.

Year Cartel decisions Appeals before the Court of Appeal Appeals Number % dismissed 2011 540 3 60% 1 2012 341 2 66.7% 0 2013 342 2 66.7% 043 2014 344 3 100% 145 2015 4 3 75% 146 2016 9 447 44.4% -

The table below shows the percentage of success of appeals against cartel decisions of the FCA (in terms of aggregated level of ﬁ nes) since 2011.

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Year Aggregated level of fi nes ordered Aggregated level of % of aggregated fi ne by the FCA in decisions subject to fi nes after appeal reduction appeal 2011 €387,105,690 €378,445,605 3% 2012 €246,392,590 €139,412,000 43% 2013 €84,576,493 €81,676,599 3%48 2014 €961,711,840 €869,853,183 10% 2015 €881,338,000 - N/A 2016 €12,130,000 - N/A

Criminal sanctions in respect of cartel infringements Article L 420-6 FCC provides criminal sanctions (i.e. up to four years’ imprisonment and a €75,000 ﬁ ne) in cases where a natural person fraudulently takes a personal and decisive part in the “conception, organisation, or implementation” of a cartel. The FCA has no power to enforce such criminal rules and only criminal courts can. However, there are only an extremely limited number of cases each year. They mainly relate to bid-rigging. In addition, the FCA has committed not to refer to criminal courts any case in which a company has applied for leniency, thus aiming at securing this proceeding by avoiding criminal sanctions against employees.

Cross-border issues As long as a practice has generated anti-competitive effects on the French territory, Article L 420-1 FCC applies, even if it has been implemented outside the jurisdiction of the FCA. The FCA considers that it also has jurisdiction over practices in connection with export activities, provided that these are implemented on the French territory and that the FCA’s allegations are based on pieces of evidence collected in France. Pursuant to Article L 462-9 FCC, the FCA may refer information or documents to the European Commission or to national competition authorities of other states. Conversely, the FCA is allowed to use information or documents transmitted by the European Commission or by other national competition authorities. The FCA regularly cooperates with foreign courts or competition authorities, more particularly inside the European Competition Network. As an example of cooperation within the European Competition Network, the ﬂ our case49 of 2012 should be recalled. The FCA ﬁ ned a French-German cartel, in particular on the basis of pieces of evidence seized by the German competition authority (the “Bundeskartellamt”) at the premises of German millers. The FCA and the Bundeskartellamt also recently conducted an inquiry on competition law and data50.

Developments in private enforcement of antitrust laws against cartels Since the entry into force of the “Hamon” Law of 17 March 2014, consumers’ associations that are certiﬁ ed on a national level may bring a class action against companies that have infringed competition law, in order to indemnify affected consumers. The law provides for an opt-in mechanism. The action may be brought only after companies in breach of competition law have been convicted, provided that the decision is not subject to appeal.

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The action must be brought within ﬁ ve years after the decision of conviction was rendered by the court. To date, no such action has been brought before courts regarding cartels nor, more generally, competition-related cases.

Reform proposals Directive 2014/104 of 26 November 2014 on rules governing actions for damages under national law for infringements of competition law should be transposed by draft law of 30 March 2016, on transparency, ﬁ ght against corruption and for modernisation of economic life, so-called “Sapin II” law. Indeed, under article 148 of this law, the French government is entitled to transpose, by order, Directive 2014/104. That order should be expected before the expiry of the transposition deadline (27 December 2016).

* * *

Endnotes 1. See for example, Opinion 14-A-18 of 16 December 2014, requested by the Paris Court of Appeal in relation to a dispute between Bottin Cartographes SAS and Google Inc. / Google France. Paris, Court of Appeal, 25 November 2015, n°12/0931. 2. See for example, Opinion 15-A-14 of 21 October 2015, television, requested by the CSA (French Broadcasting Regulator). 3. See for example, Opinion 16-SOA-2 of 23 May 2016, online publicity. 4. See the press release of 23 May 2016 on the online advisory sector and Opinion 16-A-24 of 14 December 2016, the hearing aid sector. 5. See the decision of the French Tribunal des Conﬂ its of 16 November 2015, Ile-de- France region. 6. Decision of the Conseil Constitutionnel of 8 July 2016, 2016-552 QPC. 7. Press release of 19 February 2016, ﬁ re safety system. 8. Press release of 15 April 2016, postal franking system. 9. Press release of 16 September 2016, sandwiches intended for mass distribution. 10. Press release of 25 November 2016, energy services and energy supply. 11. Decision 15-D-19 of 15 December 2015, delivery services (transporting parcels) industry. 12. Decision 16-D-02 of 27 January 2016, school buses in the east region of France. 13. Decision 16-D-09 of 12 May 2016, construction and public work in La Réunion island. 14. Decision 16-D-17 of 21 July 2016, liquid fuel backup heating units cartels. 15. Decision 16-D-20 of 29 September 2016, modelling sector. 16. Decision 16-D-26 of 24 November 2016, professional kitchen equipment sector. 17. Decision 16-D-05 of 13 April 2016, professional kitchen equipment sector. 18. Decision 16-D-06 of 13 April 2016, professional kitchen equipment sector. 19. Decision 16-D-27 of 2 December 2016, property management sector. 20. Decision 16-D-28 of 6 December 2016, property management sector. 21. Decision 16-D-02 of 27 January 2016, school buses in the east region of France and decision 16-D-09 of 12 May 2016, construction and public work in La Réunion island.

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22. Decision of the Court of Appeal of 7 April 2016, ship repair; 19 May 2016, relocation of military personnel; 22 September 2016, bakery craft. 23. Decision 14-D-19 of 18 December 2014, hygiene and cleaning products. 24. Decision of the Court of Appeal of 27 October 2016, hygiene and cleaning products. 25. Decision 14-D-20 of 22 December 2014, wallpaper cartel. 26. Decision of the Court of Appeal of 14 April 2016, wallpaper cartel. 27. Decision 11-D-13 of 5 October 2011, electric works sector. 28. Decision of the Court of Appeal of 21 January 2016, electricity works sector. 29. Decision 96-D-65 of 30 October 1996, public procurement of public work in the South of France. 30. Decision of the Court of Appeal of 1 December 2016, public procurement of public work in the South of France. 31. Decision of the Supreme Court of 8 November 2016, fl our. 32. Decision of the Court of Appeal of 24 November 2014, fl our. 33. Decision 12-D-09 of 13 March 2012, fl our. 34. Decision of the Supreme Court of 4 October 2016, mobile phone. 35. Decision 15-D-20 of 17 December 2015, electronic communication sector. 36. Decision 16-D-15 of 6 July 2016, consumer goods in Overseas Territory. 37. Decision16-D-05 and 16-D-06 of 13 April 2016, professional kitchen equipment sector. 38. Decision 16-D-27 of 2 December 2016, property management sector. 39. Decision 11-D-17 of 8 December 2011, laundry detergent. 40. Decision 11-D-13 of 5 October 2011, Midi-Pyrénées, Languedoc-Roussillon, Auvergne; decision 11-D-07 of 24 February 2011, painting work; decision 11-D-02 of 26 January 2011, historic sites; decision 11-D-01 of 18 January 2011, cargo handling; decision 11- D-17 of 8 December 2011, laundry. 41. Decision 12-D-09 of 13 March 2012, fl our; decision 12-D-27 of 20 December 2012, show tickets; decision 12-D-08 of 6 March 2012, endives. 42. Decision 13-D-12 of 28 May 2013, chemical products; decision 13-D-09 of 17 April 2013, public works; decision 13-D-03 of 13 February 2013, pigs. 43. An appeal is pending. 44. Decision 14-D-19 of 18 December 2014, hygiene and cleaning products; decision 14- D-16 of 18 November 2014, Martinique Island; decision 14-D-20 of 22 December 2014, wallpaper cartel. 45. Court of Appeal of 19 May 2016, but the case is currently before the Supreme Court. 46. Appeals are still pending. 47. To date, the time-limit for appeal is still open concerning the decision 16-D-26, decision 16-D-27 and decision 16-D-28. 48. This percentage also encompasses the amounts of FCA fi nes in cases where the appeal decision has not yet been issued by the Court of Appeal. This percentage is therefore not defi nitive. 49. Decision 12-D-09 of 13 March 2012, fl our. 50. Joint paper from Bundeskartellamt and FCA, Competition Law and Data, 10 May 2016.

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Bastien Thomas Tel: +33 1 44 82 44 40 / Email: [email protected] Bastien is a Partner in charge of the competition department, with over 10 years of experience in merger control and antitrust law. Graduated from Essec (2003) and University Paris Panthéon-Assas (LL.M., 2004), he practised in an international law ﬁ rm before joining Racine as a Partner. His highly specialised expertise in French and EU competition law has allowed him to be selected as counsel of several international companies on complex and challenging antitrust issues. Bastien regularly lectures on competition law, especially merger control, and is co-responsible for the column, “Review of the reviews”, in the quarterly review, Concurrences.

Cécile Mennétrier Tel: +33 1 44 82 43 00 / Email: [email protected] Cécile is an Associate in the competition department of Racine. She graduated from University Paris Panthéon-Assas (Masters Degree in Law and Economics) and from University of Montpellier (DJCE with certiﬁ cation in Economic Law). Cécile specialises in French and European antitrust law. She assists clients before the French Competition Authority and the European Commission.

Racine 40, rue de Courcelles, 75008 Paris, France Tel: +33 1 44 82 43 00 / Fax: +33 1 44 82 43 43 / URL: http://www.racine.eu

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Dr Ulrich Schnelle & Dr Volker Soyez Haver & Mailänder Rechtsanwälte Partnerschaft mbB

Overview of the law and enforcement regime relating to cartels Germany has a long tradition of rigorously and effectively enforcing the prohibition of cartels. In the fi rst nine months of 2015 alone, the German Federal Cartel Offi ce (FCO) uncovered and investigated a large number of different competition law infringements in many different industries. The total fi nes imposed in 2016 have been relatively low compared to previous years. This, however, does by no means indicate that public enforcement is declining in Germany. Quite the contrary: the FCO repeatedly announced that cartel enforcement will continue to be a top priority on its enforcement agenda. The competition act in Germany is the Gesetz gegen Wettbewerbsbeschränkungen (Act against Restraints of Competition (ARC)), in its current version of 30 June 2013. The prohibition of cartels is contained in section 1 et seq. ARC, which prohibits all agreements, concerted practices or decisions by associations of undertakings which have as their object or effect a restriction of competition. Since 2005, section 1 et seq. ARC has been largely aligned with article 101 TFEU. Cartels are not criminalised under German law. Rather, cartels generally qualify as an administrative offence, with one important exception: bid rigging constitutes a criminal offence under section 298 of the German Criminal Code and can be sanctioned with up to fi ve years in prison. The FCO has published the following guidelines in respect of important aspects of public cartel enforcement, which are available on the FCO’s website (www.FCO.de) and are also available in the English language: • Leniency Programme (Bonusregelung) – Notice No. 9/2006 which entered into force on 15 March 2006. • Fining guidelines (Bußgeldleitlinien) which entered into force on 25 June 2013. • De-minimis guidelines (Bagatellbekanntmachung), Notice No. 18/2006 which entered into force on 13 March 2007. It should be noted that the FCO’s de-minimis guidelines do not apply to hardcore restrictions; however, other than the EU Commission, the FCO has not (yet) amended its de-minimis guidelines following the ECJ’s Expedia judgment of 13 December 2012 in order to explicitly clarify that “by object” restrictions are not caught by the FCO’s de-minimis guidelines. The prohibitions laid down in the ARC are mainly enforced by the FCO, an independent higher federal authority assigned to the Federal Ministry of Economics and Technology. The FCO is organised into 12 operative units, the so-called “decision divisions”. Nine of these decision divisions are responsible for the application of general antitrust rules and merger control provisions in specifi c industries and sectors. Three decision divisions deal exclusively with the cross-sector prosecution of cartels and hard-core restrictions. The

GLI - Cartels 2017, Fifth Edition 126 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Haver & Mailänder Rechtsanwälte Partnerschaft mbB Germany decision divisions are independent bodies that take their decisions without any instructions from above. The three cartel enforcement decision divisions are supported by a special unit for combating cartels, the main purpose of which is to assist during the investigative phase, in particular in preparing and executing dawn raids. The FCO may impose monetary fi nes on undertakings or individuals for wilful or negligent infringements of the prohibition to restrict competition, pursuant to section 1 ARC. Fines levied on individuals for wilful participation in a cartel may not exceed €1m. In cases of negligent infringements, the maximum fi ne is €500,000. Not all individuals may be fi ned, only directors, offi cers and certain senior employees. However, if lower-ranking employees have committed the cartel offence and cannot be held responsible, directors or offi cers can be sanctioned with a fi ne for breaching their duty to supervise. The FCO may impose fi nes on undertakings of up to 10% of the worldwide (group) turnover in the most recent fi scal year. There are as yet no criminal sanctions against individuals, nor are there any disqualifi cations of directors resulting from sanctions for participating in cartels. In 2013, the FCO published new fi ning guidelines. Under the new guidelines, the group- wide annual turnover of the company, as well as the turnover which it achieved in the cartelised market during the infringement period, is taken into consideration in the fi ne calculation. Hence, the size of the company and the affected “volume of commerce”, as well as the seriousness and duration of the infringement, will be crucial factors in setting the level of fi ne. It should be noted in this respect that the fi ning guidelines are not binding and that judges of the German Federal Supreme Court have publicly questioned the adequacy and legality of the new fi ning guidelines, in that they do not suffi ciently link the level of the fi ne to the guilt of the undertaking concerned. It is also still possible to waive or reduce a fi ne if a company that participated in the infringement submits an application for leniency. A reduction of 10% of the fi ne can be granted for an agreement to have the proceedings terminated by settlement. When setting the fi ne, the FCO also takes into account the undertaking’s fi nancial capacity. Provided that the undertaking provides suffi cient evidence that it is unable to pay the fi ne in the short or medium term, the FCO usually offers that the fi ne may be paid in instalments. Infringements of section 1 ARC become time-barred after fi ve years. The opening of an investigation by the FCO, the EU Commission or a competition authority of another EU Member State, suspends this limitation period.

Overview of investigative powers in Germany In order to fully investigate a suspected infringement, the FCO may use all the evidence that is generally available in criminal proceedings. In particular, the FCO may take testimonies from witnesses and accused suspects, and it may address information requests to undertakings. However, witnesses can refuse to testify to the extent that they might incriminate themselves. Accused suspects generally have the right to remain silent on the allegations that form the subject matter of the investigation, and do not have to provide any assistance or information whatsoever to the FCO. In case they do agree to be heard, they are not obliged to make accurate or complete statements. Interrogated witnesses and accused suspects must generally be instructed about their rights to remain silent/not to incriminate themselves. The FCO may furthermore dawn-raid ofﬁ ces and search private premises and objects. As a general rule, any such searches have to be ordered by a judge. Only in exigent circumstances may the FCO conduct these searches without a judicial warrant. In addition, the FCO may seize objects which could be of importance as evidence in the investigation, and make

GLI - Cartels 2017, Fifth Edition 127 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Haver & Mailänder Rechtsanwälte Partnerschaft mbB Germany copies of any relevant documents. Again, a seizure order by a court is required if the material is not handed over voluntarily, and only in cases of exigent circumstances may the FCO itself order the seizure of objects or documents. The investigative powers in respect of search and seizure also apply to material in electronic form. Computers and company servers may be searched and relevant ﬁ les may be copied. Also private locations, such as residences, automobiles, briefcases and persons, can be searched. If necessary, the FCO may use the coercive force as laid down in the Code of Criminal Procedure in order to enforce its investigative powers. Accused undertakings and natural persons have a right to be heard, which comprises in particular the possibility to submit statements to the FCO. The right to be heard also encompasses a right of access to documents in the possession of the FCO. Such access to documents is, however, only granted to the lawyer of the accused suspect, not to the suspect itself. Access to the documents can be denied if the investigation has not been formally completed and if full access would endanger the objective of the investigation. The parties have a right to legal representation throughout the entire proceedings. Whilst in theory, when conducting dawn raids, the investigators of the FCO do not have to await the arrival of the defence counsel, in practice they normally do consent to wait up to one hour.

Overview of cartel enforcement activity during the last 12 months In March 2016, the FCO imposed fi nes totalling around €21.3m on nine wholesalers and an individual involved in the sanitary, heating and air conditioning sector on account of concluding anti-competitive agreements. The companies, which were members of an association, were found to have coordinated the calculation of their gross price lists and sales prices over several years. A so-called “calculation committee” met at least four times a year and at these meetings information was exchanged on gross prices, purchasing conditions, discounts and other current developments. The members of the group issued their own gross price lists based on the information exchanged. However, price alignment occurred due to the common calculation basis. This signifi cantly restricted competition between the companies. The subject matter of the coordinated calculation, which was also important as a calculation guide for the sector nationwide, were at least 250,000 products from the sanitary sector. A particularity of this case is that the agreements dated back to the 1970s. The competition authorities initially raised no objections to them. At that time, small and medium-sized companies did not have the technical possibilities to issue their own price calculations for a large number of products and have them printed in catalogues. However, this technical justifi cation from the 1970s has long been obsolete and therefore no longer applies. The companies would have been obliged to reassess and thus cease their anti-competitive conduct. In setting the fi nes, the FCO considered the fact that the companies competed with considerably larger market players as a mitigating circumstance. Equally, in March 2016, the FCO concluded the “rail case” with the imposition of a fi ne of €3.5m on Vossloh Laeis. During the period from 2001 to 2011, Vossloh Laeis had concluded agreements with other companies on the supply of rails and switches to the detriment of local public transport companies, private, regional and industrial railway companies and construction companies. The aim of the agreements was to divide up tenders and projects among the members of the cartel. In the same proceedings, fi nes totalling almost €100m were already imposed in July 2013 on eight companies by way of settlement (see press release of 23 July 2013). However, no settlement could be reached with Vossloh Laeis at the time.

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In July 2007, the FCO declared certain rules in the online banking conditions of the German Banking Industry Committee (Deutsche Kreditwirtschaft) to be illegal. The FCO took the view that the banks’ general terms and conditions restricted competition between the different providers of payment services on the internet and violated German and European competition law, in that they hindered the offer of new and innovative services in the growing market for payment services in the e-commerce sector. In essence, the question was whether non-bank payment services can also use PINs (personal identifi cation numbers) and TANs (transaction authentication numbers): the FCO held that, insofar as the existing rules could not be considered to be a necessary part of a consistent security concept of the banks, they constitute a signifi cant impediment to non-bank competitors. The German Banking Industry Committee and its banking associations, National Association of German Cooperative Banks (Bundesverband der Volks- und Raiffeisenbanken e.V., BVR), German Savings Bank Association (Deutscher Sparkassen- und Giroverband e.V., DSGV) and the Association of German Banks (Bundesverband deutscher Banken e.V., BdB) had for many years used jointly agreed General Terms and Conditions, which also include the “Special Conditions for Online Banking”. The General Terms and Conditions are decided by the members of the German Banking Industry Committee and recommended by the leading banking associations for use by their member banks. They are used by all the banks active in Germany. The illegal practice of the German Banking Industry concerned the rules applied in the “special conditions for online banking” which are imposed on online banking customers for the use of the personal security features, PIN and TAN. According to these rules, online banking customers may not use their PIN or TAN in non-bank payment systems to allow access to third party systems, which include so-called payment initiation services. This rule impeded the use of non-bank and innovative payment solutions for the purchase of goods or services on the internet. On 27 July 2016, the FCO imposed fi nes amounting to a total of approx. €3.1m on Studio Berlin Adlershof (SBA) GmbH, its affi liate Studio Berlin Broadcast GmbH (both located in Berlin) and Bavaria Studios & Production Services GmbH, based in Grünwald near Munich, on account of their participation in an anti-competitive information exchange. The FCO’s investigations were triggered by a leniency application fi led by MMC Studios Köln GmbH, which was also involved in the exchange of information. In accordance with the FCO’s leniency programme, no fi ne was imposed on this company. From September 2011 until December 2014, regular meetings and other personal contacts took place between the representatives of the companies involved. They exchanged information on prices, details of offers made by them, their supply behaviour and other competitively sensitive information. According to the FCO, by sharing information such as e.g. their price calculation, the parties aimed to reduce price competition in the operation of studios for television and fi lm productions and to improve their companies’ revenue situation. In October 2016, the FCO concluded the proceedings against companies of ClemensTönnies group and cancelled fi nes of €128m due to restructuring measures. On 15 July 2014, the FCO had imposed fi nes totalling €338m on 21 sausage manufacturers involving two companies of the ClemensTönnies group. After appealing the FCO’s decision, major assets of these companies were transferred to other companies of the ClemensTönnies group. The two companies were subsequently dissolved. This restructuring within the ClemensTönnies group meant that claims for payment of the fi nes could no longer be asserted. The existing loophole in the law (so-called “sausage gap”) had made this possible. On 28 September 2016, the Federal Cabinet passed a bill presented by the Federal Ministry for Economic Affairs and Energy to amend the act against restraints of competition (Gesetz

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Gegen Wettbewerbsbeschränkungen, GWB), to close the “sausage gap”. Accordingly, responsibility for competition law violations committed by companies will in the future extend to the legal and commercial successors of the company originally responsible, and its controlling parent company. In addition to the continued investigation and sanctioning of horizontal restrictions of competition, the FCO has continued to enforce the competition rules in cases of vertical restrictions. In December 2015, the FCO prohibited Booking.com (“Booking”) from continuing to apply its ‘best price’ clauses and ordered the hotel booking portal to completely delete the clauses from its contracts and general terms and conditions as far as they affect hotels in Germany. Under these clauses, the hotels were obliged to always offer the hotel booking portal their lowest room prices, maximum room capacity and most favourable booking and cancellation conditions available on all online and offl ine booking channels (wide best-price clause). During the proceedings, the company had offered to introduce a modifi ed ‘best price’ clause. Under this clause, Booking would allow the hotels to offer their rooms cheaper on other hotel booking portals but still prescribe that the prices which they display on their own websites may not be lower than on Booking’s hotel portal (narrow best-price clause). Booking implemented this amended form of ‘best price’ clauses in Germany in July 2015. In the FCO’s view, these so-called narrow best price clauses also restrict both competition between the existing portals and competition between the hotels themselves. Firstly, they infringe the hotels’ freedom to set prices on their own online sales channels. There is little incentive for a hotel to reduce its prices on a hotel booking portal if at the same time it has to display higher prices for its own online sales. Secondly, it still makes the market entry of new platform providers considerably diffi cult. The ‘best price’ clauses barely provide an incentive for the hotels to offer their rooms on a new portal cheaper if they cannot implement these price reductions on their own websites as well. In January 2016, the FCO imposed a fi ne of €130,000 on LEGO GmbH for enforcing vertical resale price maintenance in the sale of its so-called “highlight articles”. Those affected were retailers in northern and eastern Germany who, in 2012 and 2013, were forced by sales representatives of LEGO GmbH to raise their retail prices. Regularly updated lists were kept of the articles concerned and the names of the selected retailers. In some cases, the retailers were threatened with either a reduction in supply or even with the refusal to supply if they offered articles at retail prices below those set in the lists. In other cases, the level of discount on the retailers’ purchase prices granted by LEGO GmbH was made conditional on the maintenance of the listed resale prices by the retailers. In late May 2016, the FCO launched a sector inquiry into the hospital service market in order to examine and analyse competitive conditions in the sector. In the light of increasing consolidation, the authority frequently has to deal with planned mergers between different hospital operators. The sector inquiry therefore also serves to further develop examination criteria for the authority’s merger control proceedings. The aim of the sector inquiry is to obtain information about the current market situation and intensity of competition in acute inpatient hospital treatment. Apart from municipal and non-profi t operators, privately run companies are also active in the sector, which have strongly increased in size within the last 20 years. During this time the number of individual hospitals has fallen, some of which have formed regional groups. In addition, there are few operators which are active nationwide. Each hospital location is subject to state hospital planning and several more regulations, e.g. under social law. The analysis will focus in particular on market structure, as well as the management possibilities of the hospitals in view of the state regulations. Another aim of the competitive assessment will be to determine what factors infl uence

GLI - Cartels 2017, Fifth Edition 130 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Haver & Mailänder Rechtsanwälte Partnerschaft mbB Germany patients in their choice of hospital, and how hospitals try to set themselves apart from their competitors in terms of the services and areas of specialisation or quality management which they offer. The inquiry will also look into the role of various stakeholders such as medical staff, referring physicians or emergency services. It will ﬁ nally also examine remuneration structures and the ﬁ nancial situation of the hospitals.

Key issues in relation to enforcement policy There does not seem to exist any particular enforcement priorities for the FCO. Rather, the FCO’s most recent activities seem to refl ect an overall balanced approach which equally tackles different types of infringements. The FCO has sanctioned various types of horizontal anti-competitive arrangements including price-fi xing cartels, customer/market allocation schemes, bid rigging, and the exchange of commercially sensitive information. As regards the latter, somewhat disappointingly, the FCO seems to increasingly employ the concept of “exchange of commercially sensitive information” as a fall-back argument in case it cannot prove the existence of an agreement or concerted action. This is even more worrying, given that the FCO generally considers exchanges of commercial information to imply anti-competitive purposes, and thus shifts the burden of proof towards the undertakings involved in any such information exchange. This seems problematic not just from an in dubio/fair trial perspective; it has also led to signifi cant legal uncertainty for companies.

Key issues in relation to investigation and decision-making procedures As in many other jurisdictions, the FCO does not operate with different bodies for the investigation and decision of its cases, respectively. Rather the same decision body that investigates a potential competition law infringement is also competent to decide the case and – where applicable – to impose administrative fi nes. Here lies a signifi cant structural shortcoming in the public enforcement proceedings, the downsides of which can be observed in many cases. Even though in theory the FCO is obliged to conduct its investigations in an unbiased and objective manner, in practice the FCO offi cials who decide to open an investigation do show a strong commitment to close any such case with a decision fi nding a competition law infringement. The only type of “peer review” that exists is a review by the FCO’s litigation division. Such review, however, only focuses on whether or not the envisaged decision would stand in court. It does not, in turn, question the quality or completeness of the investigative process, or the evidence on which the decision is based. The FCO does not have to investigate or decide cases in a specifi c time frame. Rather, the length and depth of an investigation can be adapted to the individual circumstances of the case. In practice, this can lead to lengthy proceedings which can easily go on for several years. On average, investigations by the FCO take some 20 months between the fi rst investigative measure and the fi nal decision. German law protects correspondence with defence counsel from seizure and review by the FCO. However, the law only protects correspondence between an outside counsel and his client that directly relates to the investigation at hand and which was created after the opening of the proceeding. No correspondence dating from before the opening of the proceeding is protected, and nor is internal correspondence by in-house counsel, regardless of when it was created. In order to obtain access to non-privileged documentary evidence, the FCO has in the past even dawn-raided law fi rms.

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In general, any investigative measures undertaken by the FCO can be appealed by the companies concerned. The competent court for hearing any such appeals is the local court in Bonn, the seat of the FCO. In practice, however, appealing investigative measures undertaken by the FCO is normally in vain. The local court in Bonn has conceded to the FCO broad discretionary powers when it comes to determining whether and how to investigate a given case. As mentioned above, some investigative measures – such as dawn raids – require prior approval by the local court in Bonn, which is normally granted if the FCO can substantiate that the respective investigative measure might yield relevant evidence in relation to a suspected competition law infringement. The standards of substantiation that the FCO must meet in its application for the relevant court warrant are rather low.

Leniency/amnesty regime The FCO operates a leniency programme broadly similar to the one used by the EU- Commission. The leniency notice is also available in English on the FCO’s webpage (www. bundeskartellamt.de). The notice sets out the conditions for immunity from, or reduction of, fi nes for leniency applicants in cartel procedures. The conditions for full immunity differ depending on whether the FCO already has suffi cient knowledge of a cartel. A leniency applicant is guaranteed full immunity if it reports a cartel to the FCO of which the latter had no prior knowledge, provided that the applicant submits suffi cient information and evidence that enables the FCO to obtain a search warrant. If the FCO already has suffi cient evidence at its disposal to obtain a search warrant, it will grant immunity from a fi ne to the fi rst applicant, unless the available evidence already allows the FCO to prove its case, and provided that no other cartel participant has received full immunity under the fi rst alternative. Full immunity is not available for undertakings that were the ringleaders of the cartel, or that have coerced others to participate in the cartel. Full immunity always requires that the applicant cooperates fully and on a continuous basis with the FCO. Cartel participants who are not eligible for full immunity may still obtain a signifi cant reduction of the fi ne by up to 50%, provided that they provide the FCO with verbal or written information and, where available, evidence that represents a signifi cant contribution to proving the offence, and provided that the applicant cooperates fully and on a continuous basis with the FCO. The amount of the reduction will be based on the value of the contributions to uncovering and proving the infringement and the sequence of the applications. A cartel participant can contact the head of the special unit for combating cartels or the chairman of the competent decision division to declare his willingness to cooperate (marker). The marker can be placed verbally or in writing, in German or English. The timing of the placement of the marker determines the rank of the application. If the FCO accepts an application in English, the applicant is obliged to provide a written German translation without undue delay. A leniency application fi led by an undertaking is also considered by the FCO as one made on behalf of individuals participating in the cartel as current or former employees of the undertaking. Joint applications by cartel participants are inadmissible. The FCO asks for basic information on the cartel when the marker is placed, such as the type and duration of the infringement, the product and geographic markets affected, and the identity of those involved. The FCO also asks for clarifi cation as to whether and – where applicable – with which other competition authorities leniency applications have been, or are intended to be fi led. Upon placement of the marker, the FCO grants a time period of up to eight weeks within which a full leniency application has to be submitted.

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The FCO confi rms in writing that a marker has been placed and that a leniency application has been submitted, including date and time of receipt. In case of an application for full immunity where the FCO does not have suffi cient evidence to obtain a search warrant, the FCO will confi rm that the applicant will be granted full immunity, provided that the applicant continues to fully cooperate with the FCO. In all other cases, the FCO will inform the applicant of his provisional position in the ranking order and that he is in principle eligible for immunity or a reduction. A fi nal decision as to whether a possible reduction in the fi ne will be granted and – where applicable – to what extent, will only be taken by the FCO at the very end of the investigative phase, i.e. once the FCO is in a position to evaluate the received input in view of the established infringement. The FCO endeavours to assure the confi dentiality of the process and will seek to avoid revealing the identity of leniency applicants. However, once the FCO issues a statement of objections, the addressees of such statements of objections have the right to fully access the case fi le, including all confi dential information, and in particular all and any leniency applications. If the FCO has to rely on statements of a leniency applicant as evidence to prove its case, it also has to disclose the identity of the leniency applicant in its decision. As mentioned before, leniency applicants must cooperate fully and continuously with the FCO. Unless requested otherwise by the FCO, they must end their involvement in the infringement immediately, and they must hand over to the FCO all information and evidence available to them. They must also name all the current and former employees involved in the cartel agreement, and take the necessary measures that all employees, from whom information and evidence can be requested, cooperate fully and on a continuous basis with the FCO during the proceedings. Leniency applicants are also required to keep their leniency application confi dential.

Administrative settlement of cases In recent years, an informal practice has evolved that provides a possibility for companies under investigation to enter into a settlement with the FCO. However, other than the EU- Commission, the FCO has not published formal settlement guidelines. Even though there is no formal settlement procedure in place, there are a number of general principles that govern the settlement process. A settlement requires in the fi rst place a guilty plea on the part of the undertaking that wishes to settle the case. In return, the FCO grants a reduction of a potential fi ne of up to 10%, in addition to any reductions granted under the leniency notice. The companies concerned usually also waive their rights for complete access to the fi le and for a complete statement of objections. However, the Federal Court of Justice has held that a waiver to appeal the fi nal decision by the FCO may never be a part of a settlement agreement. The fi nal decision of the FCO in settlement cases would normally only contain a short summary of the relevant facts, which makes it more diffi cult for third parties to extract from the decision any information that may be relevant for the preparation of follow-on actions. Settlements are always individual in character. Nothing prevents the FCO from settling a case with one company but ending settlement discussions with another. The FCO is principally bound by the settlement, unless new facts arise ex post which would justify re-opening the case.

Third party complaints Complaints can be lodged by anyone in any form: orally, by fax, email, phone or in writing. There are no legal requirements for lodging a complaint, as it is only regarded as

GLI - Cartels 2017, Fifth Edition 133 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Haver & Mailänder Rechtsanwälte Partnerschaft mbB Germany an incitement for the FCO to open a formal proceeding. Even anonymous complaints are acceptable. However, in practice, a complaint is unlikely to trigger an investigation if it lacks details and exact determinations regarding the alleged infringement. Thus a written complaint, with enclosed copies of all documents/ﬁ les with potential relevance, increases the chances of success signiﬁ cantly. The FCO is not obliged to take action on each complaint that it receives. Rather, it has wide discretionary powers in this respect. It is only required to exercise the said power in an objective, thorough and dutiful manner. In June 2012, the FCO launched an online whistle-blower system which allowed it to receive anonymous tip-offs of cartel law infringements. The system guaranteed the anonymity of informers, while still allowing for continual reciprocal communication with FCO investigators via a secure electronic mailbox. The FCO’s new whistleblowing hotline has been criticised for lacking a sound legal basis, and for incentivising false accusations by competitors, customers or even frustrated employees.

Penalties and sanctions Infringements of competition law can be sanctioned with administrative fi nes of up to 10% of the total group turnover. In contrast to European law, according to a February 2013 court order issued by the German Federal Court of Justice (court order of 26 February 2013 – case KRB 20/12 – Grauzementkartell), this 10% limit is not a cap but, interpreting it in conformity with German constitutional law, the upper limit of the fi ning range. As a reaction to this judgment by the German Federal Court, the FCO has issued the new fi ning guidelines of June 2013, which have been dealt with in detail above. An issue which is to a certain extent still open at the moment is the issue of liability of parent companies to their subsidiaries’ infringement of cartel rules. Even though it seems to be generally accepted that a parent is liable for violations by a wholly owned subsidiary, the courts still have to deal with individual aspects, in particular with respect to 50:50 joint ventures, and on the precise reconciliation of the European notion of an “undertaking” which, in this fi eld, is still foreign to the German substantive and procedural rules to law.

Right of appeal against FCO decisions Decisions of the FCO can be appealed before the Higher Regional Court in Düsseldorf, which is exclusively competent. An appeal against a decision imposing a fi ne produces suspensory effects. During the appeal procedure, it is possible to introduce new facts and evidence. In general, the court is also open to the introduction of economic expert evidence, whilst in some cases the court has claimed suffi cient knowledge to assess important economic aspects of the case on its own. Given that the Higher Regional Court in Düsseldorf is exclusively competent for hearing appeals against decisions by the FCO, the court is highly specialised and its decisions refl ect profound competition law knowledge and expertise. Whilst the appeal procedure is generally highly effective and straightforward, it can also entail signifi cant efforts and costs for the parties involved. In a recent case (Flüssiggas, LPG), the oral hearing before the Higher Regional Court in Düsseldorf took almost three years, and more than 130 sessions. The Higher Regional Court in Düsseldorf is, in practice, not shy in overturning or rectifying FCO decisions. In a ruling of 26 June 2009 in relation to the cement cartel case, for instance, the court reduced the FCO’s original fi ne of €660m to €328.5m. On the other hand, the court

GLI - Cartels 2017, Fifth Edition 134 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Haver & Mailänder Rechtsanwälte Partnerschaft mbB Germany is also entitled to increase the level of the fi ne, and has not hesitated to do so. In the LPG- case mentioned above, the court increased some of the fi nes that were originally imposed by the FCO by 80%. It should be noted, however, that the legality of such reformatio in peius is highly questionable. Under certain circumstances, the decisions of the Higher Regional Court in Düsseldorf can be appealed – confi ned to points of law – before the German Federal Court of Justice. The long duration of the appeal proceedings before the Higher Regional Court in Düsseldorf, and the “openness” of the decisions, have largely contributed to the signifi cant increase in settlement proceedings before the FCO.

Criminal sanctions Cartels are not criminalised under German law. Rather, cartels generally qualify as an administrative offence, with one important exception: bid rigging constitutes a criminal offence under section 298 of the German Criminal Code and can be sanctioned with up to ﬁ ve years in prison.

Cross-border issues The FCO traditionally cooperates rather closely with US and ECN authorities. It is to a certain extent remarkable that this cooperation has not yet triggered major complaints by undertakings in cartel cases. On the other hand, there are no noteworthy examples of cartels of an international character sanctioned by the FCO.

Developments in private enforcement of antitrust laws A common misunderstanding is that actions for declaratory judgments in the context of private competition litigation are not possible in Germany. In practice, this misunderstanding has led in many cases to actions being brought before the courts of other EU Member States (in particular in The Netherlands), notwithstanding the fact that the case had its closest links to Germany and even German substantive law was applicable. In its judgment of 14 December 2014 (case 16 O 384/13), which was published in early 2016, the regional court of Berlin made clear that actions for declaratory judgments are very well admissible in private competition litigation − and not only in exceptional cases, but rather as a general rule. The claimants in this case sought a declaratory judgment from the court fi nding that the members of a cartel in respect of certain construction material were jointly and severally liable for compensating the claimant for all losses resulting from the cartel. The defendants argued that such action for a declaratory judgment was inadmissible in view of the German law principle that actions for declaratory judgments are only possible where the claimant is unable to bring an action for (specifi c) damages (principle of primacy of damages actions). The defendants alleged that the claimant was in a very good position to calculate/estimate its losses so that it would be obliged to bring a proper damages action. The Berlin court, however, rejected the defendants’ argument. It held that the claimant did not have suffi cient knowledge from the publicly available information which would allow it to determine the precise scope of its damage, nor to provide the court with suffi cient information in order to allow it to estimate the damage according to section 287 German Code of Civil Procedure. In the court’s view, the claimant would have had to conduct extensive investigations, or to engage economic experts, in order to obtain suffi cient information for the determination of its damages, and that requiring claimants to do so would illegitimately undermine their protection under the civil law system. In more general terms, the court then continued by

GLI - Cartels 2017, Fifth Edition 135 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Haver & Mailänder Rechtsanwälte Partnerschaft mbB Germany saying that − irrespective of the individual circumstances of the case at stake − one must not apply too strict standards when assessing the admissibility of actions for declaratory judgments in private competition litigation. In line with the jurisprudence of the German Federal Court of Justice in unfair competition cases, claimants should be entitled to bring actions for declaratory judgments if they can substantiate that they have been affected by an anti-competitive behaviour, “with a certain likelihood”. In a judgment of 13 April 2016 (Az. 2 O 23/15), the regional court of Potsdam questioned the validity of contractual clauses foreseeing lump sum compensation in the case of competition law infringements. The claimant was a local tramway company. It had purchased rail tracks from one of the members of the rail track cartel – as sanctioned by the German Federal Cartel Offi ce on 23 July 2013 – during the cartel period. In addition, the general purchasing terms of the claimant foresaw that a lump-sum amount of damages amounting to 15% of the contract value shall apply in case the supplier had infringed competition law affecting the transaction. What looked like a straightforward, follow-on “no brainer” turned out to be a complete fail in court. The Potsdam court in the fi rst place found that the 15%-clause in the claimant’s general purchasing terms was null and void. It argued that, pursuant to section 309 N° 5 German Civil Code, any such lump-sum damages clause must not go beyond the damage that can reasonably expected in the concrete situation. The court found that the 15%-clause contained in the claimant’s general purchasing terms failed to fulfi l this standard for two main reasons. In the fi rst place, the court argued that applying a 15% lump sum for all different types of “competition law infringement” was inappropriate. Rather, the concrete type and intensity of any such competition law infringement would be key to determine the scope of potential damages. Secondly, and more importantly, the court held that the claimant had failed to substantiate that the amount of 15% was indeed appropriate and not excessive in the concrete situation. Insofar, the court rejected the claimant’s argument that empirical and statistical information clearly indicated that cartel overcharges generally amount to at least 15%, making reference to the Oxera study. The court, however, ruled that such general considerations were unsuited to justify the amount of a concrete lump-sum damages clause and that the claimant would rather have had to substantiate that the amount of 15% was actually appropriate in the current context, e.g. by demonstrating that the cartel had indeed led to an overcharge in the range of 15% by comparing prices during and before/after the cartel period. In respect of the judgments by the regional court of Mannheim (judgment of 4 May 2012, case 7 O 436/11) and the higher regional court of Karlsruhe (judgment of 31 July 2013, case 6 U 51/12), which only recently approved a 15% lump-sum damages in a similar case, the Potsdam court found that these judgments were fl awed − in particular, because they did not test the appropriateness of the 15%-clause in the specifi c case but rather assumed the appropriateness based on very general empirical and statistical considerations. Finally, on 12 July 2016 the German Federal Court of Justice (BGH) delivered a landmark judgment in case KZR 25/14-Lottoblock II. With this judgment, the BGH has further clarifi ed the scope of the binding effect of decisions by the competition authorities as well as the requirements for subsequent follow-on actions. The underlying case concerned a follow-on action in a boycott/refusal to deal case. The defendants had on one single occasion taken the joint decision not to deal with the claimant in the future. This decision was later on found to be in violation of the applicable German and European competition rules. The claimant lodged an action for damages in respect of the lucrum cessans that it had allegedly suffered as a result of the boycott. In the fi rst place, the BGH held that the binding effect of a competition authority’s decision is not confi ned to the operative provisions of

GLI - Cartels 2017, Fifth Edition 136 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Haver & Mailänder Rechtsanwälte Partnerschaft mbB Germany the decision but rather also comprises the factual and legal fi ndings contained in the body of the decision. The BGH then clarifi ed that the mere existence of a prohibition decision does not as such, in every single case, imply that the infringement had actually been put in practice and executed for a certain time period. The BGH recalled in this respect that under the applicable laws, a prohibition decision could even be issued in order to prevent a future restriction of competition. However, the BGH held that there exists a general legal presumption that anti-competitive agreements which are aimed at permanently restricting competition are indeed executed by the cartelists for as long as the cartelists do not take action which clearly evidences that they stopped acting in line with the cartel arrangement. On this basis, the court rejected the defendants’ argument that the single agreement not to deal with the claimant had ceased at the latest on the day when the German cartel offi ce issued its prohibition decision. Rather, the court found that the mere issuance of the prohibition decision was not suffi cient to assume that the joint boycott had indeed stopped. In order to rebut the legal presumption that the anti-competitive boycott was permanently executed, the defendants would rather have been required to explicitly and undoubtedly distance themselves from the cartel arrangement, which had not happened in the case at stake. The practical relevance and importance of this judgment cannot be overestimated. It basically opens the door wide for the recovery of so-called “post cartel” damages claims. Whereas until today the general view had been that cartel infringements and their respective anti-competitive effects would normally cease on the day of the dawn-raids and that cartel damages claims going beyond this point of time would be limited to a rather short “cartel shadow” period, this will no longer apply in the future. Rather in the future, claimants will be able regularly to recover damages for longer time periods after the cartel activity has ceased.

Reform proposals In view of implementing the EU cartel damages directive, the 9th amendment to the GWB is currently passing the legislative process and will enter into force before the end of 2016. In addition, the 9th amendment to the GWB will further align German to EU competition law in that the concept of “economic entity” will be introduced as regards the liability of parent companies for their controlled (in particular, fully-owned) subsidiaries.

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Prof. Dr Ulrich Schnelle Tel: +49 711 227 4427 / Email: [email protected] Ulrich Schnelle is a partner in the Stuttgart Offi ce of Haver & Mailänder and head of the practice group for competition, public procurement and state aid law. He specialises in EU and German Competition Law and has extensive experience in defending companies in cartel investigations before the EU-Commission and the German Federal Cartel Offi ce. Another focus of his work is the practice in cartel damages actions. He also advises clients on merger control issues and has particular expertise in cases of abuse of a dominant position. A further fi eld of activity is his advice to clients seeking to cooperate with competitors or with suppliers and/or customers in horizontal or vertical contractual relationships. Ulrich Schnelle graduated from the University of Freiburg in 1992, obtained his doctoral degree there in 1992 and was admitted to the Bar in the same year. He is an alumnus of the University of Geneva, the University of Illinois (LL.M.) and the University of Passau as well as Freiburg.

Dr Volker Soyez Tel: +32 263 947 15 / Email: [email protected] Volker Soyez is a partner in the Brussels offi ce of Haver & Mailänder. He specialises in EU and German competition law and has extensive experience in defending companies in cartel investigations before the EU-Commission and the German Federal Cartel offi ce. A particular focus of Dr Soyez’ practice is cartel damages actions. He has represented claimants in various cases, e.g. “elevators”, “coffee roasters”, and “fi re trucks”. Dr Soyez is the founder and member of the Editorial Board of Global Competition Litigation Review. Another area of particular expertise of Dr Soyez is competition law compliance. He heads the working group “antitrust compliance” in the German Compliance Association. Dr Soyez graduated from Frankfurt University in 2000, obtained his Ph.D. in 2002, and was admitted to the Bar in 2002. He is an alumnus of Université de Fribourg and Universidad Complutense de Madrid.

Haver & Mailänder Rechtsanwälte Partnerschaft mbB Lenzhalde 83–85, 70192 Stuttgart, Germany Tel: +49 711 22744-0 / Fax: +49 711 299 1935 / URL: http://www.haver-mailaender.de

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G.R. Bhatia, Abdullah Hussain & Kanika Chaudhary Nayar Luthra & Luthra Law Offices

Overview of the law and enforcement regime relating to cartels The Competition Act, 2002 (hereinafter referred to as the ‘Act’) serves as the supreme legislation that governs and regulates, inter alia, anticompetitive conducts in India. Section 3 of the Act, while prohibiting anticompetitive agreements, enunciates two types of such agreements: namely, agreement between or among competitors (horizontal agreements, including cartels); and agreements between enterprises or persons at different stages or levels of the production chain (vertical agreements). Section 2(c) of the Act defi nes and dictates the following prerequisites to be fulfi lled for the existence of a cartel: (a) agreement (this may be written or oral, including an arrangement or understanding) amongst producers, sellers, distributors, traders or service providers operating at the same level; and (b) such an agreement broadly aims to limit, control or attempt to control the production, distribution and sale, or price of, or trade in, goods or provision of services. One of the major goals of the Act is to eliminate practices that cause or are likely to cause an appreciable adverse effect on competition in India (hereinafter referred to as ‘AAEC’). The Act prevents economic agents from distorting the competitive dynamic of a particular market either through arrangements or agreements with other economic agents in the horizontal chain. Unlike the rule of reason test which is employed (for vertical agreements) to determine whether an agreement is causing or is likely to cause AAEC, the Competition Commission of India (hereinafter referred to as ‘CCI’) presumes that certain horizontal agreements cause AAEC in the market, and then the burden of rebutting this presumption is on the charged parties. Cartels are a subset of horizontal anticompetitive agreements under the purview of Section 3(3) of the Act, which delineates four types of agreements presumed to cause an AAEC: (a) Pricing – price-fi xing agreements where competitors directly or indirectly fi x purchase or sale prices between themselves. (b) Quantities − agreements between competitors that seek to limit or control production, supply, markets, technical development, investments or provision of services. (c) Market sharing – agreements between competitors, irrespective of the form that they may take, which include market sharing by way of allocation of products, geographies or source of production. (d) Bidding – Collusive bidding or bid-rigging agreements, where competitors eliminate or reduce competition for bids, or adversely affect or manipulate the process of bidding.

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The statutory watchdog for the enforcement and administration of competition laws in India is the CCI, established pursuant to Section 7 of the Act. The duties, powers and functions of the CCI are listed in Chapter IV of the Act, which equips the CCI to investigate anticompetitive practices aided by its investigative arm, the Offi ce of the Director General (hereinafter referred to as ‘DG’). The CCI is empowered to initiate an inquiry into anticompetitive agreements suo moto or on receipt of information, or on the basis of a reference from the central or state government or a statutory authority (as per Section 19 of the Act). Any person, whether aggrieved or not, consumer or association of persons, can provide information that may trigger a detailed inquiry. If the CCI is satisfi ed that a prima facie case exists (as per Section 26(1) of the Act), it directs the DG to carry out an investigation, which culminates in a detailed report, with the recommendation of the DG on the violation. Thereafter, the CCI typically invites the alleged cartelists’ views on the DG’s report and offers them the opportunity to explain their position. Finally, if the CCI fi nds that a cartel exists or an agreement is anticompetitive, it may impose penalties and pass any other orders it deems appropriate (under Section 27 of the Act). While assessing contravention of Section 3(3) of the Act, the CCI examines the evidence at hand to determine the existence of a horizontal agreement or a cartel. Unlike several mature jurisdictions that place reliance on dawn raids and leniency programmes as their primary source of direct evidence, the CCI has shown reluctance to use its power of search and seizure. Thus, in the absence of direct evidence collected through leniency applications or dawn raids, the CCI has continued to buttress its decisions by relying on indirect or circumstantial evidence. It is pertinent to note that the Act extends its jurisdiction to cover any agreement referred to in Section 3, which may have been entered into outside India; and any party to such agreement, who is outside India. The CCI shall have power to inquire into such agreement as if such agreement has, or is likely to have, an appreciable adverse effect on competition in the relevant market in India. This is known as the ‘effects doctrine’ (as per Section 32).

Overview of investigative powers in India The CCI and the DG are empowered with the powers of a Civil Court under the Code of Civil Procedure, 1908, while trying a suit, in addition to the CCI being able to regulate its own procedure. The powers of investigation of the DG are wide and sweeping and at times it has been seen that this power culminates in a so-called ‘roving and fi shing expedition’. There have been instances where the DG has sought information from the party which has extended for a period of as long as 15 years, even though this law has been in force in India only for a little over seven years. Suffi ce to say, these requests by the investigators have been challenged before constitutional courts. Generally, the process followed by the DG while conducting an investigation is to call for detailed information from the charged parties as well as third parties. Thereafter, the investigator generally summons the offi cials of the company under investigation for recording of their statement on oath. Though not common, the offi ce of the DG also has the power to conduct ‘search and seizure’ operations, in common parlance known as ‘Dawn Raids’. The investigation wing of the CCI has reportedly conducted two search and seizure operations thus far. In September 2014, in the case of Bull Machines v. JCB India Limited, the DG conducted its fi rst dawn raid, though surprisingly, in an abuse of dominance case. The validity of that search operation

GLI - Cartels 2017, Fifth Edition 140 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Luthra & Luthra Law Offices India has been challenged by JCB before the constitutional courts and the matter is currently being adjudicated upon by the Apex Court – the Supreme Court of India. To date, the DG has not been able to use the seized material due to court orders. The subsequent dawn raid conducted by the DG was on a leading dry cell manufacturer, for a charge of cartelisation with other manufacturers. These signify the wide powers enjoyed by the DG in its resolve to actively conduct intrusive investigations to enforce the provisions of the Act. The CCI also has the power to impose pecuniary ﬁ nes for non-cooperation with the DG’s investigation.

Overview of cartel enforcement activity during the last 12 months Number of dawn raids: The Commission does not publish statistics on the number of dawn raids undertaken, but publicly available data indicates that the CCI has conducted two dawn raids thus far. Total value of fi nes imposed in the last 12 months: The total penalty imposed in all cartel matters amounts to US$ 147m (approx.). High individual cartel fi ne imposed in the last 12 months: In the matter of Builders Association of India v. Cement Manufacturers Association and Others (Case No. 29 of 2010, 31st August 2016), the CCI imposed a penalty of approximately sixty-three thousand crores (approx. US$ 1.1bn) on cement manufacturers in India after fi nding them guilty of cartelisation in the cement industry. Landmark cartel decisions in the last 12 months • M/s Bio-Med Private Limited and Union of India & Ors (Case No. 26 of 2013, 4th June 2015). The information fi led by M/S Bio-Med Pvt. Ltd. alleged cartelisation by M/S Glaxo Smith Kline Pharmaceutical Ltd. and M/S Sanofi through bid rotations and geographical allocations (international) in the tenders fl oated by the Ministry of Health & Family Welfare, Government of India, for procurement of Quadrivalent Meningococcal Meningitis Vaccines from 2002 to 2012. On fi nding a prima facie case, the CCI directed the DG to conduct investigation into the matter. On concluding contravention and that the parties had cartelised and fi nding them guilty of the above charge, the Commission imposed penalties of US$ 8.9m and US$ 447,910.51 on M/S GlaxoSmithKline and M/S Sanofi , respectively. • In Re National Insurance Company and Ors (Case No. 02/2014, 10th July 2015) The Commission had ordered an investigation into the conduct of four public sector general insurance companies; namely, National Insurance Co. Ltd., New India Assurance Co. Ltd., Oriental Insurance Co. Ltd. and United India Insurance Co. Ltd. It was alleged that these four insurance companies had formed a cartel to increase the premium for Rashtriya Swasthya Bima Yojna (RSBY) of the Government of Kerala. After a detailed investigation by the DG, the Commission imposed a total penalty of US$ 98.87m on the said four public sector insurance companies for manipulating the bidding process initiated by the Government of Kerala for selecting insurance service provider for RSBY for the years 2010−11, 2011−12 and 2012−13. It noted that the conduct of these companies resulted in manipulation of the bidding process. It considered the bid rigging in public procurement for social welfare schemes, the benefi ciaries of which were poor families and those below the poverty line, to be an aggravating factor.

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Key issues in relation to enforcement policy While the Indian antitrust regime is still in its nascent stages with scarcely seven years since its inception, it has been successful in busting a number of cartels across various sectors. However, there still seems to be room for improvement in the enforcement framework. A few key issues have been set out below: Absence of set procedures in assessment of evidence In the absence of direct evidence collected through leniency applications or dawn raids, the CCI has continued to base its decisions on indirect or circumstantial evidence, to a large extent. With cartels being the hardest to establish as they are primarily centred on the premise of secrecy, circumstantial evidence holds weaker evidentiary value and is easily questionable, more so in cases of homogenous products. Absence of sophisticated differentiation between role of players in cartels There appears to be an absence of distinction between a price-leader and price-follower in a horizontal agreement under the Indian competition regime. The approach of the CCI has been to fi ne all enterprises in a cartel, in a “one size fi ts all” approach. The CCI has not reached the stage of identifying the role of each cartelist and according penalty in a commensurate manner. Question over credibility of Informants in cartel inquiries Cartel inquiries are initiated only against the parties named by the Informant. There is no express provision granting power to the CCI or the DG to include additional parties to a cartelisation matter, even if the investigation reveals such information. There remains an issue of identifi cation and selection of the correct (and in some cases, complete) parties in a cartel inquiry. Absence of guidelines to determine level of penalty Section 27 of the Act gives wide discretion to the CCI to decide on the quantum of penalty, keeping in mind the exercise of fairness, proportionality and reasonableness. However, the Act remains bereft of guidelines in respect of factors to be taken into account by the CCI to determine levels of fi nes. The CCI has imposed fi nes on cartels imposing penalties of up to 10% of the turnover of the erring enterprise. There remains a conundrum as to the situations that demand a penalty on the relevant turnover of the erring enterprise or the group turnover of such enterprise, in addition to the inconsistent percentage of penalty. Further, there is a need for the CCI to determine contours on which the penalty may be reduced, such as mitigating factors.

Key issues in relation to investigation and decision-making procedures While the Act provides for a sound legal framework that empowers the CCI to bust cartel cases, there remain certain issues, resolution of which might help bolster the current framework. • Embarking upon ﬁ shing and roving inquiries by the DG, thereby exceeding the scope of the mandate given by the CCI to the DG, raises substantive concerns. These have been challenged before various constitutional courts. • Dawn raids are seen as an effective investigative tool in the investigator’s toolkit, to provide direct evidence in detecting the existence of a cartel. The CCI’s reluctance to conduct search and seizure has led to only two cases thus far where dawn raids have been conducted. Increased practice of search and seizure is likely to aid the CCI in ascertaining the presence of cartelisation more successfully.

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• There is inconsistency in the conduct of different investigation ofﬁ cers while investigating matters. They appear to adopt different approaches in dealing with parties in terms of conducting depositions, permitting lawyers to be present during such depositions, and permitting cross-examination. This variance in conduct can potentially lead to harassment of parties. This vagueness and disparity of approach has also led to proceedings being ﬁ led in the constitutional courts. • There is a need to establish a properly structured leniency programme, in the absence of which the Commission may not rely on direct evidence.

Leniency/amnesty regime As elaborated above, Section 3 of Act prohibits an enterprise from entering into an anti- competitive agreement. However, an enterprise which enters into an anti-competitive agreement, or is a part/was a part of a cartel, may submit an application for a lesser penalty under the Lesser Penalty Regulations. The imposition of a lesser penalty by the CCI is discretionary, and a pre-requisite to reap the benefi ts of the Lesser Penalty Regulations is to satisfy the CCI that there has been a violation of Section 3 of the Act as also a full, true and vital disclosure of a ‘cartel’ (Section 46 of the Act). Further, certain pre-conditions have to also be adhered to, which include ceasing to participate in the cartel, providing vital disclosures (information, documents and evidence), cooperating genuinely, fully, continuously and expeditiously throughout the investigation and not concealing, destroying, manipulating or removing relevant documents (Regulation 3 of the Lesser Penalty Regulations). A successful applicant can avail the benefi t of a reduction in penalty in the range of 100% or 50% or 30%, keeping in view the fi rst-mover advantage (Regulation 4 of the Lesser Penalty Regulations). An applicant subsequent to the fi rst applicant may also be entitled to a reduction in penalty for making a disclosure that provides signifi cant added value to the evidence already in possession of the CCI and the DG. Thus, an applicant marked as second in the priority status earns a reduction in penalty up to 50% of the full penalty leviable, followed by a 30% reduction in penalty for the applicant(s) marked as third in the priority status. However, there is no clarity as to whether employees of leniency applicants will also be given concessional treatment as for an applicant which is marked fourth and beyond in the priority status. However, a lesser penalty shall not be imposed by the CCI in cases where the investigation report has been received by the CCI (proviso to Section 46 of the Act). The Lesser Penalty Regulations have been in place since the enforcement of the Act; however, to date the CCI has not passed a fi nal order with respect to leniency applications it has received (Source: Annual report of the CCI for the fi nancial year ending 31st March 2016). Due to the lack of jurisprudence on this subject, it is diffi cult to ascertain the approach the CCI would adopt with respect to issues such as extending the benefi ts of leniency to individuals and the amount of disclosure in its decisions; however, it is expected that the CCI would follow international best practices in this respect.

Administrative settlement of cases The Indian competition regime does not provide for settlement of cases and the intent of the CCI does not seem to suggest either that the CCI intends to put in place any mechanism for settlements. A very recent press release, indicating the response of the Ministry of Corporate Affairs, makes this amply clear. The press release clearly states that: “The CCI is not proposing to devise any mechanism to halt probe and proceedings in case a violator accepts and corrects anticompetitive behaviour.”

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Third party complaints The Act gives liberty to any person (whether aggrieved or not) to ﬁ le information before the CCI, alleging infringement of Section 3 of the Act. Section 19(1) of the Act gives wide powers to the CCI to inquire into any alleged contravention of Section 3 of the Act, either on its own motion or on receipt of any information from any person, or through a reference by a governmental body.

Civil penalties and sanctions Latest developments The CCI recently imposed a penalty of INR 61bn on 10 cement manufacturers and their association, and also directed them to cease and desist from indulging in any activity relating to agreement, understanding or arrangement on prices, production and supply of cement in the market. (Builders Association of India v. Cement Manufacturers Association & Ors., Case No. 29 of 2010, 31st August 2016). The CCI also imposed a penalty of INR 2bn on three domestic airline companies for acting in concert in fi xing and revising Fuel Surcharge (FSC) for transporting cargo. The conduct of the airline companies was found to have resulted in indirectly determining the rates of air cargo transport and was thereby in contravention of the provisions of Section 3 of the Act. (Express Industry Council of India v. Jet Airways (India) Ltd., Case No. 30 of 2013, 17th November 2015.) Mitigating factors v. aggravating factors Though not enshrined under the Act, principles of natural justice demand that while imposing penalty, an authority should consider mitigating and aggravating factors. Decisional practice of the CCI shows that very little consideration is given to such factors. In a recent decision (M/s Gulf Oil Corporation v. Competition Commission of India, Appeal No. 82 of 2012, 18th April 2013), the COMPAT emphasised the need for the CCI to consider mitigating circumstances when deciding the quantum of penalty. Total turnover v. relevant turnover The Act only empowers the CCI to impose civil penalties on delinquent entities for violations of Section 3 of the Act. Section 27 (b) of the Act prescribes discretionary powers for the CCI to impose monetary penalties to the tune of up to three times the entity’s profi ts for each year of the continuance of the cartel or 10% of its turnover for each year of the continuance of such cartel arrangements, whichever is higher. As per its decisional practice, the CCI can be seen to have adopted the approach of imposing penalties upon cartel participants taking into account the entities’ ‘total turnover’ as opposed to the ‘relevant turnover’. However, the appellate authority, the COMPAT, has set aside various fi nal orders passed by the CCI, on the ground that the CCI ought to have taken into account the ‘relevant turnover’ as opposed to ‘total turnover’. The COMPAT has time and again emphasised that while imposing penalty under Section 27(b), the CCI should take into consideration turnover of the relevant product and not the entire turnover of the industry/ enterprise. The CCI and the appellate authority have been at loggerheads on this issue and the matter has fi nally been reserved for orders by the apex court of India, i.e., the Hon’ble Supreme Court of India, which would lay down the law of the land with respect to this issue (Excel Crop Care & Ors. v. CCI & Ors., C.A No. 2480 of 2014, 27th August 2014) which is expected to be pronounced shortly.

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Right of appeal against civil liability and penalties The right of appeal under the Act is a statutory right and the same is envisaged under Section 53B of the Act. However, not all orders passed by the CCI are appealable and such decisions are generally challenged before constitutional courts. For instance, orders directing investigation, etc. The appellate court, i.e., the COMPAT, in the ﬁ nancial year ending 31st March 2016, had a total of 232 appeals pending, out which 49 appeals were disallowed, 20 appeals were allowed (the CCI’s order was set aside) and 67 appeals were remanded back to the CCI for fresh consideration. In M/s Escorts Ltd v. Competition Commission of India (Appeal No. 13/2014, 28th November 2014), the COMPAT set aside the order passed by the CCI in suo motu Case No. 03/2012. The CCI had found that the bidders, by quoting identical rates, had indirectly determined prices/rates in the tenders and indulged in bid rigging/collusive bidding, in contravention of the provisions of Section 3 of the Act. The CCI had imposed a penalty under Section 27 of the Act on the contravening parties. The COMPAT order focused, inter alia, on the issues that: a) the procedure adopted by the CCI was in violation of the principles of natural justice; b) relevant turnover had not been considered by the CCI; and c) the standard of proof required to establish the existence of a cartel had not been met.

Criminal sanctions As indicated above, the CCI has no jurisdiction to impose criminal sanctions on entities for cartel infringements.

Cross-border issues The CCI has extraterritorial powers under Section 32 of the Act. Notwithstanding whether an agreement referred to in Section 3 of the Act has been entered into outside India or the party(s) to the agreement are outside India, the CCI can inquire into such agreements if they cause or are likely to cause any AAEC in India. Though it is believed that the CCI is currently looking at global cartel cases, no public decision has been made available. However, Section 32 of the Act gives ample power to the CCI to look at cross-border issues that have an effect on Indian soil.

Developments in private enforcement of antitrust laws As per Section 53(A)(b) of the Act, the COMPAT has the power to adjudicate on a claim for compensation that may arise from the ﬁ ndings of the CCI or the orders of the COMPAT in an appeal against any ﬁ nding of the CCI. As per Section 53(N) of the Act, the Central Government or a State Government, or a local authority, or any enterprise or any person, may make an application to the COMPAT to adjudicate upon a claim of compensation. However, such a person or enterprise or government authority should be able to show the loss or damage which has been suffered. Further, as per Section 53(N)(4) of the Act, class action suits are also permissible. It is important to note that an application for compensation must be made only after either the CCI or the COMPAT, on appeal, has determined that a violation of the Act has taken place. Since the enforcement of the Act, there have been no reported compensation claims against cartel decisions.

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Reform proposals Procedure before the Director General (DG) There is an urgent need to put in place guidelines for the conduct of investigations before the DG. Presently, there appears to be variance in approaches adopted by different investigating offi cers, for conducting depositions, permitting lawyers to be present during such depositions, and permitting cross-examinations. The approach adopted by the offi ce of the DG has also led to various proceedings being challenged in the courts. For instance, a writ petition was fi led by MRF Limited before the Madras High Court requesting that legal counsel be permitted to be present during the deposition of company representatives, which was permitted by court vide order dated 30.10.2015 (M/s MRF Ltd v. Ministry of Corporate Affairs, Competition Commission of India and Others, W.P. No. 35255 of 2015). Similarly, Forech India Ltd. and Oriental Rubber had both approached the Delhi High Court requesting issuance of directions to the DG to allow an opportunity for cross-examination, permitting access to inculpatory material against the companies, and permit legal counsel to be present during depositions (Forech Limited v. Competition Commission of India and Another, W.P. No. 11072 of 2015, 2nd December 2015; Oriental Rubber Industries Ltd. v. Competition Commission of India and Another, W.P. No. 1411 of 2015, 22nd April 2016), which have also been allowed by courts. It would therefore be advisable for the CCI to issue guidelines for the conduct of proceedings before the DG’s offi ce. These guidelines may, inter alia, provide for: (a) method and manner of taking depositions and providing a copy of the deposition once fi nalised and signed; (b) permitting cross-examinations and the method and manner of conducting cross- examinations; (c) putting respondents on notice regarding inculpatory evidence gathered by the DG and permitting them to respond; (d) specifying clearly whether the party to whom the notice is issued is a charged party or a third party (only required to assist the DGs offi ce during investigation); (e) scope and relevance of requests for information; (f) method and manner of on-site inspections/raids; and (g) dealing with legally privileged communications/documents. Penalty guidelines A long-standing issue has been the method of calculating the appropriate penalty to be imposed on a party. The primary issue relates to whether penalties ought to be calculated on the total turnover of the company in question or on ‘relevant turnover’, i.e. turnover from the cartelised product. This is particularly relevant in cases of multi-product companies. The COMPAT has noted on more than one occasion that the method of calculating fi nes used by the CCI is inappropriate. For example, in M/s. Excel Crop Care Limited v. Competition Commission of India (Appeal No. 79 of 2012, 29th October 2013), the COMPAT, while reducing the quantum of penalty, observed that: “As regards the arguments based on EU and OFT guidelines, we are of the opinion that those guidelines are undoubtedly relevant in arriving at the issue of deciding upon the turn over… relevant turn over should be considered in case of the two appellants who are multi product companies… [w]hile considering the wrong done, of course, the authority would be justifi ed in taking into consideration all

GLI - Cartels 2017, Fifth Edition 146 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Luthra & Luthra Law Offices India the aspects including mitigating and aggravating circumstances.” Similarly, in Dr. L.H. Hiranandani Hospital v. Competition Commission of India (Appeal No. 19 of 2014, 18th December 2015), the COMPAT noted that “the turnover of the appellant with reference to stem cell banking services only could be taken into consideration for the purpose of imposing penalty and not the turnover with reference to other services or income derived from other sources”. The CCI may therefore consider framing detailed guidelines on the imposition of penalties, clarifying, inter alia, the following: (a) that penalties shall be calculated in line with the damage caused due to the anti- competitive conduct. The test for determining the relevant turnover/profi ts may also be clarifi ed; (b) that penalty must be imposed after taking into account mitigating factors such as a compliance programme initiated by the enterprise, and changes made to the programme in order to prevent future violations. Many countries offer a reduction in penalties based on the adoption of and/or suitable modifi cations to a compliance programme; and (c) penalty should not be uniform and adequate signifi cance should be given to the role played by a cartel participant. Leniency proceedings This is a particularly sensitive area for the Commission as it involves balancing broader policy considerations. On the one hand, the leniency programme must encourage cartel participants to come forward and blow the whistle on cartels in exchange for complete or partial immunity from fi nes. To do this, the Commission is required to maintain strict confi dentiality over the identity of the applicants, as well as all evidentiary material proffered. On the other hand, this needs to be balanced against two competing priorities: fi rst, the need to supply other non-applicant cartel participants with all necessary documents in order to allow them to defend themselves; and second, the need to provide claimants with access to the material in order to bring compensation claims against the cartelists. Leniency proceedings bring their own peculiar set of due process concerns. In cartel investigations instituted by the Commission on the basis of a third party complaint/ information, a copy of the prima facie order is normally provided to the respondents on the issuance of the fi rst information request by the DG. However, this is not the case in investigations instituted pursuant to a leniency application. As a result, in a writ petition fi led before the Delhi High Court, the non-supply of the prima facie order by the CCI, and non-disclosure of the relevant case number, were challenged. In light of the above, the Commission may consider adopting guidelines providing for: (a) supplying a copy of a redacted version of the prima facie order to the charged parties at the time of issuance of the DG’s notice requisitioning responses. This will also make the opposite parties wary of the fact that they are subject to leniency proceedings, and encourage them to apply for leniency and provide additional evidence; and (b) maintaining strict confi dentiality of the identity of the applicants as well as all information/documents submitted by applicants qua follow-on damage claimants, while at the same time permitting other respondents access to the materials in order to enable them to defend themselves should they choose to do so.

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G.R. Bhatia Tel: +91 11 4121 5100 / Email: [email protected] Mr. G. R. Bhatia is a Partner and Head of the Competition Law Practice Group and a former Additional Director General of the CCI. He was also associated with the amendments which were made to the Competition Act in 2007, and spearheaded the team that advised the FTC and the DoJ in aligning the U.S. antitrust internal reference materials with Indian laws. Mr. Bhatia was appointed by the Ministry of Corporate Affairs, Government of India, as an Expert on the National Committee on Competition Policy. He is an Ombudsman for several German majors on issues relating to anti-competitive and anti-corruption in the Indian jurisdiction. He has appeared as a Competition Law Expert in various courts including the London Court of International Arbitration. Mr. Bhatia has been ranked amongst the ‘Leaders in their Field’ in Competition/Antitrust by Chambers Asia in 2012, 2013 and 2015, a Chamber and Partners publication. Abdullah Hussain Tel : +91 11 4121 5100 / Email: [email protected] Abdullah is a Partner with the Firm with over 13 years of experience. He represents clients in all spheres of competition laws before the CCI and appellate courts. Abdul has acted for clients across numerous sectors including construction equipment, cement, glass, rubber, real estate, aviation, pharmaceuticals, telecom, auto parts, automobiles, e-commerce, paper, media, shipping, IT, biotechnology, agriculture, mutual funds and private equity investments. He is currently representing JCB before the CCI and the Supreme Court; Bayer in its acquisition of Monsanto; and Jaiprakash Associates in the cement cartel proceedings before the Appellate Tribunal. He is a regular speaker at conferences and seminars including the Competition Roundtable at the Canadian High Commission, the India-United State Cross Border Investment conference, and the 3rd International Competition Law Conference in November 2016. Kanika Chaudhary Nayar Tel: +91 11 4121 5100 / Email: [email protected] Kanika is a Partner (Designate) in the Competition Law Practice Group. She deals with intricate and complicated competition issues. Kanika has acted for clients engaged in various fi elds, including consumer goods, steel, cement, glass, tyre, broadcasting, real estate and the fi lm industry, is ably representing one of the largest real estate developers before the Supreme Court of India in an abuse case, and has successfully defended one of the largest sanitary ware manufacturers before the appellate forum. She is also representing Bayer before the CCI in its acquisition of Monsanto; and currently advising a direct-to-home broadcaster in respect of a merger in the retail content distribution space. Kanika has also been actively involved in developing competition compliance/training programmes for various multinational and Indian corporations, and has specifi c experience in preparing clients for ‘dawn raids’. She is an Associate Editor for various competition law journals and has various publications to her credit. She also regularly contributes articles for American Bar Association journals. Luthra & Luthra Law Offi ces 103, Ashoka Estate, Barakhamba Road, New Delhi – 110001, India Tel: +91 11 4121 5100 / Fax: +91 11 2372 3909 / URL: http://luthra.com

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Anang Triyono, Rinjani Indah Lestari & Ben Clanchy Makarim & Taira S.

Overview of the law and enforcement regime relating to cartels Under Republic of Indonesia Law Number 5 of 1999 regarding Monopolistic Practices and Unfair Business Competition (the Indonesian Competition Law or “ICL”), cartels are regulated as follows. Law No. 5 defi nes an “agreement” as “an action by one or more entrepreneurs to bind themselves to one or more other entrepreneurs under any name, whether entered into in writing or not”. Under the ICL, cartel behaviour falls under several articles, as follows: (a) Article 5, which prohibits price-fi xing agreements between competing business actors, and states that: “Business actors are prohibited from entering into any agreement with competitors in order to fi x prices for certain goods and/or services to be borne by the consumers or clients in the same relevant market.” Article 5 of the Anti-Monopoly Law, however, provides two exemptions to this rule: (a) that business competitors may agree on a price within the framework of a joint venture; or (b) if mandated by law. Given its wording, Article 5 follows the so-called per se illegal doctrine, i.e. investigators from the Business Competition Supervisory Commission (KPPU) will require no further investigation into the practice’s actual effect on the market or the intentions of individuals who are engaged in the practice in order to assess a violation. Under KPPU Regulation Number 4 of 2011 regarding Guideline to Article 5, price- fi xing is a violation of the ICL because it eliminates competition within the market. In a competitive market, the sales price of goods and services moves toward the marginal cost of production and the production amount of the goods and services will increase accordingly. A competitive market will be effi cient and benefi t consumers. Further, the effect of price-fi xing is basically the same as in a monopoly. Suppliers controlling monopolies obtain monopolistic profi ts. Price competition is eliminated through price-fi xing. Under a price-fi xing arrangement, however, a group of suppliers or suppliers and buyers together agree to maximise the selling price (to maximise income), to temporarily lower the prices (as a barrier to a new entrant) or to stabilise prices (to avoid price wars). In doing so, fi nal consumers do not benefi t from productivity gains, economies of scale, or competitive price movements.

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In line with this description, price-fi xing must be regarded as a form of collusion. Thus, price-fi xing which is prohibited in accordance with Article 5 is price-fi xing which arises from an agreement between two or more parties. Without such an agreement, any similarities in prices set between business actors in the same market cannot be regarded as a violation of Article 5. Competitively speaking, collusion is any agreement to restrict competition between business actors which would otherwise be competitors, to exert a common effect upon a relevant market. Under ICL Article 5, price-fi xing covers not only fi xing of the fi nal price, but also covers agreements on price structures or pricing schemes. Therefore, prohibited price-fi xing does not always mean the imposition of the same fi nal price to consumers, but may take the form of an agreement on profi t margins (the difference between the selling price and production cost). In general, forms of price-fi xing covered under Article 5 are, among others: • agreements to increase or decrease prices; • agreements on using a certain standard formula as a basis for calculating prices; • agreements on keeping a fi xed comparison between the competing prices of certain products; • agreements on eliminating discounts or stipulating discount uniformity; • agreements on the requirements for the provision of credit to the consumers; • agreements on eliminating products offered with a low price in the market (inexpensive substitutes), so as to limit supply and maintain high prices; • agreement on compliance with announced prices; • agreement to not sell products if the agreed price is not achieved; and • agreement to use uniform prices as a preliminary step in negotiations. In their preliminary investigation into an alleged cartel, the KPPU investigator tries to identify price-fi xing based on preliminary evidence derived from reports, or the KPPU takes the initiative to obtain evidence of the alleged violation of Article 5 of Law No. 5 of 1999. The evidence required is of mutually agreed price-fi xing and of the business actors’ compliance with the agreement. This evidence may be direct evidence (hard evidence) or indirect evidence which indicates the relationship between and conformity of the evidence (circumstantial evidence). To uphold circumstantial evidence, the investigator requires additional factors (‘plus factor’) to differentiate parallel business conduct from illegal agreements. In other words, the KPPU cannot make a fi nding of violation on the basis of circumstantial evidence alone. From the investigator’s perspective, the best verifi cation method is to use both direct and indirect evidence. The best use of indirect evidence is by combining communication evidence and economic evidence. Analysis of the market structure is conducted by the investigator to determine whether the relevant market would be supportive of collusive behaviour. If so, indirect evidence may be used as an initial indication of the existence of coordination in the relevant market, which can be used as an indication of violation of Article 5 of Law No. 5 of 1999.

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Given the above, after the KPPU investigator attempts to obtain suffi cient evidence (at least two elements of proof) based on the facts found during the investigation, the question will be whether there is evidence of an agreement, either direct or indirect. If the evidence obtained by the investigator is direct evidence, the KPPU investigator will have a good chance of convincing the Commission Panel that price-fi xing has occurred. On the other hand, if the evidence obtained by the KPPU investigator is indirect, it is then necessary to analyse communications and economic evidence. The use of economic analysis evidence becomes one of the important keys in indirect evidence, i.e. to prove the existence of an agreement. Economic analysis plays its role to deduce coordination or agreement among the business actors in the relevant market. (b) Article 9, which prohibits business actors from dividing marketing territory (market allocation) of goods and services, states: “Business actors are prohibited from entering into an agreement with business competitors with the intention to divide the marketing areas or market allocation of the goods and/or services that may cause monopolistic practices and/or unfair business competition.” Article 9 assumes the existence of an agreement between business actors. The application of Article 9 depends on three (3) criteria: the parties are business actors; they compete with each other; and they enter into a relevant arrangement. In the distribution area of the market, the business competitors allocate market share to each buyer according to local criteria, thereby limiting competition between them. Therefore, it will be easier for business actors to increase prices or reduce production to increase profi ts. A market allocation agreement is made when business actors enter into a mutual agreement that ends up limiting the distribution of the same/similar/complementary goods and services in a particular area. The forms that this type of agreement can take are, among other things: an obligation to supply certain goods and services and not others; to supply in certain areas and not in others; not doing advertising campaigns; refraining from aggressive trading practices; maintaining certain sales distribution channels; and maintaining particular traders in certain areas. A market allocation agreement will only be effective if the consumers have no ability to move from one area to another area or fi nd a substitute of the goods and/or services. Basically, market allocations between business actors will not only impose economic losses on the consumer but also on effi cient business actors. The business actors will be restricted to expand their businesses and markets and will lose their opportunity to increase market share. Article 9 subscribes to the so-called rule of reason doctrine, i.e. to prove a violation, the KPPU investigator must examine the underlying reasons for the arrangement as well as the existence of monopolistic practices or unfair business competition caused by the arrangement, or whether the business actors have an acceptable reason which increases consumer benefi t, such as the certainty of the existence of supply at competitive prices. An example of a market allocation agreement handled by the KPPU in 2008 was for the market allocation for the person in charge of technical matters for the electrical installation construction business in South Sulawesi. According to the KPPU, the existence of the market allocation was proven by the agreement between the Boards of Management of electricity and mechanical associations in Indonesia, particularly between associations in South Sulawesi.

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As a result of the market allocation agreement, installation companies were not able to use another person, other than the one allocated to its area. According to the business actors, the market allocation agreement was entered into primarily to increase the safety and security of electrical installations and improve resources. However, in its decision, the KPPU struck down the market allocation agreement and prohibited the business actors from entering into another market allocation agreement. (c) Article 11, which prohibits business actors from establishing a cartel to control the production and/or marketing of products, states: “Business actors are prohibited from entering into any agreement with a competitor with the intention of infl uencing the price by determining the production and/or marketing of goods and/or services, which may cause monopolistic practices and/or unfair business competition.” For an agreement to violate Article 11, the agreement must be among competitors. Therefore, an Article 11 violation depends on three criteria: the parties must be business actors; they must be competitors; and they must have concluded a relevant agreement. Given its wording, Article 11 subscribes to the so-called rule of reason doctrine, i.e. to prove the violation, the KPPU investigator must examine the underlying reasons for the arrangement as well as the existence of monopolistic practices or unfair business competition caused by the arrangement. Under Article 1 (2), the term ‘monopolistic practices’ means the centralisation of economic power by one or more entrepreneurs creating control over the production and/or marketing of certain goods and/or services, resulting in unfair business competition which can injure the public interest. Under Article 1 (6), unfair business competition means competition among entrepreneurs in their production activities and/or in marketing goods and/or services, conducted in a manner which is unfair or contradictory to the law or which hampers business competition. Forming a cartel is a strategy where business actors will enter into a horizontal agreement to regulate production and marketing to infl uence the price of product. Cartels will be created more easily if the participants are companies of comparable size. Only then, production quota arrangements or price stipulations may be achieved because the production capacities and costs among the companies are similar. Homogenous goods or services may not support diverse consumer preferences and therefore, pricing competition will be the primary effective competitive variable. Accordingly, the business actors in the relevant market will be more likely to be tempted to engage in cartels to avoid price wars, which may jeopardise their profi ts. To fi nd out the level of customers’ preference and determine the degree of product homogeneity in a market, KPPU investigators will conduct surveys. A relatively high entry barrier for newcomers will strengthen a cartel. There are few opportunities for a newcomer to fi ll gaps in strongly cartelised markets. Cartels in industries with high entry barriers will therefore generally survive competition from newcomers. In the investigation of a cartel’s production and marketing, the KPPU has in case law recognised the concept of concerted action, which is an action in which all the cartel participants, without necessarily entering into an explicit agreement between them, perform some action which implements a mutual policy on the production and

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marketing of their products. This concept was used by the KPPU in respect of the recent cattle importing cartel. Under Article 30, the KPPU is responsible for the supervision of the application of the ICL, including its enforcement. Its duties include: • reviewing agreements, business practices and mergers that may lead to unfair competition; • taking action, within the authority given it by the ICL; • giving advice to the government on policy that has an impact on competition; • issuing guidelines or publications related to the ICL; and • providing the President and House of Representatives regular reports on the results of the KPPU’s work and activities. If the KPPU identifi es a potential violation, the KPPU will establish an investigative team to conduct in-depth searches for evidence, the underlying reasons for the arrangement, and the existence of monopolistic practices or unfair business competition caused by the arrangement (i.e. an effects test). To obtain evidence, the KPPU investigator will, among other things, request documents (hard copy or soft copy) from the relevant parties, summons witnesses and carry out in-fi eld investigations (if necessary). However, in its investigations, since the KPPU has no authority to take any action, such as summons witnesses, or conduct searches to fi nd evidence of an agreement, or wiretap the management of a company, the KPPU investigators often face obstacles. Under Article 36 (G) of the ICL, the KPPU needs to cooperate with other authorities (e.g. the Police Force) if they need assistance because, for example, a witness is not cooperative. Upon receipt of suffi cient evidence, the KPPU investigator will examine whether sanctionable cartel behaviour has taken place. If so, the KPPU may impose a sanction according to its authority under the ICL. These include administrative, principal and additional criminal sanctions (see below for the administrative and criminal sanctions). Up until now, the cases and recommendations the KPPU has handled have been triggered by reports or undertaken at the initiative of the KPPU, based on research and studies of strategic sectors of industry, concentration and whether there is an economic aspect. The KPPU has examined, for example, an ocean freight cargo rates cartel, a cooking oil cartel, a cement cartel, a fuel surcharge cartel, a pharmaceutical drug cartel and a tyre cartel.

Overview of investigative powers in Indonesia Under the ICL, in the investigation of a potential violation, the KPPU will act as follows (“Case Handling”): • carry out an internal study of the ﬁ ndings; • carry out research; • monitor the business actors; • carry out a preliminary investigation; • ﬁ le the case dossier; • hold KPPU hearings; and • issue a decision.

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During the Case Handling, the KPPU investigator may conduct a preliminary investigation to obtain more evidence. The KPPU investigator will, among other things, request documents (hard copy or soft copy) from the relevant parties, summons witnesses, the reported party, experts and other related parties as well as conduct an on-site inspection (if necessary). The KPPU will also hold hearings and summons the relevant parties to provide the required documents and information. These hearings are part of the Case Handling. The KPPU investigator will also cooperate with other authorities (e.g. the police force) if they need further assistance if, for example, a witness who has been summonsed is not cooperative. Under the ICL, if a party who has been summonsed is uncooperative, for example, he/she refuses to provide the requested documents or information and/or explanation, under Article 48 (3), the KPPU may impose a fi ne of from IDR 1,000,000,000 (one billion Rupiah, approximately equivalent to US$70,000) to IDR 5,000,000,000 (fi ve billion Rupiah) or a prison sentence of up to three (3) months. It is worth noting that the fi nes in the draft new law are generally much higher than in the current law. Following the preliminary investigation, the KPPU investigator will fi le the case dossier and decide whether the case should go to hearings. Based on the evidence provided in the hearings, the KPPU will decide whether the allegation has been proven and whether a sanction should be imposed. Since the ICL does not yet acknowledge the concept of leniency, in its investigation of a cartel, few cartelists admit to their activities, and so the KPPU must fi nd evidence of a cartel in the documents which are provided to them. In addition, KPPU investigators must use circumstantial evidence, such as economic evidence, including the profi t, turnover, production capacity and other data in fi nancial statements. In addition to the economic evidence in the fi nancial statements, the KPPU investigator also uses statistical tests to prove a correlation between the cartel agreement and changes in turnover and production during a certain period related to the cartel agreement, as well as whether there has been any increase in profi t since the cartel agreement came into effect, derived from changes in price, production, or marketing.

Overview of cartel enforcement activity during the last 12 months In 2016, the KPPU imposed an administrative ﬁ ne of IDR 227bn (approximately US$17.1m or €15.9m) in two cartel cases, i.e. the imported cattle cartel and the chicken broiler cartel. The imported cattle cartel case resulted from KPPU’s research into cattle traders and the slaughterhouse association (rumah potong hewan, “RPH”) in the Jabodetabek area, especially beef suppliers in Bekasi, Cikampek, Karawang, Tangerang, Bogor, Bandung, Jakarta and Subang which closed their business operations in early 2013, and also early August 2015, as a result of the increase in the price of imported cattle. The KPPU found evidence of a cartel agreement in communications between the members of the cartel and the Indonesian Cattle Producer and Feedlot Association (APFINDO) regarding the marketing, sale and sale price of imported cattle. The KPPU’s investigations also turned up evidence of a series of meetings which resulted in uniform actions being taken by the alleged perpetrators, including a rescheduling of sales that constituted a limiting of beef imports into the Jabodetabek area. Other evidence uncovered by the investigation included a number of marketing arrangements for the sale of imported beef from May until August 2015 entered into by the accused parties.

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The KPPU also found an ownership and management relationship (affi liated) between the members of the cartel. The KPPU decided that the existence of an affi liation relationship between the cartel members enabled them to receive information about price and stocks and to obtain a larger quota for importing cattle compared to non-affi liated companies. This situation created false competition, which resulted in unfair business competition and limited the competition between them. The KPPU decided that the importers had failed to meet their cattle import quotas under their permits, which resulted in a decrease in cattle stocks. According to the members of the cartel, the increase in the beef price was caused by the exchange rate, but the KPPU did not accept this excuse. According to the KPPU, the exchange rate did not signifi cantly affect the price of imported beef. In fact, it could only have increased the price by IDR 800 per kilo. In quarter III of 2015, the members of the cartel agreed to an increase in the imported beef price of IDR 3,000 – IDR 4,000 per kilo, which resulted in an additional profi t for members of the cartel of from IDR 2,200 to IDR 3,200 per kilo. According to the KPPU, the members of the cartel made an additional profi t of from IDR 990,000 to IDR 1,440,000 per imported animal. According to the data for February 2013 until July 2015 and August 2015, the decrease in the price of supplies was not followed by a decrease in the sales price, so there was a large gap between the two prices. This collusion ultimately resulted in abnormal price hikes, which harmed the public interest. The strike held by the RPH was motivated by the following: (i) the increase in price of live cattle imports in the last month (July 2015); and (ii) the determination of quotas under the permits and the availability of imported cattle not matching demand from the local markets, especially Jabodetabek. On the same day, the Jabodetabek Beef Traders Association (APDS) and the Indonesian Beef Traders Association (APDI) published a Joint Agreement to halt the sale of beef for four (4) days (9 to 12 August 2015). The KPPU decided that these two strikes were held to push the government to increase the quotas under the permits for imported cattle. Given the evidence, the KPPU imposed a fi ne of IDR 107.3bn (approximately US$8m or €7.5m) on the members of the cattle import cartel. In its decision, the KPPU also issued a recommendation to the Ministry of Agriculture to formulate a policy that would ensure an affordable beef supply. Secondly, the KPPU demanded that the Ministry of Trade formulate a policy which would involve the granting of approval for imported-beef quotas to importers one year in advance, in order to ensure smooth distribution. Thirdly, the KPPU also demanded that the Ministry of Trade investigate any affi liation which may exist between importers in order to prevent a recurrence of the unfair business practices. Most of the members of the cartel fi led an appeal against the KPPU decision in the District Court. Meanwhile, two (2) members of the cartel paid fi nes. PT Agro Giri Perkasa paid its fi ne of IDR 4.05bn in full, and PT Karya Anugerah Rumpin paid half of its fi ne. The chicken broiler cartel case began with the discovery of an agreement to destroy parent stock (broilers that produce fertilised eggs) and egg hatchery fi nal stock, which was followed by an investigation into an alleged production and marketing cartel (Article 11) involving 12 cartel members. Before this agreement was concluded, the Directorate General of Livestock and Animal Health instructed the business actors to balance the demand for and supply of chickens by

GLI - Cartels 2017, Fifth Edition 155 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Makarim & Taira S. Indonesia destroying six (6) million parent stock in order to create productive business conditions and anticipate an excess in egg hatchery fi nal stock. Under Directorate General of Livestock and Animal Health circular letter No. 15043/ FK.010/F/10/2015 dated 15 October 2015 regarding Adjustments to the Parent Stock Population, the Directorate General of Livestock and Animal Health instructed the business actors to: 1. destroy two (2) million parent stock in all breeding farm locations, for the fi rst stage; 2. supervise the destruction by other business actors of parent stock; and 3. report the results of their adjustments to the Directorate General of Livestock and Animal Health through the poultry breeding coordinator. In the hearings, the KPPU decided that the agreement to destroy the parent stock was motivated and initiated by business actors and should not be regarded as offi cial government policy, pursuant to the issuance of the above circular letter. According to the government, in fact, there were no valid and accountable data regarding the supply of and demand for poultry products. The government only received data from the business actors coordinated by the Indonesian Poultry Breeding Association (GPPU). The KPPU decided that the arrangement between the members of the cartel participants in the meeting on 14 September, followed by the meeting on 21 September 2015 regarding the amount of parent stock to be destroyed, was effective. This was proved by the killing of two million parent stock in line with the agreement between by the members of the cartel which met the criteria under Article 1 (7). After the parent stock was destroyed, the price of poultry increased in November and December 2015 compared to the price from February to October 2015, which resulted in a potential loss for breeders of Rp.224bn. However, the potential loss could be covered by the increase in the price of poultry and savings in production costs such as food, medicine, vitamins, vaccines, etc. In its decision, the KPPU recommended that: (i) the President and House of Representatives amend Law No. 41 of 2014 to protect independent breeders and prevent economic concentration in the poultry industry; (ii) the Ministry of Agriculture formulate clear regulations on the poultry industry in Indonesia, to uphold fair business principles; (iii) the Ministry of Trade issue a regulation on distribution channels to protect the breeders; (iv) the Ministry of Health promote frozen meat instead of fresh meat; and (v) the Central Statistics Agency (BPS) develop an information system to provide data on the consumption and production of poultry in Indonesia, to ensure the availability of poultry in suffi cient quantities and at an affordable price. In addition to the above cases, the KPPU also conducted investigations into an alleged motorcycle cartel, an alleged regulated agent (RA) cartel at Kualanamo Medan Airport, and an alleged chili price cartel in Padang, West Sumatra.

Key issues in relation to enforcement policy Since its establishment on 7 June 2000, the KPPU has already had three (3) management teams, each with a tenure of ﬁ ve (5) years. Even though the KPPU has the authority to handle legal enforcement broadly in anti-monopoly issues, in the third management period, the KPPU has focused its enforcement primarily on certain strategic sectors, i.e. food, health, energy, infrastructure, including logistics, and banking in seven (7) provinces with a high number of transactions, i.e. Jakarta, West Java, East Java, North Sumatera,

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Riau Island (Batam), East Kalimantan and South Sulawesi. At the beginning of Muhammad Nawir Messi’s leadership (2012–2015), and during Muhammad Syarkawi Rauf’s term (2015–2017), the KPPU became more selective in selecting cases that originated from reports of bid-rigging. The plan is to restrict the focus of the KPPU’s investigators to handle the cases in the ﬁ ve (5) strategic sectors noted above. In addition, bid-rigging also falls under criminal law, and can therefore also be investigated by other law enforcement agencies, such as the Corruption Eradication Commission, the Police, and the Attorney General. An example of this is the trans-Jakarta bid-rigging case which is also being investigated by the Attorney General.

Key issues with investigations and the decision-making procedure Under the ICL, the KPPU has the authority to: 1. accept reports from the public and/or business actors alleging monopolistic practices and/or unfair business competition; 2. search for evidence and initiate preliminary investigations into the business actors to prove the existence of monopolistic practices and/or unfair business competition; and 3. impose sanctions on convicted business actors. The KPPU’s investigators are expected to have independence with regard to their power and duties. KPPU investigators must be free from the inﬂ uence of any party, including Commissioners in the KPPU’s council. In order to ensure their independence, the KPPU investigators who conduct a preliminary investigation do not play a role in the prosecution of the case. In addition, in the hearings, the parties have equal access to all the documents the KPPU investigators intend to produce as evidence. On 8 August 2016, on the instruction from President Joko Widodo, the Indonesian Police, together with the Ministry of Trade, Ministry of Agriculture, BKPM, Customs and the KPPU held a video conference with all police chiefs and relevant institutions across Indonesia in the Jakarta Police Headquarters Building, regarding the policy of maintaining economic conditions, the investment climate and business competition. According to the Chairman of the KPPU, Syarkawi Muhammad Rauf, the KPPU conducted a study to simplify the supply chain in the market and focus on cartels and collusion among market participants.

Leniency/amnesty regime Unlike in many other jurisdictions, so far the ICL contains no provisions on leniency/amnesty. However, in the draft amendments to the ICL, there is a leniency provision which states: “The KPPU may grant leniency and/or a reduction in the sanction for business actors which acknowledge and/or report the alleged action, among others, cartels.”

Administrative settlement of cases As with leniency, the ICL does not cover any administrative settlement (such as plea bargain) for a cartel or other cases handled by the KPPU. Therefore, if the business actors admit participation in a cartel and submit evidence of a cartel to the KPPU investigator, the KPPU investigator will proceed to the ﬁ ling and hearings steps. If the hearings are thereby made shorter, there may be a reduction in the sanction under the KPPU’s decision.

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Third party complaints Under Article 38, anybody who knows or suspects that a business actor has violated the ICL, or has suffered a loss as a result of a violation of the ICL, may report it in writing to the KPPU, along with the identity of the reporter, the details of the violation and the damages suffered (if any). To protect the reporter, the KPPU must keep the identity of the reporter confi dential. Upon receipt of a complete report alleging a cartel (with suffi cient evidence) and evidence of the damages, the KPPU investigators will go straight to hearings without a preliminary investigation. In the hearings, the KPPU’s role is replaced by the reporting party. The ICL is silent on objections to a report. Therefore, it is important for the KPPU investigator to re-confi rm the existence of the cartel before it goes to hearing.

Civil penalties and sanctions Under Article 48, the KPPU has the authority to impose administrative sanctions on business actors who violate the cartel provisions. These include a fi ne of from IDR 1,000,000,000 (one billion Rupiah) up to IDR 25,000,000,000 (twenty-fi ve billion Rupiah) as well as the damages suffered by the affected parties. These fi nes will increase substantially when the law is amended. Under Article 47 and KPPU Regulation No 4 of 2009 regarding Administrative Action Guidelines, the KPPU is required to complete two (2) steps in determining the amount of a fi ne: 1. Determine the basic value and make adjustments by increasing or reducing the basic value. The basic value is calculated according to the sales volume achieved by the business actor excluding the Value Added Tax (VAT) and other related taxes in the relevant market. 2. Consider the market situation, which may result in an addition to or reduction in the fi ne based on the basic value according to an overall assessment, taking into account all the related aspects, which include: (a) whether the business actor continually or repeatedly engaged in the cartel violation, in which case, the basic value will be increased by up to 100%; (b) whether the business actor refused to cooperate in the preliminary investigation; and (c) regarding the leader or initiator of the cartel, the KPPU investigators will look at the steps the leader or initiator of the cartel took to restrict or threaten other business actors. The basic value may be reduced if the KPPU decides that: (a) the cartel participant has provided evidence of the discontinuance of the cartel after the KPPU’s investigator started the preliminary investigation into the cartel; (b) the cartel participant has provided evidence of its minimal involvement in the cartel; (c) the cartel participant has been cooperative in the case handling process; and (d) the cartel participant is willing to sign a statement regarding its intention to change its behaviour and not be involved in other activities which violate the ICL. The fi nal amount of the fi ne should not exceed IDR 25,000,000,000 (twenty-fi ve billion Rupiah) or 10% of total turnover during the current business year, whichever is lower.

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Right of appeal against civil liability and penalties Under Article 44, business actors can appeal against a cartel decision, to the District Court (Pengadilan Negeri), within 14 days of receipt of the notifi cation of the decision. If they do not fi le an appeal by then, they will be deemed to have accepted the decision of the KPPU. After the District Court, business actors can fi le an appeal to the Supreme Court (Mahkamah Agung) against the decision of the District Court within 14 days of receipt of the decision of the District Court. If they do not fi le an appeal by then, the decision of the KPPU will become fi nal and binding. If the fi nal and binding decision is not complied with, the KPPU can submit it to the police to carry out an investigation under the prevailing regulations. This decision will be treated as suffi cient preliminary evidence for the investigator to conduct an investigation.

Criminal sanctions Under the ICL, the sanctions available upon conviction of participation in a cartel include: 1. a fi ne of from IDR 1,000,000,000 (one billion Rupiah) up to IDR 25,000,000,000 (twenty-fi ve billion Rupiah); 2. revocation of the cartel agreement; and 3. determination of the compensation to be paid due to the cartel agreement, in addition to the above sanctions, under the ICL, for: 1. a price cartel violation (Article 5), a criminal fi ne of from IDR 5,000,000,000 (fi ve billion Rupiah) up to IDR 25,000,000,000 (twenty-fi ve billion Rupiah) may be imposed or imprisonment for up to fi ve (5) months; while 2. for a production and marketing cartel violation (Article 11), a criminal fi ne of from IDR 25,000,000,000 (twenty-fi ve billion Rupiah) up to IDR 100,000,000,000 (one hundred billion Rupiah) may be imposed, or imprisonment for up to six (6) months. Further, in addition to the above sanctions, under Article 10 of the Criminal Code, for a criminal cartel offence, the business licence may be revoked, and the directors or commissioners may be barred from these positions for two (2) to fi ve (5) years.

Cross-border issues The ICL does not cover cartels which have no connection to the Indonesian territory, even if they have an impact on the Indonesian economy. Article 1 deﬁ nes a business actor as any individual or entity, whether a legal entity or non-legal entity, established and domiciled or engaging in activities within the jurisdiction of the Republic of Indonesia, either individually or jointly through agreements, engaged in various kinds of business activities in the economic sector. Some caution should be taken interpreting the above, as the KPPU has recognised a single economic entity doctrine (SEED). Therefore a cartel arrangement by parent companies outside of Indonesia, if it is also applied to their subsidiaries in Indonesia, can fall under the jurisdiction of the ICL, as in the Temasek case. However, following the meeting with the Korean Fair Trade Commission (“KTFC”), the KPPU entered into a cooperation agreement on 8 November 2013 which focuses on the following four aspects: enforcement of the anti-monopoly law; regular dialogues; exchanges of information through direct communications; and technical assistance. This cooperation is important because Korea is one of Indonesia’s biggest business partners

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Developments in the enforcement of the antitrust laws During 2016, KPPU has been monitoring competition in infrastructure tenders, as well as competition in the salt trade and investigation of an alleged cartel of car and motorcycle price.

Reform proposals A new draft law amending the ICL has been in preparation by the KPPU since 23 September 2014 and is currently being discussed between the House of Representatives (DPR) and the Indonesian Government, but no deadline has been set for the introduction and adoption of the Bill. It will reform the cross-border authority of the KPPU by amending the defi nition of a business actor. It is also likely that a leniency clause will be included in the proposed competition law. The maximum fi ne for cartel violations will also be increased to IDR 500,000,000,000 (fi ve hundred billion Rupiah, around US$37m at current exchange rates of US$1 = Rp.13,500). In addition, any business actor that repeats a cartel violation may have its business licence revoked and be placed on the blacklist.

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Anang Triyono (Technical Adviser) Tel: +62 21 252 1272, 5200001 / Email: [email protected] Anang Triyono has 13 years of experience in antitrust and business competition matters. He has been involved in a range of research activities, evaluations and investigations in respect of business competition. Prior to joining Makarim & Taira S., Anang held the title of Senior Investigator and Head of Data and Information at the Business Competition Supervisory Commission (KPPU).

Rinjani Indah Lestari (Associate) Tel: +62 21 252 1272, 5200001 / Email: [email protected] Rinjani Indah Lestari is an Associate in the Firm’s Corporate and Commercial Group. Her experience includes representing public and private companies in connection with mergers and acquisitions, foreign investment, as well as advising companies with respect to general corporate matters.

Ben Clanchy (Foreign Legal Consultant) Tel: +62 21 252 1272, 5200001 / Email: [email protected] Ben Clanchy has worked as Foreign Legal Consultant with M&T since 2008 and assists clients with a range of corporate transactions and general commercial advice. He has recently been active on forestry, tank farm and hotel transactions and a number of land acquisition projects. He also advises on merger control ﬁ lings and other competition law matters.

Makarim & Taira S. Summitmas I, 16th–17th Fls. Jl. Jendral Sudirman Kav 61–62 Jakarta 12190, Indonesia Tel: +62 21 252 1272, 5200001 / Fax: +62 21 252 2750-51, 252 1830 / URL: http://www.makarim.com

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Hilla Peleg, Moran Aumann & Joey Lightstone Agmon & Co. Rosenberg Hacohen & Co.

Overview of the law and enforcement regime relating to cartels In Israel, cartel activity is regulated by the Restrictive Trade Practices Act, 5748-1988 (“RTPA”). The RTPA regulates four main areas of commercial activity: restrictive arrangements; mergers; the abuse of monopolistic power; and oligopolistic behaviour in concentrated markets. Cartels are treated as a specifi c instance of a restrictive arrangement. Violation of the RTPA’s provisions is a tort actionable by anyone injured by such violation, a criminal offence, and can lead to the imposition of administrative sanctions including fi nes. The Israel Antitrust Authority (“IAA”), headed by the Director General, is the administrative agency tasked with protecting and promoting competition in the Israeli market. It is divided into legal, economic, and investigative branches, and has the authority to prosecute criminal violations of the RTPA. The IAA also issues memoranda and directives aimed at developing Israeli competition law. Chapter 5 of the RTPA established a designated judicial tribunal for hearing criminal charges pressed for breaches of the RTPA (“the Antitrust Tribunal”). Due to its small size and relative economic insularity, the Israeli market has historically been prone to cartelisation. In order to establish maximum oversight over cartels and other forms of restrictive arrangements, Section 2 of the RTPA adopted an expansive defi nition of “Restrictive Agreement”: “ 2. Restrictive Arrangement (a) (…) an arrangement entered into by persons conducting business, according to which at least one of the parties restricts itself in a manner liable to eliminate or reduce the business competition between it and the other parties to the arrangement, or any of them, or between it and a person not party to the arrangement. (b) Without derogating from the generality of the provisions of subsection (a), an arrangement involving a restraint relating to one of the following issues shall be deemed to be a restrictive arrangement: 1. The price to be demanded, offered or paid; 2. The profi t to be obtained; 3. Division of all or part of the market, according to the location of the business or according to the persons or type of persons with whom business is to be conducted; 4. The quantity, quality or type of assets or services in the business.” Israeli caselaw has interpreted the above defi nition as containing four elements: A) the existence of an “arrangement”; B) between persons conducting business; C) the restriction of a party to the arrangement; and D) the restriction is liable to impede competition, or falls into one of the per se categories listed in sub-section (b).

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Each of these elements has been given a broad interpretation by the courts in order to achieve the RTPA’s purpose of maximum administrative oversight over cartelistic behaviour. The RTPA itself defi nes an “arrangement” as any arrangement “whether express or implied, whether written, oral or by behaviour, whether or not legally binding”. “Conducting business” includes “the production, sale, marketing, acquisition, import or export of an asset as well as engaging in the provision or the receipt of a service”. The element of “restriction” has been interpreted somewhat inconsistently, and recent judicial decisions have opined that it should be treated as secondary in importance. As a result, the courts have emphasised the fi nal element in the RTPA’s defi nition – liable to reduce competition. The reduction in competition does not have be proven, or even to occur; liability to reduce competition in any measure (beyond de minimis) and in any market is suffi cient to fulfi l this fi nal element. The end result is that the RTPA’s probation has very broad scope indeed. In order to temper the broad defi nition, the RTPA exempts several categories of restrictive arrangements from the prohibition on enacting a restrictive arrangement, and the Director General has issued several “block exemptions”. An arrangement will fall under the ambit of the relevant block exemption if it does not signifi cantly affect competition and if it does not include any unnecessary restraints. Some of the major block exemptions passed include: Joint Ventures for Marketing and Supplying Military Equipment Abroad (2015); Restraints Ancillary to Merger Agreements (2014); Arrangements Between Air Carriers (2013); Non-Horizontal Arrangements that do not Contain Certain Price Restraints (2013); Arrangements Between Air Transportation Carriers Engaging in the Marketing of Flight Capacity to Destinations Subject to “Open Sky” Arrangements (2012); Operational Arrangements Between International Maritime Transportation Carriers (2012); Restrictive Arrangements Causing Immaterial Harm to Competition (De Minimis) (2011); Joint Ventures (2011); Research and Development Agreements (2011); Exclusive Purchase Agreements (2011); Exclusive Distribution Agreements (2011); Franchise Agreements (2011); and Arrangements Between Related Companies (2011). The Director General is empowered to grant specifi c exemptions for restrictive arrangements that don’t present a threat to competition. The General Director’s exemption – or alternatively, the refusal to grant such an exemption – is subject to appeal before the Antitrust Tribunal. The Tribunal is also empowered to grant exemptions for restrictive arrangements, and has broader discretion to do so for general “public interest”, even if the arrangement will impede competition.

Overview of investigative powers in Israel Sections 45 and 46 of the RTPA grant the IAA signiﬁ cant investigative powers, including powers of search, seizure, interrogation and detention. The IAA’s investigative department may initiate investigations into a suspected violation of the RTPA, or may investigate on the basis of third party complaints. Investigations may be executed secretly or publicly, and the IAA may obtain a search warrant to enter private premises, seize evidence including evidence stored on electronic media, and interrogate witnesses. The IAA’s investigations are frequently conducted in conjunction with other investigative authorities, such as the Israeli Securities Agency. The IAA may also obtain warrants to arrest suspects if the need arises. Suspects and witnesses are afforded the same rights and protections in IAA investigations as they are in general criminal investigations, including the right to counsel, rights to fair procedure, and the right against self-incrimination during investigations. Non-cooperation with investigations, including the exercise of the right to remain silent,

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Overview of cartel enforcement activity during the last 12 months The past year has seen several criminal actions enforcing cartel regulations. Three bakeries and three of the bakery’s offi cers were convicted of cartelising the prices and market division of sliced white bread and challah rolls (a further fi ve bakeries and eight offi cers were indicted for involvement in the cartel, but their trial has not yet concluded). As the cartelisation had the potential to cause an aggravated impediment to competition, the sentences issued were at the harsher end of the spectrum: the offi cers’ sentences varied from six to twelve months of prison, fi nes of 100,000–300,000 NIS (approx. 26,300– 79,000 US$), and a fi ve-year bar on serving as directors of a public company. The bakeries were fi ned, depending on their part in the cartel, between 400,000–1,400,000 NIS (105,000–368,000 US$). In a separate case, the Antitrust Tribunal also convicted three companies and two offi cers for bid-rigging regarding a nationwide tender for maintenance of meteorological stations. One offi cer was sentenced to three months of community service and a 150,000 NIS fi ne (39,500 US$), the other to two months of community service and a 100,000 NIS fi ne (26,300 US$), and both were barred from serving as directors of a public company for a period of three years. Each of the companies was fi ned 250,000 NIS (65,700 US$). A book publishing house and its CEO submitted a plea bargain and were convicted of cartel activities in the textbook market. The CEO was sentenced to nine months of prison and a 100,000 NIS fi ne (approx. 26,300 US$), while the publishing house was sentenced to a 400,000 NIS fi ne (105,000 US$). The Israeli Veterinary Physicians Association was fi ned 80,000 NIS (21,000 US$) after pleading guilty to charges of recommending a prohibited course of action by publishing a list of “recommended veterinary fees” to its members. Finally, a lawyer who drafted a fi ctitious contract for competitors who were bid-rigging a real estate tender was sentenced to three months of prison and a fi ne of 50,000 NIS (13,000 US$). The IAA also issued several consent decrees for cartelistic behaviours which included payments ranging from 4 million to 80,000 NIS (1,050,000 to 21,000 US$). The IAA launched open criminal investigations into suspected cartel activity in various sectors of the Israeli market, including: video game distribution; cooking gas; organised tours for schools; and infrastructure construction. These investigations included dawn raids, seizure of evidence, arrests and interrogations. The IAA also made extensive use of its administrative enforcement powers this past year. ACUM, a private entity that manages intellectual property rights for artists in Israel, agreed to a consent decree in which it was obligated to pay an 80,000 NIS fi ne (21,000 US$), for maintaining restrictive agreements without the Director General’s licence. Separately, an agricultural shipping cooperative was obligated to pay an 80,000 NIS fi ne (21,000 US$) for maintaining restrictive agreements without the Director General’s licence. In both cases, the companies had been working with a limited licence for the restrictive arrangements in question, but the licence lapsed before the companies and the IAA agreed upon the terms for extending it. Despite the lapse, the companies continued their operations and were thus in breach of the RTPA. An individual was fi ned 15,000 NIS (4,000 US$) in a consent decree, after it was determined that his publication of standardised corporate contracts to private kindergartens constituted a prohibited course of action. Tnuva, one of Israel’s

GLI - Cartels 2017, Fifth Edition 164 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Agmon & Co. Rosenberg Hacohen & Co. Israel largest dairy distributors, reached a restrictive arrangement for the distribution of a specifi c dairy. The arrangement was submitted for the Director General’s approval, but it was found that the two companies had been operating under the terms of the agreement prior to the submission. Tnuva was fi ned 385,000 NIS (101,000 US$) and the dairy was fi ned 20,000 NIS (5,000 US$). Class action suits remain the preferred avenue for civil cartel enforcement, and several class actions have been submitted to Israeli courts regarding cartel damages. Actions have been submitted against Israeli cartels under investigation by the IAA, such as the cooking gas and the organised tours cartels mentioned above. However, plaintiffs have also lodged suits against foreign corporations whose activities fall outside of the IAA’s jurisdiction. These actions are often based on the fi ndings of foreign courts and investigative authorities.

Key issues in relation to enforcement policy The past several years have witnessed a clear trend towards stricter enforcement and harsher punishment for violations of the RTPA. Throughout the early 2000s, courts often employed rhetoric regarding the severity of cartel activity and the need to incarcerate offenders. Such rhetoric was, and remains, common regarding all white-collar crimes. In practice, however, sentences for cartel activity tended not to exceed fi nes and a suspended minor prison sentence or community service. In the past several years, however, the level of punishment has risen signifi cantly, with longer sentences and higher fi nes becoming more common. In a recent decision regarding a cartelisation attempt by a major grocery chain, the Supreme Court made it clear that punishments should continue to involve prison terms, and that those terms should become more severe. The Court sentenced the supermarket’s CEO to prison for an attempted vertical restrictive arrangement – a form of restrictive arrangement that is viewed as less severe than horizontal arrangements. A similar trend can be observed regarding administrative fi nes: though the practice is relatively recent (the authority to impose administrative fi nes was granted in a 2012 amendment to the RTPA), it seems that the IAA is becoming more comfortable with it, and it is imposing more severe fi nes.

Key issues in relation to investigation and decision-making procedures Oversight of the IAA’s investigative, criminal and administrative decisions is broadly similar to the oversight of police and other law enforcement agencies’ decisions. Prior to reaching a decision that has the potential to infl ict signifi cant harm upon a party, such as imposing an administrative fi ne or issuing an indictment for a felony offence, the party is entitled to a hearing to make his case. Most decisions taken by the IAA, including decisions regarding the seizure of materials, interrogations or any other decision that may impinge on the defendant’s rights, are subject to judicial review before the Antitrust Tribunal or the High Court of Justice. A recent development regarding the IAA’s investigative powers was made in response to recommendations made by a 2011 government commission on restructuring certain aspects of Israel’s economy (the Trajtenberg Committee). The IAA established a Competitiveness Division which extends the IAA’s investigative powers, allowing it to undertake in-depth research into various sectors of the Israeli market and appraise its level of competitiveness. This means that the IAA is not restricted to investigating specifi c violations of the RTPA regarding which it has received information; rather it can uncover and address such violations through its own pro-active research. The Division is empowered to demand

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Leniency/amnesty regime In 2005, the Attorney General issued a directive announcing that the IAA would operate a whistleblower leniency program that operated under principles similar to those of the state witness program. The program offers immunity from prosecution to the fi rst member of a cartel (either an individual or a corporation) who provides the IAA with information regarding the cartel activity and fully cooperates with the investigation. Any party involved in previous cartels is not eligible for the leniency program. Leniency granted to a corporation will be extended to all offi cers, directors and employees who fully cooperate with investigations. The IAA’s leniency program does not provide protection from civil suits fi led for damages caused by the cartel’s activities. In a recently published memorandum, the General Director stated that administrative fi nes would not be imposed on a party that was granted criminal immunity. As the program has been used infrequently, it is diffi cult to appraise its effectiveness.

Administrative settlement of cases The IAA has two main administrative tools for settling cartel cases: consent decrees and administrative fi nes. Under a consent decree, a party being investigated for violations of the RTPA may agree to cease offending behaviour and pay a fi ne to the state treasury in exchange for the IAA agreeing not to press criminal charges. The sum of the fi ne varies widely based on the severity of the infraction and the size of the company being investigated. A consent decree must be approved by the Antitrust Tribunal before taking effect. The IAA may instead opt to impose an administrative fi ne for breaches of the RTPA. The RTPA stipulates certain factors that the IAA must consider when assessing the fi ne to be imposed. A fi ne imposed on an individual may not exceed approximately 1 million NIS (263,000 US$), and a fi ne imposed on a corporation may not exceed 8% of its annual turnover, up to a maximum sum of approximately 24.5 million NIS (6,440,000 US$). These maximum sums refl ect the baseline from which the actual fi ne will be determined, after taking into account the extent and severity of the violation, as well as mitigating circumstances of the violator or the violation which would justify increasing or decreasing the severity of the fi ne. Prior to imposing a fi ne, the IAA must invite the offender to a hearing. The decision to impose a fi ne is subject to appeal before the Antitrust Tribunal.

Third party complaints The IAA has an open “public complaints” line, through which third parties may submit complaints regarding cartel activity or provide information regarding ongoing investigations. Complaints and information may be submitted anonymously. The IAA sees third-party complaints as an important component of its activities, as they augment the IAA’s investigative resources. The IAA is afforded broad discretion with regard to follow-up on third party complaints, but a decision not to investigate a complaint, or to cease such investigation without imposing a sanction, is subject to judicial review before the High Court of Justice.

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Civil penalties and sanctions Violation of the RTPA’s provisions is a tort, and can be brought to court under the general rules of civil procedure. As such, plaintiffs bear the burden of proof regarding all elements of the tort (cartelistic behaviour, damages, and causation), and only proven pecuniary and non- pecuniary damages will be awarded. There is no provision in the RTPA allowing for treble damages, and the general approach of Israeli tort law is to award exemplary damages only in rare and extreme circumstances. The General Director’s determination that an agreement amounts to a restrictive arrangement in violation of the RTPA is considered prima facie evidence in civil proceedings. Plaintiffs can also petition the court for injunctive relief from cartel activity, although the general approach is that the IAA, rather than a private plaintiff, is the appropriate body to request such relief. The Israeli Class Action Law provides that violations of the RTPA can be brought to court as class actions. Due to the signiﬁ cant damages that class actions can yield, such actions have become an especially effective device in deterring cartelistic activity.

Right of appeal against civil liability and penalties Defendants have the right to appeal all rulings imposing civil, administrative or criminal liability for breach of the RTPA’s provisions. A ruling by a competent civil court of ﬁ rst instance (the Magistrate Court for suits claiming damages up to 2.5 million NIS (657,000 US$), or the District Court for damages exceeding that sum) can be appealed by the plaintiff or the defendant, as the case may be, within 45 days. Criminal indictments are tried before Antitrust Tribunal (a special department within the Jerusalem District Court). Administrative ﬁ nes imposed by the IAA can be appealed before the Antitrust Tribunal within 30 days. The Antitrust Tribunal’s judgments in both criminal and administrative cases can be appealed before the Supreme Court within 45 days.

Criminal sanctions Criminal sanctions for violation of the RTPA include fi nes (up to approximately 4 million NIS (1,050,000 US$) for a corporation or approximately 2 million NIS (525,000 US$) for an individual) and three years’ imprisonment. If the violation was committed under “aggravated circumstances”, an individual is subject to fi ve years’ imprisonment. Offi cers of an offending company are subject to a judicial presumption of guilt for the criminal actions of the companies that they serve. The RTPA specifi cally provides that an acting offi cer or senior manager will be held criminally responsible for the company’s actions, “unless he proves that the offense was committed without his knowledge and that he took all reasonable measures to ensure compliance with this Law”. The Antitrust Tribunal may also decide to bar individuals from holding directorial positions in publicly traded companies and impose suspended sentences.

Cross-border issues The RTPA does not have extra-territorial application, meaning that the IAA only has jurisdiction over cartels that operate within Israel. There is no need, however, for the cartel members to be Israeli or for them to have met within the borders of the country. In the Gas-Insulated Switchgear Cartel, for example, it was decided that the fact that the cartel rigged tenders issued by the Israeli Electric Company and sold cartelised products directly to Israeli companies was sufﬁ cient for the IAA and the Israeli courts to establish jurisdiction over the cartel’s members. The territorial limitations of the RTPA do not impede civil

GLI - Cartels 2017, Fifth Edition 167 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Agmon & Co. Rosenberg Hacohen & Co. Israel suits ﬁ led against foreign cartel members, as damages incurred in Israel establish Israeli jurisdiction in tort suits. In such cases, plaintiffs are required to petition the court for leave to serve court documents outside of the jurisdiction. Defendants may convince the Israeli court that the leave should be cancelled based on the doctrine of forum non conveniens.

Developments in private enforcement of antitrust laws The use of class action suits as a tool for private enforcement of antitrust laws – especially as a tool to sanction foreign cartels that indirectly affect the Israeli market – remains the most signifi cant development in this area. The typical foreign-cartel class action involves a situation wherein a foreign cartel produces components that are purchased by a third- party and incorporated into products assembled outside of Israel. Those products are then sold down-stream to Israeli consumers who purchase them and incur damage due to the overcharge included in the cartelised component being passed on to the price paid by the end consumer. In such instances, plaintiffs often rely on foreign investigations and criminal or civil proceedings regarding international cartels. While such proceedings are not “adopted” by the courts outright, plaintiffs can rely on the evidence submitted and the economic models employed to prove the elements of tort and quantify the damages. Israeli class actions are often settled outside of court due to the extended processing times and uncertainty involved in seeing a case through to conclusion. Due to the importance of class action suits to the integrity of the antitrust regime, the IAA has a representative on the Ministry of Justice’s Class Action Support Fund, which provides funding to class action plaintiffs to ensure that such actions can be successfully pursued. Another major development in private enforcement of antitrust laws is the ongoing debate regarding excessive monopolistic pricing. Section 29A of the RTPA prohibits a monopolist from abusing its dominant position, including by: “[e]stablishing an unfair buying or selling price for the asset or service over which the monopoly exists”. In 2014, the Director General of the IAA issued a memorandum stating that a monopolist may be accused of excessive pricing if it charges a price that exceeds the competitive price for the same product, if there is no reasonable relation between its economic value and its price, or if the profi t margins greatly exceed the profi ts reaped from similar products in competitive markets. A judicial ruling clarifying the binding judicial stance on excessive pricing has not yet been issued, but the Central District Court recently certifi ed a class action claim against a major dairy producer for charging excessive prices for cottage cheese. In light of mounting criticism of the excessive pricing doctrine from academia and from practice, the Director General recently announced that the IAA was reviewing its stance on excessive pricing.

Reform proposals In 2005, a draft amendment to the RTPA was presented to the Knesset, with the intent of amending the defi nition of “Restrictive Arrangement” in Section 2 therein. The draft amendment was not accepted, but it still has many supporters, and its propositions are re- introduced from time to time. The defi nition of a restrictive arrangement (see above), as it stands now, is overly broad, and can be applied to almost any commercial arrangement, whether or not it has any impact on the competitiveness of the market. This, combined with the fact that the RTPA imposes a regime of strict criminal liability, creates a situation of high-stakes uncertainty which can impede legitimate business activity. On the other hand, a literal reading of the defi nition indicates that the arrangement must impede competition in the restricted parties’ market. This reading could exclude arrangements wherein only one

GLI - Cartels 2017, Fifth Edition 168 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Agmon & Co. Rosenberg Hacohen & Co. Israel party restricts itself, but the restriction affects the other party’s market (for example, if a food producer agreed to sell only to one grocery chain, thereby impeding the competition in the grocery resale market). The proposed reform would amend the defi nition of restrictive arrangement to increase its clarity and precision. Section 2 would include a general defi nition of a restrictive arrangement as “an arrangement entered into by persons conducting business that is liable to eliminate or reduce business competition”. This would be accompanied by a list of specifi c arrangements that would be considered per se restrictive arrangements that would only apply to “horizontal” arrangements – i.e. cartels. Vertical arrangements and conglomerate arrangements would only fall under the ambit of the RTPA if they are considered to be liable to reduce competition. A recent Supreme Court decision (CrimA. 5823/14 Shufersal Ltd. v. State of Israel (10.8.2015)) interpreted certain aspects of the existing defi nition in this light, thereby achieving some the reform’s aims without waiting for the legislature to act.

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Hilla Peleg Tel: +972 2 560 7610 / Email: [email protected] Hilla Peleg is a partner at Agmon & Co. Rosenberg Hacohen & Co., and leads the ﬁ rm’s Competition and Antitrust department. Hilla specialises in class actions and antitrust litigation, and in recent years she has been involved in some of the most complex and innovating cases in the ﬁ elds of telecommunications, energy and consumer goods. Hilla represents clients in civil, criminal and administrative matters at every level of the Israeli justice system.

Moran Aumann Tel: +972 2 560 7654 / Email: [email protected] Moran is a leading associate in Agmon & Co. Rosenberg Hacohen & Co’s Competition and Antitrust department. Her main ﬁ elds of expertise are antitrust law, regulatory law, civil & commercial litigation. In addition to providing general consultation services on competition matters, Moran represents clients before the Israel Antitrust Authority in a wide range of areas, including preparation for approval of mergers, exemptions from restrictive arrangements and electronic discovery of documents. She also acts on behalf of companies and their ofﬁ cers in criminal proceedings before the IAA and the Antitrust Tribunal.

Joey Lightstone Tel: +972 2 560 7607 / Email: [email protected] Joey provides legal consultation on corporate and civil law, mergers and acquisitions, and general antitrust law. He represents clients before the Israel Antitrust Authority and the Israeli courts in both civil and criminal proceedings. Joey’s clients include major Israeli and international communications and technology companies, energy corporations, industrial ﬁ rms and real estate ﬁ rms. He also has experience in constitutional and administrative law. Before joining Agmon & Co. Rosenberg Hacohen & Co., Joey clerked for the Hon. Justice Isaac Amit at the Israeli Supreme Court.

Agmon & Co. Rosenberg Hacohen & Co. Tel Aviv Electra Tower, 98 Yigal Alon St. 6789141, Tel Aviv, Israel Te l: +972 3 607 8607 / Fax: + 972 3 607 8666 / URL: http://www.agmon-law.co.il

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Enrico Adriano Raffaelli & Elisa Teti Rucellai&Raffaelli

Overview of the law and enforcement regime relating to cartels Article 101 of the Treaty on the Functioning of the European Union (TFEU) and Article 2 of Italian Law No. 287 of 10th October 1990 (Competition Act) prohibit agreements that: directly or indirectly prevent, restrict or distort competition within the domestic market or a substantial part of it; fi x purchase or selling prices or other contractual conditions; limit or restrict production, market outlets or market access; or share markets or sources of supply. If the practice is capable of affecting trade between Member States, Article 101 will be applied at national level. The enforcement of Article 2 of Italian Law No. 287/90 and Article 101 TFEU is put in place by the Italian Competition Authority (ICA) (public enforcement) and National Civil Courts (private enforcement). Pursuant to Article 33 (2) of the Competition Act, as amended by Law No. 27, dated 24th March 2012, private actions for damages resulting from infringements of the Competition Act must be fi led before Specialised Sections of the Civil Court. Such Sections are also competent to decide on requests for interim relief related to infringements of competition law. Public enforcement is referred to the Italian Competition Authority, which is empowered to establish the existence of anti-competitive behaviours and to impose administrative fi nes if necessary. Decisions of the ICA can be appealed before the Italian Administrative Court of First Instance (“Tar Lazio”), whose judgment can be appealed before the Italian Supreme Administrative Court (“Consiglio di Stato”).

Overview of investigative powers in Italy The ICA can start an investigation of its own motion, or at the initiative of a third party. The Authority has wide and far-reaching powers of investigation towards private and public administration. Pursuant to Article 14.2 of the Competition Act, the ICA may request entities to supply any information in their possession and exhibit any documents of relevance to the investigation. It also “may conduct inspections of the undertaking’s books and records and make copies of them, availing itself of the cooperation of other government agencies where necessary” (so-called Dawn Raid) with the assistance of the fi nancial police (Guardia di Finanza, “Nucleo speciale antitrust”). Dawn Raids may be conducted by the ICA only at companies’ premises. Inspections are carried out by the ICA’s offi cers (together with the Italian fi nancial police offi cers), who may exercise their power only upon presentation of the written inspection authorisation, as well as the decision containing the opening of the investigation, which specifi es the subject

GLI - Cartels 2017, Fifth Edition 171 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Rucellai&Raffaelli Italy matter of the investigation and the penalties for any unjustifi able refusal to cooperate. Pursuant to Article 14 of the Competition Act, the Authority may fi ne whoever refuses or fails to provide the information or documents required without justifi cation. The fi ne is quantifi ed in an amount up to Lit. 50 million (about €25,822) that may be increased up to Lit. 100 million (about €51,645) if parties submit untruthful information or documents. Searches and seizure ordered by the Authority do not need to be authorised by a judge or magistrate. The offi cials are empowered to access premises, check all electronic and paper fi les, and, if necessary, make copies of them, and request information to be given verbally for the explanations of facts or documents relevant to the investigation. An immediate response is generally not required, and a response may be provided to the ICA within a reasonable timeframe. An employee/company representative is not required to answer any question which would lead to self-incrimination. All the activities performed during the inspections, with particular reference to any statements collected and documents acquired, are recorded in the minutes of the inspection (Article 10 of d.p.r. No. 217/1998). Furthermore, investigative powers of the ICA have been increased following the introduction in Italy of the leniency program: according to Article 15-bis of the Competition Act, the Authority can apply this rewarding instrument to undertakings that denounce cartels they are involved in, granting to such undertakings immunity or reduction of fi nes (“Leniency notice” of the ICA, updated version of 31st July 2013).

Overview of cartel enforcement activity during the last 12 months In 2016, the ICA adopted the following decisions concerning cartels. In case I777 – Tassi sui mutui nelle province di Bolzano e Trento, decision 25882/2016 the ICA fi ned credit institutions belonging to two different federations of the Trentino Alto Adige Region for the violation of Article 2, Competition Act, ascertaining that the Raiffeisen federation and 14 federal banks set up a secret agreement aimed at coordination of commercial policies in order to limit competition in the market for family bank loans. The agreement produced its effects from 2007 to 2014 in the province of Bolzano. The second anticompetitive agreement involved the federal rural banks of the Trentino Federation of Cooperatives. For two years (2013 –2015), the federation indicated the loan rate in order to limit competition in the family bank loans market in the province of Trento. Fines totalled €27 million. In case I783 – Accordo tra operatori del settore del vending, decision 26064/2016, the ICA fi ned the main players in the market for automatic and semi-automatic distribution of food and drinks (vending), with their trade association, for the violation of Article 101 TFEU. The aims of the cartel were the sharing of markets and the allocation of sales quotas, the assignment of customers and price coordination. The undertakings wanted to preserve their economic viability, abstaining from bidding to the clients of the other companies. Price coordination was implemented through the intervention of a trade association. The total amount of fi nes exceeded €100 million. In case I789 – Agenzie di moda, decision 26229/ 2016, the ICA fi ned eight companies and their trade association, all active in the fi eld of model management services, for the violation of Article 101 TFEU. The object of the cartel was the coordination of pricing policies and, in particular, the fee for models’ activities, the amount paid by the client to the

GLI - Cartels 2017, Fifth Edition 172 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Rucellai&Raffaelli Italy companies, the additional fee for the commercial use of the images, the additional prices for extra performance, the payment term or the actions taken with debtors. The total amount of ﬁ nes reached €4.5 million. The ICA recently launched different investigations concerning possible cartel infringement, such as the very recent case I801 – RC Auto, regarding an alleged cartel implemented by the major insurance companies in violation of Article 101 TFEU, which allegedly led to a generalised price increase (decision 26263/ 2016). Another case regarding an alleged cartel is the case I793 – Aumento dei prezzi (decision 25710/2015), whereby the ICA launched an investigation against cement producers for an alleged coordinated price increase. The case was launched following the complaint of an undertaking active in the production and sale of cement. The complainant highlighted that four companies, active in the cement market, had communicated to their clients the same price increase from the month of June 2015. The proceeding was later extended to other undertakings. The investigation related to Case I742 – Tondini per cemento armato is still under way. Also in this case, the action of the Authority was sparked off by the complaint of a third company, which reported an alleged cartel related to the price of reinforcing bars. The proceeding was later extended to other undertakings.

Key issues in relation to enforcement policy Under the Italian legal framework, the Authority is not legally bound to act on all cases brought to its attention. The launching of investigations is not automatic but subject to the discretion of the ICA. Regarding the activity of the ICA for the period from 1st January 2015 to 8th June 2016, it could be extremely useful to report the data indicated by the ICA President Giovanni Pitruzzella in his presentation of the ICA Annual Report, dated 15th June 2016. In the period in question, the fi nes imposed through the application of Competition Law amounted to €433 million (whereas the fi nes imposed for consumer protection issues, also within the ICA’s remit, amounted to over €71 million). During the considered period, the ICA closed 19 cases on anticompetitive agreements, as well as four cases on abuse of dominant position, and nine for mergers. More specifi cally, the ICA concluded 18 proceedings fi nding an anti-competitive infringement, fi ve with the acceptance of commitments, and in one case the investigation was concluded with no fi nding of an antitrust violation. According to President Pitruzzella, the ICA must follow and supervise the “great transformation” of our society and economy. In these terms, innovation occupies a central role in the ICA’s activity, particularly concerning the digital economy sector. Consequently, the ICA intervened and adopted decisions in strategic fi elds such as the management of communications networks. For example, one interesting case which is worth noting is case I761, Mercato dei servizi tecnici accessori, dated 16th December 2015, where the Italian Competition Authority imposed a cumulative fi ne of €28 million on seven companies, including Telecom, for a cartel involving network maintenance services. In this area, the action of the Authority is also optimised through the assistance of the Italian Regulatory Authority for the communications sector (Agcom). In light of the ICA’s decision, the Agcom adopted a measure aimed to change the modes of delivering ancillary services.

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The cooperation between ICA and Agcom has been also implemented through a joint market investigation on ultra-broadband. Another strategic segment of this new economy is represented by the activity of the web giants. In this sense, one of cases which may be highlighted is that involving Booking. com and Expedia (case I779 “Mercato dei servizi turistici- prenotazioni alberghiere on line”). The intervention of the Authority has allowed the entrance of new market players (i.e. American Express). According to President Pitruzzella, the ICA also affords considerable importance to monitoring the areas of sharing economy and e-commerce, even though cases before it have only recently been tracked. The attention of the ICA for cartels in public procurement (bid rigging) seems to have taken root. In this area, the Authority can count on the strength and successful cooperation with the National Anti-Corruption Authority. For example, one could recall the decision No. 25413 of 22nd December 2015 (case I785 – Gara Consip servizi di pulizia nelle scuole), where the ICA ﬁ ned four companies, active in the school cleaning services sector, with a cumulative sanction of €114 million, for the violation of Article 101 TFEU. The ﬁ ght against cartels in public tenders is considered a crucial element because it helps in reducing the costs in public budgets, and ensures the realisation of the public interest.

Key issues in relation to investigation and decision-making procedures The strong powers assigned to the ICA, and its nature as an independent administrative authority, have stimulated an important debate about the respect and safeguard of parties’ procedural rights. The activity of the ICA often appears similar to that of a judicial authority, thus requiring particular caution. Firstly, the Authority has to guarantee the proper exercise of the right to be heard. The right of both parties to be heard is practised in all the phases of the ICA investigation. Interested parties may submit written pleadings, documents or requests to be heard in the fi nal hearing. Also, third parties who are not part of the proceedings may submit pleadings, access documents or request to be heard, on condition that they demonstrate particular private or public interest which could be affected. There may sometimes be a confl ict between the right to be heard and requests for confi dentiality. It should be noted that the ICA is often inclined to accept confi dentiality requests, to avoid deterring the submission of leniency applications. This solution may impede the right of defence of the other parties. The Cosmetics cartel (I701, Vendita al dettaglio di prodotti cosmetici, 15th December 2010) case is particularly signifi cant in this area. The ICA refused requests from other investigated parties to access documents submitted by the applicants. The approach was confi rmed by the Administrative Court of First Instance (Tar Lazio, No. 8015/2010 of 22nd April 2010). Before confi rming the decision of the ICA, the Italian Supreme Administrative Court (Consiglio di Stato, No. 6481/2010 of 6th September 2010), requested to provide a report describing, for each relevant document, the context and inter alia, the reasons for confi dentiality. During a Dawn Raid, companies may also be assisted by lawyers to avoid the acquisition of documents which are not directly related to the subject-matter of the raid, as well as to select all the documents covered by legal privilege, avoiding the acquisition of the latter by the ICA. Legal privilege covers communication between lawyers and clients. Conversely, communications of in-house lawyers are not protected by legal privilege (save for the case in which the internal notes of in-house lawyers are limited to copying the opinion or correspondence with lawyers).

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The ICA is not required to respect a speciﬁ c time frame to investigate or decide cases. The exercise of the ICA’s power is closely related to the circumstances of the case. This means that the timing and strength of powers may vary from case to case. In addition, it should be pointed out that although third party complaints represent the main source of information for the ICA, the Competition Act does not set forth a legal obligation to open an investigation.

Leniency/amnesty regime Article 14 (2) of Decree No. 223/2006 converted, with amendments, by Law No. 248 of 4th August 2006, has introduced Article 15-bis of the Competition Act, providing an important instrument for the repression of cartels: leniency programs. More specifi cally, on 15th February 2007, the ICA adopted a system of partial or total immunity from fi nes for companies reporting their cartel membership (Leniency Notice, updated on 31st July 2013 through the ICA’s decision no. 24506). According to the Leniency Notice, full immunity from a fi ne is granted to the fi rst cartel participant who reports the illegal activity to the ICA, providing information and documentary evidence that are able to demonstrate the secret agreement. Immunity is granted if the following requirements are met: the information or evidence provided must be decisive to discover a cartel infringement, possibly through an inspection; and the Authority does not have suffi cient information or evidence to prove the cartel yet. Immunity is not granted if the ICA is already aware of the unlawful agreement. In this scenario, the ICA may grant a reduction, generally not exceeding 50%, of the fi ne that could be imposed on the applicant. In order to obtain the above-mentioned reduction, the applicants must provide evidence that, due to its nature or level of detail, signifi cantly strengthens the set of evidence already in the ICA’s possession. The computation of the fi ne reduction is related to the promptness of the complaint and to the probative value of material produced by undertakings. In spite of the possible advantages for applicants, the leniency program has not often been used by undertakings. The fi rst case formally opened on the basis of a leniency application is Case I701, 15th December 2010, concerning the retail cosmetics market, whereby Henkel, as the fi rst leniency applicant, received full immunity; Colgate and P&G respectively obtained a fi ne reduction equal to 50% and 40%. P&G was granted a further reduction for its additional co-operation outside the scope of the Notice. The leniency program was applied in three further cases: • Case I722, 15th June 2011, International logistics industry, whereby Schenker was granted full immunity for its co-operation with the ICA; Agility, DHL and Sittam respectively obtained fi ne reductions equal to 50%, 49% and 10%; • Case I733, 22nd February 2012, Market for sea agency services, whereby Maersk, the fi rst leniency applicant, was granted full immunity; Hapag Lloyd obtained a fi ne reduction equal to 50% because it provided further information that confi rmed and strengthened Maersk’s leniency statements; and • Case I772, 25th March 2015, Market for concrete in the Friuli Venezia Giulia Region and a limited area of the Veneto Region, whereby the proceedings were started following the leniency application fi led by Calcestruzzi, which was granted full immunity from fi nes.

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Other instances where immunity from fi nes was granted include: • Case I649, 17th May 2007, wood chipboard market, whereby notwithstanding the fact that when the ICA opened the case, it had not yet adopted the Notice, which entered into force a few months before the fi nal decision, the ICA still granted one of the undertakings involved, Trombini, full immunity for its co-operation during the investigation; and • Case I700, 24th March 2010, market for liquefi ed petroleum gas (LPG), whereby the ICA opened the proceedings on its own initiative with respect to a specifi c Region of the Italian territory (Sardinia), and ENI was rewarded with full immunity in consideration of its decision to co-operate with the ICA, providing evidence showing that the infringement affected the whole national territory, and had more extensive duration and scope.

Administrative settlement of cases In addition to leniency programs, the Italian Competition Act does not provide for other specifi c administrative settlements or plea bargaining. Rather, the Competition Act rules the instrument of commitments. Pursuant to Article 14- ter of the above-mentioned law, companies subject to investigation may offer commitments that would correct the anti-competitive conduct. The ICA may accept the offers of companies (Notice on the procedure for applying the Article 14-ter of Law No. 287/1990, 6th September 2012) provided that the commitments, easily verifi able, must be fully and promptly implemented and must effectively remove anti-competitive aspects. Thus, commitments are made binding for the entities and the proceeding terminates without ascertaining the violation. If the accepted obligations are not observed, the Authority may impose a fi ne of up to 10% of turnover. The Authority may reopen the proceeding in three circumstances: there is a change in a factual element of the case on which the decision was based; the companies concerned act contrary to their commitments; or the decision was based on information provided by the parties which is shown to be incomplete, inexact or misleading. For the purpose of this document, par. 6 of the Notice seems particularly important, excluding the application of commitments to cartels. The provision considers acceptance of commitments as inopportune when the anti-competitive behaviour determines a really serious restriction of competition, which deserves the imposition of a fi ne. The fact that cartels constitute one of the most serious restrictions of competition, leads to them being excluded from the application of Article 14-ter, Law No. 287/90.

Third party complaints The complaint of third parties to the ICA does not require particular formalities from a procedural point of view; it can be fi led by anyone, with no specifi c form to follow. Although there are no specifi c provisions about complaints, the absence of a legal obligation to open an investigation should spur parties to elaborate a complaint which is as complete as possible. The ICA, as already said, has not the legal obligation to open an investigation, but its decision has to be adequately justifi ed; indeed, the administrative courts have recognised the right to appeal a “negative” decision of the ICA, such as a decision not to open an investigation further to a complaint. In order to obtain judicial protection, the mere

GLI - Cartels 2017, Fifth Edition 176 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Rucellai&Raffaelli Italy qualiﬁ cation of a complaint does not sufﬁ ce. The party has to prove the existence of a particular and differentiated interest which has been prejudiced by the Authority’s decision (Supreme Administrative Court’s judgments No. 4597/2009; No. 3865/2004; No. 280/2005; No. 1113/2005).

Civil penalties and sanctions According to the Competition Act, the ICA is empowered to impose pecuniary administrative sanctions when it ascertains the existence of an anticompetitive conduct. Firstly, pursuant to Article 31 of the above-mentioned law, for the computation of fi nes, the ICA may refer to the criteria set forth by Chapter I, Parts I and II of Law No. 689/1981 (general legislation concerning penalties for administrative offences). Article 15 of the Competition Act provides that the ICA may impose a fi ne of up to 10% of the worldwide turnover realised by each undertaking during the previous fi nancial year. The percentage applied depends essentially on the duration and the gravity of the infringement. On 22nd October 2014, the ICA approved the guidelines on methods of setting antitrust fi nes. This notice has ended the legal vacuum determined by the generality of the fi nes provisions, defi ning the logical order that the ICA has to follow in order to reach the correct computation of fi nes. According to par. 7 of the Guidelines, the computation of the basic amount considers the value of sales of goods and services – directly or indirectly – related to anticompetitive behaviour, realised by the company in the relevant market during the last full year. The basic amount of the fi ne, depending on the severity of the violation, may be up to 30% of the above-mentioned value. Pursuant to par. 12 of the Guidelines, secret agreements that fi x purchase or selling prices, limit or restrict production, and share markets, represent the most seriously anticompetitive behaviour. For this reason, the ICA established a minimum percentage of not less than 15% of the value of sales. The Guidelines also provide a specifi c measure to ensure the deterrent effect of the fi ne: the entry fee. It represents an additional amount that adjusts the basic fi ne in case of serious violation of competition law. The amount of the entry fee would range between 15% and 25% of the value of sales, and is strictly related to the duration and the nature of infringement. At least the amount of the fi ne may be adjusted in order to take into account the existence of aggravating or mitigating circumstances. Each single circumstance accounts for 15% of the basic amount. Generally, the overall incidence of such circumstances is quantifi ed as 50% of the basic amount. Moreover, the Guidelines regulate other specifi c aspects of administrative sanctions. For example, according to par. 32, the ICA may impose a single sanction with joint liability when more undertakings belonging to the same group have taken part in the infringement. Pursuant to par. 33, the Authority can impose symbolic fi nes based on specifi c circumstances of the case. Regarding parental liability, according to European principles, parent companies may be held liable for infringements of competition law committed by the wholly (or almost) owned subsidiary. Indeed, according to European decisions, this liability subsists because the companies represent a single entity. The imputation of liability to the parents is not related to the participation in the infringement but to the capacity of exercising a determining

GLI - Cartels 2017, Fifth Edition 177 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Rucellai&Raffaelli Italy inﬂ uence on the subsidiary. There is a presumption of liability. The ICA does not seem to strictly apply those principles, preferring to impute responsibility to the operative companies where the parent has not inﬂ uenced, determined or participated in the infringement.

Right of appeal against civil liability and penalties Pursuant to Article 33 (1) of the Competition Act, administrative courts have jurisdiction over appeals from decisions of the ICA. The provision expressly mentions the Administrative Code (Legislative decree No. 104/2010) which, under Articles 133 and 135 respectively, defi nes the exclusive jurisdiction of administrative courts and the competence of the Administrative Court of Lazio. Thus, the decision of the ICA can be appealed before the Italian Administrative Court of First Instance within 60 days from its notifi cation, whose judgment can be appealed before the Italian Supreme Administrative Court (“Consiglio di Stato”). The appellant may also request the Tar Lazio for an interim measure, alleging that the execution of the decision before a fi nal judgment on the merits may cause serious and irreparable damage to its position. The appeal before the Administrative Court is essentially limited to the review of the legality of the ICA’s decisions. It represents a control of legality based on three aspects: lack of jurisdiction; violation of law; and misuse of power. It is not a full control on the merits. This should represent a limitation for administrative judges, especially because the decision involved evaluation of complex economic contexts. In the light of this scenario, the Supreme Administrative Court has identifi ed the limits of judicial review in some decisions. It has been stated that the review should be limited to aspects such as logical faults, clear error in evaluation, error in investigation or motivation. The judge also has to verify the correct application of law and its interpretation. In these terms, the administrative courts are empowered to exercise effective control on the economic assessment of the Authority, and the real limit for the Administrative Court lies in the prohibition of replacing the Authority in its activities. Pursuant to Article 134 of the Administrative Code, the administrative judge has a full merits jurisdiction on fi nes. In fact, the judge may remove or reduce the amount of fi nes imposed by the ICA. The judgment of fi rst instance can be appealed before the highest Administrative Court (the “Consiglio di Stato”) within 30 days from its notifi cation or three months from its publication. Exceptionally, the judgments of the “Consiglio di Stato” may be appealed before the Italian Supreme Court for jurisdictional and competence issues or for revocation (pursuant to Article 396 of the Italian Civil Procedure Code).

Criminal sanctions Italian law does not provide speciﬁ c criminal sanctions for infringement of antitrust law. Although the Competition Act does not provide it, certain cartel activities may infringe not only antitrust law but also criminal law provisions (for example, bid rigging is punished under Article 353 of the Criminal Code; also, market manipulation is sanctioned under Article 501 of the Italian Criminal Code). Pursuant to Article 331 of the Code of Criminal Procedure, in case of a criminal offence that can be prosecuted ex ofﬁ cio, the ICA must inform the Public Prosecutor (in any case, the Public Prosecutor can start criminal proceedings after the notice from the market or the media, see case I760 Roche-Novartis/ Farmaci Avastin Lucentis, no. 24823/2014).

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Cross-border issues The ICA is part of the ECN and ICN. The access to these networks promotes the cooperation between different national authorities by exchange of information and coordination of investigation, in order to remove unnecessary procedural burdens. The ICN does not have a rule-making function but provides recommendations about best practices. In the Cosmetics cartel case (I701, Vendita al dettaglio di prodotti cosmetici, 15th December 2010), the informal cooperation within ECN, implemented through the exchange of information, has avoided confl icting decisions involving different countries and permitted a better understanding of the overall picture. Another important example of cooperation with other European authorities is the case I779 “Mercato dei servizi turistici- prenotazioni alberghiere on line”, which has involved the competition authorities of France, Sweden and Italy. The authorities cooperated and were coordinated by the European Commission in the investigation phases and in the decision to accept the commitments proposed by Booking.com. The statements released by the presidents of the Italian and French Authorities and the Director-General of the Swedish Competition Authority are particularly worth noting. In a joint declaration, they affi rmed that: “With coordination from the European Commission, our three authorities have collaborated in an unprecedented way in our investigations into online hotel reservation platforms. Today, we can announce that we have decided to approve commitments offered to us by the market leader, Booking.com. The commitments have been signifi cantly improved following a market test.” This joint activity has ensured a common resolution of the matter in each state involved, and represents an important benchmark for the process of European integration and the achievement of equality among European citizens.

Developments in private enforcement of antitrust laws In Italy, follow-on actions (actions for compensation for damages following the ICA’s decision) are more frequent than stand-alone actions (where the claimant is required to prove liability for the competition law infringement as well as causation and damage), although the Italian experience is far removed from the American one, where the role of private enforcement is predominant. The main cases of follow-on actions have been treated by the Civil Courts of Milan. Regarding follow-on actions, until now Italian case law has recognised the ICA’s decision as “privileged evidence”, capable of proving the fact and the anti-competitive infringement unless the defendant demonstrates the absence of the unlawful behaviour (Supreme Court 2305/2007; 3640/2009). The future implementation of Directive 2014/104/EU will compel the courts to evaluate the ICA’s decision as “deﬁ nitive proof” (“irrefutably established for the purposes of an action for damages brought before their national courts under Article 101 or 102 TFEU or under national competition law”), so that the undertaking claiming for damages need only prove the damage, and the connection between the antitrust violation and the damage. Concerning the action for damages caused by cartels, the presumption introduced by Article 17, section 2 of the Directive, that declares: “It shall be presumed that cartel infringements cause harm. The infringer shall have the right to rebut that presumption”, is particularly pertinent.

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Regarding stand-alone actions, Italian case law is very limited, because the claimant has to entirely prove the anti-competitive infringement in addition to the damage and the causation. It is particularly useful to recall the decision of the Supreme Court, Cargest No. 11564/2015. In this case, the Supreme Court annulled the decision of the Court of Appeal which mechanically applied the principles of the burden of proof, avoiding the opportunity to exercise its powers of investigation ex offi cio. The court reached this solution considering the diffi culties that the claimant met in his attempt to prove the anti-competitive infringement without a previous decision of Authority. Thus, it was necessary to grant judicial protection also through a specifi c interpretation of procedural provisions. In each case, this interpretation has to be functional to the implementation of competition law and has to ensure the right of defence. The Claimant has the onus of proving serious grounds, capable of demonstrating that the conduct could restrict freedom of competition. Regarding case law following the above-mentioned decision Cargest, the courts seem to rigorously follow the principle set by the Supreme Court. For example, the Civil Court of Milan, in its decision dated 13th April 2016, totally rejected the claims brought by the company Arslogica Sistemi, which brought an action against IBM Italia, alleging abuse of dominant position in violation of Article 3 of the Competition Act. The judge accepted the allegation of IBM, objecting that the complainant did not offer to the court demonstration of the relevant market and the dominance of IBM. Directive 2014/104/EU has to be implemented by 27th December 2016, but actually the government has published only the scheme of Legislative Decree implementing Directive 2014/104/EU.

Reform proposals In Italy, the transposition of the European Directive 2014/104/EU is under way and has actually reached an advanced stage. In accordance with Law No. 114 of 9th July 2015 (also called “Legge di delegazione europea 2014”) the Italian Parliament has delegated the government with the implementation of the European Directives including the above- mentioned one. A Government Commission for the elaboration of Legislative Decrees necessary to implement the regulation has also been established. Let us hope that the Italian legislator may be able to check the correct balance between the different and conﬂ icting interests, avoiding the questioning of the fundamental constitutional principles of the Italian legal order. At least, it seems appropriate to stress the importance of judges’ specialisation in consideration that competition law is extremely complex and technical. As regards this aspect, the provisions of Article 2, section 1, let. d) of Law No. 114/2015 are promising. In this respect, the law provides a general criterion aimed at the revision of competencies of the specialised section: its objective is to further concentrate the resolution of disputes determined by speciﬁ c violation (ruled by European Directive 2014/104/EU) in a limited number of courts. They will be selected on the basis of catchment areas and proportional distribution on all the national territory. It is possible to conclude that the valuing of judges’ expertise is the real element that will ensure a correct balance between the positions of claimant and defendant in antitrust actions for damages.

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Enrico Adriano Raffaelli Tel: +39 02 764 5771 / Email: [email protected] Enrico is the Founding Partner of the Firm and Head of the Competition Department, specialised in national and European competition law, intellectual property law, commercial law, commercial litigation and arbitration; a frequent lecturer on intellectual and industrial property rights, EU law and competition law at conferences and seminars. He is Honorary President of the UAE (European Lawyers Union) and President of its Competition Law Commission; Member of the board of the Associazione Italiana per la tutela della concorrenza, and Member of the Scientiﬁ c Committee of LIDC (International League of Competition Law). His work covers the entire spectrum of antitrust activities: merger control, cartel investigations and proceedings for abuse of dominance. He frequently represents clients before the European Commission and the Italian Antitrust Authority, the civil and administrative courts and the ECJ. He also assists clients in designing and implementing antitrust compliance programmes, performing competition law audits and conducting training activities.

Elisa Teti Tel: +39 02 764 5771 / Email: [email protected] Elisa is a Partner of the Firm, with over 15 years’ expertise in the fi eld of competition law and a member of the UAE (European Lawyers Union). Her work encompasses merger control proceedings before the Italian Antitrust Authority and the European Commission, cartel investigations, proceedings for abuse of dominance and other restrictive practices. She also represents clients before the administrative and civil courts in the fi eld of competition law. She has extensive experience in the conduct of competition law audits, the adoption of antitrust compliance programmes and the design and delivery of training activities for in-house lawyers and employees of companies across several economic sectors. Elisa has also gained signifi cant expertise in the fi eld of unfair commercial practices, consumer protection law and advertising law.

Rucellai&Raffaelli Via Monte Napoleone, 18, 20121 Milan, Italy Tel: +39 02 764 5771 / Fax: +39 02 783 524 / URL: http://www.rucellaieraffaelli.it

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Catherine E. Palmer, Daiske Yoshida & Hiroki Kobayashi Latham & Watkins

Overview of the law and enforcement regime relating to cartels The “Act on Prohibition of Private Monopolization and Maintenance of Fair Trade” (Law No. 54 of 1947), commonly known as the “Antimonopoly Act” (the “AMA”) governs cartel enforcement in Japan. The AMA prohibits businesses from engaging in “unreasonable restraint of trade”, which is defi ned as business activities by which a business, “in concert with other enterprises, mutually restrict[ing] or conduct[ing] their business activities in such a manner as to fi x, maintain or increase prices, or to limit production, technology, products, facilities or counterparties, thereby causing… a substantial restraint of competition in any particular fi eld of trade” (AMA art. 2, para. 6). This covers price-fi xing cartels (kakaku karuteru), bid-rigging in public projects (nyusatsu dango), and bid-rigging in private industry (juchu chosei). The AMA also prohibits businesses from engaging in “unfair trade practices”, including concerted refusals to deal (AMA art. 2, para. 9(i)). Additionally, the AMA prohibits businesses from entering into an international agreement or contract that constitutes an unreasonable restraint of trade or unfair trade practice (AMA art. 6). The Japan Fair Trade Commission (the “JFTC”) is the government agency responsible for enforcing the AMA, and may impose cease-and-desist orders and administrative fi nes (called “surcharges”) on fi rms that it fi nds to have engaged in cartel conduct. Surcharges are calculated pursuant to a complex but rigid formula set forth in the AMA. Since 1 April 2015, appeals from JFTC orders are considered by the Tokyo District Court. In addition to administrative sanctions, fi rms and individuals face criminal exposure for cartel violations. The fi ling by the JFTC of a criminal accusation to the Prosecutor General is the exclusive means by which a criminal prosecution may be brought against fi rms and individuals for cartel violation of the AMA (AMA art. 96.1). If the JFTC determines through its investigation that a case is particularly egregious and has a signifi cant effect on people’s lives, or that the administrative remedies are not suffi cient, it may fi le a criminal accusation with the Prosecutor General, which may result in a fi ne of up to JPY 500m (approximately US$ 5m) for fi rms, or imprisonment of up to fi ve years and a fi ne of up to JPY 5m (approximately US$ 50,000) for individuals. Such criminal penalties are in addition to the JFTC’s administrative sanctions. Firms may face civil damages claims from customers, but Japan does not have enhanced damages or class actions for antitrust claims. Firms may also be debarred from government contracts. In addition, directors of fi rms that have been found to have engaged in cartel conduct may be sued by shareholders for breach of fi duciary duty. The government sometimes exempts certain types of concerted behaviour. For example, in connection with the increase in the consumption tax in 2014, a law was passed to permit

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Overview of investigative powers in Japan Administrative investigation Under article 47 of the AMA, the JFTC may conduct an investigation using the following measures: (i) ordering persons to be interrogated, and gathering their opinions or reports; (2) ordering expert witnesses to give opinions; (3) ordering persons to submit books and documents, and to keep such documents at the JFTC; and (4) entering and inspecting the fi rm’s premises or any other necessary sites. In practice, the JFTC typically starts a cartel investigation with simultaneous surprise inspections (called “on-site inspections”) on all suspected cartel members, including any leniency applicants. The JFTC sometimes sends out written questionnaires regarding industry practices, which may be followed by an on-site inspection. During the on-site inspection, the JFTC may seize any documents it considers to be relevant, and will make copies of electronic fi les. Such inspections can take place at a fi rm’s headquarters, as well as any offi ces, facilities or employee residences that may have relevant materials. The JFTC will seize and keep original documents through the duration of the investigation, including any appeals. Firms may request to make copies of materials that are needed for business, either during the inspection or at the JFTC’s premises. Also, the JFTC usually requires fi rms to submit detailed reports about the business operations and sales data. The JFTC may interview witnesses during the on-site inspection. As discussed further below, the JFTC does not recognise the concept of attorney-client privilege or legal privilege as it exists in American or English law, and potentially may seize documents that contain attorney-client communications as part of its on-site inspection. In addition to seizing documents and materials, the JFTC may request individuals to submit to voluntary interviews after the on-site inspection. If an individual refuses, the JFTC can issue an order for a compulsory interview. In both voluntary and compulsory interviews, the interviewee does not have the right to have counsel present. At the end of an interview session, the JFTC may require the interviewee to sign a statement that it has prepared. In the past, the interviewee was given an opportunity to correct mistakes, such as typographical errors, but typically was not permitted to make substantive changes, and was not given an opportunity to consult with counsel before signing. On 25 December 2015, in response to the recommendations of a government advisory panel, the JFTC issued guidelines clarifying that witnesses are permitted to consult with counsel during breaks, and that the record should refl ect any corrections suggested by witnesses. The interviewee and the fi rm may not receive a copy of the signed statement. An individual may be interviewed multiple times, though usually no more than eight hours per day excluding breaks. Employees of leniency applicants are subject to the same procedure. Article 39 of the AMA requires the JFTC to keep confi dential any information it has seized, been provided, or created, including witness statements. However, prosecutors may use such signed statements as evidence during a criminal trial, and a fi rm may obtain copies of its employees’ statements in order to challenge or appeal an administrative order. In addition, “interested parties”, such as injured parties, may seek to review and obtain copies of documents from the appeal, but the fi rm will be given an opportunity to request redactions of confi dential business information.

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Criminal investigation Criminal investigations in Japan are governed by the Code of Criminal Procedure (Law No. 131 of 1948). The Prosecutor General may refer cases to a regional public prosecutor’s offi ce to commence a criminal prosecution based on the fi ling of an accusation by the JFTC. Prior to commencing the prosecution, prosecutors will try to obtain information from witnesses on a voluntary basis as much as possible, including obtaining signed statements. This process may occur in tandem with the JFTC’s investigation. Prosecutors may also use written statements obtained by the JFTC as evidence. The prosecutors or policemen may arrest a suspect, typically with an arrest warrant. If it becomes necessary to detain a suspect, the prosecutor must obtain a pre-indictment detention order from a court within 48 hours following the arrest. The initial detention period is 10 days, subject to extension by another 10 days if necessary. The prosecutor must initiate the prosecution of the suspect within that period, or release the suspect. The prosecutor therefore will try to extract a confession from the suspect within the fi rst 20 days, but may immediately re-arrest the suspect on a different charge, to begin the interrogation process anew. Once a suspect has been arrested, he or she has the right to consult privately with counsel, and may assert the right against self-incrimination. However, counsel is usually not permitted to be present during the interrogation. Prosecutors may use signed statements obtained through interrogation as evidence at trial. The Criminal Procedure Law was amended on 24 May 2016, including requiring audio and video recording of interrogations in certain cases, but not for violations of the AMA. Also, the amendment has introduced the concept of “plea bargaining”, which will come into effect by June 2018.

Overview of cartel enforcement activity during the last 12 months 2013 Amendments to the AMA On 7 December 2013, the Diet passed an amendment to the AMA, which became effective on 1 April 2015. Cases for which commencement was notifi ed on 1 April 2015 or thereafter are subject to the amendments. The amendment substantially changed the procedures for appeal and the issuance of an administrative order. • Appeals from JFTC administrative orders are heard by the Tokyo District Court, acting as the court of fi rst instance, rather than the JFTC itself. The Tokyo District Court will have exclusive jurisdiction over such appeals, in order to ensure consistency in judgment and to accumulate expertise in antitrust law at the court. Further appeals may be heard by the Tokyo High Court, and the Supreme Court. • The “substantial evidence rule”, under which the JFTC’s fi ndings of fact were binding on the appellate court if supported by substantial evidence, has been abolished. • The rule prohibiting appellants from submitting new evidence during the appeal proceeding has also been abolished. • In order to ensure careful examination, appeals will be considered by a panel of three or fi ve judges at the Tokyo District Court (whereas a single judge is possible in a regular case), and by a panel of fi ve judges at the Tokyo High Court (whereas a panel consists of three judges in a regular case). • The process for issuing administrative orders has also become more formalised. • Before an administrative order is formally issued, the JFTC will designate an offi cer to preside over a hearing, where investigators will explain the expected content of the order to the parties, the parties may present arguments and evidence, and question the

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investigators in person, in writing, or through a representative. A report of the hearing will be prepared, and will be considered by the JFTC in making its fi nal decision. • Between the notice of the hearing and its conclusion, a party may request to inspect the evidence, and may also request a copy of the materials it has submitted, and written statements of its employees. The JFTC is considering further amendments to the AMA. In January 2016, it was reported that the JFTC is considering proposing a revision to the surcharge system to base it on the degree of cooperation, similar to the European Commission’s method. In July 2016, it was reported that the JFTC was considering ways to seek surcharges from foreign fi rms, including not limiting the basis of the surcharges to revenues in Japan, or revenues from the past three years. New guidelines on administrative investigation procedures Pursuant to one of the provisions of the 2013 Amendments to the AMA, the Cabinet Offi ce organised an advisory panel to consider the JFTC’s administrative investigation procedures, considering procedures in other countries. Based on the advisory panel’s recommendations, the JFTC issued new guidelines to its administrative investigation procedures on 25 December 2015, to be effective as of 4 January 2016. The new guidelines require inspectors to be clear about the purpose and subject matter of the inspection, and expressly permit attorneys to be present at the on-site inspection. During voluntary witness interviews, the basic principle is that third persons including attorneys may not be present, and witnesses may not record or take notes; however, inspectors have the discretion to permit interpreters and attorneys to be present or for witnesses to take notes, if inspectors judge that they would be helpful. Interviews should be no longer than eight hours per day, unless the interviewee agrees, and should not go past 10pm. Interviewees may take breaks as needed, and the inspectors may not restrict interviewees’ conduct during breaks, including contacting third persons (including attorneys) or creating notes; also, the duration of breaks should be of suffi cient length to permit consultation with attorneys. Witnesses are required at the conclusion of the interviews to affi x their stamps to the interview records as prepared by the inspectors, but witnesses will be given an opportunity to correct any errors. Further, parties and witnesses (or their attorneys) may submit grievances regarding on-site inspections or the conduct of inspectors during witness interviews; such grievances must be submitted to the JFTC’s Secretariat within one week of the event. Consistent with the advisory panel’s recommendation, the guidelines do not recognise attorney-client privilege. However, it provides that there will be follow-up consideration of the guidelines after two years, and that revisions (specifi cally including whether to recognise the attorney-client privilege) will be considered at that time if required. Criminal prosecutions The JFTC referred cartel matters for criminal prosecution in 2012 and 2013 in connection with the bearings case, but there were no offi cial announcements of such referrals in 2014 or 2015. In 2016, the Tokyo District Prosecutor’s Offi ce brought criminal proceedings against 10 of 11 fi rms that had been fi ned by the JFTC for bid-rigging in connection with Tohoku Earthquake reconstruction work. Enforcement data According to the JFTC’s offi cial statistics for fi scal year 2015 (April 2015 through March 2016), the JFTC imposed administrative orders against a total of 39 fi rms in nine separate cases, including surcharges totalling approximately JPY 8.5bn (approximately US$ 85m).

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This continued a trend of decreases from the previous years. In fi scal year 2014, there were administrative orders against a total of 132 fi rms in 10 separate cases, including surcharges totalling approximately JPY 17.1bn (approximately US$ 171m); and in fi scal year 2013, there were administrative orders against a total of 210 fi rms in 18 separate cases, including surcharges totalling approximately JPY 30.2bn (approximately US$ 252m). However, the number of leniency applications increased, from 61 applications in fi scal 2014, to 102 in fi scal 2015. The average surcharge per fi rm in fi scal 2015 was approximately JPY 275bn (approximately US$ 2.75m), compared with approximately JPY 134bn (approximately US$ 1.34m) in fi scal 2014. In March 2016, the JFTC issued a decision in the Capacitors case, issuing cease-and-desist orders and imposing a total surcharge of approximately JPY 5.865bn (approximately US$ 58.65m) against three aluminium electrolytic capacitor manufacturers, and approximately JPY 833m (approximately US$ 8.33m) against three tantalum electrolytic capacitor manufacturers. The investigation was based on leniency fi lings from two separate fi rms. This has been the only publicly reported JFTC case in 2016 that was related to an international investigation. In July 2016, the JFTC issued cease-and-desist orders and imposed surcharges totalling approximately JPY 403m (approximately US$ 4.03m) against two manufacturers of electric power security communication devices to be sold to an electrical utility. This investigation was based on a leniency fi ling by a third fi rm. In September 2016, the JFTC issued cease-and-desist orders against 20 fi rms and imposed surcharges totalling approximately JPY 1.5bn against 11 of them, for bid-rigging on highway reconstruction work concerning the Tohoku Earthquake. Ten of the 11 fi rms that were fi ned were also criminally prosecuted. Two weeks later, in connection with another bid-rigging scheme relating to Tohoku Earthquake-related highway reconstruction, the JFTC imposed surcharges totalling approximately JPY 480m (approximately US$ 4.8m) against fi ve fi rms (four of which had been fi ned two weeks earlier). The JFTC conducted several on-site inspections in 2016, including manufacturers of hard disk drive components in July, bidders for airport runway paving projects in August, and bidders for asphalt compounds for paving projects in September (both of these appear to be related to the Tohoku Earthquake highway reconstruction case), and sellers of railway worker uniforms in September.

Key issues in relation to enforcement policy JFTC investigations are fairly quick, typically resulting in issuance of an administrative order within 12 to 18 months after the fi rst on-site inspection. This speed imposes a great burden on fi rms and their lawyers, who are required to deal with a large volume of information in a compressed time period, often with limited access to documents because they have been seized. The situation is made even more diffi cult if the JFTC has interviewed employees during the on-site inspection, without any opportunity for such employees to consult with counsel before or during the interview. Although the JFTC permits counsel to be present at interviews conducted during on-site inspections, it will not wait for counsel to arrive. For voluntary interviews after the on-site inspections, the JFTC does not permit counsel to be present (although it now will permit interviewees to consult with counsel during breaks). If the interviews result in signed statements by employees acknowledging the cartel conduct, it obviously impacts the fi rm’s ability to defend itself. The challenge is multiplied if the conduct is international in scope, requiring fi rms and their

GLI - Cartels 2017, Fifth Edition 186 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Latham & Watkins Japan counsel to consider strategy in other jurisdictions. Under the Japanese leniency system, fi rms up to the fi fth leniency applicant may obtain a reduction to the surcharge, even if they seek leniency after the on-site inspection. If the cartel was purely domestic, with no effect on other countries, then it may seem sensible for a fi rm that is subject to an on-site inspection to apply for leniency, provided that there are facts supporting such an application. However, if the client has operations in other countries and it is uncertain whether the cartel may have affected other countries, it is essential to consult with foreign counsel and carefully consider the effect such a leniency application could have in other jurisdictions. In some cases, even if the client has relatively small operations in other countries or it is possible but not certain that the cartel had an impact in those other countries, it may be advisable for the client to consider seeking leniency in some or all of these other countries, because the exposure could be greater to the client company and its employees. On the other hand, in some cases, it may be better to not submit a leniency application in Japan, in order to mitigate exposure elsewhere. Another signifi cant issue is the limit on how fi rms may interact with counsel. Because the JFTC is not prohibited from seizing attorney-client communications, there is some risk for attorneys in sending advice to clients in writing. Not permitting attorneys to participate in witness interviews also creates risk, not only for the fi rms but also for the individuals, who may not fully understand that they face criminal exposure in Japan or elsewhere based on their statements. Such systemic disadvantages to fi rms that are subject to investigation may be somewhat alleviated by the recent amendments to the AMA, especially giving an opportunity for parties to be heard before orders are issued; giving parties an opportunity to review the evidence before the hearing; changing the forum for administrative appeals from the JFTC to the Tokyo District Court; and permitting the submission of new evidence in the appeal. Also, the new JFTC guidelines on administrative investigation procedures expressly permit witnesses to consult with counsel during breaks and to request corrections to witness statements, as well as to submit complaints to the JFTC on the conduct of inspectors. It remains to be seen how the amendments will work in practice, but these changes indicate that the JFTC is making an effort to address concerns regarding its procedures.

Key issues in relation to investigation and decision-making procedures The JFTC instituted a leniency system in January 2006. There has been a total of 938 leniency applications fi led between its inception and March 2016, with a sharp increase in applications since 2010, when the JFTC increased the maximum number of leniency applicants per case, and permitted joint applications by fi rms in the same corporate group. After a period of low leniency fi lings in 2013 and 2014, it appears that fi lings picked up again in 2015. Nevertheless, the number of new cases resulting from leniency fi lings have been low: compared with 19 in 2012 and 12 in 2013, there were only four in 2014 and seven in 2015. Under Japan’s system, a total of fi ve fi rms may obtain leniency from administrative fi nes on a given product. The fi rst fi rm to apply for leniency before the JFTC investigation begins is entitled to receive full immunity, and the second applicant receives a 50% reduction to the surcharge. The third, fourth and fi fth applicants will receive a 30% reduction. After a case has been initiated, a maximum of three fi rms may apply (up to a maximum of fi ve including applicants before the start of the case), and the amount of the leniency would be 30% for all of them.

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The JFTC is considering revising the surcharge system, such that the amount of reduction or enhancement will be based on the degree of each fi rm’s cooperation, similar to the EU system. This arose from a concern that applicants are not incentivised to cooperate with the JFTC if the surcharges are solely based on a mechanical formula based on the order of fi ling leniency applications. However, the major Japanese chambers of commerce, including the Keidanren, have uniformly opposed the proposed change, because of its subjective nature. The JFTC is also considering amending the surcharge system to be able to seek surcharges against foreign fi rms with no sales in Japan. Although the JFTC has attempted to impose surcharges against foreign fi rms, to date it has been successful in pursuing Japanese fi rms, which may be a further disincentive for fi rms (both Japanese and foreign) to apply for leniency. Leniency only applies to administrative sanctions, not to criminal or civil claims. However, the Ministry of Justice has stated that it would give due deference to the JFTC and not prosecute the fi rst leniency applicant. If a JFTC investigation has not yet started, before applying for leniency, an applicant may anonymously ask the JFTC by telephone whether leniency is available for a particular product, and how many other applicants have already applied, if any. To obtain a marker, the applicant must fax to the JFTC a copy of “Form 1”, a one-page form that requires the identifi cation of the applicant, the relevant product, the type of conduct being reported, and the period that the conduct took place. Once a marker has been obtained, the applicant must submit “Form 2” within a period designated by the JFTC (usually two to three weeks), which requires more detailed information about the conduct and submission of supporting evidence. In certain cases, for example if there is concern about the potential discoverability of the submission in other jurisdictions, the JFTC may permit the applicant to submit certain information orally. If the JFTC investigation has started, an applicant may apply for leniency by submitting “Form 3” within 20 days after the start of the investigation. Form 3 requires the submission of information similar to Form 2. Leniency may be denied if, for example, the applicant submitted false information, failed to provide requested information, prevented others from leaving the cartel, or continued to participate in the cartel after the investigation started. During the investigation, the JFTC does not publicly disclose the identity of the leniency applicants, and leniency applicants will be subjected to on-site inspections. On 25 May 2016, the JFTC announced that it will identify the leniency applicants and the percentage reduction received by each for all leniency applications received after 1 June 2016, when it issues the administrative order (previously, it was published only at the request of the applicant). The JFTC is required to maintain the confi dentiality of documents relating to its investigation, including leniency submissions, during the course of an investigation.

Administrative settlement of cases The JFTC currently does not have a settlement process. There is also no “amnesty plus”.

Third party complaints Article 45 of the AMA permits third parties to report suspected violations to the JFTC, which the JFTC is required to duly consider. If the third party’s report was sufﬁ ciently

GLI - Cartels 2017, Fifth Edition 188 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Latham & Watkins Japan detailed and in writing, the JFTC must inform the third party whether it has taken steps in response to the report. The third party is not entitled to receive any reward for making a report.

Civil penalties and sanctions The surcharge imposed by the JFTC is calculated by applying certain rates to the sales of the relevant product over the period of the violation, up to a maximum of three years. The applicable rates are set by Article 7-2 of the AMA, and vary depending on the type and size of the fi rm. For unreasonable restraint of trade, the rates are 10% for large manufacturers; 4% for small and medium manufacturers; 3% for large retailers; 1.2% for small and medium retailers; 2% for large wholesalers; and 1% for small and medium wholesalers. These rates may be adjusted upwards or downwards based on certain factors. If the fi rm ceased the conduct early and did not take a leading role, then the applicable rate is reduced by 20%. If the fi rm repeatedly engaged in the conduct, or took a leading role, the applicable rate is increased by 50%; and if the fi rm both repeatedly engaged in the conduct and took a leading role, the applicable rate is doubled. If the resulting amount is less than JPY 1m (approximately US$ 10,000), a surcharge will not be imposed. In addition to the surcharge, fi rms may be subject to cease-and-desist orders or administrative guidance. Since the 2013 amendment, before issuing an administrative order, the JFTC has given parties prior written notifi cation and an adequate opportunity to review the case fi le (and make a copy of the party’s own documents), after which there has been a hearing presided by a JFTC offi cer. In the hearing, a party may make arguments (orally or in writing) and submit supplementary evidence. The JFTC issues its administrative order only after the hearing.

Right of appeal against civil liability and penalties Once the JFTC has issued its order, a party may appeal it either based on the liability ﬁ ndings or the amount of the surcharge. Appeals are considered by the Tokyo District Court. The court is not bound by the JFTC’s factual ﬁ ndings, and parties are permitted to submit new evidence.

Criminal sanctions Firms face a maximum criminal fi ne of JPY 500m (approximately US$ 5m), and individuals face up to fi ve years’ imprisonment and a maximum fi ne of JPY 5m (approximately US$ 50,000). If the term of imprisonment is no more than three years, the court may impose a suspended sentence (i.e., probation). In most white-collar criminal cases in Japan, a fi rst- time offender will receive a suspended sentence without any actual jail time. To date, no Japanese court has sentenced an individual to actual jail time for a cartel offence. Firms that are subject to both an administrative surcharge and a criminal fi ne will receive a reduction in the amount of the administrative surcharge, equivalent to one-half of the amount of the criminal fi ne.

Cross-border issues On rare occasions, the JFTC has issued administrative sanctions against foreign ﬁ rms for cartel conduct affecting the Japanese market. The most recent examples are a cease-and-desist

GLI - Cartels 2017, Fifth Edition 189 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Latham & Watkins Japan order against European fi rms in the Marine Hose case in 2008, a cease-and-desist order and surcharge orders against Asian fi rms in the CRT case in 2009, and a cease-and-desist order and surcharge order against a Norwegian shipping fi rm in the Automotive Shipping case in 2014. However, the JFTC has not been able to enforce such orders extraterritorially. In the Marine Hose case, four European fi rms and one Japanese fi rm were found to have violated the AMA, but the Japanese fi rm was the only party that the JFTC decided to fi ne. In the CRT case, a surcharge payment order was issued against Korean, Malaysian and Indonesian fi rms, but the order itself acknowledged that the fi rms had no presence and no authorised representatives in Japan, so the JFTC could serve notice of the orders only by publication in Japan. The Asian fi rms appealed the orders, but was denied by the JFTC in May 2015, which held that the parents of the foreign fi rms (which were present in Japan) should be regarded as purchasers of the relevant products. In 2016, the Tokyo District Court upheld the JFTC’s fi nding, and did not reach the issue of extraterritoriality because it deemed the parents to be present in Japan. In the Auto Shipping case, the Norwegian fi rm has not made public whether it paid the surcharge. As discussed above, the JFTC is considering amending the AMA so that it can more easily seek surcharges from foreign fi rms. The JFTC has cooperation agreements with foreign antitrust enforcers, and coordinates investigations with them, for example to conduct simultaneous dawn raids. In connection with the Marine Hose and CRT cases mentioned above, as well as in certain automotive parts cases, the JFTC has publicly stated that it coordinated the investigations with the U.S. DOJ and the European Commission. In multijurisdictional leniency applications, the JFTC will ask the applicant for a waiver to permit it to discuss the case with other competition authorities. In addition, Japan has mutual legal assistance treaties (“MLAT”) with various countries, pursuant to which Japanese prosecutors may cooperate with foreign authorities to obtain evidence in criminal investigations. In 2016, the JFTC entered cooperation agreements with the China’s Ministry of Finance and Commerce (“MOFCOM”) in April, and Kenya’s competition authority in June. It also agreed with the European Commission in March to discuss revising the current cooperation agreement to permit closer cooperation, including exchanges of information obtained during investigations.

Developments in private enforcement of antitrust laws Japanese law permits private antitrust actions, but there have been few cases in this area. Japan is not a litigious society in general, and the lack of a class action system, limited discovery and limited damages, all tend to dissuade private actions. One basis for a private action is article 25 of the AMA, which provides that fi rms that have violated the AMA shall indemnify injured parties. Such cases can only be brought in the Tokyo High Court, and only after the JFTC has instructed that its decision is fi nal. In such cases, liability is usually not an issue, because there is a rebuttable presumption that the JFTC’s factual fi ndings are correct. Instead, the litigation is over the scope of damages, for which the court may seek the JFTC’s opinion. Alternatively, an injured party may bring a general tort claim under article 709 of the Civil Code in any district court in Japan. To establish a claim under article 709, the plaintiff must prove the defendant’s intent or negligence, the amount of the damages, and causation. Any party that was injured by a violation of the AMA, including both direct and indirect purchasers, can bring a claim under either statute. But any incentive to pursue a private action in Japan is probably even smaller for indirect purchasers, because there is no class

GLI - Cartels 2017, Fifth Edition 190 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Latham & Watkins Japan action system for antitrust violations, and the possible recovery may be too small for a single plaintiff to pursue. There is no “pass on” defence as such, but it may be taken into account in assessing the damages amount. There are no punitive damages in Japan. In addition, although not a “private enforcement” action as such, an increasing number of derivative claims are fi led by shareholders of fi rms that have been found to be violating the AMA. Such claimants seek to collect damages from the fi rm’s directors on behalf of the fi rm, and improvements to the firm’s antitrust compliance. Discovery is limited in Japan, but a private plaintiff may seek the court’s permission to obtain evidence from litigants and third parties by making specifi c disclosure requests for relevant documents that are known to exist. Also, an “interested party”, including injured parties, may review and copy fi lings from appeal proceedings and criminal trials, subject to redaction of sensitive information.

Reform proposals As discussed above, the JFTC has made substantial efforts in reforming its cartel enforcement system. It has issued new guidelines regarding administrative investigation procedures, which show considerable progress – for example, permitting witnesses to consult with counsel during breaks. In addition, although the attorney-client privilege remains to be recognised, the JFTC has indicated that it will revisit the question again in two years. Further, it is considering an amendment to the AMA so that it can determine the amount of the surcharge depending on the degree of a fi rm’s cooperation, rather than a mechanical approach based on the order of fi ling the leniency application, and to make it easier to seek surcharges from foreign fi rms by not restricting the basis of the surcharges to revenues in Japan over the previous three years.

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Catherine Palmer Tel: +852 2912 2626 / Email: [email protected] Catherine E. Palmer is a partner in the Hong Kong offi ce of Latham & Watkins. A former DOJ prosecutor, Ms. Palmer focuses her practice on the representation of multinational companies involved in criminal or regulatory investigations throughout the world, with an emphasis on global antitrust cartel investigations, global corruption/bribery investigations and investigations related to US trade and economic sanction issues. As part of her practice, Ms. Palmer has interacted with regulators throughout the world on behalf of clients, including regulators in the US, EU, UK, Singapore, Japan, Korea, Taiwan, Thailand and Australia. Ms. Palmer and her team have successfully closed 12 criminal cartel investigations without any charges being brought against various multinational company clients. Based in Hong Kong, Ms. Palmer works closely with the fi rm’s antitrust and cartel defence team to leverage the fi rm’s global assets throughout Asia and other parts of the world. She currently is Chair of the fi rm’s Litigation & Trial Department in Asia. Daiske Yoshida Tel: +81 3 6212 7800 / Email: [email protected] Daiske Yoshida is a partner in the Tokyo offi ce of Latham & Watkins. He has extensive experience in cross-border litigation, arbitration and investigations in a wide range of subject areas, including intellectual property, antitrust, securities, accountant liability, and general commercial disputes. Mr. Yoshida represents clients in US federal and state courts as well as international arbitrations, and leads large-scale internal investigations in Japan, the US and Europe involving antitrust, anticorruption and securities law issues. His experience includes cases both at the trial and appellate levels, including appeals before the US Supreme Court and the Second, Ninth and Federal Circuit Court of Appeals. Mr. Yoshida’s recent experience leading from the Tokyo offi ce includes advising within the Latham team which acted as global coordinating counsel in seven global cartel investigations. Each simultaneously involved multiple jurisdictions across the US, Europe, Asia and elsewhere. Mr. Yoshida is qualifi ed to practise before the New York Bar and in Japan as Gaikokuho-Jimu-Bengoshi (registered foreign lawyer, New York law). He is fl uent in Japanese and English. Hiroki Kobayashi Tel: +81 3 6212 7800 / Email: [email protected] Hiroki Kobayashi is a partner of Latham & Watkins Gaikokuho Joint Enterprise in Tokyo. His practice focuses on general corporate matters, including cross-border mergers, as well as project development and fi nance. Mr. Kobayashi advises on Japanese legal issues relating to a variety of areas within the fi rm’s transactional practice, including corporate law, employment, antitrust, bankruptcy and various government regulatory matters. Mr. Kobayashi is admitted to practice in Japan and New York and is a member of the Daiichi Tokyo Bar Association in Japan and the New York State Bar Association. Latham & Watkins Marunouchi Building, 32nd Floor, 2-4-1 Marunouchi, Chiyoda-ku, Tokyo 100-6332, Japan Te l: +81 3 6212 7800 / Fax: +8 1 3 6212 7801 / UR L: http://www.lw.com

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Raymond Yong & Penny Wong Rahmat Lim & Partners

Overview of the law and enforcement regime relating to cartels Section 4(1) of the Malaysian Competition Act 2010 (“Competition Act”) prohibits a horizontal agreement between enterprises insofar as it has the object or effect of signifi cantly preventing, restricting or distorting competition in any market for goods or services. “Horizontal agreements” are agreements between enterprises which operate on the same level of the production or distribution chain. For the purposes of the Competition Act, a parent and a subsidiary company is regarded as a single enterprise if, notwithstanding their separate legal entity, they form a single economic unit whereby the subsidiaries do not enjoy real autonomy in determining their actions on the market. As such, agreements entered into between a parent company and its subsidiary may not be subject to Section 4(1) of the Competition Act unless it can be shown that the subsidiary company has autonomous powers over its business operations. Horizontal agreements which have the following object are deemed anti-competitive, i.e. “hard-core restrictions” or “cartel infringements”, without having to show its anti- competitive effect: (a) fi xing, directly or indirectly, a purchase or selling price or any other trading conditions; (b) sharing market or sources of supply; (c) limiting or controlling: (i) production; (ii) market outlets or market access; (iii) technical or technological development; or (iv) investment; or (d) bid-rigging. A horizontal agreement which does not fall within any of the abovementioned categories will have to be assessed on a case-by-case basis to determine whether such agreement has a “signifi cant” anti-competitive effect. In general, if the combined market shares of parties who are competitors do not exceed 20%, any agreement entered into between both parties is unlikely to be considered to have a “signifi cant” anti-competitive effect on the market and will likely be permissible. The market share threshold would not apply to horizontal agreements which are deemed anti-competitive, i.e. “hard-core restrictions”. Similarly, a vertical agreement entered into between parties whose individual market shares do not exceed 25% in the relevant market would also be unlikely to be considered to have a “signifi cant” anti-competitive effect on the market.

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Notwithstanding the above, an enterprise may still relieve itself from liability for a cartel infringement if it is able to satisfy all of the following requirements: (a) there are signifi cant identifi able technological, effi ciency or social benefi ts directly arising from the agreement; (b) the benefi ts could not reasonably have been provided by the parties to the agreement without the agreement having the effect of preventing, restricting or distorting competition; (c) the detrimental effect of the agreement on competition is proportionate to the benefi ts provided; and (d) the agreement does not allow the enterprise concerned to eliminate competition completely in respect of a substantial part of the goods or services. The onus lies on the enterprise to prove that all the requirements above have been satisfi ed and that the benefi ts have been passed on to the consumers. The relevant authority overseeing issues falling within the ambit of the Competition Act is the Malaysia Competition Commission (“MyCC”). The MyCC derives its powers from the Malaysian Competition Commission Act 2010 (“Competition Commission Act”) in order to carry out its functions such as to implement and to enforce the provisions of the Competition Act, amongst others. However, MyCC is not the only authority overseeing competition issues in Malaysia. There are also separate competition law provisions under the following sector-specifi c legislations: (a) the Communications and Multimedia Act 1998; (b) the Energy Commission Act 2001; (c) the Petroleum Development Act 1974 and the Petroleum Regulations 1974 insofar as the commercial activities are directly in connection with upstream operations comprising of activities of exploring, exploiting, winning and obtaining petroleum whether onshore or offshore of Malaysia; and (d) the Malaysian Aviation Commission Act 2015. Any commercial activity which falls under the aforementioned legislations is exempted from the Competition Act and instead, would be governed by the sector specifi c regulators. The following activities are also not subject to the provisions of the Competition Act: (a) an agreement or conduct to the extent to which it is engaged in order to comply with a legislative requirement; (b) collective bargaining activities or collective agreements in respect of employment terms and conditions and which are negotiated or concluded between parties; and (c) an enterprise entrusted with the operation of services of general economic interest or having the character of a revenue-producing monopoly.

Overview of investigative powers in Malaysia The MyCC has wide investigative powers under the Competition Act and the Competition Commission Act. The MyCC has the power to commence an investigation on an enterprise either: (a) on its own initiative where it has reason to suspect that such enterprise has infringed any prohibition under the Competition Act; or (b) upon receiving a complaint by a person to carry out an investigation on any enterprise, agreement or conduct.

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In carrying out its investigation, a MyCC offi cer will have all or any of the powers of a police offi cer in relation to a police investigation in seizable cases as provided for under the Malaysian Criminal Procedure Code. The wide investigative powers of the MyCC, as set out in the Competition Act, include: (a) Power to require provision of information: The MyCC may request in writing any information or document which is relevant to the performance of its powers and functions. The MyCC may also request an individual to provide a statement explaining any information or document required by the MyCC. It is an offence to intentionally fail to disclose or omit relevant information or provide false and misleading information to the MyCC. (b) Power to retain documents: The MyCC may take and retain any document for a duration which it deems necessary. (c) Power to access records, etc: The MyCC may require access to a person’s records, books, accounts or other things necessary for the purposes of carrying out its functions under the Competition Act. Failure to allow such access to the MyCC and any attempt to destroy, conceal, mutilate or alter any such records is considered an offence under the Competition Act. (d) Power to search and seize with warrant: The MyCC may obtain a warrant to enter the premises to search and seize any record, book, account, document, computerised data or any other thing which contains or is reasonably suspected to contain information of an infringement or offence, including entry by force at any reasonable time by day or night. Where it is not practicable to remove any record, book, account, document or computerised data, the MyCC is authorised to seal, by any means, such information at the premises or container in which it is found. It is an offence to break, tamper with or damage such seal or to remove any such sealed records from the premises. (e) Power to search and seize without warrant: If the MyCC has reasonable cause to believe that, as a result of the delay in obtaining the warrant, the investigation would be adversely affected or that evidence is likely to be tampered with, removed, damaged or destroyed, the MyCC may enter the premises without a warrant. A refusal to provide the MyCC entry to the premises or any attempt to assault, obstruct, hinder or delay such entry also constitutes an offence under the Competition Act. (f) Power to access computerised data: The MyCC may require access to computerised data, whether stored in a computer or otherwise. The necessary password, encryption code, decryption code, software or hardware to access such data will need to be provided to the MyCC. Notwithstanding the wide investigative powers of the MyCC as set out above, the Competition Act prohibits any usage or disclosure of confi dential information obtained under the Competition Act unless, amongst others, the disclosure is necessary for the MyCC to carry out its functions or is made with the consent of the person who provided the information. “Confi dential information” includes any trade, business or industrial information that belongs to any person which has economic value and is not generally made public. Any individual who is found to have made an unauthorised disclosure or usage of such confi dential information would have committed an offence under the Competition Act. Further, any communication between a professional legal adviser and his client is covered under legal professional privilege and will not be required to be disclosed to the MyCC.

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The legal professional privilege only extends to communication between the enterprise and its external legal adviser and does not include communication with its in-house legal counsel.

Overview of cartel enforcement activity during the last 12 months The MyCC had issued fi ve infringement decisions for a breach of a Section 4 prohibition under the Competition Act, four of which were in relation to a price-fi xing cartel, since the Competition Act came into force on 1 January 2012. In 2016, the total fi nancial penalty imposed by the MyCC for a cartel infringement amounted to approximately RM646,000, which was imposed on four container depot operators and one information technology service provider. The highest fi ne imposed by the MyCC for a cartel infringement was RM10 million each on the Malaysian Airline System, Berhad (“MAS”), AirAsia Berhad and AirAsia X Sdn. Bhd. (collectively referred to as “AirAsia”) respectively. The MyCC found that the Comprehensive Collaboration Framework (“Framework”) entered into between MAS and AirAsia had the intention to share market in relation to certain sectors and categories of aviation services. It was expressly provided in the Framework that each airline will focus on their market area and thereby agree that they will not enter into the areas specifi cally allocated to their competitor. MAS and AirAsia subsequently fi led an appeal with the Competition Appeal Tribunal (“CAT”) who unanimously overturned the MyCC’s decision. The CAT found that both parties’ conduct had not infringed the Competition Act. This case is currently pending a judicial review application by the MyCC before the High Court of Malaya. Based on publicly available information, the MyCC is currently investigating two sectors, namely the general insurance companies as well as the pharmaceutical companies. There are also other sectors which are currently being investigated by the MyCC, although such investigations are not made public. During the infancy of the MyCC, the majority of MyCC’s investigation and infringement decisions were focused on trade associations which comprise largely of small and medium enterprises, such as the Cameron Highlands Floriculturist Association and the Sibu Confectionery and Bakery Association. To date, there has not been any reports or press statements on dawn raids being carried out by the MyCC.

Key issues in relation to enforcement policy Based on the recent investigations and decisions issued by the MyCC, the focus of the MyCC’s enforcement appears to be towards anti-competitive agreements, as opposed to abuse of a dominant position. Since the Competition Act came into force on 1 January 2012, a number of trade associations have been investigated and ﬁ ned by the MyCC for exchanging sensitive information during its meetings, including ﬁ xing the prices of its products or services. Such investigations are often initiated on MyCC’s own accord after the trade associations issue a public statement or a press release announcing a unanimous decision amongst the members to increase prices.

Key issues in relation to investigation and decision-making procedures In Malaysia, the investigation and decision-making process are both executed by the MyCC. The investigation will be carried out by the Enforcement Division whereas the decision on

GLI - Cartels 2017, Fifth Edition 196 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Rahmat Lim & Partners Malaysia whether or not there is an infringement will be made by commission members of the MyCC comprising of individuals with experience and knowledge in matters relating to business, industry or economics. There is no specifi c limitation period for the MyCC to commence an investigation against an enterprise or for the MyCC to arrive at its decision. Upon completion of the investigation, the MyCC will fi rst issue a proposed decision to the enterprise setting out the grounds for the MyCC’s fi ndings. Upon receiving the proposed decision, the enterprise is given an opportunity to submit a written and, if it chooses to do so, an oral representation to the MyCC. The proposed decision will not be publicly available and will only be made known to the enterprise being investigated. Upon receiving the enterprise’s representations, the MyCC will then decide whether to make a fi nding of infringement or a fi nding of non- infringement. As set out earlier, the MyCC has wide investigative powers under the Competition Act, akin to that of a police offi cer under the Criminal Procedure Code. As such, any attempt to obstruct the MyCC’s investigation would be a criminal offence.

Leniency/amnesty regime The Competition Act has a leniency regime whereby a reduction of up to 100% of any penalties imposed can be granted to an enterprise which has: (a) admitted its involvement in a cartel infringement; and (b) provided information or another form of co-operation to the MyCC which signifi cantly assisted or is likely to signifi cantly assist in the identifi cation or investigation of any fi nding of an infringement by an enterprise. The percentage of reduction that can be granted to the enterprise would differ depending on: (a) whether the enterprise was the fi rst to bring the suspected infringement to the attention of the MyCC; (b) the stage in the investigation at which: (i) an involvement in the infringement was admitted; or (ii) any information or other co-operation that was provided. However, the granting of leniency does not absolve the enterprise from any other legal consequences, such as a civil proceeding being brought against the enterprise by any person who has suffered loss or damages directly as a result of the infringement. To date, there has not been any public reports that an enterprise has been granted leniency by the MyCC. In the event leniency is available in a particular situation, the Leniency Offi cer appointed by the MyCC will provide a “marker” to the fi rst applicant in order to preserve its priority while the application is being prepared. The function of the marker is essentially to indicate the priority, date and time as well as the subject matter of the application. The marker will remain valid for a period of 30 days, during which period the applicant is required to complete its application by providing information such as, amongst others, a detailed description of the suspected infringement and any documentary evidence of the cartel conduct, e.g. minutes or notes of meetings, price lists and agreements. Upon receiving a leniency application, the MyCC will fi rst grant a “conditional leniency” whereby the applicant is required to fulfi l certain conditions. The grant of the leniency will only be made unconditional after the applicant has fulfi lled all the conditions imposed by the MyCC and the MyCC has made an infringement fi nding on the cartel conduct.

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All leniency applicants are required to enter into a written conditional leniency agreement with the MyCC, which sets out the following conditions: (a) admission of the applicant’s involvement in the cartel conduct and providing signiﬁ cant assistance to the MyCC’s investigation; (b) the applicant to cease and desist immediately from engaging in any further infringing activities unless otherwise required by the MyCC; (c) full and honest disclosure by the applicant; (d) the applicant provides continuous co-operation to the MyCC in the course of its investigation; (e) the applicant agrees not to destroy any relevant document which may assist the MyCC in its investigation; (f) the applicant should not harass or intimidate others to participate in the cartel; and (g) the applicant undertakes not to disclose any aspect of its leniency application. The MyCC has the right to withdraw the grant of leniency should the applicant fail to fulﬁ l any of the abovementioned conditions. Failure to comply with the conditions set out above would result in the conditional grant of leniency being revoked by the MyCC. Even if the grant of leniency has been made unconditional, the MyCC reserves the right to revoke such leniency if it subsequently discovers that the applicant has failed to comply with any of the conditions required.

Administrative settlement of cases There is currently no administrative settlement of cases in Malaysia. However, the Competition Act allows for the MyCC to accept an undertaking from an enterprise where the enterprise agrees to do or to refrain from a particular conduct. Upon accepting such undertaking from the enterprise, the MyCC will close the investigation without making an infringement fi nding and no fi nancial penalties will be imposed on the enterprise. Since 2014, the MyCC has accepted fi ve undertakings from various enterprises and trade associations where the parties have agreed to refrain or cease and desist from carrying out a particular anti-competitive conduct. As a result, no fi nding of infringement was made on these enterprises and no fi nancial penalties were imposed. All undertakings signed between the MyCC and the enterprises are publicly available documents.

Third party complaints The MyCC can commence an investigation upon receiving a complaint on any enterprise, agreement or conduct that has infringed the Competition Act. However, under the MyCC’s Guidelines on Complaints Procedure, only complaints in relation to alleged infringing activities after the Competition Act came into force on 1 January 2012 will be considered. A complaint can be lodged either via a hard copy Complaint Form which can be downloaded from the MyCC’s website or via an e-Complaint. The Complaint Form should include information about the complainant, the infringing party and the alleged infringing activity being complained of and should be supported with any relevant information and documents. Upon receiving a complaint, the MyCC will ﬁ rst ascertain whether such complaint falls within its powers under the Competition Act. If it does, the MyCC will then take into account its strategic priorities before launching a formal investigation. A formal

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Civil penalties and sanctions In the event of an infringement fi nding, the MyCC may require the enterprise to carry out any or both of the following: • pay a fi nancial penalty up to a maximum of 10% of the worldwide turnover of the enterprise over the period during which the infringement occurred; or • comply with any directions or steps as deemed appropriate by the MyCC. In determining the amount of fi nancial penalty to be imposed on the infringing enterprise, the MyCC will take into consideration the following factors: (a) the seriousness (gravity) of the infringement; (b) turnover of the market involved; (c) duration of the infringement; (d) impact of the infringement; (e) degree of fault (negligence or intention); (f) role of the enterprise in the infringement; (g) recidivism; (h) existence of a compliance programme; and (i) level of fi nancial penalties imposed in similar cases. Further, the MyCC will also consider whether there are any aggravating or mitigating factors which would increase or reduce the amount of fi nancial penalties imposed. For example, the fi nancial penalties imposed will be increased if the enterprise is the leader or instigator of the infringing activity and if the enterprise has not provided any co-operation to the MyCC during its investigation. On the contrary, if the enterprise only played a minor role in the infringing activity (especially where its participation is due to threats or coercion) and the enterprise has an existing corporate compliance programme, these factors will be taken into consideration to potentially reduce the amount of fi nes imposed. Parties will fi rst be informed of the fi nancial penalties or remedial actions imposed on it when the MyCC issues its proposed decision. Parties will then be given an opportunity to appeal any penalties or remedial actions before members of the MyCC.

Right of appeal against civil liability and penalties An enterprise which is dissatisfi ed with the decision of the MyCC can submit an appeal to the CAT. In submitting its notice of appeal, the enterprise is to state, in summary, the substance of the decision appealed against. The CAT has the power to: (a) remit the matter back to the MyCC; (b) impose, revoke or vary the amount of the fi nancial penalty imposed by the MyCC; (c) give such direction as the MyCC could have given; or (d) make any other decision which the MyCC could have made. In the event the MyCC has imposed a fi nancial penalty on the enterprise, the enterprise is allowed to apply for a stay of the MyCC’s decision pending appeal, subject to the CAT’s approval.

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The powers of the CAT to hear an appeal is similar to the powers of a subordinate court with regards to the enforcement of attendance of witnesses, hearing evidence on oath or affi rmation as well as punishment for contempt. As of 16 December 2016, the CAT has only issued one decision, which is the appeal by MAS and AirAsia against the MyCC’s infringement fi nding. Upon appeal, the CAT unanimously overturned the MyCC’s decision and found that MAS and AirAsia had not infringed Section 4(2) of the Competition Act. As a result, MAS and AirAsia were not required to pay the fi nancial penalty of RM10 million which was imposed on each of them by the MyCC. The MyCC has subsequently submitted an application for judicial review at the High Court of Malaya to appeal the decision of the CAT and the case is currently pending before the High Court.

Criminal sanctions There are currently no criminal sanctions for a cartel infringement. However, there are criminal liabilities if the enterprise or an individual commits an offence under the Competition Act, such as obstructing the MyCC’s course of investigation. If a body corporate is found to have committed any of the offences as set out above, the body corporate may be liable to a fi ne not exceeding RM5 million and for a second or subsequent offence, a fi ne not exceeding RM10 million. If an individual is found to have committed any of the aforementioned offences, such individual may be liable to a fi ne not exceeding RM1 million or imprisonment for a term not exceeding fi ve years or both and for a second or subsequent offence, a fi ne not exceeding RM2 million or imprisonment for a term not exceeding fi ve years or both.

Cross-border issues The Competition Act only applies to commercial activities outside of Malaysia if it has an effect on competition in any market in Malaysia. The MyCC does not have jurisdiction to investigate an enterprise which committed a cartel outside of Malaysia if it does not impact the Malaysian market.

Developments in private enforcement of antitrust laws Under the Competition Act, a person who has suffered any loss or damages directly as a result of the infringement by the enterprise is entitled to bring a right of action for relief in a civil proceeding in a court. Such action can be brought by any person regardless of whether such person dealt directly or indirectly with the infringing enterprise. To date, no such private action has been commenced by any person in the courts of Malaysia.

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Raymond Yong Tel: +603 2299 3810 / Email: [email protected] Raymond has been actively involved in the area of competition law since the introduction of the Competition Act 2010 and is recognised as a recommended competition lawyer in Malaysia by the Global Competition Review. Raymond regularly deals with the Malaysia Competition Commission (“MyCC”) including representing clients in investigations, lodgement of complaints and leniency applications. He has also advised a trade association on an exemption application to the MyCC. Raymond has assisted clients extensively in various commercial arrangements, alliances, joint ventures and mergers and acquisitions. His clients include multi-national corporations, government-linked companies and trade associations from a range of sectors such as ﬁ nancial services, fast-moving consumer goods, building materials, construction, hospitality, property, plantation, automotive, pharmaceutical and healthcare.

Penny Wong Tel: +603 2299 3915 / Email: [email protected] Penny advises on competition law and data protection matters. Her experience includes advising on compliance with the Competition Act 2010, providing competition law training, review of business practices and agreements and drafting competition compliance and dawn raid manuals. She has also been actively involved in investigations by the Malaysia Competition Commission. Her clients include government-linked companies and multinational companies in various sectors such as pharmaceutical, property, insurance and hospitality. Apart from practising competition law, she has also been actively involved in various personal data protection compliance programmes for clients, including reviewing business practices, providing advice on personal data protection-related matters, drafting relevant documentations as well as compliance manuals.

Rahmat Lim & Partners Suite 33.01, The Gardens North Tower, Mid Valley City, Lingkaran Syed Putra, 59200 Kuala Lumpur, Malaysia Tel: +603 2299 3888 / Fax: +603 2287 1616 / URL: http://www.rahmatlim.com

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Richard Camilleri & Annalies Azzopardi Mamo TCV Advocates

Overview of cartel enforcement, appeals and damages actions in Malta during the last 12 months The past 12 months have been an exciting period for cartel enforcement, appeals and damages actions in Malta, thanks to several pioneering court judgments. The most important judgment, and the one with the most far-reaching consequences which extend well beyond cartels, is the Constitutional Court judgment in Federation of Estate Agents vs Director General (Competition) et, which was handed down on 3 May 2016 (Application number 87/2013/2) where, in a cartel-related case, the Constitutional Court held that the procedure for the imposition of fi nes on undertakings for competition law breaches infringes the fair hearing provisions contained in the Constitution. Secondly, the fi rst successful action for antitrust damages was decided by the Civil Court, First Hall on 23 November 2015 in the names Hompesch Station Limited vs Enemalta Corporation et (sworn application number 91/2011), for an infringement which involved inter alia a cartel of service station operators qua fuel retailers. Finally, Offi ce for Competition vs Enemalta Corporation et (case number 1/2013), decided on 4 October 2016 by the Competition and Consumer Appeals Tribunal (hereinafter referred to as “the Appeals Tribunal”), which concerned a cartel relating to the distribution of liquefi ed petroleum gas (LPG) in cylinders, was the fi rst case where a breach of the competition provisions of the Treaty on the Functioning of the European Union (TFEU) was confi rmed by the Appeals Tribunal.

Overview of the law and enforcement regime relating to cartels Cartels are prohibited in Malta by virtue of Article 5(1) of the Competition Act (Cap. 379 of the laws of Malta), which prohibits agreements and concerted practices between undertakings and decisions by associations of undertakings, which have the object or effect of preventing, restricting or distorting competition within Malta or any part of Malta. The Maltese competition authorities are also authorised to apply Article 101 TFEU when cartels may affect trade between Malta and any one or more European Union (hereinafter referred to as “the EU”) Member States. They are so empowered both in terms of the Competition Act itself (Article 5(5)), and in terms of Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty ([2003] OJ L1/1) (hereinafter referred to as “Regulation 1/2003”). Both public and private enforcement of cartel infringements is possible in Malta.

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Public enforcement Public enforcement is carried out by the OFC, which is established by virtue of Article 13 of the Malta Competition and Consumer Affairs Authority Act (Cap. 510 of the laws of Malta) (hereinafter referred to as the “MCCAA Act”). The OFC forms part of the Malta Competition and Consumer Affairs Authority (MCCAA), which is a body corporate established by the MCCAA Act. Part of the remit of the OFC is to investigate possible breaches of competition law (including therefore cartels), and to issue infringement decisions, together with cease and desist orders and compliance orders. The competence to apply the provisions of the Competition Act and therefore the exercise of the responsibilities conferred on the OFC, is vested in the Director General (Competition) (hereinafter referred to as “the DG”), in terms of Article 3 of the Competition Act. The DG may in turn delegate his powers to offi cers of the MCCAA. The Competition Act also empowers the OFC to fi ne undertakings or associations of undertakings found to have breached the competition rules. The fi ne may be of up to 10% of the turnover of the relevant undertaking or association for the previous business year. The Act refers to these fi nes as ‘administrative fi nes’. Failure by the undertaking or the association to pay the administrative fi ne would render a director, secretary, manager or similar offi cer of the undertaking liable to a criminal fi ne of between €1,000 and €20,000. However, the current fi ning procedure envisaged in the Competition Act has been declared by the Constitutional Court in Federation of Estate Agents vs Director General (Competition) et to be contrary to the Constitution (see below). As a result of this judgment, the OFC is not currently in a position to impose fi nes on undertakings or associations. It is expected that the legislature will rectify this situation through legislative amendments, either to the Competition Act or to the Constitution itself. It is pertinent to point out that the fi ning system was amended in 2011. Prior to 2011, although the OFC could still carry out an investigation, breaches of the competition rules were deemed to be a criminal offence and a fi ne, again of a maximum of up to 10% of the turnover of the undertaking or association in the previous business year, could only be imposed by the Court of Magistrates sitting as a court of criminal judicature. It is possible to appeal from decisions of the OFC, including from a decision on the fi ne imposed. Appeals from decisions of the OFC are heard by the Appeals Tribunal. As noted, at present the OFC cannot impose any fi nes or it would be in breach of the Constitution. Moreover, the Constitutional Court judgment indicates that the Appeals Tribunal is not to be considered a ‘court’ in terms of the Constitution, and therefore cannot impose fi nes which are criminal in nature either (see below). In fact, with respect to cases which are pending in front of the Appeals Tribunal, the OFC has declared and recorded in the record of the proceedings that it will not request the imposition of fi nes in the event that the case is decided in the OFC’s favour. Private enforcement Private enforcement is regulated by Article 27A of the Competition Act, which applies to claims relating to infringements which occurred after 23 May 2011, the date that this provision came into force. An action for damages may be brought by a person who has suffered damage as a result of an infringement of the competition rules, including therefore cartels. Plaintiffs in actions for damages are entitled to compensation for actual loss and for loss of profi ts, together with interest from the time the damage occurred until the sum awarded is paid. The defendant is not allowed to plead lack of intention, negligence or lack of fault as

GLI - Cartels 2017, Fifth Edition 203 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Mamo TCV Advocates Malta a defence, but he can plead a genuinely excusable error. The pass-on defence is also allowed. The action for damages is barred by the lapse of two years from the day the injured party became aware or should reasonably have become aware of the damage, the infringement and the identity of the infringer. The current damages regime is due to be overhauled in view of Directive 2014/104/EU of the European Parliament and of the Council of 26 November 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 ([2014] OJ L349/1) (hereinafter referred to as “the Damages Directive”). The proposed changes are considered below. In the case of infringements prior to 2011, actions for damages have to be based on general tort law, as contained in the Civil Code (Cap. 16 of the laws of Malta), in terms of which every person is liable for the damage which occurs through his fault.

Overview of investigative powers in Malta Competition investigations, whether on cartels or other breaches of the competition rules, may commence either at the DG’s own motion, at the request of the Minister responsible for competition matters, upon a complaint or at the request of a designated national competition authority of another EU Member State or the European Commission. The DG has various investigative powers conferred upon him by the Competition Act. The DG may: • request any undertaking or association to furnish him with any information or document in its possession, unless such document or information is subject to the duty of professional secrecy; • receive statements from any person and make copies of documents produced to him, which would be producible as evidence before any court including the Appeals Tribunal; • enter into and search any premises, land and means of transport of the relevant undertakings and/or associations, and consequently seize any object or document or take extracts or copies of documents, or order non-removal of an object, including closing and sealing any part of the premises, land or means of transport; and • order an inspection on other premises, land and means of transport in relation to which there is a reasonable suspicion that books or other records related to the business and the subject-matter of the inspection are being kept. Such inspection can only take place if a warrant is issued by a Magistrate. Undertakings, associations or persons subject to an inspection may be assisted by legal counsel or other advisers of their choice. The law speciﬁ es that searches on premises after 7pm and before 7am of the following day cannot be carried out unless there is reason to believe that delay could cause the loss of information, and the search is expressly authorised by the DG or the Magistrate, as applicable, to take place at such time. Therefore dawn raids can only take place if so expressly authorised and if there is a risk of loss of the information sought. It does not appear that the OFC has ever carried out a dawn raid. The power most often used by the OFC is that of requesting information from undertakings and associations being investigated, as well as their competitors, suppliers, customers and complainants. In practice, investigations tend to be carried out on the basis of requests for information and

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Overview of cartel enforcement activity during the last 12 months No offi cial reports or statistics are published by the OFC as to its enforcement activity. The imposition of fi nes by the OFC for breaches of the Competition Act has been stalled due to the Constitutional Court judgment in Federation of Estate Agents vs Director General (Competition) et which is considered in detail below. During the past 12 months the OFC has published some of its decisions online at http://www.mccaa.org.mt/en/decisions; however none of the cases published dealt with cartel activity. It is unclear whether the OFC has started publishing all its decisions, or whether these were published because they were cases of general public interest. However, on 4 October 2016, the Appeals Tribunal decided a case which dealt with cartel activity. The OFC had carried out an investigation into the market for door-to-door distribution of LPG in cylinders, and subsequently submitted a report and referred the case to the Appeals Tribunal, in accordance with the law as it stood at the time. In its report, the OFC concluded that a standard agreement signed in 1992 (“the Standard Agreement”) between the various gas distributors and Enemalta plc (then Enemalta Corporation), whereby each gas distributor was granted an exclusive area for distribution of LPG in cylinders was ipso jure null and unenforceable in terms of Article 101(2) TFEU and Article 5(2) of the Competition Act. It also found the various distributors to be in breach of Article 101 TFEU and Article 5 of the Act as they were part of one global agreement, namely the Standard Agreements, on the strength of which they had effectively agreed between themselves to respect the areas agreed upon for exclusive gas distribution. The Association of the General Retailers and Trader (GRTU), an association that represented the distributors, was found to have acted in a way as to maintain the status quo on the market. The OFC also found that Enemalta plc, the original signatory to the agreement and the supplier of LPG, and Liquigas Malta Limited, to whom the business was later sold, had acted in breach of the competition rules. In its judgment in the names Offi ce for Competition vs Enemalta Corporation et the Appeals Tribunal agreed with most of the fi ndings of the OFC. It found that the various gas distributors, the GRTU and Enemalta plc, had breached the competition rules by dividing Malta and Gozo into various ‘territories’ for the purpose of distributing LPG in cylinders. These various undertakings and association were therefore found to have breached Article 5(1) of the Competition Act and Article 101(1) TFEU. However, the Appeals Tribunal found that Liquigas Malta Limited, which acquired the business of LPG supply and distribution from Enemalta plc, had never participated or formed part of this agreement.

Key issues in relation to enforcement policy Since Malta is a small jurisdiction, public enforcement tends to suffer from lack of resources, both ﬁ nancial and human. The OFC therefore will prioritise cases and complaints, although this does not mean that there are complaints which are not considered. On the contrary, the law requires that all complaints be looked into, even if to conclude that there are insufﬁ cient grounds for acting on the complaint. The major issue currently affecting public enforcement of cartel offences is the Constitutional Court decision in Federation of Estate Agents vs Director General (Competition) et. In

GLI - Cartels 2017, Fifth Edition 205 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Mamo TCV Advocates Malta this case, the applicant argued that the procedure whereby the OFC investigated the alleged breach of competition rules, decided whether an alleged breach occurred and imposed fi nes on the undertakings, was in violation of Article 39(1) of the Constitution and Article 6(1) of the European Convention on Human Rights (“ECHR”). The Civil Court, First Hall in its constitutional jurisdiction, had agreed with the arguments brought forward by the applicant (21 April 2015; application number 87/2013). Consequently the DG and the Attorney General appealed to the Constitutional Court. The Constitutional Court agreed with the appellants that there was no breach of Article 6(1) ECHR, noting that the jurisprudence of the European Court of Human Rights in relation to tax penalties was equally applicable to competition fi nes, and therefore, the fact that a fi ne was imposed in the fi rst instance by an administrative authority which is not an independent and impartial tribunal is not incompatible with Article 6 ECHR, as long as that decision can be reviewed by a tribunal with the necessary qualities and which has full jurisdiction in all matters. The Constitutional Court however confi rmed the judgment of the Civil Court, First Hall in so far as it found that the competition procedure infringes Article 39(1) of the Constitution. It held that notwithstanding that the Competition Act classifi ed the penalties for competition law breaches as ‘administrative fi nes’, competition proceedings involved a ‘criminal charge’. As a result, competition proceedings have to comply with Article 39(1), which states that: ‘Whenever any person is charged with a criminal offence he shall, unless the charge is withdrawn, be afforded a fair hearing within a reasonable time by an independent and impartial court established by law.’ The Court then considered the notion of ‘court’ found in Article 39(1). It confi rmed that ‘court’ could only refer to the superior and inferior courts mentioned in the Code of Organisation and Civil Procedure (Cap. 12 of the laws of Malta) – neither the DG nor the Appeals Tribunal were considered to be a court. Moreover, the Constitutional Court held that the entire procedure determining a criminal charge should be held in front of a court, and at no stage should a judgment or a hearing on a criminal charge be heard by an entity which is not a court. The Constitutional Court therefore found that the provisions of the Competition Act, in so far as they give the DG the authority to issue a decision regarding a breach of the competition rules and impose fi nes or other measures, and in so far as they give the Appeals Tribunal the authority to hear appeals from such decisions, are void and without effect in relation to the Federation, and the proceedings against the Federation under those provisions of law were found to be in breach of the Federation’s right to a fair hearing under Article 39(1) of the Constitution in so far as those proceedings are intended to lead to a decision fi nding a breach of the competition rules. Although technically speaking, this decision only applies to the proceedings instituted against the Federation of Estate Agents, it effectively means that any investigations by the OFC, where a fi ne is envisaged, would be in breach of the Constitution. As a result, the current fi ning procedure for competition proceedings is in effect stalled. As noted, the OFC itself has declared that it will not be requesting the imposition of a fi ne by the Appeals Tribunal in cases currently pending before that tribunal. Legislative amendments are required in order for there to be an effective penalty system for breaches of the Competition Act.

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Key issues in relation to investigation and decision-making procedures Compliance with Article 39(1) of the Constitution The Constitutional right to a ‘fair hearing’ during competition investigations was central in Federation of Estate Agents vs Director General (Competition) et (see above). Fair hearing by the OFC It has been confi rmed by the Appeals Tribunal that the principles of natural justice, including therefore the right to a fair hearing, have to be respected by the OFC during its investigations. In Liquigas Malta Limited vs Uffi ccju ghall-Kompetizzjoni (Application number 1/2011; 14 April 2015) the Appeals Tribunal annulled a decision and an order to cease and desist issued by the OFC against Liquigas Malta Limited because, in the proceedings that led to the decision and order, the OFC did not comply with the principles of natural justice. In its decision, the Appeals Tribunal noted that during competition investigations the relative undertaking has to be given adequate opportunity to understand the complaint against it and to give its replies. This judgment also confi rmed that, even in cases falling under the Competition Act prior to its amendment by virtue of Act VI of 2011, the principles contained in EU Regulations and in judgments of the Court of Justice apply when Maltese law is silent. As a result, the principles laid down by the Court of Justice of the EU and in relevant EU Regulations on the right to a fair hearing had to be applied by the OFC during its investigations, including: clearly informing the undertaking being investigated, in good time, of the essence of the complaint and hearing the undertaking on the matter; giving the undertaking a copy in writing of the complaint; giving the undertaking time to regulate its position; and giving the undertaking access to the fi le. Legal privilege, business secrets and confi dential information Although there has never been a competition case relating to legal privilege, business secrets and confi dential information, the law regulates the disclosure of such sensitive information. First of all, the Competition Act specifi es that the DG cannot order the production of any document or the disclosure of any information which may be subject to the duty of professional secrecy. Secondly, in terms of the MCCAA Act, any parties submitting information to the DG in the course of an investigation should identify any material which they consider to be confi dential, giving reasons therefor, and providing a separate non-confi dential version. The DG may also require persons, undertakings and associations to identify documents or parts of documents which they consider to contain business secrets or other confi dential information, and to identify the undertakings with regard to whom such documents are to be deemed to be confi dential. Similarly, the DG may, when issuing a statement of objections, drawing up a case summary or issuing a decision or order, require persons, undertakings or associations to identify any business secrets or confi dential information. Ultimately, however, the decision as to whether the information identifi ed is a business secret or otherwise confi dential rests with the DG, although persons, undertakings and associations may appeal to the Appeals Tribunal within 10 days. Information which is accepted to be confi dential or to amount to a business secret is protected both in the MCCAA Act and in the Competition Act. Once it is accepted that the information contains business secrets or other confi dential information, the OFC has to ensure such information is not disclosed, including in the statement of objections, decisions and when granting access to the fi le.

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Leniency/amnesty regime There is currently no leniency procedure in Malta. A consultation on draft Leniency Regulations was carried out in 2013. However, the draft regulations have not yet been enacted into law. The draft regulations are intended to apply in relation to ‘secret cartels’ only, meaning they would apply where the cartel conduct is not known to the public, customers or suppliers. In order to qualify for immunity from fi nes, it is envisaged that an applicant submit a formal full application in the form provided in the draft regulations. The draft regulations lay out various conditions which have to be satisfi ed in order for immunity from fi nes to be granted. Applicants that would not qualify for immunity may benefi t from a reduction in fi nes. The draft regulations may be accessed here: http://mccaa.org.mt/en/consultations- publications.

Administrative settlement of cases The Competition Act envisages two types of ‘settlement’ for cases: one a settlement procedure for cartel cases, and the other a commitments procedure. Settlement Settlement of cartel cases may occur in the course of an investigation. It is the DG who may invite all or some of the undertakings and/or the relevant association of undertakings to indicate in writing whether they are prepared to engage in settlement discussions. Undertakings or associations willing to take part in the settlement discussion may be informed by the DG of: (i) the objections he envisages to raise against them; (ii) the evidence used to determine such objections; (iii) non-confi dential versions of any specifi ed accessible document listed in the case fi le, although access is only granted upon request by the undertaking or association where necessary to enable that party to ascertain its position regarding a time period or any other particular aspect of the cartel; and (iv) the range of potential fi nes. If settlement discussions progress, the DG would then set a time-limit within which the parties may commit to follow the settlement procedure by introducing settlement submissions refl ecting the result of the discussions and acknowledging their participation in a breach of Article 5 of the Act and/or Article 101 TFEU, and their liability. As part of the settlement process, the undertakings or associations have to confi rm that they will only request access to the fi le and leave to submit verbal views after receipt of the statement of objections if the latter does not refl ect the contents of their settlement submissions. If the statement of objections does refl ect the content of the settlement submissions, the undertaking or association’s reply should simply confi rm this. In that case, the DG would proceed to adopt a decision, which decision would indicate that the undertaking co-operated under the settlement procedure in order to explain the reason for the level of fi ne. In fact, the DG is empowered to reward the undertakings or associations who have settled by reducing the fi ne by 10% of the amount which would have been imposed. As already noted, however, the fi ning system envisaged in the Competition Act is currently under review, and the OFC cannot impose any fi nes, due to the judgment in Federation of Estate Agents vs Director General (Competition) et. The idea behind adopting the settlement procedure is clearly procedural effi ciency, as the DG may discontinue the discussions if he considers such effi ciencies are unlikely to be gained. It does not appear that this procedure has ever been used since its introduction into the Act in 2011.

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Commitments The Competition Act also provides for commitments. In this scenario, the DG would make, by decision, commitments offered by undertakings or associations in order to meet the concerns expressed by the DG in a preliminary assessment of the case, binding on those undertakings or associations. The decision may be for a speciﬁ ed period. Where a decision is to be adopted, the DG has to publish a summary of the case and the main content of the decision or proposed course of action, so that interested third parties may submit their observations. The commitments procedure is not limited to any one type of infringement, and therefore can be used in cartel cases as well as other cases involving other infringements of the competition rules. Proceedings may be reopened by the DG where there is a material change in the facts, where the undertaking or association acts contrary to its commitments or where the decision was based on incomplete, incorrect or misleading information provided by the parties. In the case that undertakings or associations fail to comply with or act contrary to a commitment, they will be deemed to have committed an infringement of the Competition Act. On 16 December 2016, the OFC indicated that it would be utilising this procedure in relation to a vertical agreement, and invited comments from interested parties. The invitation for comment may be accessed here: http://mccaa.org.mt/en/mccaa-news.

Third party complaints Complaints are regulated by the Competition Act. Article 14 of the Act provides that complaints may be made to the DG in writing, and must include a request that an investigation be carried out on the alleged restrictive practices. The DG has two courses of action open to him: 1. If he considers that there are insuffi cient grounds for acting, the DG is to inform the complainant of his reasons, whilst setting out a time-limit within which the complainant may reply. If the complainant does reply and his written submissions do not lead to a different assessment of the complaint, the DG is to reject the complaint by decision. If the complainant does not agree with this decision, he may appeal to the Appeals Tribunal within 20 days of being notifi ed with the decision; if the Appeals Tribunal fi nds for the complainant, the Appeals Tribunal will inform the DG who has to commence an investigation. The Appeals Tribunal’s decision on this matter is fi nal. When the complainant does not reply, the complaint is deemed to have been withdrawn. 2. If he considers that there are suffi cient grounds for acting, the DG commences an investigation in terms of Article 12 of the Act. Complainants may request to remain anonymous. If the DG accedes to this request, he will provide access to a non-confi dential version or summary of submitted documents. Although there are no offi cial statistics, it appears that most of the antitrust investigations carried out by the OFC in fact start off as complaints. In Mizzi vs Enemalta Corporation et (application number 1/2011), handed down on 27 February 2013, the Appeals Tribunal confi rmed that the relevant EU sources apply as guidance for the correct interpretation of competition law, particularly when Maltese law is silent, and that this includes EU legislation and guidance notes on access to the fi le by a complainant. In the aforementioned case, the Appeals Tribunal referred to and applied:

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(i) Commission Regulation (EC) No 773/2004 of 7 April 2004 relating to the conduct of proceedings by the Commission pursuant to Articles 81 and 82 of the EC Treaty (OJ [2004] L 123/18); (ii) Commission Notice on the rules for access to the Commission ﬁ le in cases pursuant to Articles 81 and 82 of the EC Treaty, Articles 53, 54 and 57 of the EEA Agreement and Council Regulation (EC) No 139/2004 (OJ [2005] C325/7); and (iii) Commission Notice on the handling of complaints by the Commission under Articles 81 and 82 of the EC Treaty (OJ [2004] C101/65). The Appeals Tribunal did this on the strength of Rule 13 of the First Schedule to the Competition Act, prior to amendment by Act VI of 2011 (which applied to the case), which provided that in the interpretation of the Competition Act, the Commission for Fair Trading (now the Appeals Tribunal) is to have recourse to, inter alia, judgments of the Court of Justice of the EU, and relevant decisions and statements of the Commission including interpretative notices. A similar provision in now contained in Rule 9 of the Second Schedule of the MCCAA Act, therefore this judgment is still relevant.

Sanctions and penalties Undertakings or associations that are found to have infringed the competition law rules are subject to an administrative fi ne of up to 10% of the total turnover of that undertaking or association in the preceding business year. When fi nes are imposed on associations, the annual turnover of the members will be considered. The amount of the fi ne is fi xed by the DG, who is to consider the gravity and duration of the infringement as well as any aggravating or attenuating circumstances. No fi ning guidelines have been issued by the OFC as yet. Any decision taken by the DG, including therefore the level of the fi ne, is subject to an appeal in front of the Appeals Tribunal. The appeal does not suspend the fi ne unless a request to this effect is made to the Appeals Tribunal and, after considering the submissions of the parties, the Appeals Tribunal suspends the said fi ne pending the determination of the appeal. There is an appeal on a question of law to the Court of Appeal from decisions of the Appeals Tribunal. It has already been noted, however, that the current procedure whereby fi nes are imposed by the OFC, and reviewed by the Appeals Tribunal, has been deemed to be contrary to the Constitution. Amendments to the way in which sanctions and penalties are imposed are therefore expected.

Cross-border issues The DG is obliged to co-operate with the European Commission and the National Competition Authorities in terms of Regulation 1/2003. This obligation arises from Article 29A of the Competition Act. Moreover, in terms of Article 14(1)(c) of the MCCAA Act, the OFC is responsible for acting as the designated national competition authority in terms of Article 35(1) of the said Regulation 1/2003.

Developments in private enforcement of antitrust laws Recent actions for damages In Malta there has so far only been one successful action for damages, Hompesch Station Limited vs Enemalta Corporation et, although there is currently another action for damages which is ongoing in the names Spiteri et vs Transport Malta (sworn application number 369/2009/1). Both these actions are follow-on actions, in that they were instituted following

GLI - Cartels 2017, Fifth Edition 210 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Mamo TCV Advocates Malta the conclusion of an investigation by the OFC and appeals to the Commission for Fair Trading (now called the Appeals Tribunal). Hompesch Station Limited vs Enemalta Corporation et involved an action for damages for an infringement which occurred prior to the introduction of Article 27A in the Competition Act, which regulates actions of damages for infringements which have occurred after 23 May 2011. Plaintiff commenced the action after the Appeals Tribunal (then the Commission for Fair Trading) concluded that the GRTU, which represented service station operators, and Enemalta Corporation had reached an anti-competitive agreement whereby the mark- up for retailers on petrol and diesel would increase as long as the service stations installed automated pumps and operated only during the times indicated in the agreement. The agreement was subsequently entrenched in a legal notice. Plaintiff had complained to the OFC on this matter and, following the conclusion of the case by the decision of the Appeals Tribunal, it commenced an action for damages based on the provisions on tort law contained in the Civil Code. In its decision, the First Hall, Civil Court held that: • There was no need for the plaintiff to fi rst request that the civil court hold the defendants responsible; mainly because in terms of the law as it then stood, in the event that the question of anti-competitive conduct arose in the civil courts, the civil courts were to refer the matter to the Commission for Fair Trading (now the Appeals Tribunal). As a result when the matter has already been considered by that tribunal, the civil courts should follow that decision. In any case, the plaintiffs had brought forward enough evidence to prove the defendants’ anti-competitive conduct. • The prescriptive period for actions which relate to infringements before 2011 was of fi ve (5) years. The Civil Court awarded damages to the tune of nearly €250,000. This judgment has been appealed; the appeal is currently pending. Proposed amendments On 20 September 2016, the OFC issued a public consultation on antitrust damages together with draft legislation which will enable Malta to transpose the Damages Directive. The amendments consist of: (i) a bill to amend the Competition Act, in order to replace the current provision on antitrust damages, with a reference to subsidiary legislation on antitrust damages which will be issued by the relevant Minister; and (ii) draft regulations entitled ‘Competition Law Infringements (Actions for Damages) Regulations’. It is envisaged that these changes will apply to actions instituted after the date of entry into force of the Regulations. The transposition of the Damages Directive will bring about some changes to the current landscape for actions for damages. The most obvious is perhaps the prescriptive period (time-bar), which will become fi ve years. Moreover, the Damages Directive requires the inclusion of various provisions relating to disclosure of evidence, quantifi cation of harm and joint and several liability which are not dealt with in Article 27A of the Competition Act. It remains to be seen whether these changes will result in more actions for damages in Malta.

Reform proposals Aside from the amendments necessary in order to implement the Damages Directive, the other expected reforms, as at the date of writing, are amendments to the system for breaches of the competition rules and the introduction of the leniency regime, both of which have been dealt with above.

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Richard Camilleri Tel: +356 2540 3000 / Email: [email protected] Richard Camilleri is a founding partner of the ﬁ rm. He has acted as counsel to various domestic and foreign clients, and has signiﬁ cant experience in a large variety of transactions. Richard also advises clients on competition law, intellectual property law and employment law. He is experienced in litigation and has represented clients in cases concerning a variety of matters including competition law, unfair competition law, intellectual property law and employment law. Richard is also a senior lecturer in the Faculty of Law of the University of Malta, and has been lecturing since 1988.

Annalies Azzopardi Tel: +356 2540 3000 / Email: [email protected] Annalies Azzopardi is a senior associate within the competition and commercial practice of the fi rm. As a member of the competition group, she advises various businesses in different industries on competition issues. This includes making submissions to and representing clients in front of the Offi ce for Competition, the Competition and Consumer Appeals Tribunal, the civil courts and regulators as well as advising on contracts and mergers and acquisitions. As a member of the commercial practice of the fi rm, she assists and advises clients on various contractual issues; advises clients on consumer law-related matters; and also has experience of capital markets. She also lectures in competition and consumer law at the University of Malta.

Mamo TCV Advocates Palazzo Pietro Stiges, 103 Strait Street, Valletta, VLT 1436, Malta Te l: +356 2540 3000 / Fax: + 356 2124 4291 / URL: http://www.mamotcv.com

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Nuno Ruiz & Pedro Saraiva Vieira de Almeida & Associados

Overview of the law and enforcement regime relating to cartels The Portuguese applicable law on antitrust is set forth by Law no. 19/2012, of 8 May (the “Portuguese Competition Act”), which encompasses the most relevant aspects of Portuguese competition law regarding both substance and procedure. The Act is further developed by a number of instruments issued by the Portuguese Competition Authority, on leniency policy, antitrust investigations and fi ning methodology. Likewise, guidelines on confi dentiality claims are expected to be issued in 2017. The Portuguese Competition Authority (the “PCA”) is the agency responsible for the enforcement of EU and national competition law and policy in Portugal. Its decisions may, in most circumstances, be appealed to the Competition, Regulation and Supervision Court (the “Competition Court”), a recently created specialised court. Despite competition law infringements not being criminal offences under Portuguese law, the investigation of anticompetitive wrongdoing follows a procedure inspired by quasi- criminal and criminal procedures, both of which are applicable on a supplementary basis. Likewise, competition infringements are punishable with severe penalties, most notably fi nes varying between 1% and up to 10% of the undertaking’s turnover in the preceding fi nancial year.

Overview of investigative powers in Portugal The Portuguese Competition Act grants the PCA a wide range of investigative powers, similar in nature to the powers of the European Commission under Regulation 1/2003. All undertakings and natural persons are bound to cooperate with the PCA, whether they are being investigated or third parties. This duty encompasses the obligations to timely reply to requests for information, and to produce relevant documents if so required by the watchdog. Failure to cooperate with the PCA can amount to obstruction to a public authority investigation, a criminal offence under Portuguese law. Furthermore, failure to reply to a request for information from the PCA, or providing false, inaccurate or incomplete information, may also qualify as a minor competition law offence, punishable with a fi ne of up to 1% of the undertaking’s turnover. It took quite some time until the PCA started to enforce this latter penalty, but in June 2015 it imposed a fi ne of €150,000 on Peugeot Portugal for providing false, inaccurate or incomplete information in a reply to a request for information during an antitrust investigation. The PCA was apparently looking to build a policy in this area as, in the following four months, it fi ned two other undertakings on the same grounds, all the convictions happening in record times of three to eight months. The PCA is also legally entrusted with the power to conduct search-and-seizure procedures

GLI - Cartels 2017, Fifth Edition 213 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Vieira de Almeida & Associados Portugal at the premises of undertakings (“dawn raids”), provided that a judicial warrant to the effect has been issued in advance by the competent court. In some circumstances, judges must also be present during dawn raids, namely if the inspected undertaking or association of undertakings is likely to hold sensitive personal information (e.g. fi nancial institutions). Should the PCA fi nd it necessary, it may require police to accompany its offi cials during dawn raids. During dawn raids, the PCA may examine, collect and seize copies of all types of information, including accounting data, regardless of the media in which they are stored. Such powers extend not only to the premises of the undertaking concerned, but also to all its property and means of transport if they are deemed necessary for obtaining evidence. It is worth noting that documents protected by legal privilege cannot be analysed nor seized by the PCA. This applies to communications with in-house lawyers. Within the context of a dawn raid, the PCA may also ask the undertaking’s staff or representatives for clarifi cations, and to carry out oral interviews with them. The staff and representatives are bound to reply truthfully and on-the-spot. The PCA also has the power to seal off the premises of undertakings where evidence is (or is likely to be) stored, but only during the period and to the extent that is strictly necessary. Likewise, should the PCA have well-substantiated indicia that evidence of a serious competition infringement is being held at the homes of partners, directors, workers or collaborators of an undertaking, it may carry out inspections at such locations. Such inspections must be prior authorised by a judicial warrant, and a judge responsible for procedural safeguards must be present during the search. Failure to cooperate with the PCA during a dawn raid may amount to a competition offence, punishable with a fi ne of up to 1% of the undertaking’s turnover, and may also amount to criminal liability for obstructing a public authority investigation.

Overview of cartel enforcement activity during the last 12 months Public reports suggest that in 2016, the PCA was busier than in 2015 as regards cartel enforcement. The PCA’s Anti-Cartel Unit reportedly continues its investigation into the retail banking sector. Following a leniency application, the probe started with dawn raids at the premises of several fi nancial institutions, in March 2013. In May 2015, statements of objections were addressed to 15 undertakings for allegedly taking part in anticompetitive information exchanges. A major legal battle over access to fi le and the PCA’s seizure powers was started, ultimately leading the Competition Court to suspend the procedure until it gives a ruling on the subject. At the time of writing, practitioners and academics are eagerly awaiting both the ruling and the PCA’s reaction. On 29 January 2016, the PCA increased its scrutiny of the fi nancial sector, conducting dawn raids in 13 locations in the Lisbon area. Albeit simultaneous, the dawn raids pertained to two separate probes, both targeting undertakings active in the specialised credit sector, suspected of anticompetitive information exchange. Press reports suggest that these dawn raids are connected to the PCA’s original investigation into the banking sector. In December 2016 the PCA rendered a decision against Firmo Papéis e Papelarias S.A. (“Firmo”), Copidata S.A. (“Copidata”), Tompla – Indústria Internacional do Envelope Lda. (“Tompla”) and Papelaria Fernandes – Indústria e Comécrio S.A. (“Papelaria Fernandes”) for entering into a market-sharing and price-fi xing agreement in the market for the provision

GLI - Cartels 2017, Fifth Edition 214 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Vieira de Almeida & Associados Portugal of paper envelopes between 2007 and 2010. The investigation, which encompassed a dawn raid in February 2015, started with a leniency claim by Copidata and Tompla and led to the imposition of a fi ne of €160,000.00 on Firmo. Another cartel member, Papelaria Fernandes, was convicted, but it was not fi ned since it does not hold a turnover as a result of a complex insolvency proceeding. A fi ne in the amount of €440,000.00 had already been imposed on a fi fth member of the cartel, Antalis Portugal S.A., in May 2016. The PCA justifi ed the earlier conclusion of proceedings vis-à-vis this undertaking due to its cooperation through the leniency program and the settlement procedure. Also in December 2016, the PCA closed an investigation into 13 undertakings active in the ports sector over suspicions of being part of a market-sharing cartel. The investigation was started in June 2016 and, on 13 July 2016, dawn raids were carried out at the premises of eight undertakings located throughout the country. Following an 18-month investigation, which reportedly also encompassed the interrogation of management of one of the undertakings, the PCA ultimately closed the case without issuing a statement of objections, for it concluded that no anticompetitive wrongdoing had taken place. Further to its anti-cartel activity, throughout 2016 the PCA has also been active in the combat of other horizontal anticompetitive practices. Indeed, in August 2016 the PCA issued a statement of objections to SONAE, a Portuguese conglomerate active inter alia in distribution and real estate, and EDP, the former electricity incumbent, over a joint commercial campaign which took place in 2012. Allegedly, the two groups entered into a non-competition clause in the sectors of marketing of electric energy and natural gas, on the one hand, and of food retail in mainland Portugal, on the other, for a period of two years. In November 2016, the PCA closed a case against the Portuguese Psychologists Association (“PPA”) by rendering legally binding the commitments offered by this undertaking. The PCA’s investigation, opened in February 2015, revealed that certain provisions of the PPA’s Deontological Code precluded professionals from: i) pursuing patients of other psychologists; and ii) treating patients already being treated by other psychologists for the same condition. In August 2016, the PPA offered a set of commitments including: i) to amend the said provisions so as to withdraw the anticompetitive prohibitions; ii) to publish a new version of the Deontological Code on its webpage; and iii) to send letters to all psychologists, informing them of the said amendments.

Key issues in relation to enforcement policy Access to fi le was once again in the spotlight during 2016. This topic is at the centre of the diffi culties surrounding the PCA’s most high-profi le cartel case at the moment, an investigation into alleged anticompetitive exchange of information between 15 fi nancial institutions. Indeed, the procedure is currently suspended by order of the Competition Court until it gives an expected ruling on the subject. Both the ruling and its subsequent implementation by the PCA are expected to bring some clarity on the subject and, more importantly, to give guidance to the not-always-consistent decisional practice of the PCA in this fi eld. It bears emphasis that the PCA has recently vowed to issue guidelines on the procedure for the protection of confi dentiality in the course of 2017. Fighting bid-rigging has also been high on the PCA’s priority list over 2016, with the watchdog launching a programme on the subject. Within the context of such programme, the PCA has held several sessions on the topic and issued a guide on how to detect and avoid bid-rigging, a checklist of bid-rigging signs, and a FAQ on the matter. On its Competition Policy Priorities for 2017, the PCA has committed to continue the work in

GLI - Cartels 2017, Fifth Edition 215 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Vieira de Almeida & Associados Portugal public procurement by enhancing the already close cooperation with contracting entities and other State organs involved in public acquisitions. With at least two on-going investigations on the subject, both in the fi nancial sector, anticompetitive exchange of information is another recurring topic on practitioners’ minds. The PCA has been urged to issue guidelines on the subject but, at the moment, to no avail. In November 2016, the PCA also issued a Guide on the promotion of competition for associations of undertakings. The Guide aims at explaining how associations of undertakings may be liable to fi nes in case they breach competition rules. It does so both by briefl y outlining the PCA’s decisional practice on associations of undertakings and by providing practical examples of conducts that may breach competition law, such as price recommendations, boycotts, information exchange, standardisation, standard-agreements and advertising. The PCA has elected as one of its foremost priorities for 2017, enhancing its capability to detect anticompetitive wrongdoing. The watchdog has announced that in 2017, 15–20% of antitrust investigations will be started ex offi cio.

Key issues in relation to investigation and decision-making procedures The PCA may learn of a potential competition law infringement by its own motion, through third party complaints or, in the particular case of cartels, through leniency applications. Portuguese competition procedure is divided into two stages; the fi rst is the investigation stage, during which the PCA is due to investigate the existence of an infringement and collect the necessary evidence. The Authority is supposed to conclude this stage within 18 months, but it is free to extend this deadline provided that it informs the investigated undertaking in advance. During this stage, undertakings are not granted access to fi le as the case is generally protected by investigation secrecy. In a number of cases, investigated undertakings have found themselves at odds with the PCA during this stage of the procedure over a range of topics, most notably the method for identifying confi dentialities. In the past, this has led to several appeals against the PCA’s interlocutory decisions. At the end of the investigation stage the PCA is due to either: i) issue a statement of objections; ii) close the case; iii) close the case through a settlement decision; or iv) close the case through a commitments decision. The prosecution stage, the second of the procedure, starts the moment the PCA issues a statement of objections. From that point on, the investigated undertakings are given access to fi le in order to reply to the statement of objections, which they are bound to do within a deadline of no less than 20 working days. However, experience demonstrates that access to fi le is no peaceful exercise. Thus, in a number of past and on-going cases, complex legal fi ghts have been fought before the Competition Court over the subject, as investigated undertakings appealed the PCA’s decisions limiting access to business secrets as long as they are used as evidence in the statements of objections. The PCA is due to conclude the prosecution stage within 12 months but it is free to extend this time limit, provided that the investigated undertakings are informed of such extension. By the end of this stage the PCA is bound to either: i) close the case; ii) issue a fi nal decision declaring the existence of an infringement; iii) impose a sanction under the settlement procedure; or iv) close the case under a commitments decision. Undertakings can appeal from decisions imposing fi nes within 30 working days.

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Leniency/amnesty regime The Portuguese Competition Act provides for a leniency programme very similar to that of the European Commission. While on substantive terms the leniency programme is governed by the Portuguese Competition Act, at procedural level, a signifi cant part of the rules are set in the PCA’s Regulation 1/2013. It is well known that the leniency programme has been an outstanding measure for cartel detection since its creation, as most of the on-going and recent cartel cases have reportedly started with a leniency application. It is thus only natural that the PCA wishes to enhance its application, and indeed it has set as one of its priorities for 2017 to further promote the programme, notably by publicising it to the relevant stakeholders. Under the Portuguese leniency programme, both undertakings and natural persons (i.e. directors, managers and persons holding equivalent positions in the business units involved in the cartel) can be granted immunity from fi nes as long as they are the fi rst to provide the PCA with information allowing it either to conduct a dawn-raid or to fi nd the existence of a competition law infringement as long as, at that moment in time, the PCA did not hold enough information to carry out the dawn raid or to fi nd such infringement. Leniency applicants are further required: i) to fully and continuously cooperate with the PCA, most notably by supplying it with all the information in their possession and promptly replying to all its information requests, and by refraining from destroying evidence and from revealing the existence of the leniency claim; ii) to put an end to their participation in the cartel – unless otherwise required by the PCA; and iii) not to have coerced other undertakings to participate in the cartel. Undertakings who fail to qualify for immunity from fi nes can still be granted a reduction of the amount of the fi ne, provided that they: i) convey to the PCA information and evidence with signifi cant added value for the investigation; and ii) cooperate with the PCA’s investigation and terminate their participation in the cartel – unless otherwise required by the PCA. Not all undertakings providing information and evidence with signifi cant added value for the investigation will be rewarded equally. Indeed, the fi rst undertaking submitting information of such kind will be eligible for a reduction of the amount of its fi ne of 30–50%, the second of 20–30%, and the subsequent undertakings of up to 20%.

Administrative settlement of cases Like EU Competition Law, the Portuguese Competition Act sets a settlement procedure, under which the investigated undertakings acknowledge responsibility for an infringement and renounce their right to judicial review in exchange for a ﬁ ne reduction. The procedure begins with settlement discussions between the PCA and the investigated undertaking, which may be triggered by either party in both the investigation and prosecution stages of the proceedings (i.e. before or after a statement of objections has been issued). During the settlement discussions, the investigated undertaking is granted early access to the information at the PCA’s disposal in order to prepare a written settlement submission which must mirror the settlement discussions held. It bears emphasis that the Portuguese Competition Act expressly precludes third party access to settlement submissions, unless express consent is given by the undertaking who submitted them. Should the settlement conversations succeed and the case proceed to a settlement, the investigated undertaking will be given a reduction on the amount of the ﬁ ne which, in practice, tends to be around 10%.

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A further tool to fast-stream cases at the PCA’s disposal is the possibility to close cases subject to the presentation of commitments by the investigated undertaking. The mechanism set in the Portuguese Competition Act is, all in all, similar to the commitments decisions under Article 9 of Regulation 1/2003. Commitment decisions can be adopted either in the investigation or prosecution stages of the proceedings (i.e. before or after a statement of objections is issued) and do not state the existence of a competition law infringement. So as to ensure transparency of the decision-making procedure, commitments decisions must be notiﬁ ed to both the complainant and the competent sectorial regulator, as well as be subjected to a public consultation, the latter consisting in a period of at least 20 working days during which third parties may submit observations. It is up to the PCA to monitor undertakings’ compliance with the commitments. Failure to comply with the commitments is a per se misdemeanour punishable with a ﬁ ne of up to 10% of the undertaking’s annual turnover. Likewise, in the two years following the adoption of the commitments decision, the PCA may reopen the case should: i) a substantial change in the facts that led to the decision occur; ii) the commitments be not complied with; or iii) the decision be based on false, inaccurate or incomplete information. The PCA seems more willing than ever before to make use of the administrative tools to fast-stream cases. In fact, further to the use in 2016 of such tools in a greater number of cases, the PCA has expressly adopted as one of its priorities for 2017 to continue to promote the use of such mechanisms whenever possible.

Third party complaints Complaints are an important tool for the PCA when it comes to learning about the existence of antitrust infringement. Indeed, and by way of an example, 30% of all antitrust procedures opened in 2015 originated in a complaint. Under the Portuguese Competition Act, the PCA is not obliged to open an investigation for every complaint received. Rather, it is solely obliged to keep a record of each and every complaint addressed to it. Complaints may, and in practice do, lead to formal investigations, provided that the PCA considers there to be sufﬁ cient indicia of an infringement, and that the case ﬁ ts its enforcement priorities. Should the PCA decide not to open a formal investigation, the complainant is granted no less than 10 working days to submit its observations on the PCA’s draft decision. In case the complainant has submitted observations and yet the PCA decides not to open an investigation, the former is entitled to appeal the PCA’s decision to the Competition Court. In case the PCA decides to go for a formal investigation, complainants are granted limited procedural rights in the procedure; notably they are given the chance to submit observations to the PCA’s intention to close the case during the investigation stage. If they do submit observations and the PCA nonetheless decides to close the case, complainants may appeal the PCA’s decision to the Competition Court. It bears emphasis that the PCA has set as a priority for 2017 to promote complaints and enhance interaction with complainants by establishing an online complaints portal and a phone line for the presentation of complaints.

Civil penalties and sanctions Undertakings found to have participated in a cartel are subject to penalties under the Portuguese Competition Act. Indeed, each undertaking found to be part of the cartel

GLI - Cartels 2017, Fifth Edition 218 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Vieira de Almeida & Associados Portugal faces a fi ne of up to 10% of its turnover in the fi nancial year preceding the imposition of the fi ne. It is worth noting that the Portuguese Competition Act explicitly provides for the single economic doctrine, and thus parent companies may fi nd themselves liable for an infringement committed by one of their subsidiaries. It must be noted that directors, managers and persons holding equivalent positions in the business units involved in the cartel may also be subject to a fi ne of up to 10% of their annual income in the undertaking concerned in the last full year. The exact amount of a given fi ne is dependent on several factors, notably the seriousness and the duration of the infringement, and is to be calculated in accordance with the PCA’s Guidelines of fi ning methodology of 2012. The PCA’s Guidelines establish that the calculation of the amount of a given fi ne shall take into account the duration of the infringement and the turnover of the undertaking in the market(s) affected. Experience shows that, as a result of the application of the said methodology, fi nes imposed on different undertakings party to one same cartel, often vary signifi cantly. In the case of associations of undertakings, it is worth noting that fi nes can be imposed: i) exclusively on the association; ii) on both the association and its members; or iii) exclusively on its members. Should penalties be imposed on an association of undertakings, the amount shall not exceed 10% of the joint turnover of all the associated undertakings. Undertakings who were members of the associations’ corporate bodies at the time of the infringement are jointly responsible for the fi ne imposed on the association, except if they have declared in writing their opposition to the conduct that constitutes the infringement. Should fi nes be imposed on the members of the associations, the above mentioned 10% cap of each undertaking’s turnover applies. Finally, it bears emphasis that, should fi nes be imposed on both the associations and their associates, the non bis in idem principle must be complied with. The Portuguese Competition Act further provides for the following ancillary penalties for undertakings found to have infringed competition rules: i) the publication of an extract of the decision imposing a sanction, stating the applied penalty in the offi cial gazette and in one if the newspapers with the highest circulation in the relevant geographic area (national, regional, or local); and ii) should, the infringement be connected with public procurement, restricting the undertaking’s participation in public tenders for up to two years.

Right of appeal against civil liability and penalties In the context of competition investigations, investigated undertakings may appeal both interlocutory decisions of the PCA and the fi nal decision imposing fi nes and/or remedies. Appeals of interlocutory decisions are common in cartel investigations and often regard subjects as access to fi le and identifi cation of confi dentialities. Despite not being expressly stated in the Portuguese Competition Act, undertakings have 10 days, counting from the date they are notifi ed of the PCA decision, to submit their appeal to the Competition Court. The ruling of the Court can further be appealed to the Lisbon Court of Appeal, the appeal being limited to issues of law. Undertakings may also appeal decisions of the PCA imposing fi nes (i.e. fi nal decisions) to the Competition Court, within 30 working days from the date they were notifi ed of the decision. In appeal, the Competition Court has full jurisdiction over the PCA’s decisions, meaning that it may both reduce and increase the amount of a fi ne. The rulings from the Competition Court can be appealed to the Lisbon Court of Appeals, acting as a court of last instance; such appeals are, however, limited to points of law.

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Unlike its predecessor, the Portuguese Competition Act expressly sets that, as a rule, appeals do not have suspensory effect. Nonetheless, it also sets exceptions to that rule. The fi rst refers to PCA’s decisions imposing structural remedies, which have suspensory effect. The second consists in situations where suspensory effect is required by the undertaking: should that be the case, the undertaking must prove that the execution of the decision would cause serious harm, and simultaneously provide a guarantee. A third exception has recently been put forward by the Portuguese Constitutional Court. In cases where the appellant does not have enough economic resources to provide a guarantee, the appeal may still have suspensory effect if so required. While in the past the PCA had a poor track record as regards defending its decisions before the judiciary, it has steadily been improving and more and more decisions are now confi rmed by the judiciary. Indeed, in May 2016 the PCA fi nally closed a procedure against Abbott Laboratórios, over the company’s involvement in a bid-rigging scheme for the sale of medicinal reaction strips to public hospitals. However, while the Competition Court has confi rmed the PCA’s 2008 decision, it reduced the amount of the fi ne imposed on Abbott Laboratórios from €7 million to €3 million.

Criminal sanctions Under Portuguese Law, antitrust infringements are not criminal offences. Thus, anticompetitive wrongdoing is not punishable with criminal sanctions. Nevertheless, it is possible that certain conducts with anticompetitive effects can also infringe criminal law and thus be punishable under the corresponding criminal law provisions.

Cross-border issues The Portuguese Competition Act applies to anticompetitive practices either taking place in the Portuguese territory or that may have effects in a part thereof. However, the PCA’s decisional practice on cartels seems to suggest that the PCA restricts its investigations to conducts occurring in Portugal. At cross-border level, it is worth noting that the PCA is a member of a number of cooperation mechanisms with other competition law enforcers, and that it is further party to several bilateral agreements with other watchdogs. Indeed, further to being a member of the European Competition Network, the PCA is also part of the Lusophony Competition Network, a cooperation network between the competition enforcers of a number of Portuguese-speaking countries including Angola, Brazil, Cape Verde, East Timor, Guinea-Bissau, Mozambique, Portugal, and São Tomé and Príncipe. It is also worth noting that the PCA cooperates on a bilateral basis with its Spanish counterpart, the Comisión Nacional de los Mercados y la Competencia. Indeed, both watchdogs meet on a regular basis through the Iberian Competition Forum. Recently, the two authorities vowed to increase cooperation due to the growing ties between the two markets.

Developments in private enforcement of antitrust laws Private enforcement was undoubtedly expected to be one of the highlights of the year in the Portuguese competition law sphere. The PCA drafted a transposition act, which was submitted for public consultation in April 2016. Following public consultation, in the

GLI - Cartels 2017, Fifth Edition 220 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Vieira de Almeida & Associados Portugal context of which 13 entities presented observations, the PCA submitted the fi nal version to the Portuguese Government on June 2016. However, as most EU Member States, Portugal has failed to transpose the EU Directive on antitrust damages (Directive 2014/104/EU) into national law before the deadline (27 December 2016). As a consequence, the country still does not have specifi c legislation on private enforcement of competition law. Thus, the applicable rules continue to be the Portuguese Competition Act and the Civil Code, on substance, and the Civil Procedure Code as regards procedure. In brief, parties seeking to be awarded damages must prove: i) the existence of a competition law infringement; ii) the participation of the defendant; iii) the harm suffered by the plaintiff; and iv) the causal link between the infringement and the damages. The legislation currently in force does not provide for a specialised court to hear such claims and thus, these cases are dealt with by the (common) civil courts. The fi ling of such actions is subject to a limitation period of three years counting from the date the injured party learned about the infringement causing the harm. Up to now, private competition litigation in Portugal reportedly remains very limited, the main manifestation of it being its use as a defence in cases pertaining to the validity of agreements. The information on private enforcement cases pending before national courts is rather limited. In recent times, most of the publicly known cases are connected to abuse of a dominant position, the highest-profi le case being the (unprecedented) class action brought by the Portuguese Observatory for Competition against SPORT TV, a Portuguese premium sports TV channel. SPORT TV had been fi ned over €3.7 million by the PCA for abusing its dominant position by applying discriminatory conditions to pay-TV operators. In this case, the Portuguese Observatory for Competition is in essence seeking compensation for all subscribers harmed by SPORT TV’s conduct. In October 2016, the Civil Court of Lisbon dismissed an action brought against Portugal Telecom for allegedly abusing its dominant position, in the form of margin squeeze, in access to its circuits. The complaint had been brought by one of its clients in the wholesale market, which was simultaneously a competitor in the corresponding retail market. The action was dismissed as the Court found that the plaintiff failed to demonstrate that Portugal Telecom had abused its dominant position. At the time of writing, the main question pending around private competition enforcement in Portugal is whether the much-expected transposition of the EU Damages Directive will succeed in fi nally setting off this type of enforcement in the country.

Reform proposals Having been issued in 2012, the Portuguese Competition Act is a fairly recent piece of legislation and is still at the consolidation stage. Hence, no major legislative changes are expected to occur soon. The most signifi cant legislative reform expected is the transposition of the EU Directive on antitrust damages (Directive 2014/104/EU) into Portuguese law. On the soft law side, practitioners have repeatedly urged the PCA to adopt guidelines on a number of controversial subjects. The watchdog has recently vowed to issue guidelines on confi dentiality claims over the course of 2017. However, other hot topics, such as access to fi le and exchanges of information, will still need further clarifi cation.

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Nuno Ruiz Tel: +351 21 311 3513 / Email: [email protected] Nuno Ruiz is head partner of VdA’s Competition & EU Law practice since 2002. His practice in the ﬁ eld started in 1984. Before joining VdA Nuno Ruiz had been a member of the Board of the Portuguese Competition Authority, a partner in two different law ﬁ rms and a competition law advisor to the European Commission and to the World Bank. Nuno Ruiz is a member of IBA and of the Competition Lawyers Forum, a founding member of the Circle of Portuguese Competition Lawyers and a founding member and a member of the Board of the APDE (Portuguese Association for European Law). As Chairman of the Board of the Circle of Portuguese Competition Lawyers (2013/2014), Nuno Ruiz organised and hosted the 2014 Lisbon Annual Conference on Competition Law and Practice.

Pedro Saraiva Tel: +351 21 311 3507 / Email: [email protected] Pedro Saraiva is a junior associate in VdA’s Competition & EU Law practice since 2015. Pedro has worked on a wide variety of national and international cases and is regularly asked to advise clients on all aspects of Competition and EU Law in a variety of sectors, with a special focus on postal services, TMT, ports, transportation, banking and insurance. Before joining VdA, Pedro was a Bluebook trainee at the European Commission and a trainee legal adviser at the European Sanctions Unit of the Ministry of Foreign Affairs of Portugal. Pedro Saraiva holds an LL.M in European Law from the College of Europe, Bruges, a postgraduate degree in EU Law from the Faculty of Law of the University of Lisbon, and a Law degree from the Catholic University of Portugal. He further was an exchange student at Fundação Getulio Vargas Law School in Rio de Janeiro, Brazil.

Vieira de Almeida & Associados Av. Duarte Pacheco, no.26. 1070-110 Lisbon, Portugal Tel: +351 21 311 3400 / Fax: +351 21 311 3406 / URL: http://www.vda.pt

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Silviu Stoica & Ramona Iancu Popovici Nițu Stoica & Asociații

Overview of the law and enforcement regime relating to cartels The legal regime of cartels in Romania is primarily set out in the Competition Act no. 21/1996 (the “Competition Act”),1 then detailed for implementation purposes in wide secondary legislation (the “Secondary Legislation”). In the last 12 months, the Competition Act has not been amended on cartels policy. But the intensive changes brought to the Competition Act, mostly in 2015, raised debates between competition law specialists this year. One of the substantial changes aimed at aligning the wording of article 5(1) of the Competition Act, which deals with anticompetitive agreements, with its corresponding text at European level (i.e., article 101(1) of the Treaty on the Functioning of the European Union (“TFEU”)). Following the change, Article 5(1) of the Competition Act, which is also applicable to cartel practices, no longer contains the following two examples of anticompetitive behaviours: (a) participation in bid rigging; and (b) elimination of certain competitors from the market through boycott-type practices. While these amendments were somehow logical, in the past 12 months they raised various discussions between specialists, practitioners and companies with a direct interest in this change. We have in mind here several companies that challenged the Competition Council’s (the “Council”) decisions, trying to obtain the annulment of sanctioning decisions that were grounded on the examples of anticompetitive practices delisted from Article 5(1) of the Competition Act. In their pleas, these companies invoked the most favourable law principle. But, as expected, most courts concluded that the list of anticompetitive practices in Article 5(1) is not exhaustive, but merely serves for example purposes. An important argument was also European Commission and Court precedents: in several antitrust cases, the European Commission decided on refusal, boycott and bid rigging, even lacking express wording for these practices in Article 101(1) of the TFEU. Some examples are: • The Judgment of the General Court from 2011 in case T-210/08 (Competition – Cartels – International removal services market in Belgium – Decision ﬁ nding an infringement of Article 81 EC – Price-ﬁ xing – Market-sharing – Bid-rigging – Single and continuous infringement – Burden of proof). • Case T-21/99 Dansk Rorindustri v Commission − A cartel agreement between producers of district heating pipes allocating individual projects to designated producers and manipulating the bidding procedure to ensure that the designated producer was awarded the assigned project. • Case C-68/12 Protimonopolný úrad Slovenskej republiky v Slovenská sporiteľňa a.s. − Three banks monitored a competitor’s activity, conferred with each other and

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decided, by common agreement, to terminate in a coordinated manner the contracts they had concluded with that competitor. • Case IV/35.691 − Pre-insulated pipes − Competitors used norms and standards (agreed on by the industry) to prevent or delay the introduction of new technology which would result in price reductions. In other words, under the Competition Act, any express or tacit agreements between, decisions and any concerted practices of undertakings or associations of undertakings, which have as their object or effect the restriction, prevention or distortion of competition on the entire Romanian market or on a part thereof, are prohibited. Cartels remain, of course, the most harmful anticompetitive behaviours and are expressly banned, irrespective of the actual means used by the undertakings in order to achieve the anticompetitive objective. These means can be: (a) fi xing, directly or indirectly, the selling or the purchase prices, as well as any other trading conditions; (b) limiting or controlling production, sale, technological development or investments; (c) sharing markets or sources of supply; (d) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; or (e) making the conclusion of contracts subject to acceptance by the other parties of additional obligations which, by their nature or according to commercial usage, have no connection with the subject matter of those contracts. Enforcement of cartel policy The public enforcement body of domestic competition rules is the Council. Within the Council, the Cartel Offi ce mainly sets the general strategy of the Council’s Plenum (“Plenum”), examines complaints, proposes the initiation of investigations ex offi cio, etc. The Council’s special direction for cartels in bidding markets is the Direction on Bids and Petitions. For proper functioning of public procurement,2 under the umbrella of the “Module on Bid Rigging”,3 the Council closely cooperates with various public institutions (e.g., National Council for Solving Complaints (CNSC), National Authority for Regulating and Monitoring Public Procurement, etc.). The Council’s decisions are subject to fi rst appeal at Bucharest Court of Appeal and second appeal at the High Court of Cassation and Justice. Fines for inaccurate or deceptive information provided or the Council’s inspection refusal, may be challenged at District 1 Bucharest Court and appealed at Bucharest Tribunal. The Council may: (1) apply fi nes only to cartel parties between 0.5% and 10% of the total turnover in Romania in the fi nancial year before sanctioning; (2) request the parties to end the practice; (3) impose comminatory fi nes if a party fails to observe obligations imposed by the Council; and (4) inform the criminal investigation bodies of any act the Council fi nds might represent a criminal offence. For undertakings with no registered turnover, the Council will consider the previous year and so on, until an annual turnover is determined. Individuals initiating a cartel cannot be sanctioned by the Council. Natural persons can be “punished” based on the company’s internal procedures, tort law4 or criminal law. The Competition Act regulates criminal liability only for natural persons participating in a cartel with fraudulent intent. However, the New Criminal Code regulates a special criminal offence regarding bid rigging for both natural and legal persons for eliminating, by coercion or corruption, a participant from a public tender, and for agreements to distort the bidding price.

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Article 66 of the Competition Act sets the general framework for private enforcement. Legal and natural persons harmed by cartels may seek relief in court. The Council Regulation5 states that claims for damages may be ﬁ led by persons both directly and indirectly affected by anti-competitive behaviour. The Competition Act expressly regulates rights of speciﬁ c bodies to bring representative damages actions on behalf of consumers (refer to section, “Developments in private enforcement of antitrust laws”). Public enforcement activities play the main role in practice.

Overview of investigative powers in Romania The Council used its wide investigative powers last year as most investigations were ex offi cio (i.e., around 77% of investigations on anti-competitive practices).6 Key powers are: information requests sent to undertakings that might have relevant data; dawn raids; and, if consented, questionings of natural persons or representatives of the legal person. Dawn raids are the most important source of information. An inspection order issued by the Council’s President (which qualifi es as an administrative act) and a judiciary authorisation from the President of Bucharest Court of Appeal, or by a judge appointed by the latter, are needed. Now, the judiciary authorisation can be appealed at the High Court of Cassation and Justice in 72 hours (instead of the previous 48-hour term) from communication, but the appeal does not suspend the enforcement. Competition inspectors may legally proceed to the dawn raid and inspect any locations used by the undertaking, not only the ones legally owned (i.e., premises, lands and means of transportation) including the domicile, the lands or the means of transportation of administrators, directors, managers and other employees. Inspectors may copy any fi nancial and commercial documents (except for correspondence with the external legal adviser exchanged for defence purposes) and seal any premises for preventing concealment or destruction of information. The inspector may search electronic data storage devices by accessing the equipment and previewing the documents at the company’s headquarters, or by just copying data. Aside from dawn raids, another investigative power of the Council is to send information requests to investigated undertakings or to public authorities. Failure to comply with the Council’s request may lead to fi nes. Fines range between 0.1% and 1% of the turnover achieved in the previous fi nancial year for undertakings, and between Lei 1,000 and Lei 20,000 for public entities. The Council may also obtain statements from individuals who might have information on the investigation. Thus, the Council may interview any individual or company’s representative(s) with their consent.

Overview of cartel enforcement activity during the last 12 months The Council’s activity has increased signiﬁ cantly over the past few years. Investigations opened by the Council in 2015 concerned alleged cartels in various market sectors: electrical energy; distribution of movies to cinemas; insurance; taxi transportation; etc. At 2015 end, the Council had 48 ongoing investigations on alleged anti-competitive agreements,7 out of which 69% concerned cartels or abusive practices. Also, the Council opened 13 new investigations (up 44% compared to 2014), out of which 46% were into alleged cartels, and ﬁ nalised in total 21 investigations, out of which seven were into

GLI - Cartels 2017, Fifth Edition 225 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Popovici Nițu Stoica & Asociații Romania cartels or abusive practices. Statistically, at the end of 2015, the Council had 48 ongoing investigations, as the total number of investigations has continued to decrease in recent years as more and more investigations are completed. In 2015, the Council carried out eight dawn raids at 61 headquarters and working units of various companies. By 2015-end, the Council fi nalised the investigation into the market for wholesale distribution of motor fuel, petrol and diesel. The concerned undertakings were accused of alleged sale and resale prices fi xing and market sharing. The Council imposed fi nes of approximately €3.7m. The Council also closed an investigation into the market for automatic processing of correspondence and imposed fi nes of almost €1m.

Key issues in relation to enforcement policy The Council is the only administrative domestic authority empowered to apply article 5 of the Competition Act. The Council can apply directly article 101 of the TFEU when Single Market trade may be affected. The prioritisation principle applies here, allowing the Council to decide what cases come fi rst, based on the potential impact on effective competition, consumers’ general interest, or strategic importance of the economic sector concerned. National courts act as complementary authorities empowered to enforce competition rules, by ex-post judicial review of the Council’s decisions and hearings on private enforcement. The Council may initiate an investigation for potential competition infringements either ex offi cio or following the complaint of a natural or legal person proving an interest, and if legal or factual grounds exist (as we will detail in the “Third party complaints” section). The Council also performs sector enquiries. In practice, in many of its sector enquiries, the Council had leads on potential anticompetitive practices, opening ex offi cio investigations. In 2015, the Council fi nalised the sector inquiry on the catering and handling services market at “Henri Coanda” International Airport Bucharest – Otopeni. As announced in the 2015 Annual Report, the Council published in 2016 the following reports regarding sector inquiries on the: (a) drug distribution sector; (b) access services to the communications infrastructure of Bucharest (Netcity Project); (c) auto insurance sector; and (d) market for services offered by insolvency practitioners in Romania. The Council has several ongoing sector inquiries on the energy markets, the primary wood market and on the cement production and trade markets in Romania.

Key issues in relation to investigation and decision-making procedures A balance between the public and private interests of parties involved in an alleged cartel is the main objective of national competition legislation. The right of defence in its various forms, such as the right to access the investigation ﬁ le, the right to submit written observations to the investigation report, the right to defence during the hearings before the Plenum, and the right to a separate hearing, act to support private interests. Also the non-guilty presumption means the Council has a legal obligation to prove the alleged infringement.

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As a means of protection for undertakings under investigation, the competition legislation contains strict rules for carrying out investigations and, in some cases, for example dawn raids, the Council must have the court’s prior formal approval. Parties also enjoy the right to appeal in court certain acts of the Council like: inspection orders; refusal to access the fi le; interim decisions; qualifi cation of some information as non-confi dential; sanctioning decisions, etc. As additional protection, the competition legislation usually sets time limits for various phases of the Council’s decision-making process, but they are not mandatory. For example, deliberations must take place the same day with the hearings, or on another day if the Plenum decides deliberations will be postponed for certain reasons. After deliberation, the meeting secretary has 120 days to draft and communicate the decision. However, the competition legislation does not stipulate a maximum term for fi nalising the investigation. In practice, the duration of investigations changes on a yearly basis. The average duration in 2015 was of approximately two-and-a-half years, showing a signifi cant decrease from 2014 (when the average duration was of approximately three-and-a-half years). In practice, most investigation reports that reach the Plenum fi nalise with a sanctioning decision. Limited cases exist where the Plenum has issued a rejection decision or returned the investigation report for further analysis. Before the Competition Act’s recent amendment, the statute of limitation concerned Council’s right to action, without considering the time necessary for applying the fi ne. Now, it specifi cally refers to Council’s right to apply sanctions which starts on the date the alleged anticompetitive act was committed.

Leniency/amnesty regime Domestic leniency policy regulated by the Competition Act and detailed in the Council’s Guidelines on the conditions and criteria for the leniency policy applicability (“Leniency Guidelines”8) is intensively promoted by the Council. The Leniency Module is also a useful tool. Leniency applies to hard-core anticompetitive agreements, including cartels. Leniency means fi ne immunity or only reduction. Fine immunity is available before and after the Council initiates an investigation. A basic rule in leniency proceedings says one cartel may only have one successful immunity applicant, so the following applicants may get fi ne reductions: 30 to 50% for fi rst applicant; 20 to 30% for second applicant; and up to 20% for subsequent applicants. Before June 2015, neither the initiator of anti-competitive conducts nor undertakings that actively encouraged others to join or stay in the cartel, could qualify for immunity. Now, the Leniency Guidelines say the initiator is eligible for immunity, while for the undertaking that encouraged others to join or stay in the cartel, immunity is still ‘off limits’. Importantly, the undertaking benefi ting from immunity will not be jointly liable for damages from anti-competitive practices.9 The Council will not disclose the immunity applicant’s identity to third parties (including other parties to the alleged infringement) that have access to statements made in the context of leniency (including applicant’s identity); only after the investigation report is issued, during access to the fi le. Our jurisdiction reports only two cases of “successful” leniencies: (a) in an investigation into taxi companies for fi xing transportation tariffs; and (b) in an investigation for bid

GLI - Cartels 2017, Fifth Edition 227 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Popovici Nițu Stoica & Asociații Romania rigging in oil and gas drilling works. The latter was actually opened following a leniency application.10 The leniency procedure is not very appealing, probably because of the possibility that the acknowledgment of anti-competitive practices might backﬁ re as criminal liability of the applicant’s legal representatives; or perhaps it could entitle harmed consumers to ﬁ le private actions using the applicant’s documents submitted with the Council. The New Criminal Code amendments to non-punishment and penalty reduction regimes are, however, expected to lead to more effective coordination between criminal penalties and leniency policy and encourage leniency applications. It is also true that uncertainty whether a leniency application might expose natural persons to criminal investigations still continues to undermine requests for leniency.

Administrative settlement of cases Our domestic antitrust legal framework does not regulate a settlement procedure similar to the one in EU legislation. Some procedural options to fast-track the procedures with the Council exist, however. One is the investigated parties’ option to waive the right to hearings before the Plenum, provided the President of the Council decides that hearings are not mandatory. In cartel cases, if only some parties request hearings, the Council organises hearings and invites all parties. Another option is acknowledgment of involvement in the alleged cartel. Sufﬁ ce to add here that in practice, the acknowledgment works like a mitigating circumstance that will be applied with priority, before any other mitigating or aggravating circumstances. The Council may also ﬁ nd it necessary for the company acknowledging the antitrust breach to undertake remedies for reinstating the normal competitive environment.

Third party complaints Generally, any natural or legal person proving an interest can fi le a complaint for anti- competitive practices, but this does not automatically mean the Council opens an investigation. Following preliminary assessment of the complaint, the Council may decide to: (1) open an investigation; (2) dismiss the complaint; or (3) inform the applicant that the facts described in the complaint fall outside the Competition Act, or are already analysed by the European Commission or other national competition authority. The complainant may challenge the rejection decision in court within 30 days from communication. Third parties have access to documents from investigation fi les in limited situations. For example, the author of a complaint which was informed by the Council that it would reject its complaint, may request access to the non-confi dential version of the documents considered by the Council in its preliminary assessment. In investigations initiated following complaints, the President of the Council may approve the hearing of the complainant and/or provide a non-confi dential version of the investigation report, if the latter demands so.

Civil penalties and sanctions The Council’s procedure on imposing sanctions is transparent, overall. In most procedures, the Council informs the companies on potential (civil) penalties and sanctions, and their right to challenge the Council’s acts.

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For example, the Council’s decision sanctioning a cartel states the right to appeal it before Bucharest Court of Appeal within 30 days since communication. Inspection orders must state that the concerned party has the right to appeal the order before Bucharest Court of Appeal within 15 days. An interesting aspect related to cartel fi nes is the individualisation process: the investigation report includes an assessment of the gravity and duration of the alleged anti-competitive practice, and the applicable aggravating and mitigating circumstances. Based on this, the Plenum decides the limits of the fi ne (in percentages). In the past few years in cartel cases, the Council has usually set the basic amount of the fi ne to 4% or 5% of the total turnover achieved in Romania in the previous fi nancial year. In cases where the parent company’s liability for its subsidiary involvement in a cartel is discussed, the Council has found that a rebuttable presumption that the parent company was in a position to exert a decisive infl uence over the conduct of the subsidiary applies to a wholly owned subsidiary − and thus fi nes the parent company. In the Council’s investigation of private pension funds,11 the investigation report wanted to hold liable the parent company (a holding) of one fund that participated in the cartel, but following parties’ observations to the investigation report, the fi ne was imposed on the fund. The principle on responsibility for sanctions is that the offender is personally and individually liable for paying the fi ne. Nevertheless, in case of third party complaints, co-infringers in a cartel case are jointly liable before third parties. This rule is based on the general civil law provisions − with one exception, though, for undertakings that benefi t from immunity from fi nes. Also, in case of associations of undertakings, the Council may apply sanctions considering the proportionality principle. The fi ne applied to associations of undertakings may not exceed 10% of the total turnover of each member active on the market affected by the association’s infringement.

Right of appeal against civil liability and penalties Sanctioned parties may appeal the Council’s decision before Bucharest Court of Appeal. The court has the prerogative to review it under all aspects of fact and law. Some procedural omissions or errors made during the investigation or in the Council’s decision-making process, can be challenged only within a specifi c term (e.g., 72 hours from communication for judiciary authorisation of dawn raids). It is debatable whether courts may rule differently when the Council’s decision is challenged separately by the sanctioned undertakings, even if the facts and evidence are identical for all sanctioned undertakings, mainly because precedents do not have the force of law in our legal system. Courts may also consider new evidence, not only those from the Council’s fi le, such as: documents; witnesses; and expert evidence. In practice, the court usually allows new evidence. Romania has no offi cially acknowledged and certifi ed competition experts that may be used to establish the existence of cartels in court. The judge may ask opinions from “specialists” in competition that are, however, not binding for the court, which will consider them with all other available evidence. The new regulation provides that the documents, data and confi dential information from the Council fi le may be required, usually once the investigation report has been communicated.

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Despite court’s right to a “full merits” review of Council’s decisions, we have limited cases where the court has overturned the Council’s decisions. In March 2012, Bucharest Court of Appeal partially cancelled Council’s decision on an alleged cartel formed in 2007 in the market for managing private pension funds (Pillar II of Romania) stating that, in fact, there was no cartel. The decision of Bucharest Court of Appeal was challenged before the High Court of Cassation and Justice, which sent a preliminary question to the Court of Justice of the European Union and thus suspended all similar cases until the preliminary question was answered. On July 16, 2015,12 the Court stated that the practice found by the Council was an infringement by object. We expect all similar cases pending before the High Court of Cassation and Justice to be reinstated. In April 2013, the High Court of Cassation and Justice ruled in favour of undertakings that challenged the Council’s decision on an alleged cartel in the bread market in Vrancea County, arguing that: (1) there was no agreement between the parties; (2) the undertakings had independently established their selling prices; and (3) the evidence did not meet the standard of proof. In July 2013, Bucharest Court of Appeal partially annulled the Council’s decision on an alleged cartel in the fuel market in favour of ENI, a member of the alleged cartel sanctioned by the Council in 2011.13 The decision was appealed by both the Council and ENI in 2014. The second appeal at the High Court of Cassation and Justice was rejected and the Bucharest Court of Appeal decision, by which it had reduced the fi ne to ENI from Lei 11.1m (approx. €2.5m) to Lei 8.6m (approx. €1.9m) was maintained. Likewise, in the Rompetrol case, the High Court of Cassation and Justice maintained the decision of Bucharest Court of Appeal in which it reduced the amount of the fi ne imposed on Rompetrol from Lei 159.5m (approx. €36m) to Lei 122.7m (approx. €27.8m). In 2015, the percentage of fi nal judgments (pronounced by the High Court of Cassation and Justice) in favour of the Council was 100%, and by 2016 the Council won irrevocably all six trials with the oil companies sanctioned in 2011, with the highest fi ne ever imposed for participating in a cartel-type agreement. The High Court of Cassation and Justice confi rmed the existence of the anticompetitive practice and slightly diminished the fi nes imposed by the Council.

Criminal sanctions in cartel infringements Further to our comments in “Overview of the law and enforcement regime relating to cartels” section, the implementation act of the New Criminal Code provides that persons who reveal their participation in the prohibited practice before the initiation of criminal proceedings will not be liable for the deed. A disclosure after the initiation of criminal proceedings leads to a reduction by half in the punishment limits. To our knowledge, there has been only one case in which an individual has been criminally prosecuted for participation in a cartel. However, we expect anti-competitive criminal caselaw on bid rigging banned by article 246 of the New Criminal Code, to be punished by imprisonment from one to ﬁ ve years. The Council and criminal investigation bodies have the legal possibility to simultaneously investigate the same deed based on different grounds, which raises some questions in terms of cooperation between these authorities. Article 34 (5) of the Competition Act allows for information collected during investigations to be used also for the more extensive purpose of applying the law in the area of competition,

GLI - Cartels 2017, Fifth Edition 230 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Popovici Nițu Stoica & Asociații Romania and states the Council’s right to inform other public authorities if aspects under their jurisdiction are found. The generality of these provisions raises questions as to what type of information the Council will provide to other authorities: all confi dential information obtained by competition law-specifi c procedural instruments, including information received in the context of leniency or acknowledgment. The absence of express limitations in this respect would, in fact, render leniency or acknowledgment policies less appealing, especially in bid rigging cases, as it brings exposure to individual sanctions if the information provided to the Council is disclosed to the criminal authorities. Even with no express legal boundaries on the information exchange between the Council and the case prosecutor, any proofs obtained by a prosecutor which exceed the Council’s investigative powers, cannot be used as proofs in the Council’s decision. As the number of investigations launched based on information received within the Module of Bid-Rigging and from authorities investigating criminal cases (e.g. Directorate for the Investigation of Organised Crime and Terrorism) has increased, new and clear rules should be enacted to: (a) introduce specifi c boundaries to information exchanges with prosecutors; (b) increase cooperation transparency; and (c) ensure the protection of the rights of the parties under the Council’s investigation.

Cross-border issues Domestic competition rules apply to all practices with anticompetitive effects on the Romanian market, irrespective of the nationality of offenders or the actual place where the harmful behaviour has occurred. Since Romania joined the European Union (i.e., January 1, 2007), the Council as a member of the European Competition Network (“ECN”) applies article 101 of the TFEU according to the Council Regulation (EC) no.1/2003, when trade between Member States may be affected. Settled practice between ECN members shows that the European Commission and national competition authorities inform each other of new cases, coordinate investigations, exchange evidence and other information relevant to their activity. In 2015,14 only fi ve antitrust case consultations between the Council and the European Commission took place, compared to 13 antitrust cases in 2014.15 Also showing close cooperation between the Council and other national competition authorities is the Cartels Offi ce’s legal possibility to proceed to dawn raids at the European Commission’s or other national competition authorities’ request. Moreover, in line with the recommendation of the European Commission in the European Competition Network (ECN), the law now provides the possibility for appointed representatives of competition authorities from EU Member States to participate in the dawn raids requested by them and effectively carried out by the Council. Regarding the cooperation between the Council and the European Commission, for the fi rst time, in June 2016, European Commission offi cials carried out dawn raids at companies in the gas market from Romania, case investigated exclusively by the European Commission, with the support of the Romanian authorities.

Developments in private enforcement of antitrust laws The domestic competition framework acknowledges third parties’ right to ﬁ le claims both before (so-called stand-alone actions) and after the issuance of a sanctioning decision by

GLI - Cartels 2017, Fifth Edition 231 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Popovici Nițu Stoica & Asociații Romania the Council (so-called follow-on actions). Representative actions for damages on behalf of consumers brought by certain bodies (i.e., registered consumer protection associations and professional or employers’ associations based on their statutes or empowered by their members) or “class actions” are also included. Important for class actions is that the Council’s fi nal decisions establish an absolute legal assumption of the existence of the illegal anti-competitive deed causing damages. In follow-on damages actions, courts may ask the Council to grant access to the documents supporting the fi nal decision, provided confi dentiality is observed. In stand-alone actions, our domestic competition rules are silent as regards third parties’ or court access to the information collected by the Council. Based on general law rules, we consider that the court should assess on a case-by-case basis if information collected by the Council is necessary and, if so, ask the Council to provide it. The statute of limitation is longer for stand-alone actions (i.e., three years since the plaintiff knew, or should have known, of both the damage and the person responsible for it), than for follow-on actions (i.e., two years since the Council sanctioning decision is fi nal). In line with a continuous harmonisation of our domestic rules with the material provisions of EU competition law, the Directive16 approved in 2014 is expected to further amend our national legal framework, especially with regard to: (a) documents that may be requested in court and the possibility of the person submitting the documents being examined prior to the documents’ disclosure, as well as the impact and proportionality of such disclosure; (b) categories of documents exempted from disclosure in court; (c) the Council’s fi nal decisions are considered irrefutable for an action for damages brought before national courts; (d) limitation periods of at least fi ve years and how they can be suspended; and (e) cartels are presumed to cause damages. Romania must transpose the Directive by December 27, 2016. In July 2016, the Council submitted for public consultation the draft bill on private competition enforcement which focuses on the fi ve main items outlined above. Notwithstanding improvements to the domestic legal framework and the Council’s sustained efforts to increase awareness, consumers are still reluctant to fi le such actions and, in practice, there have been very few stand-alone, and no follow-on actions. 2015 was the year for the fi rst ruling of a national court on private enforcement of competition. Up to this moment, the national courts have dealt with only two private litigations on antitrust matters (i.e., stand-alone actions). In both cases the fi rst jurisdiction court held that the claimants have not proved the alleged infringements of the Competition Act and consequently their claims were dismissed as ungrounded. Currently, one of the cases is pending before the High Court of Cassation and Justice. In the other case, Bucharest Court of Appeal awarded the appeal and obliged the defendant to pay the plaintiff an indemnifi cation of approximately €930,000, but this ruling was further challenged before the High Court of Cassation and Justice. This was the fi rst time a national court admitted such action.

Reform proposals In its action plan for the period starting 2016 to 2020, the Council intends to increase its capacity to detect and investigate cartels. To achieve this, the Council will consolidate its cooperation with the Public Prosecutor’s Ofﬁ ce attached to the High Court of Cassation and Justice and other relevant public authorities in order to have access to relevant information. This will allow the Council to initiate new investigations and, of course, continue the pending

GLI - Cartels 2017, Fifth Edition 232 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Popovici Nițu Stoica & Asociații Romania ones. Also, the Council will further specialise its personnel by making available cooperation and training programmes with national authorities such as the Public Prosecutor’s Ofﬁ ce attached to the High Court of Cassation and Justice, the Ministry of Internal Affairs and external sources like the European Commission, the World Bank and the FBI.

* * *

Endnotes 1. Competition Act no. 21/1996 republished in the Offi cial Journal of Romania no. 153 on February 29, 2016. 2. In 2013, the Competition Council initiated measures to co-opt the National Management Centre for the Information Society (CNMSI) as collaborating partner. CNMSI manages and operates the Electronic Public Procurement System in Romania. 3. As per Council Annual Report (2010), a notable result of Module on Bid Rigging activity is that ANRMAP introduced a mandatory condition for participating in a public procurement: a certifi cate of participation with an independent offer (sworn statement on observance of competition rules). 4. Act no. 71/2011 for implementation of Act no. 287/2009 regarding the Civil Code published in the Offi cial Journal of Romania no. 409 on June 10, 2011 in force since October 1, 2011. 5. Council Regulation on the analysis and solving of complaints on the breach of Articles 5, 6 and 9 of the Competition Act and Articles 101 and 102 of the TFEU, approved by Council’s President Order no. 499/2010 published in the Offi cial Journal of Romania no. 687 on October 12, 2010. 6. According to 2015 Council’s Annual Report. 7. The information published in Council Annual Report refers to anti-competitive practices in general without detailing the type of infringement. 8. Guidelines on the conditions and criteria for the application of the leniency policy implemented by Order no. 300/2009 and published in the Offi cial Journal of Romania no. 610 of September 7, 2009. 9. Article 66 para. 3 of the Competition Act. 10. See Council’s press release available at http://www.consiliulconcurentei.ro/uploads/ docs/items/id9989/amenzi_foraje_ian_2015_english.pdf. The decision has not been published on Council’s website so far. 11. Council’s Decision no. 39 as of 2010. 12. Judgment of the Court on July 16, 2015, Case C-172/14, ING Pensii – Societate de Administrare a unui Fond de Pensii Administrat Privat SA v. the Council. 13. Competition Council’s decision no. 97 as of 2011. 14. According to Council 2015 Annual Report. 15. According to Council 2014 Annual Report. 16. The Directive 2014/104/EU of the European Parliament and of the Council of 26 November 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, published in Offi cial Journal no. L 349, of 5.12.2014 (“Directive”).

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Silviu Stoica Tel: +40 21 317 79 19 / Email: [email protected] Silviu Stoica is a partner at Popovici Nițu Stoica & Asociații and head of the competition practice group. His practice focuses on a broad range of contentious and non-contentious competition matters, with an emphasis on cartel investigations and industry inquiries, abuses of dominant position and antitrust disputes. Silviu Stoica also advises clients on restrictive agreements and works closely with in-house corporate counsel in sensitive internal compliance reviews. Silviu Stoica has been commended in Chambers Europe as ‘strategic and realistic’ and ‘business-friendly and very easy to communicate with’. He has advised a wide range of clients (including ArcelorMittal, Philip Morris, Cargill, Orange, Oresa Ventures and Innova Capital) on a whole array of competition matters and investment issues. Silviu Stoica has been with the ﬁ rm since its inception, pursuing all career stages from associate to senior associate to practice head. Silviu Stoica holds a degree in law from the University of Bucharest – Faculty of Law and is a member of the Bucharest Bar Association. He took a course on US legal methods (introduction to US law) at the Institute for US Law in Washington, DC, as well as a development course (DLC-20E) at the International Development Law Organization in Rome.

Ramona Iancu Tel: +40 21 317 79 19 / Email: [email protected] Ramona Iancu is a senior associate within the competition practice group of Popovici Niţu Stoica & Asociaţii. Her competition expertise covers, in particular, merger control proceedings and a wide range of antitrust matters from cartel investigations to abuse of dominance and related dawn raid procedures. Her practice also focuses on structuring and implementing competition law compliance programmes. Ms. Iancu holds a law degree from the University of Bucharest Faculty of Law and is a member of the Bucharest Bar Association.

Popovici Nițu Stoica & Asociații 239 Calea Dorobanți, 6th ﬂ oor, Bucharest, 1st District, Postal Code 010567, Romania Tel: +40 21 317 79 19 / Fax: +40 21 31785 00 / URL: http://www.pnsa.ro

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Anastasia Astashkevich “Astashkevich and partners” Attorneys at Law

The latest amendments in antitrust legislation in Russia The antitrust legislation in Russia has been amended signifi cantly in 2016. The appeal stage in certain kinds of antitrust case was partially transferred to the Appeal Chamber of the Federal Antitrust Authority (the FAS). The fi rst year of application of the new procedural rules has shown the effi ciency of the procedure, at the same time revealing the gaps in the legislation that will be fi lled in the next antitrust package. Also, last year the antitrust compliance mechanisms were almost drafted, so this year we expect the introduction of this document, which will clarify the compliance procedure within a company. Among the main amendments made and proposed by the FAS was the improvement of investigation in cartel cases, and implementing more severe penalties in case of cartel disclosure. For the last few years, investigative jurisdiction of criminal cases involving cartels was defi ned by the Criminal Procedure Code. Their investigation was handed to the bodies of internal affairs. However, criminal liability for operating cartels is not working effectively, and something needs to change. According to the position of the FAS, it would be more effective if such cases were led by the Investigative Committee of the Russian Federation. In fact, a signifi cant proportion of cartels are in various ways connected with offi cials. This is a violation of antitrust prohibitions, and a manifestation of corruption. The anti-monopoly legislation prohibits anti-competitive actions by the authorities and anti-competitive agreements with their participation. As a rule, such agreements should be criminally punishable for offi cials. The investigation of such malfeasance should be handled by the Investigative Committee of the FAS. Gradually, the Antimonopoly Service and investigators have been working out criminal practice. As an example, the recent criminal case against the mayor of Vladivostok, where the territorial body of FAS Russia in 2015 recognised the Administration of Vladivostok, MUPV “Roads Vladivostok”, and LLC “Vostokcement” as being guilty of an anti- competitive agreement. As a result of illegal actions of the defendants, municipal contracts of more than 7 billion rubles were signed. The FAS in Primorsky Territory decided to transfer the case fi le to the Regional Investigation Department; these materials were then sent to the Main Investigation Committee. Such cases are disclosed from time to time. One of the latest was the bid-rigging for bridge construction in the Novgorod region. FAS Russia Regional Authority issued a decision on violation of antimonopoly legislation; the Provincial Investigation Department initiated a criminal case against offi cials of the state and the participants in the cartel from the side of the public procurement authorities. The result was a sentence of imprisonment.

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The same sentence for abuse in bidding was imposed in the case of the former head of the Kamensky district of Rostov region. The criminal case against the former head of the Russian Accreditation Body for the Southern, Crimean and North Caucasian Federal Districts, who is accused of abuse in public procurement, is pending. The Investigation Department of Primorsky District was arrested in absentia and an international arrest warrant was declared for the organisers of the “crab cartel”. The criminal case on abuse, by the former head of the Federal centre of price formation in construction, is being investigated by the Investigative Committee of the Russian Federation. In 2015, FAS Russia found the Center guilty of anti-competitive agreements. Examples of successful cooperation with the Russian Interior Ministry exist, but in practice there are fewer cases investigated through that cooperation (one of them concerning the liquidated Rosgranitsa). FAS Russia issued a decision recognising that the Rosgranitsa offi ce (Russian Boundary Agency) was part of an anti-competitive agreement. The Investigation Department of the Ministry is investigating a number of criminal cases related to abuses in procurement, which were supervised by the Agency. The former head of the agency was arrested and extradited to Russia. However, many cases transferred to the Russian Interior Ministry have not been treated the right way, and criminal proceedings have not been initiated. As the FAS highlights, among them were the “pollock cartel” in Primorsky Territory, collusion by construction companies in Krasnoyarsk Territory, the cartel of “Road builders” in the Republic of Tuva, and a cartel of suppliers of medicines in Udmurtia. The consequence of a relapse can be real criminal liability for organisers of, and participants in, the cartel. The FAS is working hard on all subsequent amendments, that may lead to more restrictive measures in this area. Considering that the volume of public procurement in Russia reaches 30% of GDP, cartels are high-latency violations. And this fully applies to one of the most common types of cartel, bid-rigging: more than 80% of the total number of cases of Russia cartels identifi ed by FAS Russia are in the area of bid-rigging, where the damage to the parties can reach 40% of the initial price of the contract. In order to prevent any kind of bid-rigging, clear, well-regulated and transparent procedures are needed. These requirements should apply both to the procurement government authorities and state-owned companies which purchase. These rules create a good preventive effect: it will become harder to negotiate and easier to identify collusion. In addition, the need for transparency in government procurement has become very obvious. It is necessary to consider that the state also sells: in the sphere of privatisation of property, the state provides the right to distribute mineral resources, extract aquatic biological resources, etc. Thus, the same rules must be applied in this area as well. There is a proposal to introduce a legislative ban on participation in the state auction of business entities recognised by the members of the cartels and bid-rigging. The implementation of this ban could establish a register of cartel participants. However, litigation practice develops very slowly. Almost all FAS decisions are appealed. The reason for that – multimillion-dollar fi nes and the threat of criminal prosecution. About 85% of cases remain with the initial decision. During the seven years of combating cartels, FAS Russia has implemented a very good strategy in the detection of evidence of collusion in bidding. Cartels often violate the legitimate rights and interests of the state, society and unspecifi ed

GLI - Cartels 2017, Fifth Edition 236 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London “Astashkevich and partners” Attorneys at Law Russia persons. Take those same cartels for the supply of drugs and medicines, which covered more than 80 subjects of the Russian Federation, thousands of auction revenues and billions of rubles. Perhaps, in such cases, it would be right to appeal the decision of the antimonopoly authorities in the jury, with the mandatory participation of the prosecutor in such trials. Concerning penalties, the lower threshold of fi nes for cartels can increase from 1% to 3% of revenue. The responsibility for the other concerted actions reduce: the maximum fi ne can be reduced from 15% to 3–5% of revenue, depending on the violation. The FAS has proposed to differentiate the amount of penalties for businesses based on different types of violations of the antimonopoly legislation – cartels, concerted actions, and other vertical agreements, according to a draft amendment to the Code of Administrative Offences. In total in 2016, the FAS reported on the audit and completed investigation cases of several major cartels: the delivery of medicines to 700 auctions for regional hospitals; and delivery of uniforms for law enforcement agencies in 18 auctions (by 3.5 billion rubles). Among recent investigations of the service: a potential cartel for supply of system units for the SAS System “Elections”; Russian representatives of Lenovo and HP are accused of coordination. According to the FAS, the number of “cartel” cases has grown for two years (497 in 2015 against 410 in 2014). The number of cases of all forms of concerted action (Under Article 14.32 of the Administrative Code) was reduced (1,451 cases in 2014 against 1,411 cases in 2015). In the current version of Art. 14.32 of the Administrative Code, sanctions for all agreements, including cartels, are the same: to the offi cials, a 20,000–50,000 ruble fi ne, up to three years’ disqualifi cation penalty; for companies, from 1% to 15% of revenues derived from transactions which are under prosecution. The FAS proposes to increase penalties for cartels for offi cials: raising the lower threshold penalty from 20,000 to 40,000 rubles. For the coordination of economic activity. the proposed fi ne is one million to fi ve million rubles, instead of the previous turnover fi nes. Since July 2016, it has been stated in the Antitrust Law that there is “immunity” from the checks and allegations of concerted actions for companies with an annual turnover of less than 400 million rubles. However, this rule does not apply to the rules on cartels.

Process of appeal The “Fourth Antimonopoly Package” introduces new rules on issuing warnings and cautions: now the authority can charge not only the offi cers of the companies, but also the offi cials of state bodies and local authorities, if it has information that their planned actions could lead to violations of antitrust law. At the same time, the FAS has expanded the list of violations, the detection of which is enough to issue a warning. In addition to imposing unfavourable contract conditions and unjustifi ed refusal to conclude a contract, to the list have been added actions creating discriminatory conditions, and the unjustifi ed establishment of different prices, signs of certain types of unfair competition, as well as the presence of a violation of article 15 of the Law on Protection of Competition (the ban on anti-competitive activities and acts of state bodies/local authorities). In order to protect the interests of legal entities who are accused of violation of antimonopoly legislation, the antimonopoly authority introduced the obligation to issue a conclusion on the facts before the fi nal decision is made. This report should include a description of facts and evidence upon which the competition authority has come to some conclusions. In fact,

GLI - Cartels 2017, Fifth Edition 237 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London “Astashkevich and partners” Attorneys at Law Russia this document will be a draft decision, which an entity can examine and in which it can present objections. The conclusion, drawn up by the Commission in a separate document, will contain all the facts of the case and the evidence on which the conclusion of the Commission is based. The opportunity to examine such procedural document will allow the entities involved in the case to build a more grounded and reasoned line of defence, being aware of the position of the regulator. There is the possibility of fi ling an appeal against decisions of territorial authorities with the central offi ce of the FAS. This right may be exercised only in cases where territorial antitrust authorities violate the uniformity and practical application of antitrust laws. The use of this right does not deprive the entities of the right to judicial review of decisions and actions of the FAS Russia in the future. Amendments have been made to the procedural rules: the status and the procedure of the involvement of experts and translators are clarifi ed; a procedure for the removal of members of the committee and experts is provided; and the protection of confi dential information is partly regulated. The procedure for appealing against decisions and orders of the territorial antitrust authorities in special collegial bodies has also been changed: violation of uniformity in the interpretation and application of the antitrust laws will now serve as the basis for the cancellation or change of the decision of the territorial antimonopoly authority. In the case of disagreement with the decision and determination of a territorial competition authority, they can still be appealed directly to the Court of Arbitration. The fi rst year of the institution of the departmental appeal of FAS Russia is now coming to an end. It seems it did not justify the pessimistic predictions that the Antimonopoly Service would not cancel its own decisions. Collegial bodies of the FAS (the Appeals Board and the Presidium) issued a satisfactory decision in 40% of cases, and thus cancelled or amended acts of territorial bodies. The fi rst results speak of the gaps in practice, requiring explanation at the level of the Presidium of the Federal Antimonopoly Service. Thus, to substantiate the complaint in a collegial body is extremely important to understand what constitutes a violation of the uniformity in enforcement. It is seen that under this sole basis for review of a decision or order of the territorial authority, is implied: • a contradiction of antitrust enforcement, carried out in the decision; • the application of the same rules of the antimonopoly legislation; • the implementation of the same or another antimonopoly body (territorial or federal) in the decision; • issuing regulations on cases of violation of the antimonopoly legislation, or issue, in the framework of its competence and in accordance with the law; and • clarifi cation (as against unspecifi ed persons, as well as addressing a specifi c person). Referring the basis for the treatment of a complaint to the collective body of FAS Russia, and the review of the decision or order, can serve as a contradiction of antitrust enforcement in these acts to the application of antitrust laws, contained in the decision and determination of the collegial body of the FAS Russia, or clarifi cation on the practice of the antimonopoly legislation. This contradiction in the application of antitrust laws must be understood as a contradiction

GLI - Cartels 2017, Fifth Edition 238 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London “Astashkevich and partners” Attorneys at Law Russia to the proper application of antitrust laws and other regulations on protection of competition (Article 2 of the Competition Act). As for the controversy on antitrust enforcement in the decision and determination of the territorial antimonopoly authority in terms of the application of these antitrust standards by arbitration courts; that in itself it cannot be the basis for ﬁ ling complaints with the collegial body of FAS Russia or become a basis for the review of the decision or order, as under the Competition Act such ground is a violation of the uniformity of application of antimonopoly legislation by the anti-monopoly authorities. At the same time, the position of the courts on the application of the disputed norm(s) of anti-monopoly legislation is to be studied by the collegial body of FAS Russia in making a decision at the appeal stage. The latter is important for maintaining uniformity in the enforcement of the courts and antitrust authorities and in determining which of the existing practice of antitrust enforcement has more chances of success.

Administrative responsibility of entities The “Fourth Antimonopoly Package” amends the administrative responsibility of companies. For example, “double responsibility” for violation of antitrust laws is excluded. If an order to transfer to the federal budget the income derived from monopolistic activity or unfair competition has been issued as a result of the proceedings, the company cannot be held administratively liable if such order has already been fulﬁ lled. The law continues encouraging voluntary declarations of concluded anticompetitive agreements (leniency programme): in addition to the existing provisions on the exemption of liability for the ﬁ rst party who announces the conclusion of an anticompetitive agreement, the law previews the minimum penalty for those who made the declaration second and third.

Changes in market analysis requirements The changes in the antimonopoly arena have affected not only the basic law, but also the Order №220, regulating the procedure of composing the analysis of the state of competition in the determined market. In March 2015, the order of the FAS Russia of January 30, 2015 № 33/15 “On Amendments to the Procedure for the analysis of the state of competition in the market, approved by order of the Federal Antimonopoly Service of April 28, 2010 № 220”, entered into force. The main innovations of the Order are: • The establishment of peculiarities of analysis of product markets in cases brought on the grounds of violation of art. 10 of the Law on Protection of Competition against natural monopolies in the market functioning in the conditions of natural monopoly, as well as for violating h. 1, 2, 5, art. 11 of the Law on Protection of Competition. • The need to justify the selection of methods of research in order to determine product and geographical borders of the product market (the selection is made on the basis of terms of research and access to information). In case of choosing the method of “hypothetical monopolist test” rationale for the selection of this method is not required. • The introduction of the typology of product markets on the basis of geographical criteria (federal, inter-regional, regional and local markets). • The establishment of requirements for the form of analytical report.

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• Implementation of the defi nition of economic entities with a dominant position in the market. In 2016, new methods of calculating tariffs have been implemented successfully as well as receiving deeper basic analysis methods: the cost-calculating method and method of applying comparative markets in order to reveal average prices on the market. The problem of investigating the real price is one of the crucial questions in antimonopoly cases, where the price is escalating due to collusive agreements and unfair market behaviour. The cost- calculating method is applied twice as frequently due to the easy and transparent approach; however, the price of the spare parts or components is sometimes not as easy to verify and identify. However, it is much easier to use that method compared to the comparative market method, which requires deep economic research and which would be best implemented in the industrial sphere or production sphere. Unfortunately, some of the products are not produced in many countries, and the market for them is not as well developed. This issue has to be clarifi ed in the near future. Also, there may be a problem with investigating the real price of the know-how, research, and IT products, as the mental contribution cannot be calculated like the price of random market goods. Thus, the development of one part of the antitrust legislation leads to the need for improvement of other parts, and reveals new gaps, which will probably be fi lled in 2017.

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Anastasia Astashkevich Tel: +7 915 145 58 64 / Email: [email protected] Anastasia Astashkevich was born in 1984 in Moscow. In 2007 she graduated from the faculties of law and translation of Moscow State Linguistic University (former Moscow Institute of Foreign Languages named after M. Torez). In 2008 she fi nished her M.B.A. course at the International University of Moscow. In 2013 she graduated from the University of Liverpool, where she obtained a Master’s degree in International Business Law (LL.M.). Currently Anastasia is fi nishing her Ph.D. research at Moscow State Academy of Law, named after O.E. Kutafi n. Anastasia started her career in one of Russia’s pipe trading companies in 2003 (Pipe Trading House LLC). In 2004 she was transferred to another company of the holding to the same position, where she dealt mostly with corporate law and contract law issues. Since 2007 Anastasia has been working as a legal counsel in one of the leading pipe engineering companies, Pipe Innovation Technologies LLC. The company has a long-term relationship with Gazprom, and supplies pipes of large diameter for major pipeline construction projects. In 2012 Anastasia was appointed Adviser of the CEO on legal issues. In 2014 Anastasia graduated from the University of Liverpool where she obtained the degree of Master in Law (LL.M.) In December 2014 she successfully passed the qualifi cation exam at the Chamber of Attorneys of the city of Moscow, and was granted the licence of Attorney-at-Law. Anastasia was Head of the international law practice with Bureau of Attorneys Chaadaev, Kheyfets and Partners before becoming a founding partner of “Astashkevich and partners” Attorneys at Law.

“Astashkevich and partners” Attorneys at Law Tsvetnoy blv. 2 , Moscow, 127051, Russia Tel: +7 915 145 58 64 / Fax: +7 495 346 01 97 / URL: http://www.astashkevich.com

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Raško Radovanović, Anja Tasić & Srđan Janković Petrikić & Partneri AOD in cooperation with CMS Reich-Rohrwig Hainz

Overview of the law and enforcement regime relating to cartels The principal source of antitrust and competition law in Serbia, applicable to cartels in particular, is the Law on Protection of Competition (“Offi cial Gazette of the Republic of Serbia”, Nr. 51/2009 and 95/2013, hereinafter referred to as: the “Law”). Some important aspects of the antitrust enforcement regime in the area of cartels are additionally regulated in several governmental decrees and guidelines of the authority competent for the public enforcement of the Law – the Serbian Commission for Protection of Competition (in original Serbian wording – “Komisija za zaštitu konkurencije”, hereinafter referred to as: the “CPC”), such as: • the Decree on Setting of Competition Protection Measures and Procedural Penalties (“Offi cial Gazette of the Republic of Serbia”, Nr. 50/2010 – in original Serbian wording, “Uredba o kriterijumima za određivanje visine iznosa koji se plaća na osnovu mere zaštite konkurencije i procesnog penala, načinu i rokovima plaćanja i uslovima za određivanje tih mera”); • the Decree on Conditions for Immunity from Competition Protection Measures (“Offi cial Gazette of the Republic of Serbia”, Nr. 50/2010 – in original Serbian wording, “Uredba o uslovima za oslobađanje obaveze plaćanja novčanog iznosa mere zaštite konkurencije”); • the Guidelines on the Application of the Decree on Setting of Competition Protection Measures and Procedural Penalties (in original Serbian wording, “Smernice za primenu Uredbe za određivanje visine iznosa koji se plaća na osnovu mere zaštite konkurencije i procesnog penala”); and • the Guidelines on the Application of Article 69 of the Law on Protection of Competition and the Decree on Conditions for Immunity from Competition Protection Measures (in original Serbian wording, “Smernice za primenu člana 69. Zakona o zaštiti konkurencije i Uredbe o uslovima za oslobađanje obaveze plaćanja novčanog iznosa mere zaštite konkurencije”). In addition to the above-mentioned national rules, the EU competition law principles are indirectly applicable in Serbia as well. Namely, Serbia is party to the Stabilisation and Association Treaty with the EU, which generally requires the Serbian authorities, including the CPC, to assess practices that may affect the trade between the EU and Serbia in accordance with the principles developed in the application of the EU competition rules. Although there are no clear guidelines from the CPC or other Serbian authorities on the application of the Stabilisation and Association Treaty, it may be confi rmed that Serbian competition law is for the most part harmonised with EU competition law and that the CPC resorts to EU competition law principles in its everyday practice.

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The CPC is an independent regulatory body, which has a wide spectrum of different enforcement authorities. In particular, the CPC has the authority to issue guidelines, instructions and offi cial opinions on the implementation of the Law, to initiate proceedings, to carry out inspections, to decide on both the merits and procedure as well as to issue fi nes. The CPC is also competent to conduct sector enquiries and to receive and decide on third party complaints, the latter being the most frequent source of information regarding antitrust infringements. The CPC cooperates with other Serbian authorities and other NCAs. The CPC decides in an administrative procedure regulated under the Law and the Law on General Administrative Procedure (“Offi cial Gazette of the Republic of Serbia” No. 33/97, 31/2001 and 30/2010 – in original Serbian wording, “Zakon o opštem upravnom postupku”). The CPC’s decisions are binding and enforceable but can be appealed before the Administrative Court (in original Serbian wording, “Upravni sud”). Against the decisions of the Administrative Court, an extraordinary legal remedy may be submitted to the Supreme Court (in original Serbian wording, “Vrhovni kasacioni sud”). The CPC is responsible for its work to the National Assembly of the Republic of Serbia. Cartels may be sanctioned in different, cumulative ways. First, cartels are null and void and cannot be legally enforced. Second, the CPC may impose penalties ranging up to the maximum limit of 10% of the Serbian turnover of the undertaking concerned. Third, the companies involved in a cartel and their responsible representatives may be also criminally prosecuted. In this respect, the company may be fi ned in an amount ranging from approx. €16,000 to €42,000 and its business activities relative to the cartel temporarily suspended in duration of one to three years, whereas the responsible representatives may be sentenced to imprisonment in duration from six months to fi ve years. Finally, the Serbian Chamber of Commerce may impose different measures on its members involved in a cartel, the most important being suspension of business activity and public monition, however, this is still not tested in Serbian practice.

Overview of investigative powers in Serbia Since the entry into force of the Law at the end of 2009, the CPC has gained in authority and was, most importantly, granted major investigative powers. On one hand, the CPC is allowed to informally investigate third party complaints with the aim of establishing the probability of an antitrust infringement. On the other hand, the CPC may initiate sector enquiries. In both cases, the CPC may ask for information, explanations and documents from undertakings concerned as well as from their competitors and other companies that may have knowledge on the subject under investigation. In this respect, the CPC may also approach state authorities that may have relevant information, such as, for example, the Statistical Bureau, different ministries and trade registries. If the CPC reasonably suspects a cartel activity, it may open a formal investigation and, during the investigation, conduct announced inspections and dawn raids, question companies’ representatives and ask for information, explanations and documents from undertakings concerned, competitors and other companies that may be affected by, or that may have knowledge of, the suspected cartel activity. During the dawn raid, the CPC is allowed to enter the business premises, vehicles and private apartments (the latter only with the search warrant issued by the court), review, copy, scan and seize business documents and electronic ﬁ les, seal the business documents and premises and question companies’ representatives and employees. Above all, the CPC may impose interim measures aimed at prevention of further unlawful activities.

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For impairing the conduct of the inspection, the CPC is allowed to issue procedural penalties ranging from €500 to €5,000 per day of breach. This measure may be imposed and has been imposed several times so far, in particular when companies subject to the CPC’s inspection have refused to provide documents and information requested by the CPC, provided misleading, incomplete or false information or documents, or prevented the entry of the CPC’s ofﬁ cials into business premises subject to inspection.

Overview of cartel enforcement activity during the last 12 months The CPC may be regarded as a fairly active enforcer, with the tendency of more frequent investigations, as confi rmed by its case record and recent announcement of a more active approach and stringent attitude concerning hard-core antitrust infringements. Furthermore, the CPC has continued improving its capacities in the last 12 months, by hiring new personnel, obtaining the IT tools necessary for carrying out dawn raids, organising training and exchanging know-how with other competition authorities. Finally, following its fi rst dawn raids in July 2015, the CPC continued to use this investigative tool in the second half of 2015 and in 2016 as well. Based on the available information, since 2005 the CPC has rendered decisions in around ten cases against cartel participants in different sectors: pharmaceuticals, insurance, transportation, etc. The highest fi ne ever imposed in a cartel case was 7%. The CPC is currently running fi ve investigations relating to suspected cartel activity out of which two were opened in the last 12 months – they relate to potential bid rigging in the railway sector and potential concerted practice between competitors in the tobacco market. The highlight of the CPC’s enforcement activity in the last 12 months are the numerous dawn raids the CPC carried out, the initiated investigation against six tobacco companies – the fi rst ever alleged concerted practice investigated by the CPC, and two infringement decisions in bid rigging cases. Following the fi rst ever dawn raids conducted against two companies distributing e-cigarettes and liquid for e-cigarettes in July 2015, the CPC also conducted dawn raids at the premises of two tobacco companies in December 2015, followed by dawn raids of several surveyor companies1 in April 2016, and dawn raids of three companies active on the market for refurbishment of railway vehicles in May 2016.2 The offi cial press releases of the CPC, being the only relevant source of information on the conducted dawn raids, do not provide much detail, however it seems that each dawn raid lasted almost the entire day and that the CPC’s offi cials entered the companies’ premises, inspected documents, interrogated employees and screened IT systems. It is interesting to note that the majority of dawn raids were carried out simultaneously against several company suspected to have committed an antitrust infringement in spite of the CPC’s constrained capacities. It is now safe to say that the CPC intends to use dawn raids as one of its major investigative tools. Overall capacities of the CPC are continuously improving and increased enforcement activity in pursuing cartels may be expected. As to particular investigations, the CPC initiated in December 2015 proceedings against six tobacco companies due to a suspicion that they engaged in a concerted practice by aligning the prices of tobacco products (in particular, of the factory manufactured cigarettes − FMC). Following its own analysis of the market conditions, the CPC based its suspicion of a concerted practice on the successive changes of prices that were preceded by announcements of price changes by one of the competitors. Besides the signifi cance of the market in question and its volume as well as the size of the market players involved,

GLI - Cartels 2017, Fifth Edition 244 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Petrikić & Partneri AOD in cooperation with CMS Reich-Rohrwig Hainz Serbia the importance of this case lies in the fact that it represents the fi rst concerted practice case ever pursued by the CPC. Proving a concerted practice is typically a challenging task. In this case, this is particularly exacerbated by the fact that the tobacco market in Serbia is subject to a specifi c mandatory regulatory regime, where competitors are required to register and publicly announce their future prices. It remains to be seen how the CPC will handle this complex case. The second half of 2015 also saw the end of two bid rigging cases initiated in 2013 and 2014. First, the CPC found that three transport companies aligned their bids in a public procurement procedure for provision of transport services to one local Serbian Clinical Centre. The fi nes in this case amounted to 1.6% of the companies’ annual turnover. The second decision was issued in a more complex case of rigging bids in a public procurement for military equipment (uniforms, footwear, etc.). Four companies were fi ned for arranging their bids in a way that led to the predetermined bidder winning the contract by aligning their prices and/or offering goods of lower quality. The cartelists were fi ned with fi nes ranging from 5.1% to 5.85% of the companies’ annual turnover (the company fi ned with the highest percentage of fi ne was obstructing the proceedings by providing false information and this was interpreted as an aggravating circumstance that raised the fi ne coeffi cient), and were in addition issued a measure of being banned from bidding in public procurement bids for a period of 18 months. Appeals to both of these decisions are currently pending before the Administrative Court. Overall, the success of the CPC’s past enforcement activity in cartel cases is relatively modest. The great majority of the CPC’s fi nes in cartel cases were fi nally annulled. The actual reasons for this negative score are the ambiguities that emerged in transition from the previous regulation to the Law; the extremely short duration of the statute of limitations that existed under the previous version of the Law (meanwhile amended in October 2013); and the long duration of the appellate court proceedings. Considering the amendments to the Law from November 2013 which, most importantly, reaffi rm the importance of competition law in the overall legal framework in Serbia, as well as introduce certain procedural novelties (e.g. commitment procedure) and extend certain time limits (e.g. the statute of limitation for initiating proceedings has been extended from three to fi ve years), it may be expected that the CPC will increase its success rate in cartel cases in the coming years.

Key issues in relation to enforcement policy The application of Serbian competition law in general seems to be characterised by a strictly formalistic approach in different aspects. On one hand, the Law does not enable a self-assessment of agreements that are outside of respective block exemptions. As a consequence, many agreements need to be formally notifi ed to and cleared by the CPC before their implementation (even in cases where only the market share-related condition for block exemption is not fulfi lled). This approach increases the parties’ costs associated with the conclusion of such agreements and ties up the CPC’s limited resources. On the other hand, based on the CPC’s practice, it remains questionable whether and to what extent the ancillary restraints doctrine is applicable in Serbia. According to the CPC’s past practice in cases involving tender procedures, joint bids, which were indispensable for bidding companies to offer their services and/or goods (joint bids between the undertakings which couldn’t bid independently), had to be notifi ed to and cleared by the CPC before they were submitted, even though the tender would, in the absence of such joint bid, have

GLI - Cartels 2017, Fifth Edition 245 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Petrikić & Partneri AOD in cooperation with CMS Reich-Rohrwig Hainz Serbia turned out unsuccessfully. However, only recently the CPC offi cially clarifi ed that joint bids in tender procedures need not necessarily restrict competition, contrary to what it was arguing before. Hence, from now on, in the majority of cases, companies submitting joint bids need not any longer necessarily seek the CPC’s prior approval if a joint bid is the only objectively viable solution for the undertakings concerned to participate in the tender. Finally, with respect to merger control, the CPC does not seem to offi cially accept the effects doctrine. Although the Law provides for a sound legal basis for arguing that transactions without any effects on the Serbian market do not have to be notifi ed to or cleared by the CPC, this is not changed in the new Decree on the content of the merger notifi cation. Moreover, it seems that the CPC is not willing to provide any offi cial guidelines or legal opinions on this issue. The CPC regularly examines all concentrations even in the absence of any foreseeable, direct and substantial effects on the Serbian market.

Key issues in relation to investigation and decision-making procedures The CPC has the authority to investigate, prosecute, decide and impose fi nes. Thus all these authorities are integrated into a single body. In accordance with the generally accepted view of the public, the proceedings before the CPC seem not to provide for a suffi cient guarantee of all procedural rights of the parties. Furthermore, the lack of requisite economic knowledge and respective methods is still apparent, but this should improve, as the CPC has hired several economists in recent years. In addition, the courts have played a major role in the reinforcement of legal certainty in the business community when it comes to the highly disputed retroactive application of the Law in certain CPC’s cases, which makes an overall positive impression to what the parties in the CPC’s proceedings may expect in future. Still, the courts have to increase their capacities in the areas of competition law and economics in order to be able to interpret arguments and the CPC’s decisions properly. One of the greatest impediments to the CPC’s more active prosecution of antitrust infringements in general is the lack of information. The most valuable source of information for revealing antitrust infringements, and particularly cartels in the past, were third party complaints coming mostly from competitors or aggrieved customers. Besides the third party complaints, the CPC also actively monitors and reacts to publicly available information such as press releases. Information collected during sector enquiries is also considered a valuable input for the CPC’s intelligence. The cooperation with the authority competent for public tenders became another important source of information for the CPC. On the other hand, the lack of updated statistical data concerning many important markets is another impediment to the CPC’s reliable assessment of antitrust infringements. As to the treatment of confi dential information, the Law clearly enables the protection of confi dential information of parties involved in investigations by the CPC. In this respect, the Law requires the CPC not to disclose such information to third parties, provided that the interests of parties that request the protection of confi dential data outweigh the interests of the public in getting acquainted with such information. This means in practice that parties involved in the CPC’s investigations have to submit an appropriate request for data protection and demonstrate the confi dentiality of the respective information, as well as the probability of damage in case the confi dential information would be revealed to third parties. In this respect it is worth noting that the CPC’s standards of proof are increasing, although not consistently. Therefore, although many different documents and data used to be protected as confi dential in the past, this is not the case any more, and requesting

GLI - Cartels 2017, Fifth Edition 246 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Petrikić & Partneri AOD in cooperation with CMS Reich-Rohrwig Hainz Serbia protection of confi dential data requires substantial argumentation. Still, it happens sporadically that, depending on the case handler and the subject matter, some documents and information are protected in one case but not in another. Another important ambiguity relates to the right of access to protected confi dential data by the parties in the CPC’s investigation. In this respect, the CPC seemingly does not allow access to protected confi dential data even if such data will be used by the CPC in establishing the infringement. When it comes to legally privileged documents, the situation is far from clear. The Law defi nes legally privileged documentation as any correspondence between the party to the CPC’s proceeding and its authorised representatives, which directly relates to the subject proceeding. What is striking is that the Law actually stipulates that the rules applicable to confi dential documents apply respectively also for legally privileged documents, without clearly explaining what this actually means and, most importantly, whether the CPC may or may not review legally privileged documents during the investigation.

Leniency/amnesty regime Cartel participants may apply for leniency with the CPC. Unlike in the EU and the majority of EU countries, the leniency regime in Serbia applies not only to cartels but also to all other agreements having the appreciable restriction of competition as their object or effect. Therefore, a leniency application may be submitted also for vertical restraints, and this has several times been the case in Serbian competition law practice. According to the Serbian leniency regime, a cartel participant may receive full indemnity from fi nes provided that: it was the fi rst to apply for leniency; the complete leniency application was fi led before the CPC became aware of the cartel or before the CPC has collected necessary evidence to open the formal investigation; the leniency applicant has confi rmed that it shall cooperate with the CPC; and the leniency applicant ceases any further infringing activities, i.e. terminates its participation in the cartel. The leniency application must provide suffi cient evidence that enables the CPC to render the infringement decision. Other cartel participants may receive a reduction in fi ne (between 30% and 50% for the fi rst applicant; between 20% and 30% for the second applicant; and up to 20% for the third and following applicants) but only if, until the CPC has issued its statement of objections, they provide further evidence which was not otherwise obtained and which enables the CPC to complete the investigation and render the infringement decision, and as long as they fully cooperate with the CPC. However, there are some important limitations: the undertaking that initiated the conclusion of the restrictive agreement can get neither the full indemnity nor reduction in fi nes; joint applications for either full indemnity or reduction in fi nes are not possible and will not be taken into consideration by the CPC; and the Serbian leniency regime does not cover criminal liability of the leniency applicant and its responsible representatives. Before submitting the full leniency application, cartel participants have the option to request the marker, i.e. to ask for the statement of the CPC whether the prospective applicant would be the fi rst to apply for leniency for the respective cartel. Following this request and the CPC’s statement, the prospective applicant has to submit a full leniency application within the deadline set by the CPC, which cannot be longer than one month. The day when the request for the market was submitted will be regarded as the day of the leniency application, provided that the leniency application was complete.

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After the full leniency application is submitted, the CPC will inform the leniency applicant whether full indemnity from fi nes is possible or not. Leniency applicant that does not fulfi l the conditions for full indemnity may within fi ve calendar days decide to withdraw the evidence provided in support of the leniency application, or to apply for reduction in fi nes. However, even if the unsuccessful applicant withdraws the evidence provided in support of its leniency application, the CPC may, based on its investigative powers, regain such evidence. Thus, one has to be careful even when requesting the marker, considering that this request has to contain the list of evidence in support of a prospective leniency application. Leniency applications are still not much used in Serbian practice. For example, according to the CPC’s offi cial information, in 2013 only one leniency application was fi led. The great majority of the CPC’s proceedings were and are still being initiated following third party complaints. There have been only a few leniency applications so far but, according to the available information, they related predominantly to agreements containing vertical restraints and only two of them related to cartels. Furthermore, due to lack of suffi cient practice in this area, some important issues relevant for the assessment of risks associated with leniency applications remain unclear. For instance, it is unclear whether access to the fi les and, most importantly, evidence provided by the leniency applicants in relation to third party actions for damages, are allowed – and if so, under what conditions.

Administrative settlement of cases The current antitrust legislation in Serbia does not provide a legal framework for settlements in cartel cases like the one in the EU. However, under the CPC’s leniency guidelines, companies engaged in an antitrust infringement may apply for leniency or reduction of ﬁ nes if, among others, they provide sufﬁ cient evidence enabling the CPC to render an infringement decision and admit involvement in the infringement.

Third party complaints Although there is no obligation to initiate formal investigation upon a third party complaint, the CPC is required to informally investigate third party complaints with the aim of establishing the likelihood of possible antitrust infringement and inform the third party within 15 calendar days on the outcome of its informal investigation. Third party complaints represent a frequent and common source of information for the CPC, and the CPC regularly investigates companies on this basis. For example, in 2015 the CPC received 43 complaints (this number is constantly rising from year to year), but only one of these led to the opening of the investigation (a vertical restrictive agreement). The CPC’s authorities within the investigation of third party complaints, i.e. prior to opening the formal investigation, are limited to information requests sent to the undertakings concerned, competitors and other companies that may have the knowledge on the subject matter of the investigation, in practice being particularly the companies active in the upstream or downstream markets. In this respect, the CPC may also approach other state authorities that may have relevant information, such as for example the Statistical Bureau, different ministries and trade registries.

Civil penalties and sanctions As stated above, cartels may be sanctioned in different, cumulative ways, whereas the most immediate and regular sanctions in Serbian practice are the nullity of agreements,

GLI - Cartels 2017, Fifth Edition 248 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Petrikić & Partneri AOD in cooperation with CMS Reich-Rohrwig Hainz Serbia and the CPC’s penalties, which may range up to the maximum limit of 10% of the Serbian turnover of the undertaking concerned. As regards the method of setting the fi nes by the CPC, the CPC applies the following method: as a starting point for the calculation of fi nes, the CPC uses 1% of the relevant Serbian turnover in the year preceding the investigation. This amount is then multiplied by a number of coeffi cients for gravity and duration and adjusted with coeffi cients for aggravating/mitigating circumstances and recidivism. As to the gravity coeffi cient, cartels are classifi ed as very grave infringements, for which a coeffi cient of between 2 and 3 applies. As to the coeffi cient of duration, for cartels lasting up to one year a coeffi cient of 1 applies; for cartels lasting between one and three years the coeffi cient of between 1 and 2 applies; and for cartels lasting longer than three years, the coeffi cient of between 2 and 3.33 applies. Should an undertaking be fi ned for practices similar to the ones for which it has previously been fi ned, the CPC would be allowed to use a recurrence coeffi cient for recidivism which amounts to 2. According to the past practice of the CPC, even in cases where it could have applied this coeffi cient, the CPC did not apply it. When setting the amount of fi ne, the following circumstances in particular are considered aggravating: intent; recidivism; incitement of other undertakings to implement infringing practices; refusal to cooperate with the CPC; and prevention or disturbance of the CPC’s investigation. The following circumstances are particularly considered as mitigating: negligent infringement; extremely short infringement (up to six months); the lack of any adverse effects of the infringement; cessation of infringing activities before the CPC became aware of the infringement; and taking measures aimed at addressing the consequences of the infringement and cooperation with the CPC. According to available CPC decisions, the CPC has so far taken into consideration the following circumstances as either aggravating or mitigating: (i) intent; (ii) the lack of consequences/effects of the infringement; (iii) cooperation of the parties; and (iv) voluntary notifi cation of the infringement. In instances where the CPC considered the voluntary notifi cation of the infringement as a mitigating circumstance, it applied a 1.25 coeffi cient to diminish the fi ne. In cases where the CPC considered the fact that the infringement was only committed negligently as a mitigating circumstance, it applied a 1.45 coeffi cient to diminish the fi ne. In the mentioned e-cigarettes case, infringement had a fi nite impact on the market, covering only a few small retail stores in Belgrade. Therefore, it was considered to be a mitigating circumstance and the CPC applied a 1.6 coeffi cient to diminish the fi ne. Considering that the voluntary cessation of any infringement is considered as a mitigating circumstance, the implementation of compliance programmes and the voluntary termination of the infringements would most likely be considered as a mitigating factor by the CPC in case of any infringement proceedings. The CPC is generally entitled to impose one fi ne for each infringement. The case law is inconsistent on what behaviour forms a single and continuous infringement: one and the same type of infringement was treated by the CPC as a separate infringement in one case, but as a single infringement in combination with other infringements in another case. Should the CPC uncover more than one infringement of one and the same undertaking at once, it seems likely that according to the CPC’s past practice, the CPC would initiate one proceeding and issue one fi ne for all uncovered infringements of the relevant undertaking rather than initiating separate infringement proceedings for each conduct. Unlike other competition authorities that use only the turnover generated with the sales of

GLI - Cartels 2017, Fifth Edition 249 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Petrikić & Partneri AOD in cooperation with CMS Reich-Rohrwig Hainz Serbia products to which the infringement directly or indirectly relates for “calculating” the ﬁ ne, from the available case law it appears that the CPC applied this percentage to the turnover of the entire company. On the other hand, the CPC’s case law so far has only taken into account the turnover generated by the company involved in the infringement, without taking into account the turnover of the company’s group/economic entity (although the statutory provision is ambiguous in this respect). In any event, any ﬁ ne would be capped at 10% of the turnover generated in Serbia.

Right of appeal against civil liability and penalties Infringement decisions of the CPC can be appealed before the Administrative Court which has the jurisdiction to decide on the appeal. The appeal may be ﬁ led, in particular, if the Law was not correctly applied by the CPC, the CPC has not correctly followed the procedure, the facts of the case were not correctly or completely determined, or were not correctly interpreted. The decisions of the Administrative Court may be also challenged by way of an extraordinary legal remedy before the Supreme Court. The courts have so far been reluctant to examine the CPC’s decisions in material aspects and have regularly examined only the procedural aspects. It may be in general argued that neither the Administrative Court nor the Supreme Court are fully aware of competition law principles, and lack economic knowledge. Moreover, they seem to be understaffed, which results in long court proceedings.

Criminal sanctions Companies involved in a cartel and their responsible representatives may be criminally prosecuted. In this respect, the company may be ﬁ ned in an amount ranging from approx. €16,000 to €42,000 and its business activities relative to the cartel temporarily suspended in duration of one to three years, whereas the responsible representatives may be sentenced to imprisonment in duration from six months to ﬁ ve years. According to the available information, it appears that several criminal investigations were initiated in recent years – four in 2009, three in 2010, one in 2011 and three in 2013.

Cross-border issues Considering the wording of the Law, the CPC has jurisdiction only in Serbia but may investigate antitrust infringements, including cartels, that are committed outside of Serbia if they produce effects on the Serbian market. So far, the CPC has never made use of this possibility and investigated or ﬁ ned cartels outside of Serbia. Although the CPC is not a member of the European Competition Network, it regularly communicates with the Delegation of the European Union in Belgrade and European Commission − DG Competition within the framework of the Stabilisation and Association Agreement between the EU and Serbia, but also in instances where it needs support regarding the assessment of certain infringements and procedural issues. The CPC is a member of the International Competition Network and the CPC’s representatives regularly take part in international meetings and workshops such as the ones of the OECD’s Regional Competition Network. The CPC has signed several bilateral cooperation agreements with national competition authorities of different countries including Austria, Bulgaria, Bosnia and Herzegovina, Croatia, Hungary, Kazakhstan, Macedonia, Montenegro, Romania, Russia and Slovenia.

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Developments in private enforcement of antitrust laws The area of private enforcement is underdeveloped and not sufﬁ ciently tested in practice. Aggrieved parties that suffer damage as a consequence of an antitrust infringement, including cartels may, in principle, initiate follow-on actions for damages in front of the Serbian courts. Actions for damages may be ﬁ led by several aggrieved parties, but so-called “opt-out” class actions are generally not possible. The CPC’s decision on infringement does not represent a proof of damage. The existence of damage has, therefore, to be separately demonstrated in the court proceedings. Several follow-on individual actions for damages were submitted against companies that were found liable for antitrust infringements in the past, however, not a single decision in this respect has been rendered yet. The reasons are numerous, however the most obvious one is the long duration of appellate proceedings against the CPC’s decisions.

Reform proposals As announced, a new draft of the Law and new bylaws on the block exemption of certain categories of agreements relating to motor vehicles, insurance, transfer of technology and transport, may be expected soon.

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Endnotes 1. The CPC simultaneously initiated proceedings against 25 surveyor companies and the Serbian Association of Surveyors for alleged bid rigging, however, this case was closed in August 2016 as the CPC failed to establish the existence of an infringement. 2. The CPC’s increased dawn raid activity was not limited to potential cartels, but the CPC also conducted dawn raids in the case of alleged RPM practices between distributors and retailers of sport apparel, footwear and accessories in August 2016.

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Raško Radovanović Tel: +381 11 3208 900 / Email: [email protected] Raško Radovanović joined CMS Belgrade in January 2010, after completing his LL.M. studies at the Faculty of Law of Ludwig-Maximilians-University in Munich. Raško Radovanović leads the CMS Belgrade competition practice and is mostly involved in competition, corporate and commercial legal areas. In particular, he advises some of the most important market players in different industries (automotive, food and agriculture, energy, pharmaceuticals, etc.) on antitrust-related aspects of their everyday business operations and has coordinated high-profi le multi-jurisdictional merger fi lings. He also advises German-speaking clients on all aspects of their everyday business operations in Serbia. Raško Radovanović is the author of several articles on competition law and has supported the development of the fi rst Serbian university textbook on competition law, and he is a Ph.D. candidate at the University of Vienna. He speaks Serbian, English and German.

Anja Tasić Tel: +381 11 3208 900 / Email: [email protected] Anja Tasić joined CMS Belgrade in October 2012, after graduating from the University of Belgrade, Faculty of Law. In 2016 she completed a Competition Law LL.M. at Queen Mary University of London. Anja predominantly focuses on competition law matters, but is also involved in the law ﬁ rm’s corporate practice. She advises companies from different business sectors, but is particularly interested in digital markets and telecommunications. Anja speaks Serbian and English.

Srđan Janković Tel: +381 11 3208 900 / Email: [email protected] Srđan Janković joined CMS Belgrade’s competition law practice in April 2016 after having worked as a Senior Advisor with the Cartels and Abuse of Dominance Division of the Serbian Commission for Protection of Competition for more than ﬁ ve years. He obtained his Master’s degree in Competition Law from the Belgrade Faculty of Law in 2010. In 2016, he took the Bar exam and became a member of the Bar Association of Belgrade. Srđan Janković has vast experience in anti-trust matters on the side of the regulator, investigation proceedings, dawn raids and procedures for individual exemption of restrictive agreements, in particular, and has an insight into public procurement processes in the region. Among other sectors, he mainly handled competition cases related to pharmacy and insurance. Srđan Janković is a trained user of the EnCase forensics software and hardware. He speaks Serbian and English.

Petrikić & Partneri AOD in cooperation with CMS Reich-Rohrwig Hainz Cincar Jankova 3, 11000 Belgrade, Serbia Tel: +381 11 320 8900 / Fax: +381 11 320 8930 / URL: http://www.cms-rrh.com

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Daren Shiau & Elsa Chen Allen & Gledhill LLP

Overview of the law and enforcement regime relating to cartels The Competition Act, Chapter 50B of Singapore (the “Competition Act”) was enacted in 2004 and is the principal statute governing the competition law regime in Singapore. Cartel enforcement falls within the scope of Section 34 of the Competition Act, which prohibits agreements between undertakings, decisions by associations of undertakings, or concerted practices which have, as their object or effect, the prevention, restriction or distortion of competition within Singapore unless excluded by the Third Schedule to the Competition Act or a block exemption (the “Section 34 Prohibition”). Agreements caught under the Section 34 Prohibition can range from hard-core cartels to concerted practices where no formal agreement or decision was reached, and include both legally enforceable and non-enforceable written and oral agreements, as well as “gentlemen’s agreements”. All that is required is that parties arrive at a consensus on the actions each party will, or will not, take. The Competition Commission of Singapore (the “CCS”) administers and enforces the Competition Act.

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Since the Section 34 Prohibition came into effect on 1 January 2006, there have been 10 cartel infringement decisions issued by the CCS. In 2014, the CCS issued its ﬁ rst two infringement decisions against international cartels, in which record ﬁ nancial penalties were imposed by the CCS against the infringing parties. In an interview in 2015, the CCS Chief Executive Toh Han Li had indicated that some of the CCS’ active leniency cases are international cartel cases, and that the CCS “will announce those when [the CCS is] ready to do so”.1 Pursuant to Section 61 of the Competition Act, the CCS has published Guidelines indicating the manner in which it will interpret and give effect to the provisions of the Competition Act. There have been two sets of Guidelines to date of particular relevance to cartel enforcement, namely the CCS Guidelines on the Section 34 Prohibition, and the CCS Guidelines on Lenient Treatment for Undertakings Coming Forward with Information in Cartel Activity Cases (“CCS Leniency Guidelines”). Both Guidelines came into effect in 2006, and were most recently revised again in 2016. The revised CCS Guidelines on the Section 34 Prohibition 2016 (the “Section 34 Guidelines 2016”), and the CCS Guidelines on Lenient Treatment for Undertakings Coming Forward with Information on Cartel Activity 2016 (the “CCS Leniency Guidelines 2016”), are applicable to all cases where, on 1 December 2016, the CCS has yet to issue a proposed infringement decision. In addition, the CCS has also, together with its revised Guidelines in 2016, introduced the “CCS Practice Statement on the Fast Track Procedure for Section 34 and Section 47 cases” (“Fast Track Procedure”).

Overview of investigative powers in Singapore An investigation can be triggered by, inter alia, third party complaints, media reports, leniency applications or individual whistle-blowers, and/or the CCS’ own-initiative market surveillance. The CCS’ formal powers of investigation are as set out in the Competition Act, specifi cally: (a) Section 63: the power to require from any person the production of specifi ed documents or information which the CCS considers to be relevant to the investigation; (b) Section 64: the power to enter premises without a warrant; and (c) Section 65: the power to enter and search premises with a warrant. The CCS may also gather information through informal modes of enquiry during the course of an investigation, in addition to or in place of exercising its statutory formal powers of investigation. Dawn raids The CCS has statutory powers under Sections 64 and 65 of the Competition Act to conduct unannounced on-site inspections and enter any premises in connection with an investigation (i.e. a “Dawn Raid”). The CCS has, at least in one instance, conducted a coordinated Dawn Raid with other competition authorities in the case of international cartels. The CCS offi cers and/or persons authorised by the CCS (“CCS Investigating Offi cers”) can conduct a Dawn Raid under Section 64 of the Competition Act without a warrant (the “Section 64 Dawn Raid”), and, in certain circumstances,2 without prior notice. In a Section 64 Dawn Raid, the CCS has the power to, among others: (a) require any person on the premises to produce, provide explanations of, and/or state (to the best of that person’s knowledge and belief) the location of any document that the CCS Investigating Offi cers consider as relevant;

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(b) take copies of any documents produced, including requiring electronic information to be produced in hard or soft copy to be taken away and read; and/or (c) take steps that are necessary to preserve the documents or prevent any interference with them (e.g. sealing of offi ces or cupboards for no longer than 72 hours except where access to the documents is unduly delayed). Section 65 of the Competition Act further empowers the CCS Investigating Offi cers to, pursuant to a warrant, enter the specifi ed premises, including with the use of such force as is reasonably necessary for such entry, and to conduct a search (the “Section 65 Dawn Raid”). In addition to the powers under a Section 64 Dawn Raid, the CCS Investigating Offi cers are also authorised to, among others: (a) search the premises and any person on the premises for relevant documents; (b) take possession of relevant documents (original or otherwise) or any other step necessary for preserving the documents or preventing interference with them; and/or (c) remove from the premises for examination any relevant equipment or article, or impose conditions on the retention of such equipment or article on the premises. Information requests Under Section 63 of the Competition Act, the CCS has the power to require, by way of written notice, any person to produce specifi ed documents or to provide specifi ed information which relates to any matter relevant to the investigation (“Section 63 Notices”). The CCS may also conduct formal interviews with persons pursuant to a Section 63 Notice, requiring that person to provide specifi ed information or an explanation of a specifi ed document in person (“Section 63 Interviews”). It is important to note that the term “document” as defi ned under the Competition Act includes “information recorded in any form”. This includes records, such as invoices or sales fi gures, stored in any form, electronic or otherwise, for example, on a computer. Under Section 63 of the Competition Act, the CCS can also require the information to be compiled and produced if it is not already in recorded form. Non-compliance It is vital that investigated parties, including their employees, are aware of what constitutes an offence in relation to the CCS’ powers of investigation and the consequences of such offences. All offences are punishable, on conviction, with a fi ne, imprisonment or both. Please refer to the section “Criminal sanctions” below for details of general offences under the Competition Act. Limitations on the use of powers of investigation In conducting investigations, the CCS and its Investigating Offi cers are not entitled to: (a) use force against any person during a Dawn Raid; (b) examine and/or copy documents which are not relevant to the purpose of the Dawn Raid; and/or (c) examine and/or copy documents which are marked to be legally privileged.

Overview of cartel enforcement activity during the last 12 months On 17 March 2016, the CCS announced that it had issued an infringement decision against 10 fi nancial advisory companies in Singapore (the “Parties”). This is the fi rst infringement decision issued in the fi nancial services industry and also the fi rst infringement fi nding

GLI - Cartels 2017, Fifth Edition 255 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Allen & Gledhill LLP Singapore by the CCS for an agreement by members of an association to collectively pressure a competitor to withdraw an offer, as opposed to explicit collusive acts such as price-ﬁ xing, bid-rigging and/or marketing sharing. The 10 ﬁ nancial advisory companies were found to be party to an anti-competitive agreement, infringing Section 34 of the Competition Act, Chapter 50B of Singapore, to collectively pressurise iFAST Financial Pte. Ltd. (“iFAST”) to withdraw its offer of a 50% commission rebate on life insurance products on its online platform (the “FSM Offer”), the Fundsupermart.com website (“FSM”). Financial penalties have been imposed on the Parties amounting to a total of S$909,302 (approximately US$670,000), with the highest penalties amounting to S$405,114 (approximately US$300,000). The CCS became aware in May 2013 through media reports that iFAST launched the FSM Offer on 30 April 2013 and withdrew the same on 3 May 2013. The CCS also received a complaint in relation to the withdrawal of the FSM Offer and subsequently commenced its investigation. Prior to the CCS’ decision in 2016, the two preceding cartel infringement decisions were in relation to international cartels (namely, freight forwarders and ball bearing manufacturers). 2 International cartels Local cartels

0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Figure 1: Trends in enforcement – international and local cartels

Figure 2: Trends in enforcement – international and local cartels

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Figure 3: Trends in enforcement – non-traditional areas

Key issues in relation to enforcement policy During the course of the CCS’ investigations, an undertaking has certain rights to legal advice and the protection of legal professional privilege, including: (a) in a Dawn Raid, the right to request for a reasonable time to be allowed for a professional legal adviser (including in-house legal advisers) to arrive at the premises; and (b) in a Section 63 Interview, the right to be accompanied by a professional legal adviser. The CCS’ investigative powers to require the disclosure of information or documents also does not extend to any communication: (a) between a professional legal adviser and his client; or (b) made in connection with, or in contemplation of, legal proceedings and for the purposes of those proceedings, which would be protected from disclosure in proceedings in a court on grounds of privilege. This right to legal professional privilege extends to communications with in-house lawyers as well as lawyers in private practice including foreign counsel, including such communications made for the purpose of giving or seeking legal advice. A person or undertaking is not excused from disclosing any information or documents to the CCS under a requirement made of him pursuant to the CCS’ investigative powers under the Competition Act on the ground that the disclosure might tend to incriminate him. A statement that is claimed by a person to be self-incriminatory shall be admissible in evidence against him in civil proceedings (but not criminal proceedings other than proceedings relating to ancillary offences such as providing false or misleading information), including proceedings under the Competition Act.

Key issues in relation to investigation and decision-making procedures There is no statutory timeframe for the conclusion of CCS’ cartel investigations, which can vary according to the complexity of each case. Past cartel investigations by the CCS which concluded in infringement decisions have ranged from eight months to close to three years. There is no statute of limitations on when the CCS may initiate an investigation. The CCS can investigate historical cartel conduct, including cartel agreements entered into before 2006, as

GLI - Cartels 2017, Fifth Edition 257 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Allen & Gledhill LLP Singapore long as the cartel conduct was still ongoing after the Competition Act came into force, and did not cease within the transitional period between 1 January and 30 June 2006. The CCS has, in its infringement decisions to date, also signalled a willingness to enforce against historical infringing conduct, even after signiﬁ cant time had elapsed since the end of the conduct.

CCS case example of infringements involving historical cartel conduct

In CCS Case No. CCS 700/003/11 – Infringement of the Section 34 prohibition in relation to the provision of air freight forwarding services for shipments from Japan to Singapore, the CCS became aware in 2011 that international freight forwarders may have been involved in anti-competitive activity that had an impact in Singapore, and made inquiries with freight forwarders. The CCS commenced its investigations in July 2012 further to leniency applications received. While the CCS ultimately did not fi nd any evidence of collusive discussions occurring after November 2007, the CCS issued infringement fi ndings in respect of the conduct that took place prior to November 2007, four (4) years before the CCS fi rst made inquiries with freight forwarders. In CCS Case No. CCS 700/002/11 – Infringement of the Section 34 Prohibition in relation to the supply of ball and roller bearings, the CCS received leniency applications in 2011 to 2012 that related to anti-competitive agreements in respect of the sales, distribution and prices of ball and roller bearings to aftermarket customers in Singapore. Following investigations, the CCS issued infringement fi ndings in respect of a single continuous infringement that took place during the period from at least 1998, seven (7) years before the Section 34 Prohibition came into force on 1 January 2006.

Leniency/amnesty regime The Competition Act does not contain express provisions in respect of a leniency policy. The details of the CCS’ leniency programme are contained in the CCS Leniency Guidelines 2016. Total immunity from fi nancial penalties Full immunity from administrative penalties is available in Singapore. An applicant stands to benefi t from total immunity from fi nancial penalties, if the applicant is the fi rst in line to provide the CCS with evidence of the cartel activity before an investigation has commenced, and provided that the CCS does not already have suffi cient information to establish the existence of the alleged cartel activity. All leniency applicants must satisfy the conditions set out below: (a) provide the CCS with all the information, documents and evidence available to it regarding the cartel activity immediately. Such information, documents and evidence must provide the CCS with suffi cient basis to commence an investigation; (b) grant an appropriate waiver of confi dentiality to CCS in respect of any jurisdiction where the applicant has also applied for leniency or any other regulatory authority for which it has informed of the conduct; (c) unconditionally admit to the conduct for which leniency is sought and details the extent to which this had an impact in Singapore by preventing, restricting or distorting competition within Singapore; (d) maintain continuous and complete cooperation throughout the investigation and until the conclusion of any action by the CCS arising as a result of the investigation; and

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(e) refrain from further participation in the cartel activity from the time of disclosure of the cartel activity to the CCS (except as may be directed by the CCS). Reduction of up to 100% in the level of fi nancial penalties If an applicant does not qualify for total immunity because the CCS has already commenced an investigation, it may still stand to benefi t from a reduction in the fi nancial penalty of up to 100% if: (a) the applicant is still the fi rst to provide the CCS with evidence of the cartel activity; (b) this information is provided before the CCS has suffi cient information to issue a proposed infringement decision; (c) the information adds signifi cant value to the CCS’ investigation; (d) the applicant has not initiated or coerced another undertaking to take part in the cartel activity; and (e) the applicant also satisfi es the general conditions for applicants set out in the CCS Leniency Guidelines 2016. Reduction of up to 50% in the level of fi nancial penalties If an applicant is not the fi rst-in, but provides useful evidence before the CCS issues written notice under Section 68(1) of the Competition Act of its intention to make a decision that the Section 34 Prohibition has been infringed, or the applicant is a coercer or initiator, the applicant may still be granted a reduction of up to 50% of the fi nancial penalty. Any reduction in the level of the fi nancial penalty under these circumstances is discretionary, and the CCS will take into account: (a) the stage at which the applicant comes forward; (b) the evidence already in the CCS’ possession; and (c) the quality of the information provided. Marker system The CCS provides a marker system for ‘fi rst-in’ leniency applications. If a fi rst-in applicant is not able to provide the CCS with all the evidence relating to the suspected infringement available to it at the time of the application, the applicant may apply for a marker to secure his position in the leniency queue. The grant of a marker is discretionary. However, its grant is expected to be the norm rather than the exception. In the CCS Leniency Guidelines 2016, the CCS now requires that an applicant is expected to defi ne the market(s) in which the cartel activity occurred and detail the impact of the conduct on the identifi ed relevant markets in Singapore. Leniency plus system The CCS has a “leniency plus” programme to encourage cartel members cooperating with an investigation by the CCS in one market (the fi rst market), to also report their involvement (if any) in a completely separate cartel activity in another market (the second market), subject to conditions being met. Under “leniency plus”, an applicant may be granted a further reduction in the fi nancial penalties imposed on it in relation to the fi rst market, in addition to the reduction which it would have received for its cooperation in the fi rst market alone. Statistics of leniency applications The CCS disclosed on 3 October 2016 that, since the commencement of its leniency policy, the CCS received a total of over 45 applications for leniency. There have been

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Administrative settlement of cases Parties who admit liability for their infringement of the Competition Act will be eligible for a reduction of 10% on the amount of ﬁ nancial penalty that would otherwise be imposed if not for the Fast Track Procedure. The Fast Track Procedure is distinct from the CCS’ ability to accept commitments and the CCS’ leniency policy. The Fast Track Procedure can be initiated by the CCS prior to, or after, a proposed infringement decision but not after an infringement decision has been issued. Parties under investigation may choose to proactively indicate to the CCS their willingness to engage in a Fast Track Procedure discussion.

Third party complaints Third parties can make a complaint to the CCS to prompt the start of an investigation. At the onset, the CCS will check that the complaint falls within the CCS’ scope of powers under the Competition Act. If the subject matter of the complaint is under the CCS’ purview, further information might be requested. If the complaint cannot be substantiated, the matter will be closed, and the CCS will inform the complainant if it does not propose to take any action. If the subject matter is beyond the CCS’ purview, it may be redirected to the relevant agency. In deciding whether to launch a formal investigation, the CCS will also take into account its strategic priorities and merits of the case.

Civil penalties and sanctions Undertakings participating or which have participated in cartel activities are liable under Section 69 of the Competition Act to a fi nancial penalty. The CCS has powers to impose fi nancial penalties on undertakings which have intentionally or negligently infringed the Section 34 Prohibition, of up to 10% of the business turnover of that undertaking in Singapore for each year of infringement up to a maximum of three years (the “Statutory Maximum Financial Penalty”). The CCS Guidelines on the Appropriate Amount to Penalty 2016 provides that the CCS will calculate the fi nancial penalty based on an undertaking’s relevant turnover which will be the turnover for the fi nancial year preceding the date when an undertaking’s participation in an infringement ends. The CCS’s methodology for setting the appropriate amount of penalty is as follows: • Step 1: calculation of the base penalty having regard to the seriousness of the infringement and the turnover of the business of the undertaking in Singapore for the relevant product and relevant geographic markets affected by the infringement in the undertaking’s last business year. • Step 2: adjustment for the duration of the infringement. • Step 3: adjustment for other relevant factors, e.g. deterrent value. • Step 4: adjustment for aggravating or mitigating factors. • Step 5: adjustment if the Statutory Maximum Financial Penalty is exceeded. • Step 6: adjustment for immunity, leniency reductions and/or Fast Track Procedure discounts.

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Right of appeal against civil liability and penalties There is a right of appeal to the Competition Appeal Board (the “CAB”) against any decision by the CCS, or any direction imposed by the CCS. Any relevant party to an agreement may make an appeal against the CCS’ decision, while an appeal against a direction may be made by the person to whom the CCS gave the direction. An appeal in relation to the Section 34 Prohibition must be lodged within two months of the date on which the appellant was notifi ed of the contested decision, or the date of publication of the decision, whichever is earlier. The CAB has wide powers in determining appeals and may, among others, confi rm or set aside all or part of the CCS’ decision, remit the matter to the CCS, or impose, revoke or vary a direction by the CCS. A decision by the CAB can be further appealed to the High Court and then to the Court of Appeal, but only on a point of law arising from a CAB decision or from any decision of the CAB as to the amount of a fi nancial penalty. Such a further appeal can only be made by a party to the proceedings in which the decision of the CAB was made. As of May 2016, the CAB has received 12 appeals relating to cartel infringement decisions, and issued its appeal decisions in eight of these appeals. A number of these appeals have also been withdrawn by the appellants. In the appeal decisions issued, the CAB had generally upheld the fi ndings and decisions on liability of the appellants by the CCS, but reduced the fi nancial penalty that was imposed by the CCS. The reductions of fi nancial penalties by the CAB had been on the basis of, among others, the following grounds: (a) that an alternative defi nition of the market, and consequently a different relevant turnover, should be used for the purposes of calculating the fi nancial penalty; (b) that the “high turnover, low margin” characteristic inherent in certain profi t models should be considered in determining whether the penalty was excessive or disproportionate; (c) that the involvement of directors and senior management should not necessarily always be considered as an aggravating factor, subject to the specifi c facts of the case; and (d) that the CCS should have based the penalty on turnover from the most recent fi nancial year preceding the CCS’ infringement decision instead of the fi nancial year preceding the proposed infringement decision.

Criminal sanctions Cartel activities are not criminal offences under the Competition Act. However, individuals should be aware of the general offences under the Competition Act, which also apply to individuals. The general offences under the Competition Act, which are punishable, on conviction, with a ﬁ ne, imprisonment or both, include: (a) providing information that is false or misleading in a material particular knowingly or recklessly, either to the CCS or to another person such as an employee or legal adviser, knowing that it will be used for the purpose of providing information to the CCS; (b) obstructing, by refusing to give access to, assaulting, hindering or delaying, any agent of the CCS; (c) failing to comply with any requirement imposed under Sections 61A, 63, 64 or 65 of the Competition Act (which set out the CCS’ formal powers of investigation),

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including refusal to provide any required document or information, unless such compliance is reasonably not practicable or a reasonable excuse for failure to comply can be provided; and (d) intentionally or recklessly destroying or otherwise disposing of or falsifying or concealing a document of which production has been required under Sections 61A, 63, 64 or 65 of the Competition Act, or causing or permitting its destruction, disposal, falsiﬁ cation or concealment.

Cross-border issues The Competition Act provides a mechanism by which the CCS may enter into arrangements with foreign competition bodies to, inter alia, provide assistance and furnish to each other information required by the other party for the purpose of performing its functions. The CCS’ international and regional cooperation is also guided by the provisions in Singapore’s multilateral and bilateral Free Trade Agreements (“FTAs”) relating to competition. These provisions commonly require the signatories to cooperate in the development of any new competition measures and exchange information. The CCS utilises informal cooperation mechanisms to facilitate its work. In particular, the CCS holds frequent dialogues with the Australian Competition and Consumer Commission and New Zealand Competition Commission to facilitate general information sharing between the agencies. The CCS is also a regular participant at international conferences and workshops on cartel enforcement held by the Organisation for Economic Co-operation and Development, the International Competition Network, and BRICS and ASEAN countries. Most importantly, on a case-by-case basis, the CCS has engaged in both regional and international cooperation with other competition authorities when investigating international cartels with cross-jurisdictional elements. Such international cooperation includes, among others: (a) sharing information to coordinate dawn raids for evidence preservation; and (b) sharing general information such as theories of harm and general categories of information between the competition authorities. Information is shared to the extent that such information is not conﬁ dential, and where waivers had been granted to the CCS to discuss the matter with other authorities and vice versa. In sharing information, the CCS has regard to information provided by leniency applicants, bearing in mind the possibility of private actions, and discovery obligations that a leniency applicant could be subject to, and the varying regimes which other potentially relevant jurisdictions operate (i.e. whether civil or criminal regimes are operated). The CCS has stated that “[t]he growing number of cross-border competition cases highlights the importance of cooperation among competition agencies and this is one aspect [the CCS] hope[s] to work on moving forward”.3 Out of the 10 cartel infringement decisions issued by the CCS to date, two involved international cartels.4 There has been, at least in one instance, a coordinated dawn raid conducted by the CCS with other competition authorities in the case of international cartels.

Developments in private enforcement of antitrust laws The right of private action for infringements of the prohibitions in the Competition Act is enshrined in the Competition Act. Unlike jurisdictions such as Australia and the United

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States,5 the right of private action in Singapore exists by way of a follow-on claim, which precludes independent standalone action by claimants. Class action The class action regime does not exist in Singapore and the only process available for collective redress is through a representative action. The procedure for representative action is governed by Order 15, Rule 12 of the Rules of Court,6 which enables a representative party to bring a claim on behalf of all others having the ‘same interest’ in the proceedings. Limitation period A private claim for damages arising from an infringement of the Competition Act must be brought within two years from the time of the infringement decision or from the determination of any such appeal(s), whichever is later.7 Access to documents Information submitted to the CCS by a leniency applicant in Singapore can take the following forms, among others: (a) leniency statements made on an oral basis only; (b) written submissions made to the CCS; and (c) supporting documents or documentary evidence. If a third party commences civil proceedings against an undertaking which arises out of a CCS infringement decision, that undertaking (as a defendant to the suit) would generally be required to provide discovery of documents in its possession, custody and/or power, that are relevant to and necessary for the fair disposal of the civil proceedings and the saving of costs, unless the documents are privileged. There may be a possibility for a third party claimant (pursuing a future claim against an undertaking/defendant based on rights of private action arising out of a CCS infringement decision) to apply in the context of such civil proceedings for: (a) discovery against one or more defendants to a CCS infringement decision (that is, against the undertakings subject to an infringement decision by the CCS, and who were granted access to inspection fi les by the CCS) to require such defendants to furnish copies of documents taken or copied by these defendants from the CCS’ inspection fi les; and (a) third party discovery against the CCS to require the CCS to disclose the documents in its inspection fi les, or any document withheld from the inspection fi les, though this has not been tested in practice. There have not, to date, been any such claims in civil proceedings in Singapore courts under a private right of action by third parties arising from infringement decisions by the CCS, and accordingly, the possibility of civil litigants applying for discovery against infringing undertakings and/or the CCS remains untested.

Reform proposals On 1 November 2016, the CCS announced wide-ranging changes to its Guidelines, including the Section 34 Guidelines 2016 and the CCS Leniency Guidelines 2016. The revised Guidelines came into effect on 1 December 2016.

* * *

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Endnotes 1. As disclosed by the CCS Chief Executive Toh Han Li, in an interview with Global Competition Review published on 9 February 2015. 2. In addition to the circumstance described above, CCS Investigating Offi cers can also conduct a Section 64 Dawn Raid without notice if the CCS Investigating Offi cers have been unable to give written notice to the occupier despite taking all reasonably practicable steps to do so. 3. CCS Chief Executive Toh Han Li, in the Singapore chapter of Global Competition Review’s Asia-Pacifi c Antitrust Review 2015. 4. See CCS 700/002/11, Infringement of the Section 34 Prohibition in relation to the supply of ball and roller bearings and CCS 700/003/11, Infringement of the Section 34 Prohibition in relation to the provision of air freight forwarding services for shipments from Japan to Singapore. 5. Section 4, United States of America Clayton Antitrust Act, 15U.S.C. § 15; Section 82 of the Competition and Consumer Act 2010 No. 51 of 1974 of the Commonwealth of Australia. 6. Rules of Court (Rev. Ed. 2014), Section 80 of the Supreme Court of Judicature Act, Chapter 322 of Singapore (“Rule of Court”). 7. See Section 86(6) of the Competition Act; paragraph 5.3 of the “CCS Guidelines on Enforcement 2016”.

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Daren Shiau Tel: +65 6890 7612 / Email: [email protected] Daren Shiau, PBM, is Head of Competition & Antitrust at Allen & Gledhill. He is a competition law specialist, and his practice covers antitrust litigation, international cartels, merger control and sectoral competition regimes. In 2012, Daren was named one of the world’s most talented competition lawyers under the age of 40 by Global Competition Review: 40 Under Forty, and considered in Who’s Who Legal 100 (2013) to be “very skilled” and “one of the ﬁ nest antitrust lawyers in the region”. He was the only Asian lawyer to be recognised as one of the world’s “most highly regarded individuals” by Who’s Who Legal: Competition in 2016, where he was cited to be “tremendously impressive”, and was commended for his work on all facets of competition law. Daren is Singapore’s ﬁ rst non-governmental advisor at the International Competition Network, and a commissioned trainer of the high-level ASEAN Experts Group on Competition with unparalleled experience in competition law and policy in South East Asia.

Elsa Chen Tel: +65 6890 7663 / Email: [email protected] Elsa works in the Competition & Antitrust practice, and is Co-Head of the Public Policy practice. She regularly assists clients on complex antitrust matters, including global cartel and abuse of dominance investigations. In 2013 and 2016, she was featured in the 100 elite women globally in the ﬁ eld of competition law by Global Competition Review (GCR) in their Women in Antitrust 2013 and 2016 peer-nominated surveys. She was also named as one of the 10 competition economists globally in GCR’s Women in Antitrust 2016: Economists. Elsa is regularly recognised as a leading competition economist in various publications such as Who’s Who Legal, Euromoney Guide to the World’s Leading Competition and Antitrust Lawyers and Economists, and Expert Guides’ Women in Business Law. She was also cited by The Legal 500 Asia Paciﬁ c (2017) to have a “good grasp of the subject matter”.

Allen & Gledhill LLP One Marina Boulevard, #28-00 Singapore 018989 Te l: +65 6890 7188 / Fax: + 65 6327 3800 / URL: http://www.allenandgledhill.com

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Antonio Guerra Fernández, Patricia Vidal Martínez & Tomás Arranz Fernández-Bravo Uría Menéndez

Overview of the law and enforcement regime relating to cartels The Spanish legal provisions applicable to cartel agreements and practices, in particular, Article 1 of the Spanish competition act (Law 15/2007 of 3 July, “LDC”), mirror those under Article of the 101 of the Treaty on the Functioning of the European Union (“TFEU”). As in the EU regime, Article 1 of the LDC prohibits agreements on competition, concerted practices and decisions of undertakings that are capable of restricting competition in Spain. However, in contrast to the EU regime, the LDC also contains a legal defi nition of the concept of a “cartel” practice that theoretically would narrow the concept to very specifi c secret agreements between competitors, thereby excluding other, potentially restrictive practices. In particular, the Fourth Additional Provision of the LDC defi nes cartels as: “any secret agreement between two or more competitors with the purpose of setting prices, production or sales quotas, market sharing, including bid rigging, or restricting imports or exports” (literal translation). Despite the narrow wording of this provision, the Spanish competition authorities tend to apply the concept of cartel broadly. For instance, mere exchanges of information between competitors, even when not referring to future prices or quantities, were heavily sanctioned as cartel agreements in the motor-vehicles case (S/0482/13), despite the fact that the practices did not meet the legal defi nition of “an agreement to set prices or quantities”. The Spanish competition authorities even published, on 19 June 2013, non-binding guidelines on the application of the Spanish leniency programme set forth in Articles 65 and 66 of the LDC, extending the concept of a cartel to agreements that are not secret − which clearly contravenes the wording of the LDC − or to other secret agreements not mentioned in the legal defi nition (e.g., boycott agreements). This expansive application of the legal concept of cartel has been widely criticised and has given rise to intense debate in recent years that remains unresolved. While it is logical that the Spanish competition authority seeks to align the concept of cartel under Article 1 of the LDC with that developed by the EU Commission under Article 101 of the TFEU to the maximum extent possible, doing so without amending the wording of the LDC is more questionable. The most recent movement in this debate involves an appeal lodged before the Constitutional Court (“CC”) in the Professional Hairstyling Products case (S/0086/08) (pending), which had applied the concept of cartel to a mere exchange of information that included, inter alia, future prices and quantities. Even if the judgment is upheld, it remains unclear whether it is possible to apply the concept of cartel to other practices that do not directly or indirectly refer to the fi xing of prices or quantities (e.g., as mentioned, a boycott agreement against

GLI - Cartels 2017, Fifth Edition 266 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Uría Menéndez Spain a common supplier, competitor or client). Nor will it resolve the question of whether, for instance, a mere exchange of information of past or recent data, not including future prices or quantities, can be qualifi ed as a cartel when such practices are not even (in principle) considered as such under Article 101 of the TFEU. Within this context of relative legal uncertainty, we cannot exclude the possibility that the future act transposing Directive (EU) 2014/104 on antitrust damage actions of 26 November into Spain may bring some changes to the concept of cartel in sanctioning proceedings in line with the broader concept of the Directive. In fact, the current wording of the proposal of the transposition act (drafted by the special commission of the codifi cation committee of the Spanish Ministry for Justice) brings to the Spanish legal order the defi nition of cartel included in the Directive that, for instance, does not require the agreement to be secret, and in turn includes “concerted practices between two or more competitors aimed at coordinating their competitive behavior on the market or infl uencing the relevant parameters of competition”. In addition, the defi nition included in the Directive and its proposal of the transposition act covers “practices such as, but not limited to, the fi xing or coordination of purchase or selling prices or other trading conditions, including in relation to intellectual property rights, the allocation of production or sales quotas, the sharing of markets and customers, including bid-rigging, restrictions of imports or exports or anti-competitive actions against other competitors”. However, the proposal of the transposition act does not modify the abovementioned Fourth Additional Provision of the LDC, thus it is not clear whether this broader defi nition would only apply to claims for damages or to any infringement proceedings initiated by the authority. The Spanish competition authorities responsible for the enforcement regime of cartels in Spain are the Comisión Nacional de los Mercados y la Competencia − “CNMC” and the competition authorities of the regional autonomous communities (but only for practices whose effects do not extend to other autonomous regions). So far, eight autonomous regions in Spain have created their own competition authorities with capacity to investigate competition practices and make decisions on the merits (Andalusia, Catalonia, Valencia, Aragon, Castile and León, Navarra, the Basque Country and Extremadura). Four autonomous regions also have their own competition authorities (Murcia, the Canary Islands, Madrid and Navarra) that only hold investigation powers (i.e., the fi nal decision is taken by the CNMC). The CNMC’s main bodies are the Directorate of Competition, which is responsible for the investigation phase of the sanctioning proceedings, and the Board, which is responsible for the adoption of the resolution on the merits of the case and the imposition of fi nes. Infringement proceedings pursued by the CNMC are considered administrative sanctioning proceedings, implying that the CNMC can only impose fi nes and order the cessation of the practices, not decide on potential damages arising from the infringement. In parallel, commercial judges also have jurisdiction to apply Articles 1 of the LDC and 101 of the TFEU in cartel cases, and may determine the amount of the damages to be paid to cartel victims, as well as declare the civil consequences of the infringement (total/partial nullity of agreements). Cartel infringements can be subject to a sanction of up to 10% of the total turnover of the corresponding undertaking for the last year in Spain. The methodology traditionally used by the CNMC to calculate the fi nes was declared illegal by the Spanish Supreme Court in a ruling issued on 29 January 2015. In that case, the Supreme Court declared that the sanction

GLI - Cartels 2017, Fifth Edition 267 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Uría Menéndez Spain amounting to 10% of the total turnover can only be imposed for the worst infringements, and fi nes should be set at a lower level that is proportionate to the infringement’s severity. Since the adoption of this ruling the CNMC has developed a new methodology that has not yet been tested by Spanish courts. Article 63.2 of the LDC establishes that the CNMC can impose sanctions on “legal representatives or members of the managing bodies” of infringing undertakings. Although the CNMC had not made use of this mechanism since its creation in October 2013 (and was used only once by its predecessor, the Comisión Nacional de la Competencia) during year 2016, the CNMC has imposed fi nes on managers and representatives in three cases: Adult incontinence (S/DC/0504/14); Train infrastructures (S/DC/0519/14); and Collection and counting of valuables (S/DC/0555/15). Additionally, a recent amendment to Spanish law in 2015 (currently Article 60 of the Spanish Public Sector Contracts Act 3/2011) establishes that a breach of competition law may result in a prohibition against contracting with public authorities for a maximum period of three years as from the date that the judgment or administrative decision declaring the infringement becomes fi nal. This new provision, which is currently in force, was intended as a signifi cant deterrent given the fact that many undertakings’ activities depend primarily on contracting with the public authorities. The President of the CNMC has announced that they expect to make use of this prohibition in investigations to be concluded during 2017.

Overview of investigative powers in Spain The CNMC and the regional competition authorities have extensive investigative powers, including unannounced searches at a company’s premises and requests for information that are compulsory. Responses must be accurate, complete and non-misleading. Dawn raids must be authorised by an inspection order issued by the CNMC’s Competition Directorate. In order to enter a company’s domicile, either the entity’s consent is required or a judicial warrant (which can usually be obtained within 48 hours of the request). The Notice of the CNMC on dawn raids (published in October 2016) only refers to the need for a judicial warrant in cases of refusal from the company to grant its consent or if the dawn raid is at risk. However, no infringement proceedings have been initiated when companies refuse to grant consent in the absence of a judicial warrant. In practice, the CNMC usually requests a judicial warrant before initiating an inspection, as failure to comply with the warrant may entail a criminal offence. Inspections of private domiciles of directors or employees are also possible with a judicial warrant, but are uncommon and require well-founded indicia that documents relevant to the inspection are located therein. During dawn raids, the CNMC’s offi cials may search the premises and professional vehicles of employees. They may also copy documents related to the investigation contained in all types of formats (physical or digital), review tablets, telephones, etc., and even sealed rooms, computers and document containers, or may even retain them for a maximum of 10 days. The CNMC’s agents usually copy a very extensive selection of digital fi les stored on the employee’s computer (nearly an image of the computer) and almost all email exchanges (excluding personal fi les previously identifi ed by the employee). They also usually check private email accounts and phones/tablets to confi rm that they are not used for professional purposes. The copied digital fi les are subsequently loaded into a Nuix e-discovery device that runs an automated search using agent-selected key words. The list of key words must be provided to the company at the end of the inspection. The offi cials record the results of

GLI - Cartels 2017, Fifth Edition 268 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Uría Menéndez Spain the search on two DVDs (one is provided to the investigated company) and review them at its headquarters without the presence of the company’s representatives. Over the past years, the Supreme Court has substantially limited the CNMC’s powers during dawn raids: • CNMC offi cials are obliged to inform the company whether a judicial warrant authorising entry has been denied (judgment of 16 June 2015 in the Montibello case). • In the case of a discrepancy between the inspection order and the judicial warrant (which is not uncommon), the latter should always prevail (judgment of 10 December 2014 in the Campezo case). • The inspection order should be suffi ciently detailed and justifi ed as to the scope of the infringement and the indicia of the infringement in order to avoid “fi shing expeditions”. The inspection order cannot simply quote the abstract types of infringements contained in Article 101 of the TFEU and Article 1 of the LDC, but should describe in precise and detailed terms (“with the maximum precision possible”) the purpose of the inspection, and the information sought by the competition authority. Failure to fulfi l this requisite led the Supreme Court to annul the inspections in two cases (UNESA, judgment of 10 December 2014 and Transmediterránea, judgment of 27 February 2015). • The annulment of the inspection implies the inadmissibility of the seized documents for evidencing the infringement. This has led to the annulment of the sanctioning decision in some cases (judgment of 25 March 2015 of the Audiencia Nacional in the UNESA case). Moreover, even if the CNMC also had other evidence, if the sanctioning decision does not clearly differentiate the source of evidence used to sustain each charge (i.e., the evidence is mixed and the outcome is the result of the overall analysis), none of the evidence can be used against the company. This doctrine led the Supreme Court to annul the sanctioning decision in the Transmediterránea and Montibello cases despite the existence of leniency applications and other parallel inspections that were not declared illegal (judgments of 1 June and 15 June 2015). • Documents seized outside the scope of the investigation cannot be used to open proceedings for a new infringement. The seizure of such documents is illegal (judgment of 16 June 2015 in the Colgate case). Failure to cooperate during an investigation may lead to fi nes for obstruction up to 1% of the undertaking’s total turnover. The concept of “obstruction” not only refers to acts that render the investigation impossible, but also those that may substantially hinder the inspection. The LDC and the CNMC’s Notice on dawn raids expressly refer to the provision of incomplete, inaccurate or misleading information requested during the inspection (also for oral questions) or breaking seals placed by the authorities. In the Transmediterránea case, the Supreme Court upheld a broader interpretation, also covering the unjustifi ed absence of an employee despite having been requested to attend, or unjustifi ed delays in the initiation of the inspection. This notwithstanding, the Supreme Court signifi cantly reduced the amount of the fi ne (0.1% of the total sales in contrast to the maximum potential fi ne of 1% of total sales).

Overview of cartel enforcement activity during the last 12 months The CNMC has maintained its level of activity in the cartel ﬁ eld, but has not yet published statistical data on its activities in 2016. Nonetheless, according to publicly available information, approximately 10 cartel cases were decided from January to December

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2016, with a total approximate value of €230m in fi nes imposed. The amount of fi nes represents a decrease compared to the previous year (€516m) but it is important to take into consideration that almost half of the cartel decisions in 2015 referred to the same sector (automotive industry). However, as compared to year 2014 (€29m in fi nes), the activity of the CNMC in the cartel fi eld has increased. It should also be noted that more than half of the amount of the fi nes imposed in year 2016 corresponds to the Adult incontinence case (S/ DC/0504/14) in which the CNMC imposed fi nes of €128.8m. However, such amount also includes the €68m fi ne imposed on the leniency applicant that benefi ted from full immunity. In addition to the above, the CNMC has carried out dawn raids or initiated formal infringement proceedings in eight new cases in 2016. The sanctioning proceedings on which a decision was issued, and the new investigations initiated, affect highly disparate sectors; from advertising agencies to parcel companies, car parts, medical gases, transport of artwork, passenger transport, distribution of electric cables, secured private money transport services, travel agencies, software services providers, used batteries, etc. The CNMC has also initiated formal infringement proceedings against some of the major Spanish banks for alleged infringements in relation to derivatives on interest rates. The regional competition authorities are also active in cartel enforcement. In general terms (not only in this area), the most active ones are the authorities in Andalusia, Castile y León, Catalonia and Valencia.

Key issues in relation to enforcement policy In contrast to EU enforcement policy, the CNMC cannot prioritise cases and is obliged to investigate all cases that offer reasonable indicia of infringements. That does not imply that it must accept all complaints, but it is nevertheless legally bound to at least carry out a preliminary investigation in almost all cases. In the last 12 months the CNMC’s enforcement has mainly focused on cartel cases, which is the CNMC’s main priority. The exchanges of sensitive data between competitors, even if they do not refer to future prices and quantities, has been a major concern and considered to constitute a cartel when the exchange has been secret. The CNMC’s approach to this particular type of practice is indeed much stricter than that of the EU Commission, which tends to categorise it as a restriction “by object”, avoiding the necessity of carrying out a rigorous analysis of the effects. Hub and spoke investigations have also been an important area of activity, followed by collective price recommendations by associations, including regional professional associations. Within the fi eld of restrictive vertical practices, new investigations have also been conducted in the retail beverages sector regarding potential market partitioning, and in the pharmaceutical sector in connection with potential dual pricing systems. Abuses of a dominant position have also been relevant, but to a much lower extent. Interestingly, the CNMC has been monitoring very closely the implementation of previous sanctioning decisions and the accuracy of the information provided by companies during proceedings. This follow-up has led to the imposition of sanctions in a case for failure to comply with a previous decision in the travel agency sector, with fi nes totalling €1.8m. The CNMC also imposed a sanction on a company that submitted a lower turnover fi gure than that of its annual accounts as a response to the request by the CNMC for the purpose of calculating the fi ne.

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Key issues in relation to investigation and decision-making procedures Sanctioning proceedings are carried out in two phases: an investigation phase, in which the parties are given access to the fi le, receive formal accusations and are entitled to submit pleadings; and a decisional phase. Each phase is carried out by a different body (the Directorate of Competition and the Board of the CNMC, respectively). The fi nal decisions may be appealed to administrative courts and the investigation measures may also be appealed to the CNMC’s Board. Therefore, from a general perspective, the parties’ right to a defence seems to be respected. This notwithstanding, some practical aspects of the proceedings mentioned below are obvious targets for improvement. The maximum deadline established in the LDC for the duration of proceedings is 18 months as from the date of formal opening of the case (with possible suspensions in certain cases). The LDC distributes this maximum period between the investigation phase (a maximum of 12 months) and the decisional phase (maximum of six months). However, the Directorate of Competition’s practice over the past year seems to have prolonged the duration of the investigation phase in certain complex cases, thereby leaving the Board with little time to carry out an in-depth review or digest long and complex cases contained in thousands of pages (sometimes less than two months). Unlike the EU proceedings, the parties are given access to the fi le in the investigation phase from the very moment the formal proceedings are initiated, with the exception of the documents and statements of the leniency applications, which are only accessible after the issuance of a statement of objections. This entails that the parties have access to the incriminating evidence (although not all at the same time) from an early stage in the proceedings. In turn, the period given to the parties to submit observations on the statement of objections (including the proposal and submission of evidence) and a proposal decision prepared by the Directorate of Competition is much shorter (only 15 business days). The parties may request an extension of these deadlines of up to half the initially granted period. These extensions are normally granted but may be denied when the investigation is time-constrained. During the decisional phase, the parties are not given access to the fi le, and no indication of the estimated amount of a possible fi ne is provided. Nor are the parties given the opportunity to submit further pleadings unless they receive an information request, or the Board decides to admit new evidence or to adopt a new interpretation of the facts that allows them to make comments on the same. Although the LDC expressly foresees the possibility of having an oral hearing before the Board, oral hearings regrettably are only conducted in merger control proceedings. According to practitioners and scholars, this practice undermines the parties’ right to a defence, depriving them of the possibility to present their case to the Board. In relation to the parties’ rights within the context of dawn raid investigations, we refer to our explanations above. Nonetheless, it is important to recall that correspondence between the client and its external legal counsel is legally privileged and cannot be used in sanctioning proceedings. The same applies to information internally prepared by the company at external counsel’s request for the purposes of preparing a defence in competition law proceedings. The parties may also refuse to provide self-incriminating responses and documents outside the scope of the inspection.

Leniency/amnesty regime The LDC offers a leniency programme that very closely mirrors that of the EU and which

GLI - Cartels 2017, Fifth Edition 271 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Uría Menéndez Spain has been quite successful during the last few years. The competition authorities have also issued practice guidelines for applications under the leniency programme. Like the EU programme, the fi rst company bringing evidence of a cartel infringement of which the authority was unaware, or which allows it to carry out targeted inspections, may be granted conditional full immunity from fi nes. Immunity is only available if the company has not coerced others to participate in the cartel practice, if it fully cooperates with the CNMC throughout the proceedings and ends its involvement in the cartel. The second and third companies providing evidence offering added value (which must also cooperate until the end of the proceedings and end its involvement in the cartel) may be granted conditional reductions of up to 50% and up to 30%, respectively, of the amount of the fi ne. Fourth and subsequent companies may obtain a reduction of up to 20% of their fi ne. The CNMC is quite strict in this fi eld and it is diffi cult to obtain the maximum percentage reduction within each category. A peculiarity of the Spanish regime is that the fi nal decision on the fulfi lment of the conditions for obtaining immunity from fi nes or a substantial reduction thereof is taken by the Board of the CNMC when it decides on the merits of the case. However, the initial discussions on the fulfi lment of such conditions are carried out by the Directorate of Competition. The dichotomy of enforcement bodies applying the same programme may lead to inconsistent approaches and legal uncertainty, as the company may be deprived of the fi ne reduction at the last stage of the proceedings even if it has previously agreed on the reduction with the Directorate of Competition. Finally, it is important to note that the current LDC already establishes that the CNMC will not provide civil courts with copies of companies’ leniency statements.

Administrative settlement of cases Article 52 of the LDC establishes an early termination procedure for infringements (terminación convencional). The procedure is discretionary for the CNMC, and the Board of the CNMC may decide to terminate the investigation early, when the remedies proposed are suffi cient to resolve the competition concerns identifi ed by the Directorate of Competition and to guarantee the public interest. The Directorate of Competition has been highly reluctant to accept the initiation of early termination proceedings in cartel cases. In fact, the guidelines approved by the former CNC exclude the possibility of early termination for cartel cases. In some cartel investigations carried out in 2015, parties applied for the initiation of the early termination contracts but the Directorate of Competition refused them almost automatically. The CNMC’s decisions refusing the initiation of the early termination proceedings can be appealed before the Audiencia Nacional but there is no single case in which the Audiencia Nacional has annulled the CNMC’s decision. The CNMC has recently been very active in monitoring compliance with early termination commitments, even making broad interpretations of the commitments when they were not suffi ciently clear. Non-compliance with commitments is subject to heavy fi nes given its consideration as a very serious infringement. Finally, the LDC does not expressly recognise plea-bargaining mechanisms or settlements with the authorities where a reduction of fi nes is available to companies admitting an infringement. Nonetheless, in a few cartel cases in which a party decided not to respond to the statement of objections, the former CNC considered that fact as a mitigating circumstance and reduced the fi ne imposed on the company.

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Third party complaints As leniency applications have decreased in recent years, third party complaints have gained relevance for the initiation of infringement proceedings, even in cartel cases. In 2016 there have been several cartel cases initiated by complaints of clients or former employees. In theory, a third-party complaint must include a detailed description of the facts that support the existence of the infringement and corresponding evidence; however, the Directorate of Competition often decides to start an investigation with limited evidence and an unclear description of the infringement. The CNMC usually considers complainants to be interested parties (if the complaint is not anonymous), which implies that they will have access to the ﬁ le and the right to submit their observations to the statement of facts and the Directorate of Competition’s proposed decision.

Civil penalties and sanctions The LDC considers cartels to be very serious infringements and the CNMC is entitled to impose fi nes of up to 10% of the company’s total turnover in the previous fi nancial year in Spain. The former CNC issued guidelines with a methodology for calculating fi nes similar to the ones of the European Commission. Those guidelines were usually followed in cartel cases. As previously mentioned, the Spanish Supreme Court declared that methodology to be unlawful in a ruling issued on 29 January 2015, which has been consistently reaffi rmed in subsequent rulings. In that ruling, the Supreme Court declared that the fi ne equating to 10% of total turnover can only be imposed in case of the worst infringements and fi nes should be set at a lower level that is proportionate to the severity of the infringement taking into consideration, amongst other factors, the dimensions of the affected market. Following that ruling, the CNMC developed a new methodology that has yet to be tested by Spanish courts. The new methodology calculates the percentage of the company’s total annual turnover (not the turnover in the market affected by the cartel) to be applied for the calculation of the fi ne, based primarily on the following elements: (i) the company’s share in the market affected by the infringement; (ii) the duration of the infringement; (iii) the seriousness of the infringement; and (iv) the (theoretical) illicit benefi t obtained by the infringer. This methodology raises important concerns and has been heavily criticised for, among other reasons, lack of proportionality, discrimination and, above all, lack of clarity in the way the CNMC decides to establish a fi ne at a certain percentage of the total sales of the company (not merely the sales affected by the infringement). The practice in the last 11 months shows that the percentages in cartel cases range between 0.5 to 8% of the total turnover of the undertakings concerned. The LDC does not set specifi c reductions of the fi nes based on the implementation of compliance programmes. However, in the recent decision of International movers (case S/ DC/0544/14), the CNMC may have reduced the fi ne to be imposed to one of the companies based on the creation and implementation of a compliance programme following the initiation of the investigation. Given that the content of the decision of the CNMC is not suffi ciently clear, we expect this issue to be clarifi ed in future cases. If the infringer is an association, the CNMC may take into consideration the turnover of its members for the calculation of the fi ne. Additionally, the LDC entitles the CNMC to impose fi nes of up to €60,000 on natural persons. Fines on natural persons were

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Right of appeal against civil liability and penalties Infringement decisions and fi nes imposed by the CNMC in cartel cases can be appealed to the Audiencia Nacional. The appeal must be lodged within two months of notifi cation of the CNMC’s decision. Along with the appeal, the parties may apply for the suspension of the execution of the decision as an interim measure. The Audiencia Nacional usually accepts the suspension of the payment of the fi ne when periculum in mora is duly justifi ed and the payment of the fi ne is guaranteed. The Audiencia Nacional has full jurisdiction to review the facts and the amount of the fi nes imposed. Appeals against the fi nes imposed by the former CNC have been extremely successful in recent years as the Audiencia Nacional and the Supreme Court systematically annulled the methodology applied by the Spanish competition authorities for the calculation of fi nes. The courts have remanded the cases to the CNMC to recalculate the fi ne based exclusively on the elements established by the LDC and not on the content of the former guidelines. Appeals on substantive issues of cartel cases have been much less successful as the Audiencia Nacional usually upholds the CNMC’s analysis, particularly when leniency applications have been submitted.

Criminal sanctions Criminal sanctions resulting from cartel infringements are extremely rare in Spain. The Spanish Criminal Code establishes the possibility of criminal sanctions for some antitrust infringements (e.g., bid-rigging in public tenders) but criminal courts have been highly reluctant to apply them. Cartel practices can only give rise to a criminal offence in Spain in cases of bid-rigging and certain types of price manipulation. These provisions have rarely been applied. Nonetheless, in September 2015, the Audiencia Nacional admitted a lawsuit against several petrol companies and their executive managers regarding speciﬁ c conduct already sanctioned by the CNMC under the LDC. It is not yet clear whether the criminal court will dismiss the case on the grounds of the principle ne bis in idem (essentially equivalent to double jeopardy, autrefois acquit, in common law systems).

Cross-border issues The Spanish competition authority is a member of the European Competition Network and actively participates in the working groups and other meetings held within that network.

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In the last couple of years there has been closer cooperation between the former CNC and the current CNMC and the European Commission, as well as with other Member States’ competition authorities. In fact, a 2014 cartel case, Polyurethane Foam, involved cooperation with the Portuguese competition authority that was very relevant.

Developments in private enforcement of antitrust laws Claims for damages before civil and commercial courts derived from antitrust breaches remain scarce in Spain as compared to other EU jurisdictions such as the UK or the Netherlands. Actions brought in the past were usually standalone actions in the petrol station sector and few were follow-on claims (the most relevant were claims brought a few years ago in relation to the Sugar Cartel case). Nevertheless, there has been a certain increase of activity recently (e.g., the standalone action brought by Musaat in the Decennial Insurance cartel case in May 2014). A substantial increase of claims is expected in the near future as a consequence of the transposition of EU Directive 2014/204/EU into Spanish law. Indeed, an increasing number of potential victims of cartel infringements often address formal complaints to alleged cartel participants in order to interrupt the current statute of limitations (which remains one year for torts). Several claims have also been publicly announced, including class actions promoted by consumers’ associations in relation to the sanctioning decisions issued in 2015 in the automotive sector mentioned above. The transposition of Directive 2014/204, which should have taken place before the end of 2016 (but is delayed due to the lack of an operating government for the last months in Spain), will clearly increase the number of future claims for damages in Spain in several aspects. Some of them are the following: • One of the main obstacles that cartel victims currently face when seeking to bring claims for damages is the one-year statute of limitations for tort liability. The law transposing Directive 2014/204 will extend the period to fi ve years, in addition to its suspension during administrative appeal proceedings. • Spanish civil procedural law does not currently provide for a sophisticated disclosure process and access to evidence is diffi cult and usually insuffi cient to prepare a claim for damages. The law implementing Directive 2014/204 will surely address this issue and establish a specifi c mechanism to facilitate access to categories of documents available to the cartel members or third parties before substantiating the claim. Specifi c protection for leniency statements will also need to be regulated, as the current procedural law does not prevent a court from requesting that the leniency applicant submit a copy of the leniency statement (if not made orally). • Similarly, the CNMC’s decisions are not currently binding on civil and commercial courts. The implementation of Directive 2014/204 will entail an important change in this fi eld, as the CNMC’s fi nal decisions will be fully binding on civil and commercial judges. It will nevertheless be desirable to set forth some kind of “administrative prejudiciality” (prejudicialidad administrativa) to ensure that the damage claims substantiated before civil and commercial courts are not decided until the CNMC’s decision becomes fi nal. Otherwise, the risk of concurrent, confl icting judgments would lead to legal uncertainty and costly proceedings. • An additional reform of the concept of a “cartel” for damage purposes and the

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establishment of a presumption of damages in cartel cases would also be required. As previously explained, the legal concept foreseen in the LDC is narrower than that under the Directive. An initial preparatory draft bill for transposing Directive 2014/204 has already been prepared by experts appointed to participate in a codiﬁ cation committee.

Reform proposals The two most important challenges that the CNMC faces in cartel cases are: (i) The deﬁ nition of the concept of a cartel. It remains unclear whether the CNMC can extend the concept of a cartel to conduct that is not explicitly characterised as a cartel-related activity under the LDC. This is particularly important in exchange of information cases, which the CNMC tends to almost systematically characterise as constituting cartels. (ii) The methodology for the calculation of ﬁ nes in cartel cases. As mentioned, the former CNC guidelines were annulled by the Supreme Court early this year and the new methodology applied by the CNMC has faced strong criticism. The Audiencia Nacional is expected to issue its ruling on the new methodology during the course of 2017. From a procedural perspective, a clear improvement would be holding oral hearings in all cartel cases. Although Spanish law establishes the possibility of an oral hearing before the Board, that body is very reluctant to hold oral hearings, particularly in cartel cases.

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Antonio Guerra Fernández Tel: +34 915 860 466 / Email: [email protected] Antonio Guerra is a partner based in the Madrid offi ce of Uría Menéndez. He joined the fi rm as counsel in June 2007. Previously, Antonio was the Director of the Spanish Competition Tribunal for more than six years, where he participated directly in the decision-making process in a wide range of cases involving industries such as energy, telecoms, wholesale distribution, food and beverages and media. During his term at the Tribunal, he was also responsible for relations with the European Commission, national regulators (National Energy Commission and National Telecommunications Commission), the regional competition authorities, the Latin American competition authorities and multilateral institutions such as the IMF and World Bank. His practice focuses on EU and Spanish competition law. He advises companies and associations from the banking, insurance, telecoms, media, environment, energy, food or transport industries in all types of proceedings before the National Competition Commission and the European Commission. Patricia Vidal Martínez Tel: +34 915 860 161 / Email: [email protected] Patricia Vidal is a lawyer and partner of Uría Menéndez (EU and competition law department). She joined the fi rm in 1996. She has worked on a wide variety of national and international cartel cases (including leniency programmes) before the Spanish and EU authorities, and regularly advises on mergers (including international multi-fi lings), agreements and strategic alliances, state aid issues and infringement proceedings for the abuse of a dominant position. Patricia has vast experience in competition litigation before the Spanish and the EU courts. She is a regular lecturer on EU and Competition Law in different Master’s and postgraduate degree courses and is the academic director of the Master’s Degree in International Legal Practice at the Instituto Superior de Derecho y Economía (ISDE). She has written several articles and books on Competition Law and is a member of the board of the Spanish Association for the Defence of Competition. Tomás Arranz Fernández-Bravo Tel: +34 915 870 853 / Email: [email protected] Tomás is a senior associate based in the Madrid offi ce of Uría Menéndez. He joined the fi rm in 2010 and has worked in both the Brussels and Madrid offi ces. He was seconded to the Competition Department of the Amsterdam offi ce of De Brauw Blackstone Westbroek from January 2013 to June 2013. He has been involved in a variety of national and international antitrust infringement cases before the Spanish and EU authorities, and is regularly asked to advise on mergers (including the coordination of international multi- jurisdictional fi lings) and distribution agreements. He has also implemented antitrust compliance programmes and delivered training sessions for numerous clients.

Uría Menéndez Príncipe de Vergara, 187 / Plaza de Rodrigo Uría, Madrid, Spain Tel: +34 91 586 04 66 / Fax: +34 91 586 07 53 / URL: http://www.uria.com

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Peter Forsberg, Xandra Carlsson & Haris Catovic Hannes Snellman Attorneys Ltd

Overview of the law and enforcement regime relating to cartels The Swedish law applicable to anti-competitive agreements is in large part equivalent to EU competition law and Article 101(1) of the Treaty on the Functioning of the European Union (“TFEU”). The Swedish Competition Act (“Act”) came into force on November 1, 2008 and governs all types of actions that may distort effective competition. The Act aims at, as far as possible, assimilating EU competition law and is thus interpreted in accordance with practice from the European Commission (“Commission”) and the Court of Justice of the European Union (“ECJ”). Chapter 2 of the Act governs the substantive provisions relevant for anti-competitive agreements and “cartel” enforcement. The Act does not provide a legal defi nition of what a “cartel” is, but it is generally understood to signify an agreement entered between competitors which aims to distort competition on a specifi c market. Chapter 2, Article 1 and Chapter 2, Article 2, are modelled after Article 101(1) and 101(3) of the TFEU. Article 1 strictly prohibits cooperation between undertakings which has as its object or effect the prevention, restriction or distortion of competition in the market to an appreciable extent, whereas Article 2 sets out the possible exemptions to the prohibition found in Article 1. The geographic scope of the Act stretches to behaviours affecting the territory of Sweden. The ultimate reach of the Act is determined by whether the anti-competitive behaviour has potential to, or actually affects, a market in Sweden. Hence, although an agreement concerns foreign undertakings or is organised from outside of Sweden, if it has an appreciable effect on competition in Sweden, the Act is applicable and the undertakings may be held liable. However, where trade between Member States may also be affected, EU competition law will correspondingly be applicable. The Swedish Competition Authority (“SCA”) is the central administrative authority for the administration and enforcement of competition law in Sweden. The SCA plays a key role in the competition fi eld and is entrusted with investigative powers as well as intervention and – to some extent – decision-making powers. The SCA’s powers stem from the provisions in Chapter 5 of the Act. The SCA investigates possible infringements of the Act and may require an undertaking to terminate practices found to be contrary to competition law. If the undertaking fails to comply with an order from the SCA, an administrative fi ne may be imposed on the undertaking for non-compliance. In situations where the SCA has established the existence of an infringement of the Act, the Patent and Market Court (“PMC”) may impose fi nes of up to 10% of the infringing companies’ aggregate worldwide group turnover. Thus, the

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SCA does not have decision-making powers equivalent to the Commission, although it has recently been proposed to grant the SCA such rights. The PMC acts as a division within the Stockholm District Court as the fi rst instance in competition law matters, merger control proceedings and in damages actions. Decisions and judgments by the PMC can subsequently be appealed to the Patent and Market Court of Appeal (“PMCA”), as the highest instance. A precondition for the PMCA to hear and conduct an examination of an appealed case or matter is that the court grants a leave to appeal. A reorganisation of the court system was made effective as of September 1, 2016, where the PMC was established as a separate division within the Stockholm District Court and where the Market Court was replaced by the PMCA. The reorganisation of the court system for competition law matters was deemed necessary due to the complex and comprehensive nature of competition law violation and merger control cases. The intention is to obtain a uniform examination and handling of competition law matters, which is a welcome change by many stakeholders. The new court system creates a more unifi ed and concentrated judicial system. The consequence of an agreement found to fall within the provisions of Chapter 2, Article 1, is that such agreements are unenforceable. In cases where the undertakings’ market shares and turnover are below certain specifi c thresholds, the agreement will fall outside of the competition rules, in line with the SCA’s guidance on Agreements of Minor Importance. The de minimis rules do not apply to hard- core restrictions, however, such as cartel-like behaviour.

Overview of investigative powers in Sweden The SCA has investigative powers which are broadly similar to those of the Commission. The investigative powers are set out in the Act and include: Requests for information: The Act provides the SCA with extensive powers to require information, documents and other materials from undertakings which are suspected of an infringement, but also third parties. The SCA may require such information when necessary for the performance of its duties under the Act by issuing a request for information under Chapter 5, Article 1(1) of the Act. The SCA may also perform trade- or sector-specifi c investigations by requesting information from customers, competitors and other undertakings to assess and highlight potential competition concerns in the private and/or public sector which may hinder competition. Such a request may be imposed under penalty of an administrative fi ne for failure to adhere to the SCA’s request for information. The SCA may also request information at the request of another National Competition Authority (“NCA”) in the EU. Call in for questioning: Individuals who are believed to be able to provide relevant information may be called in for questioning by the SCA. Orders to provide information and appear for questioning may be imposed under penalty of an administrative fi ne for non- compliance. However, privilege against self-incrimination applies and the individual does not have to divulge information that may implicate the individual. Inspection of the business premises – “dawn raids”: In order for the SCA to carry out a dawn raid, the PMC must fi rst grant authorisation by a court order. Where the SCA has reasonable grounds to assume that the Act has been infringed, or when it is necessary in order to fulfi l Sweden’s obligations to the Commission or another NCA, the SCA can apply

GLI - Cartels 2017, Fifth Edition 279 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Hannes Snellman Attorneys Ltd Sweden to the PMC for authorisation to conduct an unannounced on-site inspection at locations relevant to the suspected infringement, for example, company premises. In order to be afforded the right to perform a dawn raid, the SCA has to show reasonable grounds to assume that the prohibition in the Act has been infringed. The standard of proof set out in Chapter 5, Article 3, is set low, examples of which can be seen in previous cases such as PEAB Sverige et al. and Brunswick Marine in Sweden AB et al. There, the SCA was granted permission to enter and seize materials on the business premises due to indications of parallel behaviours, which was based on statistical analysis of tenders in public procurements. Upon successful application to the PMC, the SCA is granted inspection powers similar to those of the Commission, during dawn raids. Such powers include the right to enter any premises, land and means of transport used for the business, but also to carry out unannounced on-site inspections at the residential premises or other premises of members of the board and employees of the undertaking under investigation (in cases where the behaviour subject to scrutiny is considered to be suffi ciently serious). The undertaking will, as a routine, not be heard before the PMC has taken its decision, and not be informed until the investigation has been initiated. During an unannounced on-site inspection, the SCA has wide powers to conduct necessary inspections in order to enforce the prohibition contained in the Act. Those powers include: • examining business books and other company records; • taking or obtaining copies of, or extracts from, books and company records (including electronic records); and • order oral explanations “on the spot”. The SCA is often accompanied by the Swedish Enforcement Service, which assists in gaining access to premises and applying offi cial seals. If the PMC denies the SCA’s application of a dawn raid, the SCA may appeal the decision to the PMCA. Seizure of evidence: In the course of conducting a dawn raid, the SCA will do a physical search of the premises in question. The SCA has the power to examine any kind of company records, including taking copies or extracts from such records (electronic records included) as well as ‘mirroring’ digitally stored material for in-depth search. The SCA is not authorised to review mirrored information off business premises (i.e. at the SCA’s premises) without prior consent from the company. When the SCA reviews mirrored material at the SCA’s premises, the company will be invited to have a representative present throughout the process to supervise. For more information on mirroring of digitally stored material, please see below. Inspection of non-business premises: The SCA may be authorised by the PMC to inspect other premises, land or other means of transport, including residential premises of directors, managers and other members of staff, where the criteria in Chapter 5, Article 3, is fulfi lled and the SCA has reasonable suspicions of a serious violation of the Act. Interviews with company employees: The SCA may, as part of an unannounced on-site inspection, order oral explanations from representatives or employees of the undertaking involved about documents found at the business premises, or what role a particular individual of interest has in the organisation. However, the interviewee is not required to provide any incriminating information.

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Furthermore, individuals who are believed to be able to provide relevant information in an investigation can be required to attend hearings at the SCA’s premises. The hearings will be recorded in writing and the interviewee is given the opportunity to examine that record for accuracy. Legal privilege: During an unannounced on-site inspection, the SCA does not have the legal right to conﬁ scate documents or storage devices containing information covered by legal privilege. In the event of a dispute whether a particular document is legally privileged, the document in question is immediately to be sealed and sent by the SCA to the PMC for the issue to be determined without delay. Legal privilege only pertains to legal advice obtained from external legal counsels who are members of the Swedish Bar Association or his/her associate (Chapter 5, Article 11 of the Act). In practice, the bar to show that a particular document is protected by legal privilege in Sweden is set quite low. In Posten AB et al., the company (Posten) claimed that a memorandum found by the SCA during a dawn raid, written by the in-house legal counsel for the purpose of obtaining external legal counsel, should be covered by legal privilege. The PMC agreed with Posten and consequently considered that every written document, which has been entrusted to a lawyer within its profession, is protected under legal privilege. Privilege against self-incrimination: The protection against self-incrimination under Swedish law reﬂ ects the Convention for the Protection of Human Rights and Fundamental Freedoms, as interpreted by the European Court of Human Rights. It is up to the SCA to prove that an infringement of the Act has been conducted. Although the SCA may require an individual or an undertaking to provide certain documents or information under the Act, the SCA may not compel answers which might involve an admission of the existence of a competition law infringement which the SCA has to prove in court.

Overview of cartel enforcement activity during the last 12 months The SCA has for the past few years prioritised cartel detection by devoting greater resources to develop SCA’s ex offi cio cartel detection methods. Additionally, the SCA has become more proactive in using media to convey its activities against anti-competitive behaviour. In particular, the SCA has emphasised the potential risks an undertaking may be exposed to by participating in a cartel, such as heavy fi nes, bad goodwill and exclusion from participation in public procurement. Through intensifi ed activity in the media, the SCA aims at increasing awareness of the Act and the leniency programme. Although it varies, on average the SCA performs approximately two dawn raids per year. In October 2016, the SCA performed unannounced on-site inspections after suspicions of unlawful cooperation between several large DIY building material chains. The SCA suspects that the chains have agreed to minimum prices on bathroom ceramics, subsequently resulting in higher prices for the end consumers. The investigation is ongoing, and whether it will result in fi nes awaits to be seen. Looking at which sectors the SCA has analysed in recent years, the SCA tends to prioritise those markets exposed to competitive imbalance. Sectors that have been under the SCA’s scrutiny in the past are building and construction, the health care sector and the petrol- and timber markets. Moreover, the SCA receives approximately fi ve leniency applications per year, whereof approximately half are summary applications. • Ragn-sells and Bilfrakt Bothnia were fi ned a total of SEK 4.5 million for a bid-rigging cartel during a public procurement for waste collection. The companies under

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investigation chose to accept the SCA’s settlement terms whereby the SCA issued a fi ne order in November 2016. • Aleris Diagnostik, Capio S:t Görans Sjukhus et al. In December 2015, three companies within the health care and nursing sector were fi ned a total of approximately SEK 28 million for collusion during a public procurement, i.e. bid-rigging. • TeliaSonera Sverige and Göteborg Energi GothNet are being sued for close to SEK 35 million in penalties for forming a bid-rigging cartel prior to a public procurement conducted by the City of Göteborg in 2009. The case is currently pending in court, the result of which awaits to be seen later this year. • Alfa Quality Moving, NFB Transport Systems and ICM Kungsholms was sued in 2014 for approximately SEK 42 million. The companies had in two subsequent transactions included ancillary restraints which, according to the SCA, were too far-reaching. The SCA claimed that the competition clauses amounted to unlawful non-competes and market-sharing. This was the fi rst case where too far-reaching ancillary restraints have been interpreted as being able to create potential anti-competitive agreements, giving rise to fi nes. Although the court agreed with the SCA that the non-compete clauses of fi ve years were too far-reaching, the court found that the purpose of the clauses had been reasonable and that the SCA had not been able to show any negative effects on competition as a result of the agreements. The SCA has appealed the case to the PMCA.

Key issues in relation to enforcement policy Enhanced decision-making powers for the SCA: the SCA does not currently have any powers to impose fi nes on companies infringing the Act, but must go to the PMC to request fi nes against undertakings that have infringed the competition rules. In 2015, the Swedish government launched an inquiry into whether the SCA should be granted enhanced decision-making powers in the enforcement of antitrust and merger control rules. The inquiry proposes that the SCA should be granted enhanced decision making-powers in order to reduce processing times at the SCA and to further harmonise Sweden’s decision- making order with other EU Member States. The suggested changes are proposed to enter into force in January 2018, although the proposition has not received a uniformly positive response, and whether the proposition becomes reality is uncertain. Mirroring: has been a much-debated topic in Sweden for the past few years due to the legal uncertainties surrounding the practice. Prior to the amendments to the Act in January 1, 2016, there was no express legal basis allowing the SCA to carry out indexing and searching of digital material at its own premises in connection with unannounced on-site inspections with the consent of the company. The proposed changes to the Act, following an inquiry by the Swedish government, were therefore welcomed by the legal community as Chapter 5, Article 6, now grants the SCA express authority to mirror materials found at unannounced on-site inspections, with the consent of the company. Fishing expeditions: the debate has further been focused on the excess information that becomes available to the SCA through mirroring and whether it is compatible with the Act. The concern is that the SCA may go beyond its original authority and use the excess information for future investigations. In 2014, the court held that the SCA did not have the authority to use previously mirrored material collected at an unannounced on-site inspection relating to another alleged violation to investigate a potentially new infringement of the Competition Act, hence clarifying that “fi shing expeditions” are not lawful.1

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Key issues in relation to investigation and decision-making procedures The results of the Swedish government’s inquiry launched in April 2015, investigating whether the SCA should be granted enhanced decision-making powers in the enforcement of antitrust and merger control rules, were published earlier this year. One of the key issues investigated was whether the SCA should have the power to decide on fi nancial penalties and act as fi rst instance in competition infringement cases, with the possibility for the undertaking concerned to appeal the SCA’s decision to the PMC and further to the PMCA. The proposed reform is believed to lead to a more effi cient system, but could potentially also give rise to concerns in regard to legal certainty aspects, since the SCA would be granted double-edged roles as both prosecutor and judge, which is a novelty within the Swedish legal system. The reform is expected to enter into force as of January 1, 2018.

Leniency/amnesty regime The Swedish leniency programme was amended in 2014 to better refl ect the EU leniency system. The new leniency regime introduced a marker system whereby a company may apply for a marker and submit limited information about an ongoing infringement. The minimum requirement in order to obtain a marker is to submit information on the market affected by the infringement, the other companies involved and the nature of the infringement. In order to secure the marker, the company must, within a specifi ed period, submit a complete notifi cation. Unless the company with the marker fails to submit the outstanding information, another company cannot jump the queue for immunity. To obtain immunity or reductions of fi nes, a company must satisfy certain conditions set out in Chapter 3, Articles 11 to 15 of the Act. The fi rst company to provide the SCA with suffi cient information of the existence of an infringement which the SCA can act on, may be granted immunity. Alternatively, in situations where the SCA already has suffi cient information to act without the applicant’s contribution, the company may still receive immunity if it is fi rst to provide information which allows an infringement to be established, or contributes in some other way to a very signifi cant extent to facilitate the investigation. Additionally, a company seeking immunity must also provide all relevant information available, actively cooperate with the SCA throughout the investigation, ensure that no evidence is destroyed, not hinder the SCA’s investigation in any other way, and cease participation in the infringement as soon as possible. In situations where a company has compelled other undertakings to participate in the infringement, immunity will not be available. Where another company has already secured immunity, an undertaking applying for leniency can still benefi t from a reduction of fi nes. Chapter 3, Article 13 of the Act provides that a company may benefi t from a reduction of fi nes if the undertaking provides the SCA with information which facilitates the investigation to a signifi cant extent as well as satisfying the requirements for immunity set out above. According to the SCA’s guidelines, the fi rst company to satisfy the relevant conditions will be eligible for a reduction of the fi ne, which will be dependent on the timing of the information, the added value that the information may contribute, and the company’s cooperation throughout the investigation.

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Undertaking Maximum reduction of ﬁ nes 1 50% 2 30% 3 20% 4 10%

Administrative settlement of cases In cases where the facts are uncontested and can be considered to be clear-cut infringements, the SCA may, in accordance with Chapter 3, Article 16 of the Act, issue a fi ne order, which is a form of binding settlement. The system of fi ne orders is built on voluntariness, where the company under investigation may choose to accept the SCA’s settlement terms or not. A fi ne order is binding and a simplifi ed decision on liability is issued. However, the settlement can be appealed to the PMC within a year of written confi rmation. It is worth noting that there is no possibility for fi ne orders to receive any reductions or discounts – the advantages of fi ne orders are the simplifi ed and expedited processes. Generally, fi ne orders have most often been used in bidding collusion cases.

Third party complaints Many cases are brought to the SCA by third parties. The SCA may ex ofﬁ cio open an investigation based on information from the public. Whether a tip-off leads to any further investigation often depends on whether the SCA believes there is consumer harm, the importance of a precedent and the measures required for the investigation. The SCA has wide investigative discretion and restraints on the capacity for investigations, and resources available, may inﬂ uence whether an investigation is opened or not. Normally a decision on whether a matter should be further investigated or written off will be made within one to four months. Undertakings concerned have the possibility, in the event that the SCA decides not to proceed with an alleged infringement, to initiate a private action in the matter.

Civil penalties and sanctions Chapter 3, Articles 5 to 11 of the Act, contain the provisions applicable to civil penalties. The SCA has the burden to prove that the conditions under the Act for imposing a fi ne on an infringing undertaking are fulfi lled. According to case law, the standard of proof which the SCA will have to satisfy is high, but can to some extent be altered to take into consideration the seriousness of the infringement involved, and fi nes sought in a particular case. Like the Commission, the SCA has provided guidance on the setting of fi nes, but may not fi ne an undertaking more than 10% of its group turnover during the previous fi nancial year. The SCA tends to look at the turnover generated in a specifi c market where the infringement took place. When deciding the level of the fi ne, the SCA evaluates the gravity and the duration of the infringement. The base level of the fi ne is set by considering various factors such as the type and the scope of the infringement and the harmful effect on the market, both actual and potential harm. The base level is then adjusted for aggravating or mitigating circumstances. Factors such as a ring-leading role or relapse in anti-competitive behaviour are seen as aggravating circumstances, whereas full cooperation with the SCA and partial participation in the

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Right of appeal against civil liability and penalties In contrast to the Commission, it is the PMC that delivers the infringement judgment and not the SCA. The SCA rather acts as a prosecutor, and will be heard in front of the court together with the investigated undertaking. If the decision of the PMC is appealed and subsequently granted leave to appeal, the PMCA performs a review of facts and substance, affecting both the legal assessment and possible sanctions. In regards to damages actions, it is the PMC that acts as the ﬁ rst instance in actions for cartel damages. The PMC’s judgment or decision can be appealed to the PMCA which, if leave to appeal is granted, will hear and conduct an examination of the appealed case or matter. As part of the European process to harmonise actions for competition damages across all Member States, a legislative reform will enter into force in late December 2016 to implement the EU Directive on Antitrust Damages. The proposal of enacting the new Competition Damages Act includes several new reforms, for instance, a rebuttable presumption that cartels cause harm or a ﬁ nal infringement decision of the SCA, else the courts will constitute full proof of the existence of a competition law infringement, and clearer limitation periods.

Criminal sanctions Breach of the competition rules is not a criminal offence in Sweden. However, a trading prohibition may be imposed on an individual in cases of particularly serious infringements. Chapter 2, Article 1 of the Act governs such prohibition. The SCA will seek a trading prohibition only in situations where it is considered to be in the public interest and the individual has seriously failed to fulfi l his or her obligations. The consequence following a trading prohibition is a ban for the individual concerned for a period of three to ten years to run business operations or hold a senior position in a company. Furthermore, an individual failing to abide by a trading prohibition risks imprisonment of up to two years. The SCA does not take into consideration that an individual may have left or been removed from a post when seeking a trading prohibition. In circumstances where either the company benefi ts from leniency, or the individual has contributed and personally cooperated to a signifi cant extent, the SCA may grant immunity from a trading prohibition.2

Cross-border issues In situations where anti-competitive conduct may be subject to enforcement in multiple European jurisdictions, Regulation 1/2003 provides that the SCA and other European NCAs must cooperate closely for the investigation of a potential infringement. Within the framework of the European Competition Network (“ECN”), NCAs may assist each other in investigations by sharing information or performing surprise visits on the behalf of another NCA. It is not uncommon, for example, for the SCA to assist in an unannounced on-site inspection in Sweden on behalf of another NCA. Furthermore, a Nordic Cooperation Agreement exists between the NCAs in Denmark, Finland, Iceland, Norway and Sweden. The Nordic countries exchange non-conﬁ dential information and information about cases of interest. Besides the Nordic Cooperation

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Agreement and the ECN, Sweden is also part of the International Competition Network and the Organisation for Economic Cooperation and Development.

Developments in private enforcement of antitrust laws It follows from Chapter 3, Article 25 of the Act, that if an undertaking intentionally or negligently infringes the prohibition against anti-competitive agreements, the undertaking shall compensate any damage that is caused thereby. The scope of those entitled to claim damages is not defi ned in the Act but can in general be described as “victims of competition law violations”. In principle, the victim is entitled to full compensation for damages suffered. The victim is therefore not only to be compensated for actual loss suffered, but also for any loss of profi t resulting from the infringement, including interest from the time the harm occurred until compensation is paid. Case law on private enforcement is very limited. To date, there have been few actions brought before Swedish courts. One example of private enforcement follows the Swedish Asphalt Cartel, where damage claims were brought by several municipalities which had been customers of the cartel members. Each claim was, however, fi nally settled out of court. The Swedish law on collective redress is not restricted to a certain type of claim or area of law, and can thus be applicable when two or more victims of the same competition law violation want to bring action against any undertaking participating in a cartel. Collective redress has not yet been used in the fi eld of competition law.

Reform proposals The Swedish government’s inquiry launched in 2015 investigating whether, among other things, the SCA should be granted enhanced decision-making powers to decide on fi nancial penalties and act as fi rst instance in competition infringement cases, was published in September this year. It is believed the proposed reform will lead to a more effi cient system whereby, if the SCA were to be granted enhanced decision making-powers, it would reduce the processing times at the SCA and help to further harmonise Sweden’s decision-making order with other EU Member States. The suggested changes are proposed to enter into force in January 2018, although the proposition has not received a uniformly positive response from the legal community. The increased decision-making powers for the SCA could potentially give rise to concerns with regard to legal certainty aspects, as the SCA would be granted double-edged roles as both prosecutor and judge, which is a novelty within the Swedish legal system. One fear is that the imminent widening of the SCA’s decision-making powers would lead to higher levels of administrative fi nes if the SCA is allowed to act as fi rst instance. Today, in practice, the courts tend to set the amount of the administrative fi nes at a lower level than was originally claimed by the SCA. For instance, in Bilia et al.,3 the SCA claimed that the members of the cartel were liable to pay administrative fi nes in a total of SEK 71.3 million but the concerned undertakings were ultimately imposed administrative fi nes of no more than approximately SEK 21 million. Whether the proposition becomes reality is uncertain but it is expected to enter into force in January 2018. As mentioned above, the Competition Damages Act will enter into force in December 2016 and thus implement the EU Directive on Antitrust Damages. The proposal of enacting the

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* * *

Endnotes 1. 2015:15. 2. KKVFS 2012:2. 3. MD 2008:12.

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Peter Forsberg Tel: +46 76 000 00 80 / Email: [email protected] Peter Forsberg is partner and head of the Competition & Procurement practice group at Hannes Snellman in Stockholm. He advises Swedish and international companies on competition law and public procurement issues. In particular, he has solid experience of domestic and international merger control, competition law disputes and compliance work. He regularly represents clients in proceedings before national competition authorities as well as before the European Commission. He has recently been involved in matters in the following sectors: ﬁ nancial services, food and consumer products, forest products, and pharmaceuticals and telecommunications.

Xandra Carlsson Tel: +46 76 000 00 12 / Email: [email protected] Xandra Carlsson is an associate at Hannes Snellman in Stockholm. She is specialised in EU and Swedish competition law and advises on all aspects of competition law.

Haris Catovic Tel: +46 76 000 00 50 / Email: [email protected] Haris Catovic is an associate at Hannes Snellman in Stockholm. He is specialised in EU and Swedish competition law and advises on all aspects of competition law.

Hannes Snellman Attorneys Ltd Kungsträdgårdsgatan 20, 111 47 Stockholm, Sweden Tel: +46 760 000 000 / Fax: +46 8 679 85 11 / URL: http://www.hannessnellman.com

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Mario Strebel, Christophe Pétermann & Renato Bucher Meyerlustenberger Lachenal

Overview of the law and enforcement regime relating to cartels Legal framework Cartels and monopolies in Switzerland are mainly governed by the Federal Act of 6 October 1995 (revised in 2003) on Cartels and Other Restraints of Competition (“Cartel Act”). The purpose of the Cartel Act is to prevent harmful economic or social effects of cartels and other restraints of competition and, by doing so, to promote competition in the interests of a liberal market economy. However, the objective is not limited to economic aspects. General public interest considerations may also be taken into account. The law grants the Swiss Competition Commission (“Comco”) the power to assess economic consequences of restrictions of competition and concentrations between undertakings, and leaves it to the Federal Council (the Swiss government) to assess the balance with the general public interest. Upon specifi c request by the undertakings subject to a decision by the Comco or the appeal courts, the Federal Council may authorise anti-competitive conduct in exceptional cases if such conduct is deemed necessary for compelling public interest reasons (article 8 Cartel Act). To date, this has never happened. The Cartel Act prohibits unlawful restraints of competition such as anti-competitive agreements. Anti-competitive agreements are defi ned as binding or non-binding agreements or concerted practices between undertakings operating at the same or different market levels that have a restraint of competition as their object or effect (article 4 § 1 Cartel Act). To be unlawful, an agreement must either eliminate effective competition or signifi cantly restrict competition without being justifi ed on economic effi ciency grounds (article 5 § 1 Cartel Act). According to article 5 § 3 and 4 Cartel Act, the following agreements are presumed to eliminate effective competition and are thus considered as hard-core restrictions (“hard- core agreements”): • horizontal agreements that directly or indirectly fi x prices, restrict quantities of goods or services to be produced, purchased or supplied, or allocate markets geographically or according to trading partners; and • vertical agreements that set minimum or fi xed prices or allocate territories to the extent that (passive) sales by other distributors into those territories are not permitted. In addition to the Cartel Act, the regulatory framework also comprises several ordinances of the federal government as well as notices and communications of the Comco, in particular the Notice regarding the Competition Law Treatment of Vertical Agreements of 28 June 2010 and the recently revised Notice regarding the Competition Law Treatment of Vertical

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Agreements in the Motor Vehicle Sector of 29 June 2015, which entered into force on 1 January 2016. In general, the Cartel Act is autonomous Swiss law and, as such, to be construed independently from the competition law of the European Union (“EU”). Under specifi c circumstances, however, European competition law can and shall serve as an interpretative aid (see section, “Cross-border issues” below). Aside from the cartel regulation dealing with anti-competitive agreements set out above, article 7 Cartel Act deals with abusive conduct by dominant undertakings. Authorities and enforcement regime The Comco and the Secretariat of the Comco (“Secretariat”) are the authorities charged with enforcing and administering the Cartel Act. The Comco is based in the Swiss capital Berne and consists of 12 members. One president and two vice-presidents head the Comco. The majority of the Comco’s members must be independent experts with no interest in or special relationship with any economic group whatsoever. The Comco takes decisions and remedial actions against, and also imposes fi nes on, undertakings that violate Swiss competition law. The Comco has wide decision- making and remedial powers. It can, inter alia, also issue injunctions to terminate a specifi c conduct or to change and modify a specifi c business practice. With the revised organisational regulation of the Comco that entered into force on 1 November 2015, a specifi c chamber is empowered to render partial decisions on the closure of proceedings, the approval of amicable settlements including other measures, in particular fi nes and costs, for some of the parties while the proceeding is continued for the other parties. The Secretariat is empowered to conduct investigations and, together with one presidium member of the Comco, to issue any necessary procedural rulings. The Secretariat submits draft decisions to the Comco and implements the latter’s decisions. The total headcount of the Secretariat amounted to 76 employees (66.7 FTEs) by the end of 2015. The Federal Administrative Court (“FAC”), based in St. Gall, is the fi rst appellate instance against Comco decisions. The Federal Supreme Court (“FSC”), based in Lausanne, is the second appellate instance, dealing with appeal decisions of the FAC. It is usually also the fi nal instance, unless the parties decide to bring a case before the European Court of Human Rights in Strasbourg. The Federal Criminal Court, based in Bellinzona, is the competent court to decide on the unsealing of seized documents and electronic data upon specifi c request by the Comco. Sanctions Pursuant to article 49a Cartel Act, direct fi nes are imposed on undertakings that participate in hard-core agreements or that abuse their dominant position. In its landmark decision Gaba, the FSC confi rmed for the fi rst time that undertakings that participate in hard-core agreements can be directly fi ned even if the presumption of the elimination of effective competition (article 5 § 3 and 4 Cartel Act) is rebutted and the agreement in question merely signifi cantly restricts competition within the meaning of article 5 § 1 Cartel Act (decision 2C_180/2014 of the FSC of 18 June 2016 – Gaba). The maximum fi ne amounts to 10% of the undertaking’s turnover cumulatively achieved in Switzerland in the preceding three fi nancial years. The Cartel Act Sanctions Ordinance (“CASO”) lays down the method of calculation of the fi nes in detail (see section, “Administrative and civil sanctions” below). And it is the CASO that also lays down the

GLI - Cartels 2017, Fifth Edition 290 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Meyerlustenberger Lachenal Switzerland legal prerequisites for leniency applications because of which a fi ne may be waived in whole or in part (see section, “Leniency regime” below). Furthermore, an undertaking that violates an amicable settlement or a legally enforceable decision of the Comco or its appeal courts can be fi ned up to 10% of the turnover cumulatively achieved in Switzerland in the preceding three fi nancial years (article 50 Cartel Act). Through this rule, recidivists with regard to binding fi ndings of illegal competition restrictions that did not qualify as hard-core agreements may be fi ned (indirectly) as well. Finally, an undertaking that fails to provide information or produce documents, or that only partially complies with its obligations during an ongoing investigation, can be fi ned up to CHF 100,000 (article 52 Cartel Act).

Overview of investigative powers in Switzerland The Secretariat is empowered to conduct investigations and, together with one presidium member of the Comco, to issue any necessary procedural ruling. Both the Comco and the Secretariat may hear the parties or witnesses (article 42 § 1 Cartel Act). The parties involved in particular have the right to be present at such hearings and to comment on the hearing minutes. Upon speciﬁ c request for information, the undertakings under investigation are also obliged to provide the Secretariat with all information required for their investigation and to produce necessary documents (article 40 Cartel Act), however in due consideration of the right against self-incrimination (nemo tenetur principle). The Secretariat may use all kinds of evidence to establish the facts. In practice, it typically relies on information gathered in dawn raids and information provided in (written or oral) party and witness statements. Upon request of the Secretariat, one presidium member of the Comco may order dawn raids and seizures (see article 42 § 2 Cartel Act). The Secretariat published a note on selected instruments of investigation in January 2016. Therein, it laid out its best practice particularly with regard to inspections and the seizure of documents and electronic data. The representatives of the Secretariat in charge of the inspection will, inter alia, not wait for the arrival of external lawyers before starting to search the premises. Any evidence discovered while the external lawyers were not present will, however, be set aside and only be screened once the lawyers are present. If deemed necessary, the undertakings being dawn-raided may request the sealing of speciﬁ c or even all documents and electronic data.

Overview of cartel enforcement activity during the last 12 months Dawn raids Since 1 April 2004, when an amendment to the Cartel Act entered into force, not only were direct fi nes introduced but the competition authorities were also empowered to conduct dawn raids. Dawn raids have proven to be an effective and effi cient tool to discover anti- competitive conduct. To date, the Secretariat has conducted dawn raids in 26 proceedings at over 100 premises. Ongoing and newly opened cartel investigations Numerous cartel investigations in different industry sectors are currently ongoing. These include, inter alia, the car-leasing sector, road construction and civil engineering services, fi nancial markets with regard to reference rates (interest rates, foreign exchange rates and rates for precious metals), the gravel and the galvanising industry.

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• On 23 September 2015, the Comco opened an investigation against the Swiss ratio AG and its affi liates as well as against the German gym80 International GmbH. The purpose of the investigation is to determine whether parallel imports of gym80-branded fi tness equipment have been illegally prevented. • On 28 September 2015, the Comco opened an investigation against several fi nancial institutions, namely UBS, Julius Bär, Deutsche Bank, HSBC, Barclays, Morgan Stanley and Mitsui. The investigation aims at establishing whether these undertakings engaged in unlawful agreements regarding the trade in precious metals, i.e. gold, silver, platinum and palladium. • On 16 December 2015, the Comco opened an investigation against Husqvarna Switzerland Ltd and its affi liates. The purpose of the investigation is to determine whether Husqvarna illegally maintained resale prices and granted absolute territorial protection by preventing parallel trade with its products. Dawn raids were conducted at the premises of Husqvarna. • On 15 February 2016, the Comco opened an investigation against several companies active in the galvanising industry and two respective industry associations. The Comco conducted dawn raids at several premises. The parties under scrutiny allegedly fi xed prices by the common setting of price surcharges and allocated markets territorially and by trading partners. • On 31 May 2016, the Comco opened an investigation against Husqvarna Switzerland Ltd and Bucher AG Langenthal and their respective affi liates. The purpose of the investigation is to determine whether the parties illegally fi xed prices and allocated markets by customers with regard to the distribution of the Aspen-branded engine fuel. The Comco conducted a dawn raid at the premises of Bucher. Aside these cartel investigations, Comco has also been active with regard to investigations of potential abuses of a dominant position, and opened new investigations in this regard or issued decisions respectively. Cartel decisions The Swiss Competition Commission (Comco) issued several cartel decisions in the last 12 months. • With a decision of 19 October 2015, the Comco fi ned four Swiss licensed Volkswagen distributors with lump sum fi nes in the amounts between CHF 10,000 and CHF 320,000 (not yet published in Comco’s publication journal “Law and Policy of Competition”; “RPW”). The four distributors together with AMAG RETAIL, the retail business of the Swiss main importer for Volkswagen cars AMAG Automobil- und Motoren AG, agreed on common terms and conditions with regard to discounts and delivery charges for initial offers for the sale of new Volkswagen cars. AMAG was leniency applicant and received full immunity from a fi ne. Already in 2014, the Comco closed the proceeding against AMAG in a preliminary ruling, which was subsequently annulled by the FAC, however (see below). The Comco decision against the four distributors is currently under appeal before the FAC. • On 19 October 2015, the Comco closed its investigation against Booking.com, Expedia and HRS. It prohibited the booking platforms to extensively restrict hotels in their supply policy by imposing comprehensive best price rules (RPW 2016/1, p. 67 – Online- Buchungsplattformen für Hotels). The less restricting contract conditions (“narrow best price rules”), as modifi ed by Booking.com and Expedia shortly before the Comco’s decision was issued, do not fall under this prohibition. However, Comco reserved

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the right to monitor the developments on the market and, if necessary, to open a new investigation in this regard. No fi nes were imposed, as the undertakings’ conduct did not fall under the category of hard-core agreements, i.e. practices subject to direct fi nes. • On 14 December 2015, the Comco fi ned Musik Hug AG and AKHZ Management AG, two distributors of grand and upright pianos of the brands Steinway & Sons and Grotrian-Steinweg for illegal price fi xing by agreeing on common list prices and rebates (decision of the Comco of 14 December 2015 – Flügel und Klaviere; not yet published in the RPW). The aggregated fi ne amounted to CHF 518,000. La Bottega del Pianoforte SA was leniency applicant and received full immunity from a fi ne. Even though the two manufacturers Steinway & Sons and Grotrian-Steinweg did not issue minimum or fi x resale prices, they supported the dealers’ anti-competitive agreements by issuing their agreed list prices, a conduct they committed to refrain from in the future in amicable settlements approved by the Comco. • On 23 May 2016, Comco approved an amicable settlement between the Secretariat and the General Electric Company (GE), including its affi liates in Germany and Switzerland (RPW 2016/2, p. 434 – GE Healthcare). The investigation showed that GE agreed to maintain absolute territorial protection with German domiciled distribution partners and thereby prevented parallel trade to Switzerland. In the amicable settlements, GE committed to refrain from such conduct in the future and to amend or clarify its distribution agreements’ wording where necessary. GE received full immunity from a fi ne because of its leniency application. • On 4 October 2016, the Comco fi ned eight road construction and civil engineering undertakings because of anti-competitive bid rigging in the district of See-Gaster (Canton of St. Gallen) and the districts of March and Höfe (both Canton of Schwyz) (not yet published in the RPW). The aggregated fi nes amounted to about CHF 5m. One undertaking that was the fi rst leniency applicant received full immunity from a fi ne. With this decision, Comco again confi rmed that the fi ght against illegal bid rigging is one of its top priorities. The Comco decision is currently under appeal before the FAC. In the last 12 months, the Federal Administrative Court (FAC) rendered several judgments, both on the merits and on procedural questions: • On 7 October 2015, the FAC issued a Cartel Act-related judgment (decision B-1570/2015 of the FAC of 7 October 2015 – Warnblitzleuchte). In a public tender appeals proceeding under the Federal Public Procurement Act against a direct award, the court found that a potential competitor is not admitted to claim that adequate sourcing alternatives would have existed if parallel imports were not illegally restricted. According to the FAC, the Comco or the civil courts respectively would have to decide whether it was illegal to prevent parallel trade and, where appropriate, to impose a supply obligation. According to the FAC, in public tender appeal proceedings, it is only admissible to claim that the requirements for a direct award proceeding were not met, i.e. that the authority was not allowed to question only one provider or supplier because de facto, adequate alternatives would have existed. The judgment of the FAC is fi nal and binding. • On 13 November 2015, the FAC confi rmed the Comco’s decision and the fi ne against the Bayrische Motoren Werke AG (BMW) in the amount of CHF 156m for restricting parallel imports into Switzerland (RPW 2015/4, p. 801 – Bayrische Motoren Werke AG). According to the Comco, BMW’s dealer contracts for the EEA contained export ban clauses that prohibited dealers within the EEA from selling new cars of the brands BMW and MINI to customers outside the EEA, including customers in

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Switzerland. According to the Comco, such foreclosure of the Swiss market also prevented competitive pressure on the retail prices for these cars and customers in Switzerland could not benefi t from the signifi cant euro exchange rate advantages. The FAC confi rmed that according to the applicable effects doctrine, anti-competitive restrictions committed outside Switzerland fall within the geographic scope of the Cartel Act in case they may have had an effect on the Swiss market, irrespective of its actual effects. The FAC also fully endorsed its practice established with the Gaba judgment and found that absolute territorial protection agreements within the meaning of Article 5 § 4 Cartel Act are per se to be qualifi ed as signifi cant restrictions of competition, irrespective of and without need to assess actual (quantitative) effects on competition. However, the possibility to justify such restrictions because of economic effi ciency grounds (theoretically) remains, which BMW failed to demonstrate in the case at hand. The judgment of the FAC is currently under appeal before the FSC. • On 17 December 2015, the FAC annulled the decision of the Comco and the corresponding fi ne of CHF 470,000 in the sports article matter for alleged resale price maintenance (RPW 2016/2, p. 580 – Altimum SA). According to the Comco, Altimum’s price recommendations, and its pressure to adhere to these recommendations, overrode the distributors’ possibility to set their prices autonomously, and led to illegal anti- competitive resale price maintenance. The FAC annulled the Comco’s decision and clarifi ed that price recommendations only constitute an illegal resale price maintenance if (i) there is an agreement between the manufacturer/main importer and the distributors to accept the recommendations as resale prices, or (ii) the distributor’s freedom to set its own resale prices is restricted, e.g. due to pressure or incentives to follow the recommendations by the manufacturer/main importer, and cumulatively if the price recommendations are effectively followed by the distributors to a large extent. For the FAC, proven resale price-fi xing with about 12% of distributors is no such large extent of adherence. As a consequence, it found that there was no agreement on resale prices at all. Regarding the question of per se signifi cance, the FAC ruled that besides qualitative, also quantitative effects had to be taken into account in order to assess signifi cance. The FAC’s decision contrasts its own judgments in both the Gaba and the BMW matter as well as the later Gaba judgment of the FSC. The Altimum judgment is currently under appeal and it remains to be seen how the FSC will align this judgment with its established practice in the Gaba case (see below). • On 12 February 2016, the FAC confi rmed a decision of the Comco president that case handlers of the Secretariat were not required to stay out of a specifi c investigation because of statements made in the course of the negotiations for an amicable settlement (RPW 2016/1, p. 38 – Ausstand von Sekretariatsmitarbeitenden). The two main reasons were the following. First, the Comco is not bound by the Secretariat’s proposals. It is the Comco that fi nally decides the cases, which includes the approval of amicable settlements. As a consequence, the outcome of the proceeding remained unresolved and undecided at the time the statements in question were made. Second, according to article 29 § 1 Cartel Act (“If the Secretariat considers that a restriction on competition is inadmissible, […]”), a “negative” decision-making forecast of the Secretariat is a prerequisite for negotiations for amicable settlements. Therefore, the Secretariat’s employees cannot be considered biased because of the fact that they have expressed such forecast, also in cases where the negotiations fi nally fail, as was the case in the proceeding at hand. This judgment is fi nal and binding. • On 17 March 2016, the FAC issued a decision with regard to third party handling services at the north terminal of the airport Berne-Belp (decision A-696/2015 of the

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FAC of 17 March 2016 – Drittabfertigungen Terminal Nord, Flughafen Bern-Belp). The court was, inter alia, faced with the question whether article 36a § 2 of the Federal Aviation Act excludes the application of the Cartel Act within the meaning of article 3 § 1 Cartel Act. Article 36a § 2 Federal Aviation Act regulates operating concessions granting concessionaires the right to commercially operate airports and, in particular, to levy fees. The FAC held that this article suggests being a valid reservation to the application of the Cartel Act, but left the question open. In the case at hand, the FAC particularly held that the Federal Aviation Act itself constituted a suffi cient legal basis to lawfully exclude the appellant from the provision of third-party handling services. For the court, it was also not apparent how the exclusion distorted competition among direct competitors or how the principle of equal treatment of competitors was violated. The judgment of the FAC is currently under appeal before the FSC. • On 13 April 2016, the FAC declared a preliminary ruling of the Comco and a subsequent decision of a Comco vice-president to close a proceeding against the leniency applicant AMAG and approve an amicable settlement in that matter void (decisions B-5290/2014, B-5293/2014, B-5294/2014 and B-5332/2014 of the FAC of 13 April 2016 – Volkswagen Konzessionäre). The decision on the approval of the amicable settlement was delegated to a Comco vice-president in accordance with the Comco’s organisational rules in force at that time. According to the FAC, however, these rules constituted an insuffi cient legal basis for such delegation. As a consequence, the vice-president’s decision was adopted by an incompetent authority and is therefore null and void. These judgments are fi nal and binding. • On 23 August 2016, the FAC issued three judgments that upheld the decision of the Comco to grant two municipalities – upon request – conditional access to specifi c data of a closed bid-rigging cartel investigation in the construction sector (decisions A-6315/2014, A-6320/2014 and A-6334/2014 of the FAC of 23 August 2016 – Zugang zu Verfahrensakten). The Comco’s decision on the merits in the underlying case was fi nal and binding. The FAC held for the fi rst time that municipalities have a right to access the fi les of the Comco investigation for the preparation of civil damage claims, which are important to ensure a careful management of the taxpayers’ money and to reverse the harmful effects on competition. However, access was restricted with regard to several aspects. In particular, the data access was limited to the extent necessary, i.e. data retention for later use was prohibited, as well as to data that directly affected the requesting municipality. Neither the Comco nor the FAC had to decide on access requests by private undertakings, or on the protection of information provided by leniency applicants. With regard to the latter, however, the court explicitly endorsed the Comco’s practice to entirely exclude leniency information from access by third parties. These judgments are fi nal and binding. • On 16 September 2016, the FAC confi rmed Comco’s decision against the camera manufacturer Nikon (decision B-581/2012 of the FAC of 16 September 2016 – Nikon AG). According to the court, Nikon maintained absolute territorial protection by means of illegal contractual restrictions on parallel trade in both foreign distribution agreements and domestic wholesaler agreements, including exclusivity clauses liable to limit passive sales, as well as by putting pressure on parallel importers in that regard. The FAC however reduced the fi ne by CHF 0.5m to about CHF 12m. This decision is in line with recent judgments such as BMW (see above) and Gaba (see below). All of these judgments confi rm, fi rstly, the broad territorial scope of application of the Cartel Act in case specifi c clauses are objectively capable of affecting parallel trade into

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Switzerland and, secondly, that hard-core agreements in principle constitute per se signifi cant restrictions of competition which are illegal subject to their justifi cation on grounds of economic effi ciency. The Nikon judgment of the FAC is fi nal and binding. • On 24 November 2016, the FAC annulled the Comco decision to close the investigation against the ticketing and live entertainment provider Ticketcorner AG and the operator of the event location Hallenstadion in Zurich (Aktiengesellschaft Hallenstadion [AGH]) in an interim decision (decision B-3618/2013 of the FAC of 24 November 2016 – Vertrieb von Tickets im Hallenstadion Zürich). Aside from the (likely) abuses of the dominant positions of Ticketcorner and AGH, the FAC also found that the obligation for event organisers to sell at least 50% (resulting de facto in 100%) of all tickets for events in the Hallenstadion via Ticketcorner, or the agreement between Ticketcorner and AGH in that regard, respectively constitutes an illegal anti- competitive agreement in the sense of article 5 § 1 Cartel Act. The FAC handed down the matter to the Comco. Absent an appeal before the FSC (the judgment has not yet become fi nal), it is for the Comco to clarify further facts, to re-assess the matter and to decide whether and in what amounts fi nes have to be imposed. During the last 12 months, the Federal Supreme Court (FSC) particularly rendered the judgment on the merits in the leading case Gaba, as well as several other judgments on the merits and with regard to procedural issues: • With the judgment of 6 July 2015, the FSC rejected hearing an appeal against a decision of the Comco granting a third party legal standing in a proceeding (decision 2C_1009/2014 of the FSC of 6 July 2015 – Parteistellung in der Untersuchung Sport im Pay-TV). The court denied that the claimants, i.e. the parties under investigation, have an irreparable disadvantage within the meaning of article 93 § 1 letter a. of the Federal Supreme Court Act, due to the admission of a third party to the proceeding with full legal standing. An irreparable disadvantage in the sense of article 93 § 1 letter a. of the Federal Supreme Court Act must be one of a legal nature, and presupposes in particular that it cannot (or at least not completely) be eliminated by means of a subsequent fi nal decision in favour of the claimants. The question whether it was legal to grant the request for full legal standing in the case at hand must therefore be claimed in an appeal against the Comco’s fi nal decision, if any. • With the judgment of 5 October 2015, the FSC rejected an appeal of a manufacturer of cheese labelled with the protected designation of origin “Gruyère (AOC)” (decision 2C_1004/2014 of the FSC of 5 October 2015 – Gruyère (AOC)). For some of the products, the cheese manufacturer used milk from outside the region as defi ned in the Gruyère AOC rules. As a consequence, the manufacturer was not allowed to label the cheese that was manufactured with such milk Gruyère (AOC). The FSC, inter alia, rejected the cheese manufacturer’s claim that the imposed prohibition on the use of such label would illegally foreclose him from access to the relevant market. The court expressly confi rmed that in the fi eld of protected designations of origin, the delineation of a geographical area of production is an indispensable prerequisite for the protection of such label. As a consequence, outsiders who are not part of the defi ned region are excluded from protection, which is inherent to such system and therefore compliant with the Cartel Act. • On 26 May 2016, the FSC issued a landmark judgment with regard to the publication of specifi c passages in decisions of the Comco and the protection of business secrets (decision 2C_1065/2014 of the FSC of 26 May 2016 – Nikon – Publikation einer

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Sanktionsverfügung). In November 2011, the Comco imposed a fi ne on Nikon for illegal parallel trade restrictions. Nikon appealed the Comco’s decision which, however, was upheld by the FAC (see above). In a separate proceeding, Nikon claimed that several verbatim quotes of self-incriminating and partly disparaging e-mails must be redacted because of possible negative effects on its reputation and future business. The FSC upheld the FAC’s decision that dismissed Nikon’s appeal to a large extent. The FSC found that facts serving as necessary to prove or substantiate anti-competitive practices are neither protected as business secrets under the Cartel Act nor sensitive as personal data (subject to the anonymisation of the employees’ names in the e-mails) under the Swiss Data Protection Act. According to the court, some reputational damage must be accepted with the fi ne-imposing decision of the Comco, even if such decision is reversed at a later stage. It is noteworthy that the FAC confi rmed in its judgment that communication that is not necessary for the reasoning of a decision shall not be disclosed at all, or at least only by way of a non-confi dential description; a question the FSC did not have to deal with any more. With regard to the claimed violation of the presumption of innocence, the FSC emphasised that article 6 of the European Convention of Human Rights (“ECHR”) does not prevent the authorities from informing the public about ongoing (criminal) investigations, including the disclosure of the suspect’s identity subject to a given legitimate interest. According to the FSC, such interest is generally given in competition law matters, particularly considering the fact that the Comco is legally required to name the undertakings involved when offi cially publishing the opening of a cartel investigation (article 28 Cartel Act). The FSC also stressed that the Comco’s proceedings with a potential direct fi ne are only similar to criminal law and that, as a consequence, the guarantees under article 6 ECHR for criminal law proceedings do not necessarily apply with full stringency. The case did not involve leniency applications and the court’s view on the protection of information provided by leniency applicants remains open (see also section, “Leniency regime” below). • On 28 June 2016, the FSC confi rmed in a landmark judgment (decision 2C_180/2014 of the FSC of 28 June 2016 – Gaba) the decision of the FAC imposing a fi ne in the amount of CHF 4.8m on the toothpaste manufacturer Gaba International AG (now Colgate-Palmolive Europe Sà rl) for restricting parallel imports of Elmex toothpaste into Switzerland. According to the licence agreement, licensee Gebro Pharma GmbH was not allowed to sell outside its contract territory Austria. The FSC found that this clause constitutes an illegal absolute territorial protection agreement that signifi cantly restricts competition and is subject to direct fi nes. The FSC upheld the FAC’s fi nding that the signifi cance of a restriction of competition in general is assumed for hard-core agreements due to their quality without the need to examine actual (quantitative) effects, such as market shares. The reasoning of the FSC’s judgment has not been published yet. However, according to the court’s oral debate on this ruling, signifi cance could only be ruled out for cases of minor importance such as “bagatelle offences”. As a consequence, hard-core agreements in principle constitute per se signifi cant restrictions of competition and are only permissible if they can be justifi ed on grounds of economic effi ciency. The FSC also clarifi ed that direct fi nes may be imposed for hard-core agreements in the sense of article 5 § 3 and § 4 Cartel Act even if they “only” signifi cantly restrict but do not eliminate effective competition. The Swiss doctrine has controversially discussed this question since direct fi nes were introduced in the Cartel Act. • With judgment of 26 September 2016, the FSC clarifi ed that fi nes and other sanctions

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of a criminal nature are not tax-deductible for legal entities, as they are not deemed to be business-related expenses that would be tax-deductible under Swiss law (decision 2C_916/2014 of the FSC of 26 September 2016 – Abzugsfähigkeit einer Wettbewerbsbusse). According to the FSC, tax deductibility is only possible insofar as fi nes aim at disgorging illegally obtained profi ts, i.e. fi nes that do not have a criminal or punitive purpose, but aim at correcting an unlawful situation. It is thus essential for Swiss (corporate) income tax purposes to distinguish sanctions with a penal nature from such aiming at disgorging illegally obtained profi ts. The FSC handed down the judgment to the lower instance to assess this question without specifi c guidance for such differentiation. The judgment was rendered in a case of violation of European competition law (see Judgment of the European Court of Justice C-194/14 of 22 October 2015 – AC-Treuhand AG). The same outcome may be expected in case of violations of the Cartel Act. In this context, it is noteworthy that in a draft bill submitted to the Swiss parliament, an explicit legal basis provides that fi nancial administrative sanctions of criminal nature, such as direct fi nes under the Cartel Act, as well as the related cost of proceedings, shall not be deductible, whereas profi t disgorgement sanctions with non- penal purpose, shall be tax-deductible.

Key issues in relation to enforcement policy Proceedings under the Cartel Act can be two-staged. The Secretariat can initiate preliminary investigations on its own initiative, at the request of certain undertakings concerned (e.g. competitors) or based on third party complaints. It is at the discretion of the Secretariat to open a preliminary investigation (see landmark decision 130 II 521 of the FSC of 13 July 2004 – Cornèr Banca SA, consideration 2.7). If the Secretariat fi nds indications of a signifi cant restriction of competition, it opens an investigation with the consent of a presidium member of the Comco. However, the Comco may open an investigation directly. The Secretariat must always open an investigation if asked to do so by the Comco or by the Federal Department of Economic Affairs, Education and Research. Also dawn-raids and seizures of documents and electronic data require the opening of an investigation. These coercive measures are not possible in preliminary proceedings. In its annual press conference of 14 April 2016, the Comco confi rmed that its enforcement priorities remained the same. Apart from combating horizontal hard-core agreements, in particular, restrictions of parallel trade remain in the focus of the Comco. Considering that in January 2015 the Swiss National Bank stopped keeping the CHF/EUR exchange rate at a minimum of CHF 1.20 and thereafter the Swiss franc became stronger again, this is unlikely to change. Indeed, in the last few years, the Comco has been acting effectively against restrictions of parallel trade. The above outlined decisions of the Comco and appeal courts, inter alia in the Gaba, Nikon, BMW, Altimum and GE Healthcare matters, confi rm this.

Key issues in relation to investigation and decision-making procedures In Switzerland, the Comco’s decision-making process is a subject of controversy. Formally, the Secretariat conducts the investigations, but the Comco itself issues the decisions. Accordingly, the investigating and decision-making bodies are separate, even though at least one of the presidium members of the Comco is involved in some of the investigatory actions. For instance, the opening of an investigation, or the approval to conduct a dawn raid and seize documents and electronic data, is subject to the consent of one presidium member of the Comco. And for its decision-making, the Comco also has the power to hold hearings, which it

GLI - Cartels 2017, Fifth Edition 298 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Meyerlustenberger Lachenal Switzerland has frequently used in the past. Given this overlap, concerns were raised that Comco is biased and cannot exercise effective judicial control over the Secretariat’s work. Concerns were also raised as regards the Comco’s institutional autonomy, in particular since direct fi nes are available. Under Swiss competition law, fi nes are considered to be of an administrative nature, but also qualify as criminal sanctions in the meaning of the ECHR and the International Covenant on Civil and Political Rights (“ICCPR”; see landmark decision 139 I 72 of the FSC of 29 June 2012 – Publigroupe SA). Hence, an investigation opened on the basis of alleged hard-core agreements that are subject to direct fi nes should in principle respect the procedural rights to a fair trial set forth in the ECHR and ICCPR. Pursuant to article 6 § 1 ECHR, everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law. In light of the case law of the ECHR and of the functioning of the Comco and the Secretariat, the Comco cannot be considered as an independent and impartial tribunal. Therefore, an appeal on full merits with regard to both factual and legal aspects must be available against the Comco’s decisions to safeguard and respect the fundamental requirements of the right to fair trial. In the FSC’s view, the FAC does meet these requirements and its performed control is therefore the counterweight to the system established by the Cartel Act (see landmark decision 139 I 72 of the FSC of 29 June 2012 – Publigroupe SA, consideration 4). Procedural rights during the preliminary investigations and investigations can be outlined as follows: Preliminary investigations aim to identify whether indications of illegal anti-competitive agreements exist which require an in-depth analysis with further investigatory actions. The decision to open an investigation is not a formal decision in terms of the Administrative Procedure Act (“APA”) and cannot be appealed. In fact, the parties concerned only have limited procedural rights. In particular, the parties have no right to access the case fi les. By the same token, third parties have no right to demand that the Secretariat opens an investigation (see also section, “Key issues in relation to enforcement policy” above). In case the preliminary investigation reveals suffi cient indications of illegal anti-competitive agreements, in principle, the Comco must open an investigation and announce this by means of an offi cial publication. Such announcement must state the purpose of the investigation and the names of the parties involved. All parties subject to the investigation are vested with the usual procedural rights contained in the APA, unless the Cartel Act stipulates otherwise (article 39 Cartel Act). They particularly have the right to consult and comment on the case fi les and to suggest witness hearings, and they have the right to be heard and to participate in oral party and witness hearings. On the basis of the conducted investigation, the Secretariat brings forward a draft of a decision, which is comparable to the statement of objections in the EU. The parties may also comment on such draft decision. Affected third parties have the possibility to join the investigation. Third parties that qualify as a party have full legal standing and are vested with all procedural rights. According to the FSC’s practice, third parties shall not easily qualify as a party. Particularly with regard to competitors, aside from a close proximity to the subject matter, it is required that they suffer a clear economic disadvantage. Such disadvantage requires a specifi c and individual concern, and is given if an illegal anti-competitive agreement or abusive conduct by a dominant undertaking has disadvantageous effects on the competitor, in particular diminished turnover. The requirements for the full legal standing have to be proven by the competitor that claims to be a party (see landmark decision 139 II 328 of the FSC of 5 June 2013 – Parteistellung in der Untersuchung Vertrieb von Tickets im Hallenstadion Zürich, consideration 4.5). Third parties without full legal standing must request their participation within 30 days of the

GLI - Cartels 2017, Fifth Edition 299 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Meyerlustenberger Lachenal Switzerland announcement (article 43 Cartel Act) and their procedural rights (the minimum being the right to be heard) may be limited. The Comco and the appeal courts are not obliged to reach a fi nal decision within a specifi ed period of time. The question of whether statutory time bars apply is controversial and currently on appeal before the FAC. In Comco’s view, no statutory time bars exist except that no direct fi nes can be imposed if an investigation was opened only later than fi ve years after the restriction of competition has ceased (article 49a § 3 letter b Cartel Act; see also RPW 2016/1, p. 128 – Swisscom WAN-Anbindung, consideration B.4.1.4). In any case, the parties can always lodge a separate appeal and claim undue delay (article 46a APA) or invoke the claim of an unduly long proceeding in the appeal against the decision on the merits. With regard to the length of investigations, the FAC has already pronounced once that a duration of four years and four months is at the upper bound of the legally allowed investigation duration (RPW 2010/2, p. 329 – Publigroupe SA; see also e.g. RPW 2015/3, p. 561 – Preispolitik Swisscom ADSL). The approach of the Secretariat with regard to the seizure of documents and electronic data during dawn raids and the triage of legally privileged documents, particularly with regard to the attorney-client privilege, is refl ected in its note on selected instruments of investigation from January 2016. The Secretariat therein, inter alia, endorses the law by explicitly stating that all documents exchanged with attorneys-at-law allowed to represent parties before the Swiss courts are legally privileged, irrespective of the location where the documents are kept in custody, but only to the extent they concern the professional (legal) advice and/ or representation (article 40 Cartel Act in fi ne). Hence, in-house counsel cannot invoke attorney-client privilege with regard to their advice. If sealing of documents or electronic data to be seized is requested, the Secretariat may nevertheless briefl y review them to verify the invoked privilege. The Secretariat and the Comco are legally obliged to respect and protect business secrets such as know-how, client lists or fi nancial accounting documents during their proceedings and in particular in all publications (article 25 Cartel Act). Typically, the Secretariat requests the parties to identify their business secrets. In case the Secretariat does not consider the identifi ed information to constitute business secrets, it tries to reach an amicable arrangement before the Comco must render a formal decision in this regard (see RPW 2016/2, p. 622 – Nikon − Publikation einer Sanktionsverfügung). Under specifi c circumstances, procedural decisions (interim decisions) may be appealed even before a fi nal decision on the merits has been taken. Under Swiss law, there is no provision for procedural disputes to be dealt with by an independent offi cer, akin to the Hearing Offi cer within the EU system.

Leniency regime Leniency is an important aspect of cartel enforcement in Switzerland. Already in the ﬁ rst 10 years after the entry into force of the leniency regime, the competition authorities had received about 50 leniency applications. However, as the leniency programme has been available since 1 April 2004, there are only a few decisions dealing with the leniency programme. In general, the Comco and the Secretariat are considered to be fair and proportionate, in particular with regard to the obligations imposed on a leniency applicant such as the obligation to fully cooperate with the authorities during the investigation. The leniency programme particularly applies to (horizontal and vertical) hard-core agreements (article 49a § 2 Cartel Act).

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Pursuant to article 8 § 1 CASO, the Comco grants immunity from a fi ne if an undertaking is the fi rst to either: (i) provide information enabling the Comco to open an investigation and the Comco itself did not have, at the time of the leniency fi ling, suffi cient information to open a preliminary investigation or an investigation; or (ii) submit evidence enabling the Comco to prove a hard-core agreement, provided that no other undertaking must already be considered fi rst leniency applicant qualifying for full immunity and that the Comco did not have, at the time of the leniency fi ling, suffi cient evidence to prove an infringement of the Cartel Act in connection with the denounced conduct. However, immunity from a fi ne will not be granted if the undertaking: (i) coerced any other undertaking to participate in the infringement and was the instigator or ring leader; (ii) does not voluntarily submit to the Comco all information or evidence in its possession concerning the illegal anti-competitive practice in question; (iii) does not continuously cooperate with the Comco throughout the investigation without restrictions or delay; or (iv) does not cease its participation in the Cartel Act infringement voluntarily or upon being ordered to do so by the competition authorities (article 8 § 2 CASO). Pursuant to the Cartel Act, full immunity is limited to the “fi rst in”. As outlined above, full immunity from a fi ne is also possible for cooperation that enables the Comco to prove a Cartel Act infringement and therefore when an investigation has already been opened and a dawn raid conducted. Therefore, it is import to decide immediately upon knowledge of an opened investigation and conducted dawn raid whether or not to cooperate with the competition authorities and, if such cooperation is desired, to submit a leniency marker or application to the Comco without delay (in writing, such as by facsimile, or orally by protocol declaration). In investigations with several leniency applicants, it may be a matter of days or even hours whether and which undertaking may qualify for full immunity from a fi ne (see e.g. RPW 2009/3, p. 196 – Elektroinstallationsbetriebe Bern). Going in second or later in the same investigation will only allow for partial immunity. A reduction of up to 50% is available at any time in the proceeding to undertakings that do not qualify for full immunity. Further, the fi ne amount can be reduced up to 80% if an undertaking provides information to the Comco about other hard-core agreements that were unknown to the Comco at the time of their submission (article 8 § CASO; “leniency plus”). This reduction is without prejudice to any possible full immunity or partial reduction of a fi ne for the newly disclosed infringements. The Cartel Act does not expressly regulate the possibility for the Comco to withdraw immunity after it has been granted in a fi nal decision. However, general principles of administrative procedural law usually enable administrative authorities to withdraw or amend fi nal decisions (including fi nal decisions with regard to immunity) under certain exceptional circumstances, for example if: (i) facts are discovered that justify withdrawal or amendment; and/or (ii) a fi nal decision is unjustifi ed. There is no cartel specifi c case law in that regard. However, the bar for immunity revocation has to be set very high. The Secretariat will confi rm receipt of the notifi cation and inform the applicant of the time of receipt. The Secretariat and the Comco conduct a full review of the leniency applications in chronological order of receipt (provided that they are valid) to determine precedence for full immunity. Therefore, the extent and timing of the cooperation are determining factors for the amount of the fi ne reduction. When applying for leniency, one should keep in mind that the leniency applications do not provide immunity from civil litigation following a decision by the Comco (follow-on litigation). However, the Comco is under no express legal duty to cooperate and provide

GLI - Cartels 2017, Fifth Edition 301 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Meyerlustenberger Lachenal Switzerland judicial assistance to civil courts. It may thus refuse to grant access to documents produced by and detrimental to leniency applicants. To date, the Comco endeavours to protect information submitted by leniency applicants in order not to discourage undertakings to submit such applications in future cases and to thereby protect the leniency programme under the Cartel Act (see also the decisions of the FAC in the matter “Zugang zu Verfahrensakten”, as outlined above). The Comco typically pursues this objective in its proceedings, inter alia, by granting the other parties of the proceeding the right to consult the leniency fi les, which are separated from the other case fi les only at the premises of the Comco and without the right to make photocopies in any form or manner whatsoever. The Comco is also willing to implement use restrictions by decision before granting access to leniency fi les. At an international level, the Agreement between Switzerland and the European Union concerning the Cooperation on the Application of their Competition Laws, which entered into force on 1 December 2014 (“Cooperation Agreement”), provides that information obtained under leniency or settlement proceedings cannot be exchanged without the consent of the undertakings concerned (see also section, “Cross-border issues” below).

Amicable settlements Amicable settlements are an important feature of the Swiss cartel enforcement regime. During preliminary investigations, the Secretariat may propose measures to eliminate or prevent restrictions of competition (article 26 § 2 Cartel Act). In the framework of an investigation, if the Secretariat considers that a restraint of competition is unlawful, it may propose to the undertakings involved an amicable settlement concerning ways to eliminate future restrictions (article 29 § 1 Cartel Act). Hence, amicable settlements solely deal with an undertaking’s conduct in the future, meaning that a party can voluntarily undertake to terminate respectively not to commit certain illegal conduct anymore. However, the fi ne amounts to be imposed for illegal conduct in the past cannot be agreed on – Swiss competition law does not know any “plea bargaining”. This also means that an undertaking is allowed to appeal against a Comco decision and the imposed fi ne even if it has entered into an amicable settlement (see e.g. decision of the Comco of 14 December 2015 – Flügel und Klaviere, as referred to above and against which an appeal is pending before the FAC; the decision of the Comco is not yet published in the RPW). Amicable settlements shall be formulated in writing and approved by the Comco, typically in its decision on the merits (article 29 § 2 Cartel Act). The Comco shall either approve the amicable settlement as proposed by the Secretariat, or refuse to do so and send it back to the Secretariat and suggest amendments. According to the Comco, it cannot amend the terms of a settlement on its own (see e.g. decision of the Comco of 29 June 2015 – Saiteninstrumente (Gitarren und Bässe) und Zubehör, para. 22, not yet published in the RPW). However, it did so in one case, namely by setting a time limit to the amicable settlement (RPW 2006/1, p. 115 – Kreditkarten/Interchange Fee). Amicable settlements are binding on the parties and the Comco and may give rise to administrative and criminal sanctions in case of a breach of any of its provisions by the parties (article 50 and 54 Cartel Act). As already mentioned, amicable settlements do not hinder the Comco from imposing fi nes on the parties in case they have committed illegal hard-core infringements in the past. Yet concluding an amicable settlement is generally regarded as cooperative conduct, and taken into account as a mitigating factor when calculating the fi ne (article 6 CASO). In recent cases, reaching an amicable settlement has led to a reduction of the fi nes of about 10% to 20%. However, the Comco takes very much into account the moment of the amicable settlement. In a case of late settlement, the Comco only reduced the fi ne by 3% (RPW 2010, p. 765 –

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Baubeschläge für Fenster und Fenstertüren), and indicated that it will not reduce ﬁ nes any more if amicable settlements are signed after the Secretariat’s second draft decision. Since 2004, when the possibility to impose direct ﬁ nes entered into force, 21 investigations were closed together with approved amicable settlement agreements (including dominance cases). In the past year, this namely concerned the cases Saiteninstrumente (Gitarren und Bässe) und Zubehör (not yet published in the RPW), GE Healthcare (Ultraschallgeräte; RPW 2016/2, p. 434) and Flügel und Klaviere (not yet published in the RPW).

Third party complaints Third parties have two ways of complaining about suspected anti-competitive agreements. The fi rst way is to fi le a complaint with the Secretariat (article 26 Cartel Act; see sections, “Key issues in relation to enforcement policy” and “Key issues in relation to investigation and decision-making procedures”, above). The number of third party complaints submitted particularly increased in and after the summer of 2011, in the context of the signifi cant appreciation of the Swiss franc against the euro and the US dollar. However, in its preliminary investigation with regard to the passing-on of currency gains, the Secretariat did not fi nd any evidence for unlawful agreements or an abuse of a dominant position (RPW 2013/4, p. 488 – Nichtweitergabe von Währungsvorteilen). A second way for a third party affected by allegedly illegal anti-competitive agreements is to claim damages before civil courts. Under article 12 Cartel Act, any person hindered from entering or competing in a market by an unlawful restraint of competition is entitled to request from the courts: (i) the elimination of, or desistance from the hindrance; (ii) damages and reparation payment in accordance with the Swiss Code of Obligations (“CO”); or (iii) the surrender of unlawfully earned profi ts in accordance with the provisions on agency without authority. Hindrances of competition include in particular refusal to deal, and discriminatory measures. A basis for claims against competition restrictions – subject to specifi c preconditions – can also be found in article 28 of the Swiss Civil Code (“CC”), which protects personality rights, including economic rights, and the Swiss Federal Act against Unfair Competition (“UCA”). The civil actions should be brought before the higher cantonal civil courts. The Swiss Code on Civil Procedure (“CCP”) requires cantons to designate one court having sole cantonal jurisdiction for disputes related to the Cartel Act and to the UCA. The ‘single cantonal court’ has exclusive jurisdiction to order interim measures. If the legality of a restraint of competition is disputed before a civil court, this question shall be referred to the Comco for an expert report. However, civil courts rarely refer such cases and the Comco’s opinion is not binding for the civil judge.

Administrative and civil sanctions From an administrative law point of view, any undertaking participating in an illegal hard- core agreement or violating article 7 Cartel Act may be charged with a fi ne of up to 10% of the turnover cumulatively generated within Switzerland in the preceding three fi nancial years before the decision is issued (article 49a § 1 Cartel Act). These fi nes are administrative sanctions, but considered as a criminal sanction in the meaning of article 6 and 7 ECHR and article 14 and 15 ICCPR (see the landmark decision of the FSC of 29 June 2012, 139 I 72 – Publigroupe SA). The amount of the fi ne depends on the duration and severity of the unlawful conduct. The

GLI - Cartels 2017, Fifth Edition 303 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Meyerlustenberger Lachenal Switzerland turnover of the undertakings is calculated by analogy with the rules on the calculation of turnover in merger control cases (article 4 and 5 of the Merger Control Ordinance; “MCO”) and encompasses the consolidated net turnover. The base amount is up to 10% of the consolidated net turnover generated on the relevant markets in Switzerland cumulatively in the preceding three business years before the illegal conduct has ended, depending on the type and severity of the Cartel Act violation (article 3 CASO). The ‘normal’ profi ts that resulted from the unlawful conduct are taken into account in the base amount. The turnover relevant for the base amount of the fi ne is calculated by analogy with the rules of the MCO. In recent price-fi xing cases, absent specifi c circumstances, the Comco applied a percentage between 5% and 10% for the base amount. The base amount will then be increased by up to 50% if the Cartel Act violation was implemented for up to fi ve years. Each additional year thereafter will lead to an increase of another 10% or 0.833% for each month respectively (see RPW 2015/3, p. 561 – Preispolitik Swisscom ADSL, para. 754). This interim base amount may increase by a certain percentage refl ecting aggravating factors, such as recidivism, high cartel gains, obstruction of justice, ring-leading and measures to enforce cartel discipline (article 5 CASO). The law is not exhaustive and other factors may be taken into account too. In particular, Swiss law does not fi x the percentage of each aggravating factor but provides the Comco with wide discretion, depending on the circumstances of each particular situation. For calculating the fi ne, also mitigating factors have to be taken into account and the interim fi ne amount may be reduced accordingly. Examples of mitigating factors are: termination of the illegal conduct before or immediately after the Comco has taken fi rst steps; passive role in the cartel; or desisting from taking cartel enforcement measures. The law does not set the percentage of mitigation of each factor (article 6 CASO) and the Comco has wide discretion also in this regard. In recent cases, the reduction percentages have varied from 10% to 60% depending on whether the companies fully collaborated, immediately ceased their unlawful practices, or concluded an amicable settlement (with regard to fi ne immunity for leniency applicants, see section “Leniency regime” above). In extraordinary cases, the Comco may also impose lump sum fi nes – in particular in case of rather small fi nes (for the last 12 months, see e.g. the decision of the Comco of 19 October 2015 – Volkswagen Konzessionäre, with fi nes between CHF 10,000 and CHF 320,000; and not yet published in the RPW). The legal entities liable for the payment of the fi nes are the decision’s addressees. However, addressees can form part of a group of companies. In such cases, decisive infl uence is the pertinent criterion of demarcation, i.e. the question of whether the companies of this group can be and effectively are controlled by their parent company. If this is the case, then the entire group of companies qualifi es as the undertaking in the sense of the Cartel Act, which is considered to be a functional term. In its landmark case Publigroupe, the FSC held that if a group of companies forms the undertaking in the sense of the Cartel Act, in principle every company, i.e. every legal entity of such group, qualifi es as potential addressee of a decision. In the Publigroupe case, the FSC upheld the lower instances’ decisions that were only addressed to the parent company and to none of the fi ve controlled subsidiaries that were actively involved in the conduct in question (decision 139 I 72 of the FSC of 29 June 2012 – Publigroupe SA, considerations 1 and 3). From a civil law point of view, the sanction for cartel activities lies in the total or partial nullity of the agreement in question (see landmark decision 134 III 438 of the FSC of 12 June 2008 – Abfallentsorgung) and civil liability claims (e.g. by customers) may be

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ﬁ led with the competent courts, in particular under article 12 Cartel Act (see section, “Third party complaints” above).

Right of appeal against administrative and civil sanctions Decisions of the Comco and, to a limited extent, also its interim procedural decisions, can be challenged before the FAC. An appeal can be lodged on the following grounds: (i) wrongful application of the Cartel Act; (ii) the facts established by the Comco were incomplete or wrong; or (iii) the Comco’s decision was unreasonable. Hence, the appeal before the FAC is a “full merits” appeal on both the fi ndings of fact and law. The addressees of the decision have the right to appeal, whereas it is still uncertain to what extent competitors, suppliers or customers have the same right. The decisive factor is whether and to what extent third parties are affected by the decision of the Comco. As outlined above, only competitors that suffer a clearly perceptible economic disadvantage as a consequence of an anti-competitive conduct shall be regarded as parties to an investigation and thus have the legal standing to appeal a decision (see section, “Key issues in relation to investigation and decision-making procedures” above) The FAC can produce evidence such as hearing parties and witnesses and seeking expert reports. With the exception of instruction hearings with the parties and the Comco, this is rarely done in practice, as the FAC tends to render its judgments based on the existing case fi le and briefs exchanged during the appeal. Concerning effective judicial control, one must consider that the FAC has not rendered many competition-related judgments yet and numerous cases are still pending. In general, the FAC tends to exercise restraint with regard to Comco’s technical discretion such as economic and effects analyses. However, effective judicial control is, inter alia, shown by the fact that it does not hesitate to annul Comco decisions in full. It annulled, for example, the highest fi ne ever in the amount of CHF 333m that was imposed on the Swiss incumbent telecoms operator Swisscom in an abuse case. This annulment decision then was upheld by the FSC (see landmark decision 137 II 199 of the FSC of 11 April 2011 – Terminierung Mobilfunk). Other such examples exist, but the appeal courts also upheld important decisions of the Comco, e.g. in particular the landmark cases Publigroupe, fi nally upheld by the FSC (see landmark decision 139 I 72 of the FSC of 29 June 2012 – Publigroupe SA), and Gaba, also upheld by the FSC (see landmark decision 2C_180/2014 of 28 June 2016 – Gaba). There is no specialised competition law (appeal) court in Switzerland. The second division of the FAC is basically in charge of all public economic law issues, of which competition law is just one part. The judgments of the FAC may be challenged before the FSC. In proceedings before the FSC, judicial review is limited to legal claims, i.e. the fl awed application of the Cartel Act or a violation of fundamental rights set forth in the Swiss Federal Constitution, or in the ECHR or other international treaties. The claim that a decision was unreasonable is fully excluded and claims with regard to the fi nding of facts are basically limited to cases of arbitrariness. As outlined above, numerous Comco cases are currently still pending before the two appeal courts, in particular before the FAC. Some of these cases also raise fundamental questions, such as the questions of: whether and if so, what statutory time bars apply for Cartel Act proceedings; what conditions must vertical non-binding price recommendations meet to comply with the Cartel Act; and what requirements must be proven to fi nd an illegal single overall infringement, i.e. a single overarching conspiracy.

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The judgments of the upper cantonal civil courts rendered in civil actions may also be ultimately challenged before the FSC.

Criminal sanctions There are only limited criminal sanctions for cartel activities in Switzerland. Unlike in other states (such as the United States), the Cartel Act does not provide for imprisonment. However, there are administrative sanctions that are considered to constitute criminal sanctions in the meaning of article 6 and 7 ECHR and article 14 and 15 ICCPR (see section, “Administrative and civil sanctions” above). Anyone who wilfully violates an amicable settlement, a fi nal and non-appealable ruling of the competition authorities or a decision of the appeal courts, is liable for a fi ne not exceeding CHF 100,000 (article 54 Cartel Act). Anyone who wilfully does not comply, or does not fully comply with a ruling of the competition authorities concerning the obligation to provide information, who implements a concentration that should have been notifi ed without fi ling a notifi cation, or who violates rulings relating to concentrations of undertakings, is liable to a fi ne not exceeding CHF 20,000 (article 55 Cartel Act). Both of these provisions mainly aim at persons who have the power to decide whether an undertaking shall commit a breach of the Cartel Act, such as board members or the management. If the Swiss Criminal Code prohibits the same conduct, aggrieved parties may raise a civil claim for damages within the framework of the criminal procedure or separately, based on article 41 CO. In principle, the court in charge of the criminal proceeding also rules on civil claims, except where the damage was not suffi ciently substantiated in the request or the damage calculation requires substantial efforts. In the latter case, however, the criminal court should at least render a judgment regarding the general obligation to pay damages, and refer the matter to the civil courts solely for the damage specifi cation. The judgment of a criminal court as to the guilt and to the determination of the damage, and the provisions of the criminal law concerning criminal responsibility, are generally not binding upon a civil court, though their infl uence is somewhat strong.

Cross-border issues The Cartel Act applies to all concerted practices and agreements that have an economic effect within Switzerland (article 2 § 2 Cartel Act). Therefore, agreements concluded abroad, or conduct that takes place outside Switzerland but may have effects in Switzerland, fall under Swiss jurisdiction. In May 2012, the Comco imposed a fi ne of CHF 156m on Bayerische Motoren Werke AG, the ultimate parent company of the BMW group with registered offi ces in Munich, Germany, for illegal restrictions of parallel trade, as the contracts with its authorised distributors in the EEA were prohibiting them from selling BMW and MINI branded cars to customers outside the EEA, i.e. also to customers in Switzerland. The Comco found that these provisions had an economic effect in Switzerland and applied the Cartel Act. The FAC upheld this fi nding (decision B-3332/2012 of the FAC of 13 November 2015 – Bayerische Motoren Werke AG). It confi rmed that the effects doctrine applies under the Cartel Act and hence that its territorial scope must be interpreted broadly. With this fi nding, the court confi rmed its practice set forth in the Gaba judgment, which was fi nally upheld by the FSC. In both judgments, the FAC clarifi ed that the specifi c kind or intensity of the agreements’ effects and whether they are direct or indirect, potential or actual, shall be questions of the substantive test, but not infl uence the applicability of the Cartel Act from the outset (decision B-3332/2012 of the FAC of 13 November 2015 – Bayerische Motoren Werke AG,

GLI - Cartels 2017, Fifth Edition 306 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Meyerlustenberger Lachenal Switzerland consideration 2.3.10, inter alia referring to its judgment B-506/2010 of 19 December 2013 – Gaba, consideration 3.3). Therefore, it is important for undertakings whose activities may produce effects in Switzerland to be fully aware of the potential implications of Swiss competition law rules for their agreements and business practices (see also decision B-581/2012 of the FAC of 16 September 2016 – Nikon AG). On 1 December 2014, the Cooperation Agreement with the EU entered into force, which is the fi rst “second generation” agreement, providing for the exchange of some information even without the consent of the undertakings concerned. The aim of the Cooperation Agreement is to strengthen the collaboration between the Comco and the European Commission. By improving access to evidence, reducing administrative overlaps and ensuring due consideration of mutual interests, the Comco and the European Commission seek to combat cross-border anti-competitive practices more effectively. The core element of the Cooperation Agreement is the possible exchange of specifi c, case-related information between the Comco and the European Commission. As a major contrast to the previous legal setting, under the Cooperation Agreement the exchange of information and documents between the competition authorities shall be possible even if the concerned undertaking does not consent thereto. An important statutory exception for the exchange of information and documents without the consent of the undertakings concerned applies to information previously submitted to the competition authorities under a leniency application. Moreover, as a precondition, the competition authorities must investigate the same or related conduct in order for the exchange to be admissible, and the use of any exchanged information is restricted to such same or related conduct and, additionally, limited to the enforcement of the competition laws of the EU and Switzerland. The Cooperation Agreement must be taken into account particularly by the authorities in the preparation of dawn raids and – also by the undertakings – in the preparation and assessment of multi-jurisdictional leniency applications, i.e. whether or not to include Switzerland. For the purposes of implementing the Cooperation Agreement, a new article 42b § 3 has been inserted in the Cartel Act, laying down general requirements for sharing information with a foreign competition authority. Information may only be transmitted based on international agreements or with the consent of the undertakings concerned. The additional requirements mirror to a large extent those contained in the Cooperation Agreement. The new article 42b § 3 Cartel Act merely sets out that the undertakings concerned are to be consulted before the transmission of information. Whether or not the exclusion of ex ante-legal remedies against an unlawful transmission of information is compatible with the Swiss Federal Constitution and the ECHR remained untested yet and will be for the courts to decide. The Cooperation Agreement solely allows cooperation between the Comco and the European Commission, but not with national competition authorities of the EU member states. The European Commission can, however, provide some information, e.g. regarding the coordination of enforcement measures, to the competition authorities of the EU member states and the EFTA Surveillance Authority. Moreover, on an informal basis, the Comco and its Secretariat cooperate with various national antitrust authorities in Europe such as the German Bundeskartellamt as well as with the US antitrust authorities. Absent specifi c future cooperation agreements, such cooperation, however, is not allowed to go beyond the exchange of non-confi dential information. The Cartel Act provides in article 42a for a specifi c regime with regard to investigations in the air transportation industry. Such investigations are governed by the Agreement between the European Community and the Swiss Confederation on Air Transport of 21 June 1999. Accordingly, in this sector the Comco may cooperate with the European Commission on a formal legal basis.

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Investigations, decisions and sanctions issued by competition authorities abroad have no binding effect on the Comco. The FSC held that, in principle, Swiss competition law must be construed independently from the competition law of the EU; it shall, however, be used as an interpretative aid in case the legislator intended an alignment by setting corresponding rules (see landmark decision 137 II 199 of the FSC of 11 April 2011 – Terminierung Mobilfunk, consideration 4.3). In practice, however, the EU competition rules and case law have always had a signiﬁ cant impact on the interpretation of the substantive provisions of the Cartel Act by the Comco. In its Altimum judgment, the FAC even went further and held that distribution agreements compliant with European competition law rules shall also be considered lawful under Swiss competition law (RPW 2016/2, p. 580 – Altimum SA, consideration 4.2.1). The Altimum case, however, is currently under appeal before the FSC.

Developments in private enforcement of antitrust laws In Switzerland, the third party private enforcement level is still relatively low as regards follow-on claims as well as stand-alone claims. The most relevant reason is the diffi culty in gathering evidence and the high costs related thereto. In comparison, lodging a complaint before the Comco leads to an administrative proceeding basically free of charge, in which the Comco will take care of “everything”. Another factor is that, according to the prevailing doctrine, consumers are not authorised to bring claims based on the Cartel Act. However, consumers would have legal standing to bring a claim for damages under tort law. Finally, the short period of the statute of limitations for a claim for damages is an additional reason to explain this low level. Indeed, the limitation period for a civil claim for damages or reparations expires one year after the claimant is aware of both the complete damage and the identity of the injuring party, but in any case at the latest 10 years after the restriction of competition has ended (article 60 CO). The same rules apply regarding the claim for surrender of unlawfully earned profi ts. The legal standing of consumers’ associations as regards private enforcement actions based on the Cartel Act remains unclear. Trade or consumer organisations possess legal standing provided they are undertakings under the Cartel Act (which means that they exercise a commercial activity) and are hindered in the process of competition. However, the legal standing to protect their members’ interests remains disputed. The legal doctrine tends to recognise trade or consumer organisations’ active legal standing with regard to actions for injunctions to terminate a restriction of competition, but not with regard to actions for damages incurred by their members. The new CCP recognises the active standing of associations and other organisations of national and regional importance to bring actions in their own name against violations of the personality rights of their members under article 28 CC. In principle, personality rights also include economic rights and thus, at least in theory, trade or consumer organisations could claim for the prohibition of an existing or threatened violation of personality rights (for instance, prohibition of a refusal to deal). Beyond that, it is currently not possible for a representative body to bring a collective follow-on claim in Switzerland on behalf of consumers. Concerning the gathering of evidence, effective and practical pre-trial discovery is not available in Switzerland. Furthermore, an exchange of information between the Comco and the civil courts does not take place in general. It is therefore diffi cult to obtain any documents before the start of the proceedings. However, in recent decisions of the FAC, (conditional) fi le access at least for municipalities was made less diffi cult (see section, “Overview of cartel enforcement activity during the last 12 months” above). Third parties with full legal standing in principle also have (conditional) fi le access. A potential claimant might therefore be inclined to initiate an administrative proceeding fi rst, and fi le a request for full legal standing.

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Important information may, however, qualify as business secrets and remain inaccessible. Preliminary measures, which also focus on avoiding or terminating restrictions of competition, are generally available under Swiss law, both in the investigation by the competition authorities (see landmark decision 130 II 149 of the FSC of 19 December 2003 – Sellita Watch Co SA vs. ETA SA Manufacture Horlogère Suisse (Vorsorgliche Massnahmen), consideration 2) and in case of civil actions (article 261 to 269 CCP). Whereas preliminary measures ordered by the competition authorities focus on the protection of effective competition, preliminary measures in civil proceedings mainly aim at safeguarding an undertaking’s interests. All appropriate and reversible measures for such interim execution may be ordered, e.g. the interim obligation to contract or to grant admission to a trade fair. However, interim payments are not possible and therefore, interim awards of damages are not available in Switzerland. An example of the diffi culties of private enforcement of the Cartel Act through civil proceedings in a stand-alone case can be found in a rather new decision of the FSC (see decision 4A_449/2012 of the FSC of 23 May 2013 – L’Etivaz). At the request of the plaintiff (a cheese manufacturer), the FSC confi rmed that the company managing a cheese-maturing cellar with regard to the production of an AOC cheese (i.e. a cheese with a protected designation of origin label) had abused its dominant position by preventing the plaintiff from being admitted to the cheese-maturing cellar. The said company was then forced to admit the cheese manufacturer to the cheese-maturing cellar and was compelled to pay damages. However, the damages were low, as the plaintiff could not suffi ciently prove the link between the abuse of the dominant position and the suffered loss of earnings.

Reform proposals On 17 September 2014, the Federal Parliament fi nally rejected a planned major revision of the Cartel Act as proposed by the Swiss Federal Council on 22 February 2012. Some of the amendments of the comprehensive reform package were too controversial. Subsequent to the rejected revision, individual proposals were submitted. One new attempt, the parliamentary motion of Viola Amherd of 26 September 2014, aims at the adoption of (some of) the non- controversial proposals of the failed revision of the Cartel Act. The other proposals relate to controversial topics on how to fi ght Switzerland’s status as the “Island of High Prices” in Europe, as follows: Firstly, the parliamentary initiative “Excessive Import Prices. End Compulsory Procurement on the Domestic Market” (14.449) of Hans Altherr of 25 September 2014 was fi led and admitted. Secondly, the federal popular initiative “Stop to the Swiss Island of High Prices – Pro Fair Import Prices (Fair-Price Initiative)” was launched. Both legislative attempts aim to introduce new regulation with regard to abuses of undertakings with “relative market power” (a concept already known in the national German competition law). According to the initiatives, subject to legitimate business reasons, undertakings shall particularly abuse their relative market power if they either refuse to contract with Swiss domestic customers willing to purchase products abroad to the corresponding foreign conditions or charge Swiss prices anyhow. The motion “For a More Effective Cassis de Dijon Principle” (15.3631) of Hans Hess of 18 June 2015 aims to ensure that manufacturers expressly permit in their distribution agreements Swiss domestic distribution partners, inter alia to carry out installation, maintenance or guarantee work for their products, irrespective of whether these products have been purchased directly in the EEA. The parliament has approved this motion and it now is for the Economic Affairs and Taxation Committees ETAC to draft a proposal for legislative amendments.

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Mario Strebel Tel: +41 44 396 91 91 / Email: [email protected] Mario Strebel is a partner of Meyerlustenberger Lachenal and specialises in competition law, distribution law and regulatory matters. He was born in 1977. After graduating from the University of Zurich in law (lic.iur.), in 2003 he obtained a postgraduate degree from Kings College London (LL.M. in competition law) in 2012. Mario Strebel was admitted to the Bar of Zurich in 2008. His professional languages are German and English. Mario Strebel heads Meyerlustenberger Lachenal’s Competition Law, Trade and Regulated Markets practice group in Zurich. He advises Swiss and international clients in all relevant areas of competition law, distribution law and regulatory matters, and represents them before the authorities and courts. Mario Strebel regularly publishes articles in his areas of expertise and gives presentations on these topics, including compliance seminars and dawn-raid workshops.

Christophe Pétermann Tel: +41 22 737 10 00 / Email: [email protected] Christophe Pétermann is a partner of Meyerlustenberger Lachenal and specialises in European and Swiss competition law within the Brussels offi ce of the fi rm. He has an extensive experience on antitrust matters in all relevant areas of competition law, including distribution, cartels, technology transfer agreements, abuse of dominance, merger control, state aid, as well as competition enforcement proceedings before Swiss and European competition authorities. He was born in 1972. After graduating from the University of Lausanne in 1994 he obtained two postgraduate degrees, the fi rst from the University of Saarbrücken (LL.M. in EU law) in 1998, and the second one from the Facultés Universitaires Saint-Louis of Brussels in legal theory and philosophy. Christophe Pétermann was admitted to the bar of Geneva in 2006 and to the Bar of Brussels in 2007. His professional languages are French and English.

Renato Bucher Tel: +41 44 396 91 91 / Email: [email protected] Renato Bucher is an associate with Meyerlustenberger Lachenal and specialises in competition law, distribution law and regulatory matters. He was born in 1987 and graduated from the University of Fribourg (Bachelor of Law, 2010), University of Zurich (Master of Law, 2012) and Maastricht University (LL.M. in Corporate and Commercial Law, 2012). He also holds a Certiﬁ cate of Advanced Studies in Forensics from the University of Lucerne (Prosecutors’ Academy). Renato Bucher was admitted to the bar of Lucerne in 2015. His professional languages are German and English.

Meyerlustenberger Lachenal Forchstrasse 452, P.O. Box 1432, 8032 Zurich, Switzerland. Tel: +41 44 396 91 91 / Fax: +41 44 396 91 92 / 65 rue du Rhône, P.O. Box 3199, 1211 Geneva 3, Switzerland. Tel: +41 22 737 10 00 / Fax: +41 22 737 10 01 222 avenue Louise, 1050 Brussels, Belgium. Tel: +32 2 646 02 22 / Fax: +32 2 646 75 34 URL: http://www.mll-legal.com

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Stephen Wu, Rebecca Hsiao & Wei-Han Wu Lee and Li, Attorneys-at-Law

Overview of the law and enforcement regime relating to cartels Defi nition In Taiwan, cartels are regulated as concerted actions under the Taiwan Fair Trade Act (“TFTA”). Taiwan Fair Trade Commission (“TFTC”), as an independent administrative authority enforcing the TFTA, is authorised by the TFTA to conduct investigations and impose administrative fi nes and punishments on cartels that do not receive the TFTC’s approval. According to the TFTA, a concerted action is a conduct of any enterprise, by means of contract, agreement or any other form of mutual understanding, with a competing enterprise, to jointly determine the price of goods or services, or to limit the terms of quantity, technology, products, facilities, trading counterparts or trading territory with respect to such goods and services, thereby restricting each other’s business activities. A concerted action regulated by the TFTA is limited to a horizontal action that is conducted by enterprises competing at the same production or sale stage, and that may interfere with the market mechanism with regard to production or supply and demand for goods or services. Exemption/Prior approval Under the TFTA, a concerted action is prohibited unless it meets one of the exemptions stipulated in Article 15 of the TFTA and is benefi cial to the economy as a whole and in the public interest, and the application fi led with the TFTC for the concerted action has been approved. The eight types of exemptions under the TFTA are: • unifi cation – it unifi es the specifi cations or models of goods for the purpose of reducing costs, improving quality or increasing effi ciency; • joint research and development – it entails joint research and development for the purpose of enhancing technology, reducing costs, improving quality or increasing effi ciency; • specialisation – it develops a separate and specialised area for the purpose of rationalising operations; • exportation – it is to enter into agreements concerning solely competition in foreign markets for the purpose of securing or promoting exportation; • importation – it is for the importation of foreign goods for the purpose of strengthening trade; • economic downturn – it is to limit the quantity of production and sales, equipment or prices for the purpose of meeting the planned demand for the enterprises in a particular industry which encounters diffi culties in maintaining their business or face overproduction during an economic downturn; • small to medium-sized enterprises – it is for the purpose of improving operational

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effi ciency or strengthening the competitiveness of small to medium-sized enterprises; and • catch-all provision – any other joint acts for the purposes of improving industrial development, technological innovation, or operational effi ciency. Since a prior approval system is adopted for a concerted action, enterprises participating in a concerted action must submit the documents specifi ed in Article 13 of the Enforcement Rules to the TFTA for a prior approval. The TFTC is required to make a decision within three months of receipt of an application, and may extend the three-month period once. The three-month period starts to run from the time when all the required documents are submitted to the TFTC. The approval granted by the TFTC shall specify a time limit not exceeding fi ve years for the implementation of a concerted action, and may subject the approval to certain conditions. At least three months prior to the expiration of the approval, the enterprises which have justifi cation to continue the concerted action may fi le a written application with the TFTC for extension of approval for a period of no more than another fi ve years. The liabilities for violation of the cartel regulations under the TFTA are detailed in “Administrative penalties” section below.

Overview of investigative powers in Taiwan Investigatory tools The TFTC has the following types of investigatory tools: (i) order the target enterprises and any related third parties to appear before the TFTC to make statements; (ii) order the target enterprises and any related third parties to submit books and records, documents and any other necessary materials and evidence; (iii) dispatch personnel to conduct any necessary on-site inspection of the ofﬁ ce, place of business or other locations of the target enterprises and any related third parties; and (iv) seize articles discovered during any of the above-mentioned investigations which may serve as evidence. The articles and period of the seizure should be limited to those necessary for the investigation, inspection, veriﬁ cation, or any other purpose of preserving evidence. Lack of dawn-raid power Under the current legal framework, the TFTC is not entitled to apply for a search warrant with the court because it is not granted judicial power. Therefore, its investigatory power granted by the TFTA and other administrative regulations is somehow limited, when compared with that of competition authorities in other jurisdictions. Given the lack of power to conduct a “dawn-raid”, when the TFTC carries out unscheduled visits to target enterprises, it may request that the enterprises provide necessary documents and information; however, it cannot force those enterprises to submit such documents and information to it, or search the enterprises’ premises to obtain the requested documents and information.

Overview of cartel enforcement activity during the last 12 months According to the TFTC’s 2015 Annual Report, the TFTC ruled 12 cartel infringement cases in 2015, 10 of which were launched on its initiative and the remaining two were prompted

GLI - Cartels 2017, Fifth Edition 312 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Lee and Li, Attorneys-at-Law Taiwan by third parties’ complaints. The total ﬁ nes imposed by the TFTC on the violating parties amounted to around NT$ 5.82bn, most of which came from the TFTC’s decision in the Capacitor Case (see the Section, “The highest ﬁ ne imposed on foreign enterprises: the Capacitor Case” for details). Meanwhile, within one year after the antitrust fund/ whistle-blower reward scheme was established (see the Section, “Key issues in relation to enforcement policy” for details), two cases have already been closed by the operation of such mechanism. The trend has shown the TFTC never shies away from vigorously enforcing the cartel regulations to take down local and international concerted actions.

Key issues in relation to enforcement policy In the newly amended TFTA which took effect in early 2015, two amendments related to cartel enforcement are noteworthy. First, the new TFTA permits the TFTC to presume the existence of a cartel agreement on the basis of circumstantial evidence, such as market conditions, characteristics of the products or services involved, and proﬁ t and cost considerations, etc. By way of this amendment, the TFTA substantially shifts the burden of proof regarding the existence of a cartel agreement among competitors from the TFTC to the enterprises that are investigated or penalised. As of now, no court ruling is available to see how this presumption rule should be applied in real cases. Secondly, the newly amended TFTA adds a catch-all provision for exemption of concerted actions in the hope of covering all types of pro-competition cooperation as broadly as possible. So far, there is no actual case regarding how the catch-all provision could apply. It is unknown whether this new provision may help enterprises ﬁ nd a legal ground to justify their cooperation. As of now, no public record shows any concerted action has been exempted according to this catch-all provision. Moreover, in mid-2015, a whistle-blower reward scheme, described as an “antitrust fund”, was added into the TFTA. As said in the TFTC’s press release, this reward scheme aims to encourage individuals to report illegal activities carried out by their employers. By obtaining such internal information from whistle-blowers, the TFTC’s chances of detecting and proving a cartel can be effectively escalated. As said above, in 2016, the TFTC has closed two concerted action cases through the assistance of third parties which were granted rewards. All the amendments above are expected to strengthen the TFTC’s power to enforce the cartel regulations, and to overhaul the legal landscape in Taiwan.

Key issues in relation to investigation and decision-making procedures In Taiwan, “due process” is a right widely recognised by constitutional and administrative laws. Also, as shown on various occasions, the TFTC has committed itself to adhere to international standards of due process in the enforcement of the TFTA. Nevertheless, and although it is understood that the TFTC sets certain procedural directives for its internal reference, neither the TFTA nor any other ancillary regulations promulgated by the TFTC seem to provide a very clear guideline to the public on the TFTC’s decision- making procedures. In particular, whether a party under investigation is entitled to request an opportunity to be presented with the TFTC’s theory of harm, or the facts gathered, before the TFTC makes its ﬁ nal decision, sparks intense discussion among practitioners. In the foreseeable future, it is reasonable to anticipate that the issue of transparency during administrative procedures conducted by the TFTC will continue to be a primary topic in Taiwan.

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Leniency/amnesty regime Elements for the leniency program An enterprise violating the cartel prohibitions under the TFTA is immune from fi nes or entitled to a fi ne reduction if it meets one of the following requirements and the TFTC agrees in advance that the enterprise qualifi es for the immunity or reduction: (i) before the TFTC knows about the unlawful cartel activities or commences investigation on its own initiative, the enterprise voluntarily reports in writing or orally to the TFTC the details of its unlawful cartel activities, provides key evidence and assists the TFTC in its subsequent investigation; or (ii) during the TFTC’s investigation, the enterprise provides, in writing or orally, specifi c evidence that helps prove unlawful cartel activities, and assists the TFTC in its subsequent investigation. Markers An enterprise that intends to apply for fi ne immunity, but which does not have information and evidence required by the leniency program and is therefore unqualifi ed to fi le the application, may submit a written statement to the TFTC or pay a visit to the TFTC to give oral statements requesting preservation of the priority status for fi ne immunity (i.e., to obtain a marker), which must contain the following information: (i) the enterprise’s name, paid-in capital, annual revenue, name of its representative, and address and date of company registration; (ii) the product or service involved, the form of the concerted action, the geographic areas affected and the duration of the action; and (iii) the names, company addresses and representatives of other cartel participants. An enterprise that has been granted a marker should provide the information and evidence required by the leniency program within the period specifi ed by the TFTC; otherwise it will become disqualifi ed as a marker. The application for a marker should follow the format designated by the TFTC if it is made in writing. If the application is made orally, the applicant should dispatch someone to visit the TFTC to give oral statements and sign the meeting minutes to confi rm the statements. Applicant’s obligation to cooperate From the time the application is fi led until the case is concluded, the enterprise that fi les the application for leniency (the “applicant”) should withdraw from the cartel immediately or at the time specifi ed by the TFTC, follow the instructions of the TFTC, and provide honest, full and continued assistance to the TFTC during its investigation. The assistance should include the following: (i) the applicant should provide the TFTC as early as possible with all the information and evidence regarding the cartel that it currently possesses or will obtain in the future. For those applying for a fi ne reduction, the information and evidence provided must be of signifi cant help in the TFTC’s investigation into the cartel, or enhance the probative value of the evidence the TFTC has already obtained; (ii) the applicant should follow the instructions of the TFTC and provide prompt descriptions or cooperation to help the investigation regarding related facts capable of proving the existence of the cartel; (iii) if necessary, the applicant must allow its staff or representatives that have participated in cartel-related activities to be questioned by the TFTC;

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(iv) the content of the statements, information or evidence provided must not contain any untruths, and no destruction, forgery, alteration or concealment of any information or evidence related to the cartel will be tolerated; and (v) without the consent of the TFTC, the applicant may not disclose to any other parties the fi ling of the application or any content of the application before the case is concluded. Immunity or reduction of fi nes Only up to fi ve applicants can be eligible for fi ne immunity or reduction in a case. The fi rst applicant to fi le the application can qualify for full immunity from a fi ne. The fi nes for the second to fi fth applicants can be reduced by 30 to 50%, 20 to 30%, 10 to 20%, and 10% or less, respectively. An applicant that has coerced any other enterprises to join or not to exit the cartel cannot be eligible for immunity or a reduction of the fi ne. The board directors, representatives or managers of an involved enterprise, or others with the authority to represent the enterprise, may also be imposed with the same fi ne under the Administrative Penalty Act if they had acted with intention or in gross negligence, resulting in the enterprise’s breach of law. They may be granted the same fi ne immunity or reduction as the enterprise if the following requirements are met: (i) the enterprise is an applicant that can be granted the fi ne immunity or reduction; (ii) these persons have provided honest and full statements with regard to the unlawful act; and (iii) these persons have followed the instructions of the TFTC and provided honest, full and continued assistance to the TFTC during its investigation before the case is concluded. Non-disclosure versus discovery of materials According to the leniency program, when the TFTC grants an applicant the fi ne immunity or reduction, it must take the following steps to protect the confi dentiality of the applicant’s identity: (i) after obtaining the consent of the applicant, send its decision letter stating the name of the applicant, the fi ne imposed, the amount of fi ne reduced, and the reasons. Where consent is not granted, the TFTC should use aliases and other confi dential means to indicate the identity of the applicant and avoid giving any information that may indicate the identity of the applicant; and (ii) send its decision letter to each violating enterprise, with the main text regarding the fi ne referring only to the enterprise that receives the decision letter. The decision letter should not contain information about other violating enterprises involved in the same case. Furthermore, the conversation records or original documents carrying information about the identity of the applicant should be kept in a fi le and stored appropriately. The same measure should be taken for other documents that may give away the identity of the applicant. Unless otherwise stipulated by law, the conversation records and documents stated above may not be provided to any agencies, groups or entities other than public prosecution and judicial agencies. Despite the foregoing, if any injured party fi les a civil lawsuit for damages against the violating enterprises, the injured party may request that the court ask the TFTC to provide relevant documents according to the ROC Code of Civil Procedure. The applicant will likely be identifi able during the court procedure.

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The fi rst application of the leniency program: the ODD Case Background In September 2012, the TFTC ruled that four optical disk drive (ODD) manufacturers, namely Toshiba Samsung Storage Technology Korea Corporation (TSST-K), Hitachi-LG Data Storage Korea Inc (HLDSK), Philips & Lite-On Digital Solutions Corporation (PLDS) and Sony Optiarc Inc (SOI), had conspired during the bidding process held by Hewlett- Packard Company (HP) and Dell Inc (Dell), and hence violated the cartel provisions under the TFTA. According to the TFTC, from September 2006 to September 2009, the four ODD manufacturers, during or before the bidding procedure held by HP and Dell, exchanged their bidding prices and expected bid ranking through emails, telephone calls and meetings. Additionally, in several bidding cases, they agreed on the fi nal price and ranking in advance while exchanging other sensitive information such as capacity and amount of production among themselves. A market survey indicated that the four ODD manufacturers jointly occupied at least 75% of the ODD market. Meanwhile, HP’s and Dell’s notebooks and desktops made up around 10% of the relevant Taiwanese market. As 90% or more of the disk drives used in HP’s and Dell’s notebooks and desktops were purchased through bidding processes, the four ODD manufacturers’ bid rigging had certainly affected supply and demand in the domestic ODD market. Thus, the TFTC fi ned TSST-K, HLDSK, PLDS and SOI NT$ 25m, NT$ 16m, NT$ 8m and NT$ 5m, respectively. The TFTC indicated that it began investigating the case because some parties involved in the cartel pleaded guilty and settled the case with the US Department of Justice in November 2011. After the commencement of the TFTC’s investigation, one manufacturer applied to the TFTC for leniency and provided all relevant evidence in accordance with the leniency program under the TFTA. Having fully cooperated with the TFTC, the leniency applicant was awarded full immunity from the fi ne. The identity of the applicant is being kept confi dential by the TFTC at the applicant’s request. Implications This case is the fi rst time the TFTC has concluded successfully with the help of an applicant since the leniency program came into effect in 2011. Before the leniency program was introduced under the TFTA in 2011, whether the “whistle-blower” mechanism would work in Taiwan as it does in other countries was doubted by local practitioners. In Taiwan, enterprises in the same industries have close interaction, and employees of these enterprises socialise with each other regularly. In addition, the leniency program requiring an enterprise to betray its business partners in return for an immunity or reduction of fi nes contradicts business practice in Taiwan. Nevertheless, the leniency program, within one year of it coming into effect, assisted the TFTC in bringing the cartel members in the ODD case to justice. The case is also the fi rst time the TFTC sought assistance from competition authorities in other jurisdictions (such as the United States and European Union) because the cartel involved foreign markets and entities. The TFTC press release also indicates that the TFTC’s documents were served upon foreign entities in other countries with help from the Ministry of Foreign Affairs and its overseas offi ces. Another remarkable aspect of the case is that the TFTC did not disclose the identity of the enterprise that applied for leniency at the enterprise’s request. While this non-disclosure option is unheard of in some jurisdictions, whether such an option is appropriate has sparked intense debate.

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The highest fi ne imposed on foreign enterprises: the Capacitor Case Background On December 9, 2015, the TFTC ruled that seven aluminium capacitor companies, namely, Nippon Chemi-Con Corporation (NCC), Hongkong Chemi-Con Limited (NCC HK), Taiwan Chemi-Con Corporation (NCC TW), Rubycon Corporation (RUBYCON), ELNA Co., Ltd.(ELNA), SANYO Electric (Hong Kong) Ltd. (SANYO HK), and Nichicon (Hong Kong) Ltd. (NICHICON HK), and three tantalum capacitor companies, NEC TOKIN Corporation (NEC TOKIN), Vishay Polytech Co., Ltd. (VISHAY POLYTEC), and Matsuo Electric Co., Ltd. (MATSUO), participated in meetings or bilateral communications to exchange sensitive business information such as prices, quantity, capacity, and terms of trade to reach agreements, and the conducts were suffi cient to affect the market function of capacitors in Taiwan. The practices violated the cartel regulations under the TFTA. The TFTC therefore imposed administrative fi nes of NT$ 1,868,300,000 on NCC; NT$ 82,900,000 on NCC HK; NT$ 293,800,000 on NCC TW; NT$ 1,248,000,000 on RUBYCON; NT$ 76,600,000 on ELNA; NT$ 842,000,000 on SANYO HK; NT$ 111,300,000 on NICHICON HK; NT$ 1,218,200,000 on NEC TOKIN; NT$ 31,200,000 on VISHAY POLYTEC; and NT$ 24,300,000 on MATSUO. The total amount of the fi nes was NT$ 5,796,600,000. The TFTC indicated that the Japanese capacitor companies had convened several multilateral meetings and engaged in bilateral communications since the 1980s, and had exchanged sensitive business information to reach agreements. Products involved in this case included aluminium capacitors and tantalum capacitors. There are seven aluminium capacitor companies, including NCC, NCC HK, NCC TW, RUBYCON, ELNA, SANYO HK, and NICHICON HK, that have been involved in this case, each to a different extent and duration of attending meetings. Starting from at least 2005 to January 2014 at the latest, the companies convened the MK Meeting (Market Study Meeting), CUP Meeting (Cost Up Meeting), and SM Meeting (Hongkong Sales Manager Meeting) in Japan and other countries, or conspired bilaterally via emails, telephones or gatherings to exchange sensitive business information for reaching agreements. The three tantalum capacitor companies including NEC TOKIN, VISHAY POLYTEC and MATSUO also exchanged sensitive business information in the above-mentioned MK Meeting and conspired bilaterally via emails, telephones or gatherings to reach agreements. Further, the TFTC pointed out that aluminium capacitors are mainly used in larger electronic products, e.g., PCs, household appliances, home video game consoles, and power supplies. Tantalum capacitors are mainly used in thin and small electronic products, e.g., notebooks, mobile phones and handheld game consoles. Domestic electronics companies largely rely on the companies involved in this case for the supply of capacitors. Even though there are a few aluminium capacitor companies in Taiwan, their scale is far smaller than that of the Japanese capacitor companies. On the other hand, there are no domestic tantalum capacitor companies; all tantalum capacitors are fully imported. The total sales revenue of the aluminium capacitors and tantalum capacitors of the companies involved in this case is estimated at NT$ 50bn and NT$ 16bn, respectively, during the term of their concerted action. The aluminium capacitor companies NCC, RUBYCON and NICHICON are the top three aluminium capacitor companies in the world. The tantalum capacitor companies involved in this case also have considerable global market shares. Hence, the companies involved in this case have had a direct, substantial impact on the domestic markets, with reasonably foreseeable effects.

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Implications The TFTC sees the capacitor case as a successful outcome of its efforts in international enforcement cooperation with other competition authorities over the years. The TFTC had worked with competition authorities of the US, EU and Singapore in investigation of the subject case from the beginning. In addition to coordinating a synchronised investigation action on 28 March, 2014, the TFTC also exchanged enforcement experiences with those agencies through telephone conferences or emails. The TFTC’s decision is the fi rst among competition agencies and will be highly concerning internationally as it is still under investigation, at least in territories such as the EU, US, Japan, Korea, Singapore and China, etc. Meanwhile, the TFTC invoked the “10% rule” (i.e., for a serious concerted action, the fi ne can be up to 10% of the violating enterprise’s revenue in the last fi scal year; see below for details) when determining a fi ne on an enterprise, making the case the fi rst in which the TFTC has applied this fi ne formula to foreign enterprises, and also the one with the highest fi nes imposed on foreign enterprises in the TFTC’s enforcement history. It is noteworthy that the fi nes imposed by the TFTC can be up to 10% of an enterprise’s “global revenues”, instead of 10% of the revenues generated in Taiwan only.

Administrative settlement of cases In addition to the leniency program, the administrative settlement provides another channel for seeking plea-bargaining. According to the TFTC Guidelines for Handling Administrative Settlement Cases, the TFTC may settle a case with an enterprise if the TFTC does not have enough evidence to secure a sanction. This is a contractual arrangement between the TFTC and the enterprise. In assessing whether to settle a case, the TFTC will have to consider the legality and appropriateness of the settlement, the possible impact on the public interest, and the possible detriment to the interested parties. How this settlement mechanism should work after the leniency program comes into effect, or how it should be calibrated to complement the leniency program, remains an open issue.

Third party complaints In general, any person who becomes aware of a possible violation of the TFTA can report the incident to the TFTC. Upon receipt of the complaint, the TFTC is required to conduct a preliminary review to determine whether the TFTC should open a formal investigation or just reject the complaint as being without merit. The aforementioned procedure is also applicable to a third party’s complaint regarding cartel infringement. Nonetheless, it is unclear in Taiwan whether the complaining party can appeal the TFTC’s rejection of the complaint or closing of the case without a punishment decision.

Administrative penalties Basic concept The basic concept of the penalties for violation of the cartel regulations is administrative fi ne fi rst, criminal liability later. To be specifi c, if any enterprise is found to have conducted a concerted action without the TFTC’s approval, the TFTC may, pursuant to Article 40 of the TFTA, order the enterprise to discontinue the illegal conduct, or set a time limit for the enterprise to rectify the conduct or take necessary corrective measures, and impose an administrative fi ne of between NT$ 100,000 and NT$ 50m on the enterprise. If the violating enterprise fails to act as ordered, the TFTC may continue to order the enterprise

GLI - Cartels 2017, Fifth Edition 318 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Lee and Li, Attorneys-at-Law Taiwan to cease the violation, or set another time limit for the enterprise to comply with the order, and may impose successive administrative fi nes of NT$ 200,000 to NT$ 100m until the violating enterprise complies with the order. Higher administrative fi ne for serious violation: 10% of last fi scal year’s revenues. If the TFTC considers a concerted action to be serious, it may impose a fi ne of up to 10% of a violating enterprise’s revenue for the last fi scal year, without subjecting the limitation of the range of fi nes described above. A serious concerted action is one that materially affects competition in the relevant market, after the TFTC takes the following factors into account: (i) the scope and extent of the market competition and order affected; (ii) the duration of the damage to market competition and order; (iii) the market status of the violating enterprise and the structure of the corresponding market; (iv) the total sales and profi ts obtained from the unlawful conduct during the violation period; and (v) the type of concerted cartel – joint price decision on product or service, or restriction on quantity, trading counterpart or trading area. In the event of any of the following circumstances, the violation should be deemed as serious: (i) the total amount of turnover of the relevant products or services during the period the cartel is active exceeds NT$ 100m; or (ii) the total amount of gains derived from the cartel exceed the maximum fi ne under the TFTA (i.e., NT$ 50m). Calculating fi nes for serious cartels The amount of the fi ne imposed on a serious cartel should be based on a “basic amount” and adjusting factors. The basic amount refers to 30% of the total amount of an enterprise’s turnover of relevant products or services sold or provided during the cartel period. The adjusting factors include aggravating factors and mitigating factors. The aggravating factors are as follows: (i) the violating enterprise has organised or encouraged the unlawful conduct; (ii) the violating enterprise has implemented supervision or sanctioning measures to ensure that the concerted action is upheld or executed; and (iii) the violating enterprise has been sanctioned for violation of monopoly or cartel regulations within the past fi ve years. The mitigating factors are as follows: (i) the violating enterprise immediately ceased the unlawful act when the TFTC began the investigation; (ii) the violating enterprise has shown real remorse and cooperated in the investigation; (iii) the violating enterprise has established compensation agreements with the victims or has taken remedial measures; (iv) the violating enterprise has participated in the concerted action under coercion; and (v) other governmental agencies approve or encourage the fi ne imposed to be reduced, or the fi ne reduction can be granted in accordance with other laws.

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See the Section, “Criminal sanctions” below for the details of criminal liability.

Right of appeal at administrative court In the past, an enterprise punished by the TFTC has appealed against the TFTC’s decision in the Executive Yuan fi rst. If the decision of the Appeal Committee of the Executive Yuan is unsatisfactory, the enterprise may then fi le a lawsuit with the High Administrative Court. However, after the new TFTA came into effect in early 2015, an enterprise that is dissatisfi ed with the TFTC’s decision must fi le a lawsuit with the High Administrative Court directly, without the appeal procedure at the Executive Yuan. The appeal procedure at the level of the High Administrative Court is a “full merit” appeal, in which fi ndings of both facts and law are examined. However, after the case is moved on to the level of the Supreme Administrative Court, the review is purely a trial of law. According to the TFTC’s 2014 Annual Report, none of the TFTC’s decisions in cartel cases were overturned by the Administrative Courts in 2014.

Criminal sanctions In addition to the administrative punishments mentioned above, a violation of cartel regulations may carry criminal liability. That is, if any enterprise is ordered by the TFTC, pursuant to Article 40 of the TFTA, to cease, rectify or take necessary measures to correct its violation of the cartel regulations under the TFTA, and fails to follow such order or repeats the violation, its responsible person and employees involved may face an imprisonment sentence of up to three years, while the enterprise may receive a criminal ﬁ ne of up to NT$ 100m in accordance with Article 34 of the TFTA. As of now, no public information suggests that any criminal sanction has ever been imposed on enterprises violating the cartel regulations under the TFTA.

Cross-border issues The TFTC’s jurisdiction is determined based on the effect of the conduct in question. Thus, coordination between or among foreign enterprises, conducted either in Taiwan or other jurisdictions, is subject to the jurisdiction of the TFTA if this conduct may affect the Taiwanese market. The TFTC has conducted investigations into foreign enterprises’ conduct, and has issued directives conﬁ rming that their conduct may violate the TFTA if it affects the Taiwanese market. For instance, in the ODD case mentioned above, the TFTC sought assistance from competition authorities in other jurisdictions (such as the United States and European Union) because the cartel involved foreign markets and entities. The TFTC’s press release also indicates that the TFTC’s documents were served upon foreign entities in other countries, with help from the Ministry of Foreign Affairs and its overseas ofﬁ ces.

Developments in private enforcement of antitrust laws According to the TFTA, if any enterprise violates the TFTA and thereby injures the rights and interests of another, the injured party may demand the removal of such injury; if there is a likelihood of any injury, prevention of such injury may also be claimed. Additionally, an injured party may claim damages from the violating enterprise. As to the calculation of damages, if a violating enterprise reaps gains from its act of violation of the TFTA, the injured party may claim damages based solely on the monetary gain of the

GLI - Cartels 2017, Fifth Edition 320 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Lee and Li, Attorneys-at-Law Taiwan violating enterprise. Otherwise, the general principle under the civil lawsuit will apply to the calculation of damages. That is, the compensation will be limited to the actual loss or damage and loss-in-profi ts. Loss-in-profi ts refers to those that could have been expected in the ordinary course of matters, from decided projects or equipment, or in other special circumstances. Moreover, the TFTA stipulates punitive damages. That is, if a violation is intentional, the injured party is entitled to request the court to award damages in the amount of up to three times the actual loss or damage. Although the TFTA provides legal grounds for civil actions, so far no public record shows that an injured party has successfully obtained compensation from an enterprise violating the cartel regulations through litigation. On a related note, the leniency program under the TFTA offers confi dentiality protection to the applicant, forbidding the TFTC from disclosing the identity of the applicant and other relevant documents while issuing the decision letter. However, the applicant will likely be identifi able during the court procedure if any injured party fi les a civil action against the enterprises involved in the violation.

Reform proposals Although the TFTC’s original proposal of empowering it to search and seize (i.e., the dawn- raid) did not pass the Legislative Yuan’s third read, the TFTC has indicated that it will keep advocating legislators to grant it the right to seize and search, aiming to strengthen its enforcement power.

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Stephen Wu Tel: +886 2 2715 3300, ext: 2388 / Email: [email protected] Stephen Wu is the partner leading the competition law practice group of Lee and Li, and is also the founding chair and an active member of the Compe- tition Law Committee of the Taipei Bar Association. He has successfully represented domestic and international clients in handling numerous antitrust ﬁ ling, cartel investigation and unfair competition cases. He has been recognised as being among the world’s leading competition lawyers by Who’s Who Legal in 2012 and 2013. He keeps abreast of the latest developments in global antitrust and competition law, and regularly contributes brieﬁ ngs and articles to the Global Competition Review, AntitrustAsia.com and many competition law publications.

Rebecca Hsiao Tel: +886 2 2715 3300, ext: 2257 / Email: [email protected] Rebecca Hsiao is an associate partner at Lee and Li. She began her practice when she joined Lee and Li in 2001, and has practised in the areas of antitrust and competition law, mergers and acquisitions, securities, and corporate and investment law.

Wei-Han Wu Tel: +886 2 2715 3300 ext: 2395 / Email: [email protected] Wei-Han Wu is an associate partner at Lee and Li. She joined the ﬁ rm in 2008 and is a core member of the competition law practice group of Lee and Li. Ms. Wu advises clients on the full range of competition law, focusing on merger control, cartel work, restrictive practice and unfair trade matter. She has extensive experience in representing international corporations in major deals relating to her practice areas before the Taiwan Fair Trade Commission. Ms. Wu is also frequently involved in various cases at the intersection of antitrust and IP laws.

Lee and Li, Attorneys-at-Law 7F, 201 Tun Hua N. Road, Taipei, Taiwan 10508, R.O.C. Tel: +886 2 2715 3300 / Fax: +886 2 2713 3966 / URL: http://www.leeandli.com.tw/EN/

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Gönenç Gürkaynak & Ayşe Güner ELIG, Attorneys-at-Law

Overview of the law and enforcement regime relating to cartels The national competition authority for enforcing the cartel prohibition and other provisions of the competition law in Turkey is the Turkish Competition Authority (“Competition Authority”). The Competition Authority has administrative and fi nancial autonomy. It consists of the Competition Board (“Board”), Presidency and service departments. There are fi ve divisions, with sector-specifi c work distribution, that handle competition law enforcement work through over 100 case handlers. The other service units consist of the following: (i) the department of decisions; (ii) the economic analysis and research department; (iii) the information management department; (iv) the external relations, training and competition advocacy department; (v) the strategy development, regulation and budget department; and (vi) the cartel and on-site inspections support division (“Leniency Division”). The statutory basis for cartel prohibition and the enforcement regime is Law No. 4054 on the Protection of Competition of 13 December 1994 (“Competition Law”). Competition Law fi nds its underlying rationale in Article 167 of the Turkish Constitution of 1982, which authorises the state to take appropriate measures to secure the functioning of the markets and to prevent the formation of monopolies or cartels. The Turkish cartel regime by nature applies administrative and civil (not criminal) law. Competition Law applies to individuals and companies alike and even to public corporations if they act as an undertaking within the meaning of Competition Law. Article 4 of Competition Law is the applicable provision for cartel-specifi c cases and provides the basic principles of the cartel regulation. The provision is akin to and closely modelled on Article 101(1) of the Treaty on the Functioning of the European Union (“TFEU”). Article 4 prohibits all agreements between undertakings, decisions by associations of undertakings and concerted practices which have (or may have) as their object or effect the prevention, restriction or distortion of competition. Similar to Article 101(1) of the TFEU, the provision does not defi ne the term “cartel” explicitly. However, Article 4 prohibits all kinds of restrictive agreements, including any form of cartel agreements. Unlike the TFEU, Article 4 does not refer to additional requirements such as “appreciable effect” or “substantial part of a market”, and consequently does not provide for any de minimis exception. Therefore, Article 4 applies even to violations with minor effects on any market. The practice of the Board has not recognised any de minimis exceptions either. However, the enforcement trends and proposed changes to the legislation are increasingly focusing on de minimis defences and exceptions.

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Article 4 also prohibits any form of agreement that has the ‘potential’ to prevent, restrict or distort competition. Again, this is a specifi c feature of the Turkish cartel regulation system, granting a broad discretionary power to the Board. Additionally, Article 4 brings a non-exhaustive list which provides examples of possible restrictive agreements. The prohibition on restrictive agreements and practices does not apply to agreements that benefi t from a block exemption or an individual exemption issued by the Board. Vertical agreements are also caught by the prohibition laid down in Article 4, to the extent they are not covered by block exemption rules or individual exemptions. The Board’s general practice shows that horizontal restrictive agreements such as price fi xing, market allocation, collective refusals to deal (group boycotts) and bid rigging, have consistently been deemed to be per se illegal. The Turkish competition regime also condemns concerted practices. The Competition Authority may apply “the presumption of concerted practice” and thus can easily shift the burden of proof for the investigated parties in connection with concerted practice allegations too. Similar to the EU competition law regime, a concerted practice is defi ned as a form of coordination between undertakings which, without having reached the stage where a so-called agreement has been properly concluded, knowingly substitutes practical cooperation between them for the risks of competition. Therefore, this is a form of coordination, without a formal “agreement” or “decision”, by which two or more companies come to an understanding to avoid competing with each other. The coordination does not need to be in writing; it is suffi cient if the parties have expressed their joint intention to behave in a particular way, perhaps in a meeting, via a telephone call or through the exchange of letters.

Overview of investigative powers in Turkey Competition Law provides vast investigative powers to the Competition Authority such as the power to conduct dawn raids and to apply other investigatory tools (e.g., formal information request letters). The Board only needs a judicial authorisation if an undertaking refuses to allow the dawn raid. The prevention or hindering of a dawn raid could result in the imposition of an administrative monetary fi ne. Article 15 of Competition Law authorises the Board to conduct on-site investigations. Accordingly, the Board is entitled to: • examine the books, paperwork and documents of undertakings and trade associations, and, if necessary, take copies of the same; • request undertakings and trade associations to provide written or verbal explanations on specifi c topics; and • conduct on-site investigations with regard to any asset of an undertaking. Refusal to grant the staff of the Competition Authority access to business premises may lead to the imposition of a fi xed fi ne of 0.5% of the annual turnover. It may also lead to the imposition of a fi ne of 0.05% of the turnover for each day of the violation. Although Competition Law obliges employees to provide a verbal testimony during the dawn raid, case handlers usually allow for providing an answer after the occurrence of the dawn raid. Therefore, in practice, employees can avoid providing answers on issues that are uncertain to them, provided that a written response is submitted in a mutually agreed timeline. Case handlers of the Competition Authority may fully examine computer records, including, but not limited to, deleted mail items.

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Offi cials conducting a dawn raid must be in possession of a deed of authorisation issued by the Board. The deed of authorisation must specify the subject matter and purpose of the investigation. The inspectors are not entitled to exceed their authorisation. Hence, the inspectors must not exercise their investigative powers in relation to matters that do not fall within the scope of the investigation specifi ed in the deed of authorisation. Therefore, the Competition Authority offi cials may not copy documents or record verbal testimonies which are not related to or covered by the scope of the investigation. At the site of a dawn raid, the Competition Authority’s staff are not obliged to wait for a lawyer to arrive. However, the staff usually agree to wait for a short while for a lawyer to arrive, but may impose certain conditions (e.g., to seal fi le cabinets or disrupt email communications). The Competition Authority may also request all information it deems necessary from all public institutions and organisations, undertakings and trade associations. Offi cials of these bodies, undertakings and trade associations are obliged to provide the necessary information within a fi xed period of time. Failure to comply with a decision ordering the production of information may lead to the imposition of a turnover-based fi ne of 0.1% of the turnover generated in the fi nancial year preceding the date of the fi ning decision (if this is not calculable, the turnover generated in the fi nancial year nearest to the date of the fi ning decision will be taken into account). The Board may impose the same amount of fi ne if an undertaking provides incorrect or incomplete information in response to the Competition Authority’s request for information.

An overview of cartel enforcement activity during the last 12 months Developments in cartel enforcement in Turkey may be illustrated with an overview of the most notable cartel cases that the Board has examined in the recent years. The Board is usually reluctant to identify a violation as a cartel and prefers to use terms such as ‘concerted practice’, ‘agreement’ or ‘information exchange’ instead. The reasons for this approach are not totally clear; however, it appears that the Board may be aiming at avoiding the risk of having to impose astronomical monetary fi nes which could be deemed as disproportionate compared to the respective case at hand. The Competition Authority’s annual report for 2015 provides that the Board fi nalised a total of 41 cases relating to anti-competitive agreements; 32 of which concerned horizontal agreements. The Board did not issue any monetary fi nes for anti-competitive agreements in 2015. This fi gure shows that the remarkable drop which has prevailed in recent years in terms of monetary fi nes issued for anti-competitive agreements has come to an end through the closing of 2015 without any fi nes. That said, the trend over the course of several years has shown that the Board does not hesitate to impose administrative monetary fi nes when it comes to horizontal anti-competitive and cartel arrangements. In fact, the last three years’ fi gures were realised as TL 14,662,151 (approx. €4.3 million) in 2014; TL 1,126,817,183 (approx. €330 million) in 2013; and TL 59,570,665 (approx. €17.5 million) in 2012. Moreover, this trend has also so far continued in 2016 during which there have been several horizontal cases (including cartels) where the Board has imposed fi nes. Ready mixed concrete manufacturers (16-05/117-52, 18.02.2016) is the most recent decision in which the Board imposed a monetary fi ne on the undertakings, which were alleged to have violated Article 4 of Competition Law through a joint production and commercialisation agreement made between them. In this decision, the Board defi ned the relevant market as “ready mixed concrete” and recognised two different geographical markets due to the fact that ready mixed concrete must be used within maximum of two hours after it is manufactured

GLI - Cartels 2017, Fifth Edition 325 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London ELIG, Attorneys-at-Law Turkey and that it is transportable only within a 50km radius of a manufacturing plant. In its assessments, the Board indicated that establishing a new ready mixed concrete manufacturer could not be considered as a “joint venture”, as executives of the undertaking have no joint control over the alleged joint venture. Therefore, the Board concluded that the relevant entity should not be considered a joint venture under the rules of Communiqué 2010/4 on Mergers and Acquisitions Requiring the Approval of the Competition Board (“Communiqué No. 2010/4”). The Board evaluated the newly formed commercial relationship between relevant undertakings as a “joint manufacturing and commercialisation agreement”. The Board stated that this agreement is within the scope of Article 4 of Competition Law, considering that it may raise several competitive concerns, such as customer allocation, price-fi xing and coordination. The Board further evaluated the agreement within the scope of Article 5 of Competition Law. However, the Board decided that this activity cannot be subject to an exemption as it will not be in accordance with the “not eliminating competition in a signifi cant part of the relevant market” requirement stated in Article 5 of Competition Law. It concluded that the manufacturing and commercialisation agreement does not satisfy the requirements laid down in the Article 5 Competition Law and thus the relevant undertakings violated the Competition Law. Consequently, a monetary fi ne at the rate of 0.2% over their annual turnover was imposed on each undertaking. That said, two Board members dissented the majority opinion, stating that the relevant market did not bear any entry barriers as it did not require high investment cost and that the agreement enabled undertakings to minimse equipment, workforce and fuel expenses and refl ect the cost difference to the prices and create a favourable outcome for consumers. In other words, the dissent centred on the fact that the agreement failed to fulfi l the requirements provided in Article 5 of Competition Law. One of the most recent decisions of the Board concerned six cement-producing undertakings that allegedly engaged in market partitioning and constrained their distributors not to sell any brands other than their own brands (16-02/44-14, 14.01.2016). The Board defi ned the relevant product market as “grey cement” and, due to the high transportation cost of cement, the geographic market was designated as the Aegean cities of Turkey. The Board held that the undertakings violated Article 4 of Competition Law and infringed competition law by allocating markets, fi xing prices, pricing excessively and preventing market entry. The decision is pertinent in that the Board classifi ed the case as “cartel” and defi ned cartels in a manner that encapsulates both agreements and concerted practices. In this case, a Board member dissented the majority opinion and stated that, although there was evidence to indicate that the undertakings raised prices in a parallel manner, secretive meetings or direct proof of a price-fi xing cartel were absent in the case. Article 4 of Competition Law stipulates that, where there is parallel behaviour between competitors but the existence of an agreement cannot be proven, the burden of proof shifts to the undertakings that need to prove the similar pricing does not stem from a concerted practice. In this case, however, the Board adjudicated on the existence of a cartel and imposed a monetary fi ne at the rate of 3% to four of the undertakings, and 4.5% to two of the undertakings over their annual turnover. The percentage amount of the fi ne has been deemed quite high in comparison to the Board’s jurisprudence. One of the Board’s most important decisions in the year 2014 concerns four undertakings operating in the market for fresh yeast. The Authority investigated whether Dosu Maya Mayacılık A.Ş., Mauri Maya San. ve Tic. A.Ş., Öz Maya Sanayi A.Ş., and Pak Gıda Üretim ve Pazarlama A.Ş. violated Article 4 of Competition Law by colluding to set sale prices of fresh bread yeast (14-42/783-346, 22.10.2014). Mauri Maya applied for a leniency (which is available only for cartelists). The Board resolved that the investigated companies violated Article 4 and imposed administrative monetary fi nes on three of the undertakings

GLI - Cartels 2017, Fifth Edition 326 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London ELIG, Attorneys-at-Law Turkey while granting full immunity to Mauri Maya by virtue of the added value and suffi cient content of its leniency application. Mauri Maya could otherwise have received a monetary fi ne of 4.5% of its annual turnover. The Board implicitly opened the door for more leniency applications, even for those cases where a preliminary investigation is already initiated and dawn raids are conducted. The investigations that have been initiated by the Competition Authority so far clearly show that it does not focus on any specifi c sectors when it comes to the investigation of cartel behaviour but rather aims to tackle any conduct or practice which might point to a restriction of competition among competing undertakings. It is expected that the trend will continue in its future cases.

Key issues in relation to the enforcement policy The Turkish Competition Authority places equal emphasis on all areas of enforcement. The signifi cance of the cartel enforcement regime under Competition Law has nonetheless been repeatedly underlined by the Presidency of the Competition Authority. There are neither industry-specifi c offences nor defences which lead to a particular scrutiny. Competition Law applies to all industries, without exception. In terms of cartel enforcement, cement, bread yeast, driving schools and bakeries have recently been under investigation for cartel and concerted practice allegations. It is fair to say that the Board may at times consider policies which are not directly related to the protection of competition in the markets. The Turkish paper sector investigation (13- 42/538-238, 08.07.2013) marks one of the extremely rare fi les in Turkey where a policy concern not directly related to competition law (i.e. a policy concern relating to minimising trade defi cit) may have played a role in the ultimate decision, together with a state action defence of the parties concerned, as the parties’ collective behaviour was infl uenced by a set of rules brought by the relevant ministry tackling trade defi cit. The Board found that seven paper recycling companies had violated competition laws by harmonising their commercial behaviours and colluding against waste paper producers that aimed to export waste paper. However, the Board did not levy turnover-based monetary fi nes against the defendants, and granted three-year exemptions under objective criteria.

Key issues in relation to investigation and decision-making procedures As the competent body of the Competition Authority, the Board is responsible for, inter alia, investigating and condemning cartel activity. A cartel matter is primarily adjudicated by the Board. The Board may ex offi cio, or as a result of a notice or complaint, launch a preliminary- investigation prior to initiating a full-fl edged investigation. At this preliminary stage, the undertakings concerned are usually not notifi ed that they are under an investigation, unless the Competition Authority decides to conduct a dawn raid or apply other investigatory tools (i.e., formal information request letters). The Competition Authority experts submit a preliminary report to the Board within 30 days after the Board decides to launch a preliminary investigation. The Board then decides within 10 days whether to launch a full-fl edged formal investigation. If the Board decides to initiate an investigation, it sends a notice to the undertakings concerned within 15 days. The investigation is to be completed within six months. If deemed necessary, this period may be extended by the Board only once, for an additional period of up to six months.

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Once the investigation notice has been formally served, the investigated undertakings have 30 days to prepare and submit their fi rst written defences. Subsequently, the main investigation report is issued by the Competition Authority. Once this is served on the defendants, they have 30 calendar days to respond, extendable for a further 30 days (this is the second written defence). The investigation committee will then have 15 days to prepare an additional opinion concerning the second written defence. The defending parties will have another 30-day period to reply to the additional opinion (third written defence). When this reply is served on the Competition Authority, the investigation process is to be completed (i.e., the written phase of investigation involving the claim/defence exchange will close with the submission of the third written defence). An oral hearing may be held upon the request of the parties. The Board may also ex offi cio decide to hold an oral hearing. Oral hearings are held between 30 and 60 days following the completion of the investigation process under the provisions of Communiqué No. 2010/2 on Oral Hearings before the Board. The Board renders its fi nal decision within 15 days from the hearing, if an oral hearing is held. Otherwise, the decision is rendered within 30 days from the completion of the investigation process. It usually takes around two to three months (from the announcement of the fi nal decision) for the Board to serve a reasoned decision on the counterpart. The Competition Authority’s administrative enforcement is also supplemented with private lawsuits. Accordingly, in case of private suits, cartel members are adjudicated before the courts. Due to a treble damages clause allowing litigants to obtain three times their loss as compensation, private antitrust litigations increasingly make their presence felt in the cartel enforcement arena. Most courts wait for the decision of the Competition Authority and build their own decision on the Board’s decision.

Leniency/amnesty regime The Competition Law underwent signifi cant amendments in February 2008. The current legislation brings about a stricter and more deterrent fi ning regime, coupled with a leniency programme for the undertakings. The secondary legislation specifying the details of the leniency mechanism is the Regulation on Active Cooperation for Discovery of Cartels (“the Regulation on Leniency”). The Guidelines on Explanation of the Regulation on Leniency were published in April 2013. With the enactment of the Regulation on Leniency, the main principles of immunity and leniency mechanisms have been set. The Regulation on Leniency provides that the leniency programme is only available for cartelists. It does not apply to other forms of antitrust infringements. A defi nition of cartel is also provided in the Regulation on Leniency for this purpose. A cartelist may apply for leniency until the investigation report is offi cially served. Depending on the application order, there may be total immunity from, or reduction of, a fi ne. This immunity/reduction includes both the undertakings and its employees and managers, with the exception of the ‘ring-leader’ which can only benefi t from a second degree reduction of fi ne. The conditions for benefi ting from the immunity/reduction are also stipulated in the Regulation on Leniency. Both the undertaking and its employees and managers can apply for leniency. A manager or employee of a cartelist may also apply for leniency until the ‘investigation report’ is offi cially served. Such an application would be independent from applications by the cartelist itself, if there are any. Depending on the application order, there may be total immunity from, or reduction of a fi ne, for such manager or employee. The requirements for such individual application are the same as stipulated above.

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As of December 31, 2015 the Turkish Competition Authority received 16 leniency applications since 2009. However, statistics show that the Board is very reluctant to grant full immunity to leniency applicants. The most recent Board decision where the Board granted full immunity is the case which concerned several suppliers of rail freight forwarding services for block trains and cargo train services (15-44/740-267, 16.12.2015). The Board initiated an investigation following the leniency application made by Deutsche Bahn Group of Companies against the relevant suppliers of rail freight forwarding services for block trains and cargo train services including Schenker & Co AG, Schenker A.E., Schenker Arkas Nakliyat ve Ticaret A.Ş., Fertrans AG (collectively “Deutsche Bahn Group of Companies”), Kühne+Nagel International AG & Co, Kühne + Nagel A.E., Rail Cargo Logistics – Austria GmbH, Express Interfracht Hellas A.E. and Raab-Oedenburg-Ebenfurter Eisenbahn AG, to determine whether they had violated Article 4 of the Competition Law through customer allocation. However, the Board’s decision concluded that the relevant customer protection agreements cannot be assessed under the provisions of Competition Law. As explained in detail within the Board’s reasoned decision, in the event that the competition law violation takes place abroad, the application of competition law rules would only be possible so long as the existence of effect(s) is proven in accordance with the general principles of public international law. In any event, the Competition Authority had granted full immunity to the relevant leniency applicant, subject to compliance with its duty of active cooperation. One of the Board’s notable decisions where it granted full immunity is the Yeast Cartel case (14-42/783-346, 22.10.2014). As summarised above, the Board launched an investigation against four fresh yeast producers to determine whether they had violated Article 4 of Competition Law through colluding to set prices for fresh bread yeast. It resolved that the investigated companies violated Article 4 and imposed administrative monetary fi nes on three of the undertakings, with a total amount of TL 14 million (approx. €4.1 million). The fourth undertaking, Mauri Maya, obtained full immunity, though it submitted its application for leniency after the preliminary investigation was initiated and following the dawn raids conducted at the premises of the undertakings. The Board considered the value and suffi cient content of Mauri Maya’s leniency application. Overall, the Turkish leniency regime requires high standards for cooperation in the leniency procedure. For instance, in the Steel Ring Manufacturers case (12-52/1479-508, 30.10.2012) the Board stated that the undertakings, MPS Metal Plastik Sanayi Çember ve Paketleme Sistemleri İmalat Tic. A.Ş. (“MPS”) and BEKAP Metal İnş. San. ve Tic. A.Ş., fi xed the prices of steel strapping materials and were acting in collusion regarding certain tenders, and decided that both undertakings had violated Article 4 of Competition Law. The Board considered the leniency application of MPS and imposed a fi ne equal to 1% of its annual gross income in 2011. The reason for granting of partial immunity was that the documents gathered at the on-site inspection allegedly already proved a cartel. However, it could be said that in this case the Board set a high standard for cooperation within the context of the leniency programme. Another decision where the Board sent a negative message to the business community by showing that leniency applications might not always be benefi cial was the 3M case (12- 46/1409-461, 27.09.2012). In the 3M case, the investigation team recommended to the Board to revoke the applicant’s full immunity on the grounds that the applicant did not provide all the documents that could be discovered during a dawn raid. Unfortunately, the Board’s reasoned decision did not go into the details of the matter, as the case was closed

GLI - Cartels 2017, Fifth Edition 329 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London ELIG, Attorneys-at-Law Turkey without a fi nding of violation. It remains to be seen whether the Board will apply this approach again in the future. In the Sodium Sulphate case (12-24/711-199, 03.05.2012), the Board imposed fi nes both on the cartelists and the persons having a determining effect on the violation, but eventually offered reductions on the fi nes after one cartelist and its general manager fi led for leniency. In its decision, the Board stated that the undertakings, Otuzbir Kimya and Sodaş Sodyum, fi xed prices of sodium sulphate and shared customers between the years 2005 and 2011. Additionally, it is also stated that Alkim Alkali Kimya, Otuzbir Kimya and Sodaş Sodyum collectively determined the prices of raw salt. The Board imposed a fi ne on Sodaş Sodyum equal to 3% of its annual gross income in the 2011 fi scal year, and simultaneously imposed a fi ne on Sodaş Sodyum’s general manager, who was actively engaged in the infringement, in the amount of 3% of the administrative fi ne applied to Sodaş Sodyum. Sodaş Sodyum and its general manager fi led for leniency and eventually received reductions at the rate of one third and 50%, respectively, of the fi nes to be imposed. In the decision regarding Gaz Cartel (10-72/1503-572, 11.11.2010), the Board offered full immunity to a leniency applicant, in spite of the fact that the new evidence uncovered during the on-site inspection had shed light on the investigation. This constituted a landmark decision. Berk Gaz, who received full immunity, was the fi rst applicant to apply for leniency. That said, Berk Gaz managed to convince the Board that it provided suffi cient documents and information, while also fulfi lling the other conditions set out in the Leniency Regulation.

Administrative settlement of cases The current Turkish competition law regime does not provide for a settlement procedure. However, a settlement process has recently been considered and is expected to be considered again, once the reform regarding the competition law is included in the government’s agenda.

Third party complaints A notice or complaint may be submitted verbally or through a petition. The Competition Authority has an online system in which complaints may be submitted by the online form on the offi cial website of the Competition Authority. In the case of a notice or complaint, the Board rejects the notice or complaint if it deems the complaint not to be serious. Any notice or complaint is deemed as rejected if the Board remains silent on the matter for 60 days. The Board will decide to conduct a pre-investigation if it fi nds the notice or complaint to be serious. Investigated parties have a right to access the fi le (Communiqué No. 2010/3 on Regulation of Right to Access to File and Protection of Commercial Secrets (“Communiqué No. 2010/3”)). The right to access the fi le can be exercised upon a written request at any time until the end of the period for submitting the last written statement. Complainants and other third parties may request access to fi le for follow-on actions (Law No. 4982 on the Right to Access to Information). The approach of the Competition Authority is to consider not only the interests of the person requesting information, but also the personal data of other natural and legal persons, public interest as well as all other individuals’ interests. This balance is regulated by way of exceptional provisions under Law No. 4982 on the Right to Access to Information. Most of the time, the Competition Authority is reluctant to grant access to the fi le and justifi es the denial of access on the grounds that the access concerns internal documents and business secrets. Based on that, the Competition Authority usually denies access to documents such as investigation reports or information petitions submitted by the investigated parties.

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A recent decision (16-26/433-192, 04.08.2016) defi nes the parties who have the right to access the fi le narrowly, stipulating that Communique No. 2010/3 allows the access request only of those who are being investigated. In this regard, the Competition Authority did not grant the complainant permission to access the fi le. Third parties can attend the oral hearing and be heard by submitting a petition and presenting information and documents that show their interest in the subject matter of the oral hearing.

Penalties and sanctions In case of a proven cartel activity, the companies concerned may be subject to fi nes of up to 10% of their Turkish turnover generated in the fi nancial year preceding the date of the fi ning decision (if this is not calculable, the turnover generated in the fi nancial year nearest to the date of the fi ning decision will be taken into account). Employees and managers of the undertakings or association of undertakings that had a determining effect on the creation of the violation can also be fi ned up to 5% of the fi ne imposed on the undertaking or association of undertaking. The current minimum fi ne is set as TL 17,700 (approx. €5,000). Competition Law makes reference to Article 17 of Law on Misdemeanours to require the Board to take into consideration factors such as: (i) the level of fault and the amount of possible damage in the relevant market; (ii) the market power of the undertaking within the relevant market; (iii) the duration and recurrence of the infringement; (iv) cooperation or driving role of the undertaking in the infringement; (v) the fi nancial power of the undertaking; and (vi) compliance with the commitments in determining the magnitude of the fi ne. In line with this, the Turkish Competition Authority enacted the Regulation on Monetary Fines for Restrictive Agreements, Concerted Practices, Decisions and Abuses of Dominance (“the Regulation on Fines”). The Regulation on Fines provides detailed guidelines regarding the calculation of monetary fi nes applicable in cases of antitrust violations. The Regulation on Fines applies both to cartel activity and abuse of dominance, but illegal concentrations are not covered by the Regulation on Fines. According to the Regulation on Fines, fi nes are calculated by determining the basic level fi rst, which in the case of cartels is between 2% and 4% of the company’s turnover in the fi nancial year preceding the date of the fi ning decision. Aggravating and mitigating factors are then factored in. The Regulation on Fines also applies to managers or employees that had a determining effect on the violation (such as participating in cartel meetings and making decisions that would involve the company in cartel activity), and provides for certain reductions in their favour. In addition to the monetary sanction, the Board is authorised to take all necessary measures to terminate the restrictive agreement, to remove all de facto and legal consequences of every action that has been taken unlawfully, and to take all other necessary measures in order to restore the level of competition and status as before the infringement. Furthermore, such a restrictive agreement shall be deemed as legally invalid and unenforceable with all its legal consequences. Similarly, Competition Law authorises the Board to take interim measures until the fi nal resolution on the matter, in case there is a possibility for serious and irreparable damages. The sanctions that could be imposed under Competition Law are administrative in nature. Therefore, Competition Law leads to administrative fi nes (and civil liability) but no

GLI - Cartels 2017, Fifth Edition 331 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London ELIG, Attorneys-at-Law Turkey criminal sanctions. That said, there have been cases where the matter had to be referred to a public prosecutor after the competition law investigation has been completed. On that note, bid-rigging activity may be criminally prosecutable under sections 235 et seq of the Turkish Criminal Code. Illegal price manipulation (i.e., manipulation through misinformation or other fraudulent means) may also be condemned by up to two years of imprisonment and a civil monetary ﬁ ne under section 237 of the Turkish Criminal Code. The above-mentioned sanctions may also apply to individuals if they engage in business activities as an undertaking. Similarly, sanctions for cartel activity may also apply to individuals acting as the employees or board members or executive committee members of the infringing entities in case such individuals had a determining effect on the creation of the violation. There are no other sanctions speciﬁ c to individuals than the ones mentioned above.

Right of appeal against civil liability and penalties The Board decisions can be submitted for judicial review before the administrative courts in Ankara by fi ling an appeal case within 60 days upon receipt of the justifi ed (reasoned) decision of the Board by the parties. Filing an administrative action does not automatically stay the execution of the decision of the Board. However, upon request of the plaintiff, the court, by providing its justifi cations, may decide for stay of the execution if the execution of the decision is likely to cause serious and irreparable damages; and if the decision is highly likely to be against the law (i.e., showing of a prima facie case). The judicial review period before the administrative court usually takes about 12 to 18 months. If the challenged decision is annulled in full or in part, the administrative court returns it to the Board for review and reconsideration. After the recent legislative changes, administrative litigation cases (private litigation cases as well) are now subject to judicial review before the newly established regional courts (“regional courts”), creating a three-level appellate court system consisting of administrative courts, regional courts and the Council of State (the Court of Appeals for private cases). The regional courts will (i) go through the case fi le both on procedural and substantive grounds, and (ii) investigate the case fi le and make their decision considering the merits of the case. The regional courts’ decisions will be considered as fi nal in nature. The decision of the regional court will be subject to the Council of State’s review in exceptional circumstances, which are set forth in Article 46 of the Administrative Procedure Law. In such cases, the decision of the regional court will not be considered as a fi nal decision and the Council of State may decide to uphold or reverse the regional court’s decision. If the decision is reversed by the Council of State, it will be returned to the deciding regional court, which will in turn issue a new decision which takes into account the Council of State’s decision.

Criminal sanctions The sanctions that could be imposed under Competition Law are administrative in nature. Therefore, Competition Law does not lead to criminal sanctions. However, cases might be referred to a public prosecutor after the Competition Law investigation is completed. On that note, bid-rigging activity may be criminally prosecutable under sections 235 et seq. of the Turkish Criminal Code. Illegal price manipulation (i.e., manipulation through misinformation or other fraudulent means) may also be condemned by up to two years of imprisonment and a civil monetary ﬁ ne under section 237 of the Turkish Criminal Code.

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Cross-border issues Turkey is one of the ‘effect theory’ jurisdictions where the effect that a cartel activity has produced on Turkish markets is what matters, regardless of the nationality of the cartel members, where the cartel activity took place, or whether the members have a subsidiary in Turkey. The Board refrained from declining jurisdiction over non-Turkish cartels or cartel members (e.g., the suppliers of rail freight forwarding services for block trains and cargo train services, 15-44/740-267, 16.12.2015; Güneş Ekspres/Condor, 11-54/1431-507, 27.10.2011; Imported Coal, 10-57/1141-430, 02.09.2010; Refrigerator Compressor, 09- 31/668-156, 01.07.2009) in the past. It should be noted, however, that the Board has yet to enforce monetary fi nes or other sanctions against fi rms located outside of Turkey without any presence in Turkey, as this is mostly due to the enforcement handicaps (such as diffi culties of formal service to foreign entities).

Developments in private enforcement of antitrust laws The most distinctive feature of Turkish competition law regime is that it allows for lawsuits for treble damages. Hence, administrative enforcement is supplemented with private lawsuits. Articles 57 et seq. of Competition Law entitle any person who may be injured in his business or property by reason of anything forbidden in the antitrust laws to sue the violators for three times their damages plus litigation costs and attorney fees. The case must be brought before the competent general civil court. In practice, courts usually do not engage in an analysis as to whether there is an actual condemnable agreement or concerted practice, and wait for the Board to render its opinion on the matter, thereby treating the issue as a prejudicial question. Since courts usually wait for the Board to render its decision, the court decision can be obtained in a shorter period in follow-on actions. Turkish procedural law denies any class action or procedure. Class certiﬁ cation requests would not be granted by Turkish courts. While Article 25 of Law No. 4077 on the Protection of Consumers allows for class actions by consumer organisations, these actions are only limited to violations of Law No. 4077 on the Protection of Consumers, and do not extend to cover antitrust infringements. Similarly, Article 58 of the Turkish Commercial Code enables trade associations to take class actions against unfair competition behaviour, but this has no reasonable relevance to private lawsuits provided under Article 57 et seq. of Competition Law.

Reform proposals After a long wait on the sidelines, the Prime Ministry had ﬁ nally sent the Draft Law on the Protection of Competition (“Draft Law”) to the Presidency of the Turkish Parliament on 23 January 2014. The Draft Law is designed to introduce new concepts to Turkish competition cartel regime such as the de minimis defence and the settlement procedure. In 2015, the Draft Law became obsolete again due to the general elections held in June and November 2015. It is yet to be seen whether the new Turkish Parliament or the Government will renew the Draft Law. As reported in the 2015 Annual Report of the Competition Authority, the Competition Authority has requested the re-initiation of the legislative procedure concerning the Draft Law. The 2015 Annual Report of the Competition Authority also notes that the Competition Authority may take steps toward the amendment of certain articles if the parliament of Turkey does not pass the Draft Law.

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Another signiﬁ cant anticipated development is the Draft Regulation on Administrative Monetary Fines for the Infringement of Law on the Protection of Competition (“Draft Regulation”), which will replace the Regulation on Monetary Fines for Restrictive Agreements, Concerted Practices, Decisions and Abuse of Dominance. The Draft Regulation is heavily inspired by the European Commission’s guidelines on the method of setting ﬁ nes imposed pursuant to Article 23(2)(a) of Regulation 1/2003. Thus, the introduction of the Draft Regulation clearly demonstrates the Competition Authority’s intention to bring the secondary legislation in line with EU competition law during the harmonisation process. The Draft Regulation was sent to the Turkish Parliament on 17 January 2014, but no enactment date has been announced yet.

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Gönenç Gürkaynak Tel: +90 212 327 17 24 / Email: [email protected] Mr. Gönenç Gürkaynak is a founding partner and the managing partner of ELIG, Attorneys-at-Law, a leading law fi rm of 70 lawyers based in Istanbul, Turkey. Mr. Gürkaynak graduated from Ankara University, Faculty of Law in 1997, and was called to the Istanbul Bar in 1998. Mr. Gürkaynak received his LL.M. degree from Harvard Law School, and is qualifi ed to practise in Istanbul, New York, Brussels and England and Wales. Before founding ELIG, Attorneys-at-Law in 2005, Mr. Gürkaynak worked as an attorney at the Istanbul, New York and Brussels offi ces of a global law fi rm for more than eight years. Mr. Gürkaynak heads the competition law and regulatory department of ELIG, Attorneys-at-Law, which currently consists of 36 lawyers. He has unparalleled experience in Turkish competition law counseling issues with more than 19 years of competition law experience, starting with the establishment of the Turkish Competition Authority. Mr. Gürkaynak frequently speaks at conferences and symposia on competition law matters. He has published more than 150 articles in English and Turkish by various international and local publishers. Mr. Gürkaynak also holds teaching positions at undergraduate and graduate levels at two universities, and gives lectures in other universities in Turkey.

Ayşe Güner Tel: +90 212 327 17 24 / Email: [email protected] Ms. Ayşe Güner joined ELIG, Attorneys-at-Law in 2012 following her practice at a reputable law ﬁ rm in Istanbul. Following her graduation from the University of Arizona in 2003, Ms. Güner obtained her Juris Doctorate from the Southern Methodist University Dedman School of Law in Dallas, Texas in 2008, and her LL.M. degree from Maastricht University in the Netherlands in 2010. She has been a member of the California Bar since 2009. Ms. Güner was promoted to counsel in 2016 and has extensive experience in competition law matters. She has represented various multinational and national companies before the Turkish Competition Authority. In addition, she speaks at various university lectures and conferences and has co-authored many articles published internationally and locally in English and Turkish on contemporary competition law issues.

ELIG, Attorneys-at-Law Çitlenbik Sokak No.12, Yıldız Mahallesi, Beşiktaş, 34349, İstanbul, Turkey Tel: +90 212 327 17 24 / Fax: +90 212 327 17 25 / URL: http://www.elig.com

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Giles Warrington & Tim Riisager Pinsent Masons LLP

Overview of the law and enforcement regime relating to cartels Cartel activity in the UK may be punished using both civil and criminal law. The civil enforcement regime is contained in Chapter I of the Competition Act 1998 (CA98) and closely refl ects its EU equivalent, Article 101 of the Treaty on the Functioning of the European Union (TFEU). Chapter I CA98 prohibits agreements or concerted practices between two or more undertakings which have the object or effect of preventing, restricting or distorting competition and which may affect trade within the UK (the Chapter I Prohibition). The Chapter I Prohibition is enforced in the UK by the Competition and Markets Authority (the CMA). The regulators for the gas and electricity, water, broadcasting, electronic communications, postal, healthcare, rail, civil aviation, fi nancial services and payment systems sectors also have concurrent civil enforcement powers with the CMA in their respective sectors. The CMA and the sectoral regulators also have powers to enforce EU competition law where the activity/conduct may affect trade between Member States. The following sanctions are available to the CMA (and the sectoral regulators) if they establish an infringement of the Chapter I Prohibition (and/or Article 101 TFEU). They may: • impose a fi ne of up to 10% of worldwide turnover; • declare the offending agreement void; • impose behavioural undertakings; and • apply to the court for an order to disqualify directors from the infringing companies for up to 15 years. The courts also have a role in enforcing the Chapter I Prohibition. As will be explored further below, third parties (such as customers of cartel participants) may bring private actions for damages arising from a breach of the Chapter I Prohibition (or EU competition law). The courts may also fi nd an agreement which breaches competition law to be void (in whole or in part) and/or order a cessation of any breach. The civil regime also contains a prohibition on an abuse of a dominant position, modelled on the EU equivalent (Article 102 TFEU), which is enforced by the same bodies, and generally subject to the same procedures and penalties as the Chapter I Prohibition. The criminal regime consists of the criminal cartel offence in Part 6 of the Enterprise Act 2002. This provides that any individual convicted of implementing, or causing to be implemented, arrangements for price-fi xing, market-sharing, bid rigging or limiting supply or production, may receive a maximum fi ve-year custodial sentence and/or an unlimited

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fi ne. The criminal cartel offence is more restrictive than its civil counterpart. The offence is designed to catch “hard-core” cartel activity; for a cartel to be criminal, it must be a reciprocal horizontal agreement which is knowingly entered into. Prior to 1 April 2014, the CMA was required to prove that any individual being prosecuted had acted “dishonestly”. However, this requirement was removed by the Enterprise and Regulatory Reform Act 2013 (ERRA13) (albeit replaced with a number of exclusions/ defences). The CMA has jurisdiction to investigate and prosecute alleged criminal cartels in England, Wales and Northern Ireland. The Serious Fraud Offi ce may seek prosecutions with the permission of the CMA. The Crown Offi ce and Procurator Fiscal Service have responsibility for enforcement in Scotland. Sectoral regulators do not have powers to enforce the offence.

Overview of investigative powers in the UK Before opening a civil investigation, the CMA must have reasonable grounds for suspecting an infringement and be satisfi ed that pursuing the investigation would be in accordance with its “Prioritisation Principles” (see below). The decision to prosecute a criminal cartel offence is taken in accordance with the Crown Prosecution Service’s Full Test Code. The Full Test Code requires that a prosecution is only commenced if there is suffi cient evidence to provide a realistic prospect of conviction, and prosecution is in the public interest. Once the CMA has started an investigation, it may acquire information through: • dawn raids on businesses where, depending on the authorisation it has, it may: access data held electronically (such as on laptops, mobile phones); review, copy and/or remove soft-copy and hard-copy documents; ask for factual explanations of documents relevant to an investigation; and interview individuals; and/or • formal mandatory requests in writing for information and for categories of, or specifi c documents. The CMA may formally require individuals connected with a company (including ex- employees, suppliers and customers) to answer questions. In criminal investigations, the CMA may also obtain evidence through surveillance and covert human intelligence sources. Obstruction of the CMA whilst it exercises any of these powers, or failure to comply with any requirements (such as response deadlines), may lead to civil or criminal proceedings against undertakings and individuals. The CMA has recently used this power for the fi rst time (see further below).

Overview of cartel enforcement activity during the last 12 months In February 2016, the UK’s National Audit offi ce highlighted the limited enforcement action taken by the CMA since its creation in 2014 and encouraged the organisation to increase its case fl ow. Since this report, the CMA has risen to this challenge, opening a raft of new investigations and issuing multiple fi nes in 2016. The CMA began the year by concluding its long-running investigation into alleged ‘pay for delay’ arrangements in the pharmaceutical sector (involving paroxetine). In February 2016, the CMA announced that it had fi ned GSK and a number of generics manufacturers a combined total of £44.9 million. It noted that settlements of patent litigation between

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GSK (the holder of the originator patent for paroxetine) and the generics manufacturers (who were developing unbranded versions of paroxetine) involved the generic producers agreeing to delay introducing their products to the market in exchange for substantial payments from GSK. It alleged that these, in effect, amounted to market sharing. This decision is subject to appeal. The CMA also imposed a further six fi nes in 2016 for infringements of the Chapter I prohibition (and Article 101, TFEU). These involved: • Restrictions on the pricing of internet sales by dealers imposed by a supplier – Fridge supplier ITW Limited was fi ned for introducing a minimum advertised price for internet sales of its products. In a separate decision, bathroom fi ttings supplier, Ultra Finishing Limited, was also fi ned £786,000 for a similar offence. Both companies received substantial discounts to their fi nes after agreeing to settle the investigation and implement compliance measures. • Price fi xing between competitors in respect of sales on Amazon’s UK website – A settlement was agreed with Trod Ltd, who was fi ned £163,371 for its part in using automated re-pricing software to ensure it did not undercut another online poster retailer, GB Eye Limited (who was granted immunity from fi nes under the CMA’s leniency policy as it reported the cartel). • Market sharing, price fi xing and information exchange between suppliers of galvanised steel tanks – by way of settlement, three businesses were fi ned a total of £2.6 million for market sharing, price fi xing and bid rigging (an individual involved in the cartel had previously pleaded guilty to the cartel offence, and had received a six-month suspended prison sentence: two further individuals were acquitted). A fourth manufacturer was also implicated, but applied for leniency and obtained immunity. In a separate decision, three of these manufacturers and one other (not involved in the cartel, which has already been penalised) were found to have shared commercially sensitive information regarding their current and future pricing intentions for two sizes of tanks. The exchange of information took place at a single meeting, towards the end of the cartel activity, noted above. The three manufacturers also involved in the cartel were not given an additional fi ne for this infringement, refl ecting the fact that the penalties for the main cartel arrangement covered the period of the information exchange infringement. The fourth company was fi ned £130,000, refl ecting the fact it refused to join the cartel and assisted the CMA during the investigation. • Price collusion between modelling agencies – late in 2016, the CMA imposed fi nes of around £1.5 million on fi ve modelling agencies and a trade association for exchanging pricing information, including in relation to particular customers, and fi xing minimum prices or agreeing a common approach to prices. Similar (but separate) cases have been pursued in France and Italy. The CMA has also issued a further statement of objections (as under the EU rules, a provisional decision allowing the addressee (or addressees) a chance to respond) in relation to an alleged online sales ban by a supplier of golf equipment, Ping Europe. There are also ongoing civil investigations in the leisure and residential agency services sectors. The CMA launched seven new Chapter I investigations in 2016 (excluding a case which was transferred to the CMA by the Energy Regulator, Ofgem, and subsequently closed). These were into the following sectors: the supply of solid fuels; the supply of products to the furniture industry; the supply of auction services (alleged use of most-favoured- nation clauses in the online environment); the cleaning services sector; the pharmaceuticals

GLI - Cartels 2017, Fifth Edition 338 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Pinsent Masons LLP United Kingdom sector and the light ﬁ ttings sector. A civil investigation was also opened into an alleged cartel in the supply of pre-cast concrete pipes (the CMA secured a guilty plea in a criminal investigation relating to the same conduct). There has been more limited activity by the sector regulators. Ofgem has opened an investigation but has released no further details, and, in December 2016, the Civil Aviation Authority sent a statement of objections to East Midlands International Airport and Prestige Parking Ltd in respect of suspected price ﬁ xing and price information exchange in relation to airport car parking.

Key issues in relation to enforcement policy The CMA is not obliged to open a formal investigation into all allegations of anti-competitive conduct which it receives. Indeed, it investigates only a small proportion of these allegations. It assesses its priorities for investigation against its published prioritisation criteria: these assess likely consumer impact, strategic signifi cance (e.g. in terms of deterrence), likelihood of success and cost of investigation. In practice, the CMA uses its prioritisation criteria to fi lter out a large number of potential investigations. Since its creation in 2014, there has been a perception that the CMA’s enforcement capacity was, to some extent, limited by the resourcing requirements of its major market investigations into the energy and retail banking sectors. As noted above, the CMA has also been under pressure from the National Audit Offi ce, and Government more generally, to open more investigations. With both of these investigations now largely concluded and in the light of the pressure imposed, it should perhaps be no surprise to see a signifi cant increase in the CMA’s enforcement actions. Last year, we stated that robust and high-profi le enforcement was seen as a priority for the CMA. As illustrated above, the CMA has made progress in 2016. It has issued eight infringement decisions, compared with an annual average of less than three between 2010 and 2015 (for the CMA and its predecessor, the Offi ce of Fair Trading). The CMA has opened fi ve new Chapter I investigations in its current 2016/17 fi nancial year to date (with a number of months left in the year), as well as a number of abuse of dominance investigations, comfortably exceeding its target of four (set out in its Annual Report for 2016/2017). However, this trend has not carried over into enforcement in the criminal sphere, where the CMA has closed two investigations without commencing any new enquiries. The CMA’s ambitions stand true one year on. CMA Directors have given a number of speeches over the past 12 months emphasising the desire to increase enforcement activity. The CMA’s Draft Annual Plan for 2017/2018 has set a target of commencing six civil investigations (it has not set any targets in respect of criminal investigations). Whilst the list of open and completed investigations above covers a diverse range of sectors, there has been a notable emphasis on enforcement in the pharmaceuticals and e-commerce sectors. This is consistent with the aims stated in the CMA’s 2016/2017 Annual Report. As well as the GSK fi ne and the two ongoing Chapter I pharmaceuticals investigations noted above, 2016 saw a number of abuse of dominance cases in the sector, including: one decision (an £84.2 million fi ne imposed on Pfi zer in respect of Phenytoin, and a £5.2 million fi ne imposed on its distributor, Flynn); and one statement of objections (Actavis UK – Hydrocortisone) issued in relation to excessive pricing, as well as a new investigation opened in relation to pricing (there is also an ongoing pricing investigation, which opened late in 2015). The fi nes levied on Trod, Ultra Finishing and ITW, as well as some of the new investigations opened (e.g. that in relation to auction services), also demonstrate the

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CMA’s focus on tackling pricing infringements in e-commerce. The Draft Annual Plan for 2017/2018 states that the CMA’s focus on these sectors (as well as sectors key to economic growth and productivity, such as rail) will continue for the near future. Two further features of its 2016 enforcement relate to: the variation in size of the business involved; and the extent to which the CMA is prepared to attempt to push the boundaries of competition law enforcement. The National Audit Offi ce, in particular, pointed to the need to reach infringement decisions against medium-sized and small enterprises in order to provide deterrence. The decisions against Trod (which had a turnover of around £15 million in 2015) and others show some success against this metric. The CMA has sought to pursue cases which could be considered more challenging or novel. Examples include the cases in relation to ‘pay-for-delay’ and excessive pricing in pharmaceuticals (where the appeal in the former, and the expected appeal in the latter, will be worth watching during 2017). Over the past year, the CMA has also dramatically increased its compliance activities, an aim set out in the Government’s 2015 Strategic Steer to it. For example, it has contacted law fi rms on a region by region basis in the UK to encourage them to share the CMA’s online compliance materials with clients. The CMA has also followed up its enforcement activities in the residential estate agency market by working with trade bodies and publishing open letters in the trade press to encourage compliance. The CMA also uses warning and advisory letters as tools in its armoury. These are used when it does not prioritise a matter for full investigation, but has concerns about a particular practice (without reaching a conclusion as to whether there has been a breach), it may send a letter to a business setting out its concerns, recommending that the business self-assesses and, in the case of a warning letter, asking for the business to revert identifying the steps it has taken. There is evidence of these being adopted by the sectoral regulators. In April 2016, the Financial Conduct Authority (FCA) announced that it had sent “on notice” letters to two companies in the retirement products sector, requiring them to introduce competition compliance protocols for meetings on their distribution arrangements. This is the fi rst step towards enforcement action taken by the FCA since being granted concurrent powers in 2015. The Offi ce of Rail and Road has previously used a warning letter in lieu of an investigation into the provision of safety critical staff and safety training by London Underground.

Key issues in relation to investigation and decision-making procedures The CMA’s predecessor, the Ofﬁ ce of Fair Trading (OFT), suffered a number of reverses on appeals of its CA98 decisions, leading to criticism of the robustness of its decision-making and its processes. The issue of robustness remains a priority for the CMA and was also highlighted in the latest ministerial “strategic steer” to the CMA. The CMA is seeking to develop more sophisticated detection capabilities in a bid to operate as a more intelligence-led agency. As part of this aim, the CMA has taken steps to develop closer links with the police and attract senior investigators with the requisite expertise. The CMA has also started to use social media to aid it in decision making, spot trends and prioritise its resources. It has also introduced a number of procedural changes in order to improve the procedural robustness of its decisions. This has included the use of Case Decision Groups who are separate from the Case Team investigating an alleged breach/issuing the statement of

GLI - Cartels 2017, Fifth Edition 340 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Pinsent Masons LLP United Kingdom objections. The role of the Group is to decide whether, based on the evidence and the parties’ representations, the legal test for establishing a breach and, where applicable, to decide on the relevant level of the penalty. The CMA has also introduced a procedural offi cer role, also independent from the relevant case team, for parties to escalate procedural disputes. For example, in the Phenytoin case, Flynn successfully obtained an extension of time for a response to the statement of objections (which had been refused by the case team) by escalating the matter to the procedural offi cer. The CMA has sought to speed up its enforcement activities. Whilst not universal (the paroxetine ‘pay-for-delay’ case noted above took fi ve years from the opening of the investigation by the OFT in 2011 to decision in 2016), there appears to be a general trend towards faster enforcement. For example, the modelling agencies investigation took under 21 months from commencement to decision. The most recent excessive pricing investigation (Actavis UK – Hydrocortisone) took just over nine months from commencement to issue of a statement of objections (a process which can sometimes take a number of years). ERRA 13 introduced changes to make it easier for the CMA to penalise businesses for failing to comply with CMA requirements during investigations. In particular, where a company fails to meet a requirement, the CMA now has powers to impose a civil penalty (instead of pursuing a criminal case which imposes a higher burden of proof on the CMA). The CMA used these powers for the fi rst time in 2016, imposing a £10,000 administrative fi ne on Pfi zer (in the phenytoin case noted above) for submitting its response to an information request fi ve days after the end of a 15-day deadline. This case shows the willingness of the CMA to use its powers to impose (or pursue) penalties for procedural breaches, particularly in the light of its desire to complete investigations expeditiously.

Leniency/amnesty regime The CMA operates leniency/amnesty programmes for individuals and undertakings in relation to both the criminal and civil regimes. Under the civil regime, leniency is not limited merely to “hard-core” cartel activity: it is also available for resale price maintenance (this approach differs from other regulators, such as the European Commission). The potential benefi ts of a successful leniency application include complete immunity from fi nes for undertakings, immunity from prosecution under the criminal cartel offence for individual employees and directors and immunity from director’s disqualifi cation for directors (subject to conditions). A successful leniency application does not protect a company from damages actions. The CMA imposes and closely monitors stringent conditions on leniency applicants, both at the time of the application and throughout the investigation. This includes detailed requirements concerning the gathering and preservation of evidence even before any approach has been made to the CMA. Detailed guidance has subsequently been issued and the CMA is expected to monitor compliance with leniency conditions very closely (with the possibility of leniency being withdrawn as a real possibility). The timing of a leniency application is of paramount importance: the sooner it is made, the greater the benefi t to the applicant. Leniency will be unavailable to a company once a Statement of Objections has been issued, or to an individual once he/she is charged. There are a number of conditions for a successful leniency application (including a requirement for full cooperation and an acceptance of breach), but if the undertaking and, if applicable, relevant individuals satisfy these, they will benefi t from one of three categories of immunity:

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• Type A immunity is only available where no investigation has been opened and the applicant is the fi rst member of a cartel to come forward. If successful, the undertaking, all employees and directors will receive blanket immunity from civil and criminal penalties in respect of the breach. • Type B immunity is available if an investigation has commenced and the applicant is the fi rst to seek leniency. Successful Type B applicants can receive the same benefi ts as a successful Type A applicant, although this is within the CMA’s discretion. • Type C immunity is available to undertakings that provide evidence of the cartel activity (but fail to obtain Type A or B immunity, for example because they are not the fi rst leniency applicant). An undertaking’s fi ne may be reduced by up to 50% and an individual may receive immunity, but again this is discretionary. Individuals whose employers have taken part in cartel activity may also approach the CMA directly in exchange for a no-action letter, granting immunity from prosecution in respect of the criminal cartel offence. The individual will be subject to the same on-going conditions as an undertaking applying for immunity. Not all leniency applications lead to an investigation by the CMA. The CMA will consider the evidence provided carefully, and, in certain cases, will confi rm to the application that the investigation will not be pursued (although the CMA will reserve the right to pursue it in future).

Administrative settlement of cases There are two forms of administrative settlement available to parties: a settlement procedure and a commitments process (a binding commitment to cease and desist conduct, and/or behave in a particular way, in lieu of a fi nal infringement decision). However, parties to a secret, hard-core cartel are unable to benefi t from the commitments process. As a result, it will not be considered further here. Under the settlement process, an undertaking under investigation can admit that it has breached competition law and accept that a streamlined administrative procedure will govern the remainder of the investigation. Settlement will only be available once the CMA has suffi cient evidence to support an infringement decision, but prior to a fi nal decision. This is a discretionary process and neither the CMA nor the parties under investigation are mandated to enter into discussions or agree to a settlement. Settlement is a discrete process from leniency and undertakings may be able to use both procedures to reduce a fi ne. In order to reach a settlement, an undertaking must make a clear and unequivocal admission of liability for the alleged infringing behaviour, end the infringement and confi rm it will pay any fi ne imposed by the CMA. Case-specifi c conditions may also be imposed. In exchange for settlement, the undertaking will receive a reduction in its penalty of up to 20% (or 10% if the settlement occurs after the Statement of Objections has been issued). Indeed, as identifi ed above, four of the six Chapter I infringement decisions issued this year followed a settlement.

Third party complaints Complaints received directly from third parties are an important source of intelligence, and actively incentivised through ﬁ nancial rewards of up to £100,000 (for whistle-blowers) and promises of initial anonymity. However, conﬁ dentiality of complainants is very unlikely

GLI - Cartels 2017, Fifth Edition 342 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Pinsent Masons LLP United Kingdom to be sustained throughout the investigation as undertakings must be given access to all documents required to effectively defend themselves. Information-gathering exercises by the CMA also provide a route for third parties, such as competitors or customers of the parties under investigation, to participate in an investigation. If the CMA opens an investigation, third party complainants may elect to be designated as formal complainants. All formal complainants must be offered the opportunity to comment on a Statement of Objections and, depending on the confi dentiality of documents, a third party may also be granted access to all, or some of the case fi le. Alternatively, a complainant may choose to be designated as an interested third party. An interested third party has no right to receive information, but may be asked for views on, for example, the Statement of Objections. The CMA has been keen to stress that it is “open for business” to complainants. In a speech given in November 2016, its Executive Director of Enforcement commented that the CMA “welcomes complaints and takes them very seriously”. In the same speech, the Director was also eager to emphasise the role of the CAT, pointing out that its prioritisation principles require it to consider public policy and whether private enforcement is a viable or realistic alternative before deciding to open a competition investigation. The prioritisation principles, in practice, represent a signifi cant hurdle for third party complainants seeking to persuade the CMA to investigate an allegation of anti-competitive activity. Many complainants are unable to gather suffi cient evidence to satisfy the CMA’s prioritisation principles (in particular, relating to prospects of success), and even those complaints which are supported by strong evidence can be rejected as not constituting a priority for the commitment of investigatory resource. Given the costs and evidential burden involved in pursuing a complaint through the courts, it is still generally the preferred option for a complainant to approach the CMA (despite the Director’s statement above). However, the increasing understanding of the Courts of competition actions, and the active application of the CMA’s Prioritisation Principles, means that recourse to the courts is becoming an increasingly attractive option.

Civil penalties and sanctions As far as possible, the CMA tries to ensure that liability for penalties follows responsibility for the breach. The UK rules on parental and successor liability for fi nes generally refl ect those of EU law. The overarching policy goals in determining the level of a fi ne are to refl ect the seriousness of the offence and to deter future infringements. The CMA has published guidance applying six steps in the calculation of a fi ne. The guidance requires the CMA to identify a starting fi gure, which may be up to 30% of the undertaking’s turnover in the relevant market. The precise level chosen will depend on the seriousness of the offence, with cartels typically towards the upper end of this scale. Through the remaining steps, the CMA makes adjustments to the starting point to refl ect aggravating or mitigating factors, settlement agreements and leniency applications. The CMA must also ensure that the fi ne does not exceed the stated maximum of 10% of the undertaking’s total, worldwide turnover. If the CMA intends to impose a fi ne, it must issue a Draft Penalty Statement, which must show how these six steps are followed. The parties to the investigation must be given a reasonable period of time to make representations on the Draft Statement. The fi nal penalty calculation will be included in the decision.

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The CMA may also use civil powers to apply to the court for disqualifi cation of directors of companies implicated in an infringement from acting as a director for a period of up to 15 years (or may agree a disqualifi cation undertaking with the director concerned in lieu of a court order). In December 2016, the CMA announced that it had used these powers for the fi rst time, agreeing the disqualifi cation of a director of Trod from acting as a director for fi ve years for his role in the breach of competition law (see the case noted above). The CMA’s Executive Director of Enforcement has stated that the CMA “will continue to look at the conduct of directors of companies that have broken competition law, and, where appropriate, [are] absolutely prepared to use this power again”. The Consumer Rights Act 2015 (CRA15) sets out a voluntary redress scheme applicable to both Chapter I (and Article 101 TFEU). The legislation provides for businesses which are the subject of a competition law investigation or infringement fi nding to enter into a redress scheme, under which they voluntarily compensate parties which have suffered a loss due to the anti-competitive conduct under investigation or subject to an infringement fi nding. The intention is that such a scheme will enable parties to receive compensation without resorting to expensive and drawn-out litigation through the courts. It may also lead to a reduction in any fi ne imposed for the infringement. However, it remains to be seen whether this will prove popular in practice given that the infringing business is not protected from subsequent private actions and third parties are not obliged to apply for compensation from a redress scheme where one is available.

Right of appeal against civil liability and penalties UK law contains extensive rights of appeal against infringement decisions. First instance appeals are made to the Competition Appeal Tribunal (CAT), a specialist body with expertise in competition law matters and independent from the CMA. The CAT has the power to conduct a full merits hearing and may quash a CMA decision (in whole or in part). This includes both infringement decisions and no-grounds-for-action decisions (which interested third parties may appeal). If an appeal is successful, the CAT may also remit the decision to the CMA for reconsideration or reach its own decision, which supersedes that of the CMA. The CAT may also hear appeals on penalties alone. Decisions of the CAT may also be appealed to the Court of Appeal. The appeal system has been heavily used and is considered to be a success.

Criminal sanctions The CMA has the power to pursue fi nancial and custodial sentences against individuals, although these must be imposed by a court. Undertakings and individuals may also be subject to confi scation orders. Whilst the possibility of signifi cant custodial sentences has existed for a number of years, there are very few examples of successful prosecutions. Most recently, in March 2016, an individual pleaded guilty to dishonestly agreeing with others to divide supply, fi x prices and divide customers between 2006 and 2013 in respect of the supply in the UK of precast concrete drainage products (see the reference to the related civil case above). The sentence is not known at the time of writing. There have only been two previous examples of successful prosecutions in respect of the criminal cartel offence (in the Marine Hose and Galvanised Steel Tanks cases, all after guilty pleas). As each of the cases concerned arrangements which existed prior to 1 April 2014, the CMA was required to demonstrate that the defendants acted dishonestly in order

GLI - Cartels 2017, Fifth Edition 344 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Pinsent Masons LLP United Kingdom to secure a conviction. The “dishonesty requirement” has been seen as a signiﬁ cant barrier to successful prosecutions. Indeed, two other directors in the Galvanised Steel Water Storage Tanks cartel were acquitted on the basis that they successfully argued at trial that they had not acted dishonestly. As at the date of writing, there are no criminal cartel investigations currently in the public domain, apart from the pre-cast concrete drainage products investigation. The removal of this requirement by ERRA13 is considered to be a signiﬁ cant step in the CMA’s ability to mount successful prosecutions. The purpose of the dishonesty requirement had been to clearly distinguish a cartel under civil law from a cartel under criminal law. In recognition of the loss of the requirement provided, ERRA13 introduced four exclusions. The legislation now provides that no offence will have been committed if: • in relation to (1) supply arrangements, or (2) bid rigging, customers were given designated information (including the names of the undertakings involved and the nature of the restrictions) prior to entering into the offending agreement; • in all cases, designated information was published in a notice in the London Gazette; or • the agreement was made in order to comply with a legal requirement. Four new statutory defences were also introduced. The defences provide that no offence will have been committed if: • at the time the agreement was made, there was no intention to conceal the arrangement from customers or the CMA; or • prior to entering into, or implementing, the agreement, reasonable steps were taken to seek legal advice. As these reforms only apply to conduct post-dating 1 April 2014, it may be a number of years before an investigation under these rules is completed.

Cross-border issues The CMA values connections with other national authorities and such relationships are of particular importance in relation to the cartels, which often affect multiple jurisdictions. For example, the CMA has entered into a network of bilateral agreements with other domestic authorities. It is actively involved in international networks including the International Competition Network and the European Competition Network. There are a number of examples of successful cooperation with other Authorities (most notably in the Marine Hose Investigation which involved active cooperation with the US, EU and Japanese authorities: the CMA also liaised with its counterparts in France and Italy in relation to the Modelling Agencies investigation). The CMA’s plans also take account of international trends in enforcement, for example, in relation to online pricing, and note the need to ensure consistent international enforcement. Clearly, the Brexit vote has introduced considerable uncertainty, in particular as regards the future cooperation within the European Competition Network. However, the CMA has stated itself to be keen on international cooperation following the implementation of Brexit, and there is unlikely to be any change in the near term at least.

Developments in private enforcement of antitrust laws Private enforcement of competition law is well established in the UK, and recent developments have highlighted the attractiveness of the UK as a forum for damages actions.

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Claimants may bring private actions for damages following an infringement fi nding (in respect of EU or UK competition law) by the European Commission or the CMA in either the High Court or the CAT (a “follow-on” damages claim in which the claimant need not prove the infringement). “Standalone” civil actions, where the claimant cannot rely on an infringement decision and so must also demonstrate that an infringement has taken place, may also be brought in the High Court and, by virtue of CRA15, the CAT. Whilst relatively few judgments have been delivered in private law claims (particularly from the specialist CAT), this does not accurately refl ect the signifi cant number of claims which settle out of court. In relation to cartels, the UK has proved to be a popular forum for claimants to pursue follow-on damages claims. Despite the relatively high costs of litigating, there are a number of advantages: • Claimants have extensive access to documentary evidence. At its nadir, the court granted applications for access to leniency materials on a case-by-case basis, whilst other jurisdictions, for example Germany, had refused to do so. However, recent EU legislation is likely to alter this position. • In the case of a follow-on damages claim, an infringement decision is binding on courts, so claimants are not required to establish liability, signifi cantly reducing the workload (and therefore costs) for a claimant. • As a general rule of thumb, the loser pays the costs (although costs are assessed on a discrete basis in each claim). The year 2016 saw the largest damages award by the CAT, an award of £68.5 million to Sainsbury’s in its damages action against MasterCard. This was a standalone action and related to multilateral interchange fees (MIFs), processing fees charged to retailers by MasterCard for MasterCard credit and debit card transactions between the customer and retailer. There was a European Commission decision relating to intra-EEA MIFs, but, as this claim related to UK MIFs and a different period, the CAT found that this was a standalone action. Nevertheless, the CAT found a breach of Chapter I CA98 and Article 101 TFEU (relying in part on the guidance from the European Court’s decision on intra-EEA MIFs), and awarded damages to Sainsbury’s. The CAT also considered whether Sainsbury’s damages could be reduced/non-existent due to the “pass-on” of any overcharge by Sainsbury’s to its customers. The CAT confi rmed that “pass-on” could exist, but set a high threshold for a reduction/removal of damages on this ground. A number of other claims from retailers in relation to the UK MIFs are also pending, whilst the Sainsbury’s judgment is on appeal. As well as allowing standalone actions before the CAT and introducing a number of procedural changes, the CRA 2015 also established a new regime for collective actions. This now permits for the fi rst time in the UK “opt-out” actions, whereby the relevant class of claimants is deemed to be all UK customers who might have been affected by the competition law breach (unless such customers actively ask to be excluded or “opt-out” from the action). The CRA 2015 allows a broad range of representatives to bring collective damages actions on behalf of consumers or businesses, including anyone directly affected by the alleged competition infringement (individuals or businesses) and trade associations. The regime is already undergoing its fi rst test in relation to a consumer opt-out action brought in relation to an OFT decision fi nding resale price maintenance in mobility scooters. In addition, in July 2016, it was announced that MasterCard was set to face a £19 billion

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“opt-out” class action for MIFs (it is unclear whether this would be designated a standalone or follow-on damages action). In order to encourage claims from smaller businesses, the CRA 2015 established a ‘fast- track’ procedure for straightforward cases which will be cost- and evidence-capped. These procedures have proved popular with claimants. In January 2016, following an application for fast-track procedure, NCRQ, a provider of health and safety training services, settled a claim (pre-trial) with IOSH, the body responsible for accrediting providers of health and safety training. The claim concerned IOSH’s refusal to accredit NCRQ’s training scheme which, it was alleged, amounted to an abuse of a dominant position. NCRQ also applied for an interim injunction to force IOSH to issue an accreditation. Similar arguments have been advanced in Socrates Training Limited v The Law Society of England and Wales, but relating instead to training for legal conveyancers. A claim against the grocery retailer Tesco regarding a restrictive covenant on the use of land sold to the claimant was also dropped after Tesco agreed to release the restriction. Fast-track status is not guaranteed and is not suitable for all cases, but the procedure appears to have incentivised complainants resorting to the CAT in the place of the CMA and having some success.

Reform proposals There are no substantial outstanding proposals for reform to the domestic civil or criminal cartel regime. The Government, however, undertook feedback from a May 2016 consultation on refi ning the UK competition regime. This stems from the announcement in the 2016 Queen’s Speech of the Better Markets Bill, which had the stated aims of boosting competition and reducing unnecessary burdens on business. Proposals of note include granting the CMA powers to fi ne companies who breach undertakings given to the CMA (undertakings are currently enforced through the courts, which is cumbersome and costly). Proposals were also made to strengthen the CMA’s powers to impose administrative fi nes on parties to investigations. The Government had said that it would publish its fi ndings by Autumn 2016, but it had yet to do so at the time of writing. It is anticipated that the Brexit vote (which post-dated the announcement of the Better Markets Bill) may have derailed the Government’s legislative agenda. As a result, reform is not anticipated in the near future.

The impact of the Brexit vote It is currently very difﬁ cult to predict what type of exit the EU will negotiate with the EU, but it is clear that the legal framework will remain in place for some time. First, it is expected that competition law in the UK may remain unchanged until the date of the UK’s exit from the EU. Second, with the proposed Great Repeal Bill converting all provisions of EU law into British law on the day of exit, it will then be for the Government to review the legislation and make changes as it sees ﬁ t. However, where competition law sits on the government’s list of priorities for reform remains to be seen. Regardless of the type of exit, EU competition law will still apply to those businesses in the UK whose activities have an effect on trade between the EU member states. In addition, as UK competition law is currently based on EU competition law, the application of rules is likely to continue to be very similar for the foreseeable future (even if EU competition law is not directly applicable), although this could conceivably change over time as practices and policies start to diverge. William Kovacic, a Non-Executive Director of the CMA and former US regulator, has described the UK’s decision to leave the EU as “perilous” for competition

GLI - Cartels 2017, Fifth Edition 347 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Pinsent Masons LLP United Kingdom law, with it having the “potential for greater fragmentation”. There is a risk that the CMA could open investigations into the same activities in parallel to the EU (and vice versa), which would be an additional burden for business. Total ﬁ nes could increase as a result as it remains to be seen whether authorities will take into account ﬁ nes levied by another. In summary, the current position is that there is expected to be no change for two years at least, and, following exit, any divergence between UK and the EU rules is likely to be gradual. However, in what is an uncertain environment, developments are being watched closely.

Acknowledgment The authors would like to thank their colleague, Ben Roach, for his invaluable help in drafting this chapter.

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Giles Warrington Tel: +44 121 260 4037 / Email: [email protected] Giles is a Partner in Pinsent Masons’ International Competition Group, specialising in UK & EU competition law. He has extensive experience of cartel/anti-trust investigations by the UK/EU authorities, UK/EU and international merger control, market investigations by the UK Authorities and competition appeals. He regularly represents clients in respect of investigations/proceedings by the UK CMA (and its predecessors), the European Commission and the Competition Appeal Tribunal, as well as the UK sectoral regulators. For example, he acted for a number of contractors in the UK construction industry investigation, and a further company on its successful appeal of the penalty imposed. He has recently represented (or is currently representing) clients in three major Phase II UK market investigations in the local bus, aggregates/cement and energy sectors. Giles also speaks on competition law topics at external seminars, and contributes articles to specialist/industry magazines.

Tim Riisager Tel: +44 121 629 1602 / Email: [email protected] Tim advises clients on all aspects of behavioural and non-contentious competition law across various sectors including transport, utilities and advanced manufacturing. Tim’s experience includes advising E.ON on the Energy Market Investigation, guiding manufacturing companies with high market shares on vertical agreements and information-sharing, and assisting major transport and leisure companies with merger control and day-to-day compliance issues. Tim has extensive experience of Competition Act investigations, including whilst working as a legal advisor at the water regulator Ofwat, where he was responsible for carrying out initial assessments of Competition Act complaints and led the legal team on an abuse of dominance investigation. In private practice, Tim assisted a retailer with its successful appeal against the Ofﬁ ce of Fair Trading’s Tobacco decision. Tim also helps clients with competition law governance issues, including drafting compliance manuals and providing training. Tim has advised on water regulation, most notably the 2014 Price Review.

Pinsent Masons LLP 30 Crown Place, Earl Street, London EC2A 4ES, United Kingdom Te l: +44 20 7418 7000 / Fax: +4 4 20 7418 7050 / UR L: http://www.pinsentmasons.com

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Mark Rosman & Jeff VanHooreweghe Wilson Sonsini Goodrich & Rosati P.C.

Introduction The United States remains a leading jurisdiction in cartel enforcement. The Antitrust Division of the United States Department of Justice (DOJ) is the government agency primarily responsible for detecting, investigating, and prosecuting cartel conduct, and it has developed various tools for doing so over time. Perhaps the most notable tool is the DOJ’s Leniency Program, which gives full immunity to the fi rst company or individual to report a cartel and cooperate with the DOJ. Indeed, the Leniency Program has led to unprecedented criminal fi nes for antitrust violations in recent years and comprises the single greatest source of the DOJ’s cartel investigations. In a recent speech, the DOJ management remarked that its Leniency Program has “revolutionised cartel enforcement, led to the successful prosecution of many long-running and egregious international cartels, and served as a model for leniency programs subsequently adopted in dozens of jurisdictions around the world.” – DOJ Policy Speech (June 8, 2015). The DOJ is not the only means of enforcement against cartel conduct in the United States either; the majority of U.S. states and private plaintiffs can (and often do) bring enforcement actions against suspected cartel members. The following chapter provides an overview of cartel enforcement in the United States. Specifi cally, this chapter: (i) summarises the legal framework prohibiting cartels; (ii) explains the various means of cartel enforcement used by the DOJ and other agencies; (iii) comments on certain changes in policies and practices affecting cartel enforcement in recent years; (iv) describes signifi cant enforcement activity in the last year; and (v) addresses various other issues affecting cartel enforcement in the United States.

Overview of the law and enforcement regime relating to cartels in the United States Legal framework (Sherman Act, Section 1) Section 1 of the Sherman Act (15 U.S.C. § 1) is the primary statute used to prosecute cartels in the United States. Section 1 states that “[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal”. While Section 1 applies to a broad range of agreements in restraint of trade, traditionally only “hard-core” cartel activity is pursued criminally in the United States − i.e., price ﬁ xing, bid rigging, and market or customer allocation agreements. That said, some observe that the DOJ’s view of the conduct that constitutes “hard-core” cartel activity has expanded in recent years, as noted below. A violation of Section 1 requires proof of: (1) an agreement between two or more competitors, (2) that unreasonably restrains trade, and (3) that affects interstate commerce or commerce with foreign nations. A Section 1 violation is a general intent crime, meaning that the DOJ

GLI - Cartels 2017, Fifth Edition 350 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Wilson Sonsini Goodrich & Rosati P.C. USA need only prove that the company knowingly joined the agreement. Section 1 does not require proof of specifi c intent to commit a violation or cause harm. To constitute a criminal violation, the DOJ must prove these elements beyond a reasonable doubt − the highest standard of proof in the U.S. legal system. (i) Agreement The fi rst element requires the existence of an agreement or understanding between two or more independent companies or individuals. An agreement does not need to be formal or written, but rather can be informal and established orally, by a wink, nod, or even by silence. No overt acts need be proven, nor is an express agreement necessary. The DOJ can prove an agreement either by direct evidence (e.g., testimony of a participant) or circumstantial evidence (e.g., a pattern of business conduct). Parallel conduct by companies alone would not meet this fi rst element of the offence, as long as the parallel conduct is truly independent or unilateral. (ii) Unreasonable restraint of trade The second element of a Section 1 violation requires an “unreasonable restraint of trade”. Courts analyse whether conduct “unreasonably restrains competition” under the “per se” or “rule of reason” standards. The rule of reason standard asks whether the alleged conduct’s anticompetitive effects outweigh its procompetitive effects. The per se standard presumes the conduct to be unlawful by defi nition. It applies when the conduct on its face lacks any redeeming competitive value, and thus it does not inquire as to the effects of the conduct or the justifi cation of the conduct. Price fi xing, bid rigging, and market and customer allocations among competitors have been held as clear per se antitrust violations and described by the U.S. Supreme Court as “the supreme evil of antitrust” − Verizon v. Trinko, 540 U.S. 398, 408 (2004). Thus, for these types of cartel offences − which are identifi ed as “hard core” violations and prosecuted criminally − the DOJ does not need to prove that the conduct unreasonably affected competition, as this harm is presumed. (iii) Interstate or foreign commerce The fi nal element of a Section 1 violation requires proof that the conduct involves interstate commerce or trade with foreign nations. Most commercial activity occurring within the United States will have an interstate effect. When the conduct involves commercial activity with foreign nations (foreign commerce), the conduct must have the requisite effect on U.S. (domestic) commerce. The standard for determining whether the conduct has this requisite effect is articulated by the Foreign Trade Antitrust Improvements Act (FTAIA). In order to meet the domestic effects requirement, the conduct must: (1) have “a ‘direct, substantial, and reasonably foreseeable effect’ on American domestic, import, or (certain) export commerce”; and (2) have “an effect of a kind that antitrust law considers harmful, i.e., the ‘effect’ must ‘giv[e] rise to a [Sherman Act] claim’” – F. Hoffmann-La Roche Ltd. v. Empagran S.A., 542 U.S. 155, 162 (2004) (citing 15 U.S.C. § 6a). Recent developments in the DOJ’s interpretation of the FTAIA are discussed in further detail below. Penalties for cartels The maximum criminal penalties for a Section 1 violation are (i) a $100 million fi ne per offence for corporations, and (ii) 10 years in prison and a $1 million fi ne per offence for individuals. Courts may impose fi nes in excess of the statutory maximum under the Alternative Fines Act (18 U.S.C. § 3571(d)), which provides that a fi ne may be increased to twice the gross

GLI - Cartels 2017, Fifth Edition 351 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Wilson Sonsini Goodrich & Rosati P.C. USA gain from the illegal conduct or twice the gross loss to the victims. As noted above, the DOJ pursues criminal sanctions for “hard-core” Section 1 violations; but the DOJ can also pursue civil sanctions for other (less “serious”) collusive conduct. In doing so, the DOJ can − and often would − seek injunctive relief (prohibiting or mandating certain conduct). In criminal prosecutions, the DOJ uses the Federal Sentencing Guidelines to recommend the penalties to impose on corporations and individuals convicted of or pleading guilty to a cartel violation. The Federal Sentencing Guidelines consider a variety of factors for the recommended penalties, including the volume of commerce affected, prior criminal history, role in the offence, cooperation with law enforcement, and compliance program, among others. While federal courts are not required to impose sentences within the ranges provided in the Guidelines, United States v. Booker, 543 U.S. 220 (2005), they must still give “respectful consideration” to the Guidelines, Pepper v. United States, 562 U.S. 476, 501 (2011), in connection with a wider range of factors set forth in the federal sentencing statute (18 U.S.C. § 3553). To date, the largest fi nes levied against a corporate defendant for a Sherman Act violation are $500 million – the DOJ obtained this fi ne amount in two separate prosecutions, one against F. Hoffman-La Roche, Ltd. and another against AU Optronics Corporation of Taiwan. The Sentencing Guidelines also provide that courts can impose probation on corporations or require corporations to pay restitution under certain circumstances, and DOJ offi cials have increasingly considered, and in some cases requested and secured, court-supervised probation pursuant to the Guidelines as a means “to ensure an effective compliance program and to prevent recidivism” − DOJ Policy Speech (Sept. 10, 2014). Recently the DOJ has echoed its commitment to corporate rehabilitation where “confi dence is low that a defendant is committed to rehabilitating itself with appropriate compliance measures”– DOJ Policy Speech (Nov. 3, 2016). This recent development is described in more detail below.

Overview of investigative powers in the United States and the means of cartel enforcement Criminal enforcement by the DOJ (i) Initiation of criminal investigation There are various means by which the DOJ learns of potential cartel conduct and initiates an investigation, including customer complaints, press reports, private litigation, other DOJ investigations, reports from other federal and state agencies, reports from foreign competition authorities, and screening techniques. However, the most frequent way the DOJ learns of potential cartel conduct is from the DOJ’s Leniency Program, as described below. After receiving credible information of a potential violation, the DOJ will typically initiate a grand jury investigation, which is done by presenting probable cause of a potential cartel violation. The DOJ will typically convene a grand jury in a federal district where the conduct occurred, defendants are located, or affected sales were made. (ii) Tools of criminal enforcement With a grand jury investigation open, the DOJ relies on a variety of tools to gather evidence about suspected cartel activity. Perhaps the most important is the grand jury subpoena. The grand jury has the power to subpoena documents and witness testimony. As a matter of practice, the DOJ’s grand jury subpoena seeks documents located in the United States. The DOJ also asks subpoena recipients to produce documents located outside the United States on a voluntary basis. The DOJ also works with other law enforcement agencies, primarily the FBI, to obtain search warrants and conduct electronic surveillance, each of

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which must be authorised by a judge or magistrate upon a showing of probable cause. The DOJ also gathers evidence from voluntary productions of information, including from leniency applicants and cooperating subjects of an investigation.

Leniency/amnesty regime Leniency program The DOJ’s Leniency Program (sometimes referred to as the Amnesty Program) is the DOJ’s primary tool for criminal antitrust enforcement. Indeed, Acting Assistant Attorney General Renata Hesse this year noted that the Leniency Program “remains the criminal program’s single-most powerful case generator, and continues to serve as an example to [the DOJ’s] partners around the globe as they develop and improve their own”. DOJ Policy Speech (Nov 3, 2016). The Leniency Program affords full immunity from prosecution to a corporation when certain requirements are met; the core requirements being that: (i) the DOJ has not yet learned of the conduct (Type A leniency) or does not yet have enough information to pursue a conviction (Type B leniency); and (ii) the corporation reports the misconduct fully and cooperates completely with the DOJ’s investigation. Because a corporation must be the fi rst to report to the DOJ to qualify under the Leniency Program, this creates signifi cant incentives to be the fi rst to uncover and disclose conduct to the DOJ. Often a company learns of potential misconduct but does not have the “complete picture” of whether the conduct violated the antitrust laws. In such instances, the DOJ allows the company to obtain a “marker” to secure its place in line with the DOJ while investigating further whether a violation occurred. Obtaining a marker requires counsel to report that they have some credible evidence of a criminal antitrust violation, and identify the industry and client, as well as the general nature of misconduct. Finally, under the DOJ’s Leniency Program, the Antitrust Division has created “Amnesty Plus” for companies involved in more than one cartel offence. As part of Amnesty Plus, a company under investigation for one cartel offence that discovers another potential cartel offence may receive immunity for the second offence (assuming it qualifi es for leniency) if it reports the conduct, and may also receive a reduction in fi ne (or a “credit”) for the original offence. There are many nuances to the Leniency Program, and a corporation should seek advice from counsel in the United States about the Leniency Program should it uncover evidence of a possible cartel violation. Criminal and civil enforcement by state agencies All 50 states and the District of Columbia have some type of antitrust or unfair trade practice statute, most of which are based on and/or interpreted consistently with the federal antitrust laws. All states except Connecticut, Delaware, and Kansas provide for some form of criminal liability for such violations, although criminal enforcement is not common in most states and sanctions tend to be less severe than under federal law. State attorneys general are responsible for the public enforcement of these laws and nearly all states permit private civil damage actions, most for treble damages, although some states limit recovery to actual or double damages.

Developments in private enforcement of antitrust laws Civil enforcement by private plaintiffs Parties directly injured by cartel violations may sue for treble damages as well as injunctive relief under Sections 4 and 16 of the Clayton Act, respectively (15 U.S.C. §§ 15, 26). The

GLI - Cartels 2017, Fifth Edition 353 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Wilson Sonsini Goodrich & Rosati P.C. USA possibility of recovering treble damages provides a signifi cant economic incentive for private parties to fi le suit. Indeed, it is common for private parties to fi le suit in the United States following only the announcement of a criminal investigation. Sometimes just the announcement of an investigation by an agency outside of the United States will prompt a private suit in the United States. These “follow-on” suits are often fi led on behalf of a class, which exponentially increases a company’s potential exposure as well as the burdens and costs of defending the litigation. Thus, private “follow-on” suits remain “a crucial deterrent to potential violators” − Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 635 (1985). While private follow-on suits against cartel conduct are common in the United States, such suits still face signifi cant challenges to success, including strict standards for class certifi cation, a shorter statute of limitations period than in criminal cases (four years in civil versus fi ve years in criminal), and heightened federal pleading standards. The DOJ’s criminal enforcement efforts, however, facilitate private parties in follow-on civil damages actions. First, jury convictions and guilty pleas constitute prima facie evidence of a cartel violation in a parallel civil case and thus help establish liability. Second, under the Antitrust Criminal Penalty Enhancement and Reform Act (ACPERA), a successful leniency applicant can qualify for a reduction in damages from treble to single, and avoid joint and several liability if it provides “satisfactory cooperation” to the plaintiff.

Overview of cartel enforcement activity during the last 12 months The DOJ’s criminal antitrust enforcement program remained very active in the last year. While the DOJ’s fi nal statistics for the year have not been published as of the date of this writing, we estimate that the DOJ’s criminal program netted signifi cant sanctions again during fi scal year 2016. Perhaps most notable is the DOJ’s emphasis on prosecuting individuals – the agency charged or received sentences against well over 50 individuals during 2016. And, in the past fi ve years, the DOJ has prosecuted almost three times as many individuals as corporations for antitrust crimes, has sought longer jail sentences, and has not hesitated to pursue extradition of foreign nationals where necessary. Corporate prosecutions The DOJ has not hesitated to prosecute corporations of all sizes and in all industries; the DOJ has also continued to look beyond smoke-fi lled rooms to detect the antitrust “cartel” and has taken an increasingly expansive view of what constitutes “hard-core” cartel conduct. Indeed, some of the DOJ’s corporate prosecutions in the last year appear to stem from competitor collaborations that might have started out pursuing legitimate purposes, such as a joint venture, but ended up crossing the line in some fashion. In 2016, the DOJ’s most prominent corporate enforcement actions involved the following industry sectors: (i) Automotive Parts – Over the past year, the DOJ’s long-running investigation into various segments of the automotive parts industry continued unabated. In total, the DOJ netted over $270 million in corporate fi nes from auto parts manufacturers alone in 2016. Since fi rst bringing charges in this industry in 2011, the DOJ has secured more than $2.9 billion in criminal fi nes from 47 different companies (and 65 executives). (ii) Electrolytic Capacitors – In 2016, the DOJ advanced its investigation involving electrolytic capacitors. The DOJ has secured pleas from four companies in 2016 (fi ve companies in total since the start of the investigation). (iii) Ocean Shipping, Chemicals, Pharmaceuticals, and Financial Services – The DOJ has taken enforcement actions across a variety of industries in 2016, including ocean shipping,

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chemicals (liquid aluminium sulphate), pharmaceuticals, and fi nancial services. (iv) “Smaller” innovative markets – The DOJ has not hesitated to prosecute conduct in smaller, innovative markets in the past year. For example, the DOJ continued to pursue anticompetitive conduct in the “online wall décor industry” charging Trod Ltd., an e-commerce merchant, for conspiring with competitors to adopt pricing algorithms to coordinate or stabilise prices of posters sold through web retailers. The DOJ also advanced its investigation into the “heir location services industry” in 2016, charging Kemp & Associates, Inc. with conspiring to allocate customers in the supply of services that help identify benefi ciaries who might be entitled to inheritance from the estate of an individual who has died intestate. Individual accountability While the DOJ has always pursued individual prosecutions for cartel conduct, it has increased its efforts to prosecute individuals in the last year. This increase was fuelled, perhaps in part, by a department-wide push to hold individuals accountable after U.S. Deputy Attorney General Sally Yates issued a policy paper entitled “Individual Accountability for Corporate Wrongdoing” – commonly referred to as “the Yates Memo” (in September 2015). The management at the DOJ’s Antitrust Division embraced the Yates Memo as central to its enforcement strategy. In early 2016, the DOJ’s Deputy Assistant Attorney General in charge of the antitrust criminal enforcement program responded by stating that the DOJ could “do even better” to identify “all senior executives who potentially condoned, directed, or participated in the criminal conduct” – Individual Accountability for Antitrust Crimes (Snyder Speech, February 19, 2016). Testifying before the Senate Judiciary Committee, the Assistant Attorney General for Antitrust, William Baer, echoed this message, stressing that the DOJ will hold “senior executives accountable for criminal antitrust misconduct”, and seek jail sentences. These statements are certainly indicative of the DOJ’s increased focus on individual prosecutions in 2016. Indeed, the DOJ brought charges against a signifi cant number of individuals (at least 50) in 2016, and sought increased sentences in many instances. Further, in the past year, some have observed that the DOJ has targeted more individuals “tangentially involved” in cartel conduct when compared to past years, meaning that the DOJ has seemingly pursued charges against individuals with less evidence than in prior cases. Notable individual prosecutions undertaken by the DOJ in 2016 spanned a variety of industries, including: (i) Financial Services (5 individuals for collusion around LIBOR rates), (ii) Automotive Parts (65 total with at least 8 in the last year), (iii) Electrolytic Capacitors (9 total with 8 in the last year), (iv) Real Estate (over 20 individuals indicted related to foreclosure auctions), and (v) Pharmaceuticals (2 individuals). Extradition: The DOJ also continues to show its willingness to prosecute individuals no matter where they are located. The DOJ had some further success in its extradition of individuals in 2016. Most notably, a Canadian national, John Bennett, who was extradited two years ago, was sentenced this year to serve 63 months in prison and ordered to pay $3.8 million in restitution. This is a signifi cant increase from the average prison sentence and fi ne for individuals, suggesting that individuals who do not voluntarily present themselves in the United States could face more signifi cant sanctions.

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Recent developments in U.S. cartel enforcement policy and practice In 2016, the DOJ highlighted a few enforcement priorities. First, it reiterated and furthered its commitment to corporate compliance, providing both “carrots” and “sticks” to motivate antitrust offenders to develop and implement robust internal compliance programs. Second, the DOJ put companies and executives on notice that it was willing to bring criminal enforcement actions for collusive conduct in labour markets (e.g., “no poaching” and “wage fi xing” agreements). Third, the DOJ suggested it will continue to pursue aggressively conduct outside the United States. Compliance programs and corporate probation The DOJ’s aggressive approach to criminal enforcement is largely to deter collusive conduct from occurring in the future (as is true with most criminal programs). Thus, the DOJ expends signifi cant effort encouraging companies to implement antitrust compliance programs – compliance programs designed to prevent ill-advised conduct from occurring in the fi rst instance. Over the past few years, the DOJ has made compliance one of its top priorities, and 2016 was no different. In fact, in a November 2016 speech, Acting Assistant Attorney General Renata Hesse described how “[c]ompliance and remediation have become central to [the Antitrust Division’s] corporate resolutions and sentencings.” (emphasis added). The DOJ has pushed for improved corporate compliance in a number of ways. First, the DOJ continues to encourage companies to implement and improve compliance programs via speeches and public statements. In the last couple of years, the DOJ made a number of speeches that not only promoted compliance but also advised on what a “successful” compliance program might include. Second, the DOJ has recently started rewarding companies that improve their compliance programs by reducing their fi nes when charged (in an effort to deter repeat conduct). Third, the DOJ is also increasingly seeking ways to fold compliance requirements into plea deals and sentences with defendants. For example, in certain pleas with electrolytic capacitor manufacturers, the DOJ required the companies to agree to terms of probation as part of their compliance program. We expect this emphasis on compliance to continue in the years ahead. Guidelines for HR Professionals: Criminal enforcement in labour markets In October 2016, the DOJ and the Federal Trade Commission (FTC) jointly published a policy paper entitled “Antitrust Guidance for Human Resources Professionals” (HR Guidance). This HR Guidance highlighted that certain forms of horizontal collusion and information exchanges within the labour and employment context could violate the antitrust laws. In particular, the HR Guidance put companies and individuals on notice that certain collusion – namely “naked” wage-fi xing and no poaching agreements – can subject them to criminal prosecution. The DOJ and the FTC have taken enforcement action in the past for conduct that restrained competition in labour markets, but all of those actions were brought civilly, and typically resulted in agreements to stop the conduct at issue. The HR Guidance changes the stakes signifi cantly and means that the DOJ (and the FTC) will be looking for ill-advised collusive conduct specifi cally in employment practices.

Cross-border issues International enforcement In 2016, the DOJ continued to deepen its cooperation efforts with international antitrust agencies, recognising that cooperation between international antitrust agencies has been

GLI - Cartels 2017, Fifth Edition 356 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Wilson Sonsini Goodrich & Rosati P.C. USA a key tool in prosecuting collusive conduct. The DOJ has made particularly clear that prosecuting international cartels through joint investigations with its foreign counterparts remains a high priority now, and will remain so in the future. The DOJ’s Acting Assistant Attorney General Renata Hesse stated in 2016 that hard-core cartel enforcement was the “most conspicuous area of convergence” in international competition policy. And, in September 2016, Ms. Hesse addressed new initiatives aimed at achieving greater international cooperation – including an international staff exchange program between the U.S. and the EC, Japan, and the UK in order to learn international investigations and strategies at fi rst-hand. Further, in November 2016, the DOJ and the FTC published proposed updates to the Antitrust Guidelines for International Enforcement and Cooperation (“International Guidelines”). These International Guidelines describe how the DOJ and the FTC will approach investigations and prosecutions for conduct occurring outside the United States. In particular, the proposed revisions to the International Guidelines: (i) provide an additional chapter on international cooperation, addressing the agencies’ investigative tools used with other enforcement agencies to detect and prosecute collusive conduct; and (ii) provide further insight on how the DOJ and the FTC view the extra-territorial reach of the antitrust laws, i.e., when the DOJ might prosecute conduct occurring outside the United States. On the latter (the DOJ’s view of the reach of the antitrust laws), the DOJ states its position on the reach of the Sherman Act to conduct outside the United States (by interpreting certain requirements of the Foreign Trade Antitrust Improvements Act (FTAIA)). In sum, the DOJ’s position takes a more expansive view of the Sherman Act’s reach over certain conduct compared to the position taken by some courts previously. The DOJ has advocated its position with other courts and found success, as reported in prior years of this chapter; the DOJ is now stating its position as a matter of “policy” in these proposed International Guidelines. In doing so, the DOJ is likely to continue to pursue collusive conduct outside the United States aggressively, and remains confi dent its interpretation would prevail if challenged in court. The DOJ provides two important examples in the International Guidelines to illustrate its position. • The fi rst example involves companies outside the United States that agree to fi x prices (or otherwise improperly collude) on component parts supplied outside the United States. The DOJ observes that these companies can be prosecuted under U.S. antitrust laws if those component parts indirectly enter the U.S., i.e., the components are sold outside the United States and then integrated (by other companies) into fi nished products sold into the United States. The DOJ observes that the component suppliers need not actually know that the fi nished products are sold in the United States to be subject to prosecution. • The second example involves companies outside the United States that agree to fi x prices (or otherwise improperly collude) on products that never make their way into the United States. The DOJ observes that these companies can be prosecuted so long as the anticompetitive conduct infl uences the “worldwide” price of a certain product sold (by other companies) in the United States, e.g., the fi xed price outside the United States serves as a “benchmark” for the price of the product in the United States (again supplied by another company not part of the collusion). As of this writing, the proposed guidelines have yet to be adopted, however the fact that the DOJ proposed incorporating this position into the International Guidelines alone suggests that the DOJ is committed to pursuing conduct outside of the United States aggressively.

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Outlook in the New Year 2017 In the last year, the United States continued to show it is a leader in cartel enforcement. The DOJ netted signiﬁ cant ﬁ nes from corporate prosecutions and an uptick in the number of prosecutions against individuals. Further, the DOJ continued to investigate, detect, and prosecute cartel conduct in “new” industries (not traditionally susceptible to cartel conduct), as well as a variety of more traditional industries. The DOJ also remained active in highlighting new initiatives surrounding labour markets, company compliance, and international enforcement. Finally, in addition to the DOJ prosecutions, the U.S. states and private plaintiffs also remained active in enforcement of the antitrust laws. If 2016 is any indication, we can expect that cartel enforcement will remain aggressive and innovative in 2017.

* * *

Acknowledgments The authors wish to acknowledge the contribution made to this chapter by Takeyoshi Ikeda and Ted Serra: Takeyoshi Ikeda Tel: +1 202 973 8942 / Email: [email protected] Takeyoshi Ikeda is an associate in the Washington, D.C., offi ce of Wilson Sonsini Goodrich & Rosati, where he is a member of the fi rm’s antitrust practice. He advises clients on a broad spectrum of antitrust issues related to mergers and acquisitions, litigation, criminal investigations, and counselling. Ted Serra Tel: +1 202 973 8898 / Email: [email protected] Ted Serra is an associate in the Washington, D.C., offi ce of Wilson Sonsini Goodrich & Rosati, where he is a member of the antitrust practice. His work encompasses a variety of civil and criminal matters, including litigation, compliance, and government investigations.

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Mark Rosman Tel: +1 202 973 8877 / Email: [email protected] Mark Rosman is a partner in the Washington, D.C., offi ce of Wilson Sonsini Goodrich & Rosati and a member of the fi rm’s antitrust practice. With nearly 20 years of experience as a trial attorney and prosecutor in the Antitrust Division of the U.S. Department of Justice, Mark is well positioned to represent and counsel clients in connection with a variety of national and international antitrust matters, including cartel defence, criminal enforcement investigations, and merger and civil non-merger cases. Prior to joining the fi rm, Mark served as Assistant Chief of the National Criminal Enforcement Section in the U.S. Department of Justice’s Antitrust Division. In this role, he oversaw teams of trial attorneys and law enforcement agents who prosecuted numerous cartel cases and related violations, including Foreign Corrupt Practices Act (FCPA) violations, bribery, wire fraud, obstruction of justice, and kickbacks.

Jeff VanHooreweghe Tel: +1 415 947 2046 / Email: [email protected] Jeff VanHooreweghe is a partner within the antitrust practice in Wilson Sonsini Goodrich & Rosati’s San Francisco offi ce. His practice encompasses all aspects of antitrust law, including criminal grand jury investigations, civil investigations, private litigation, merger clearance, and compliance counseling. Prior to joining the fi rm, Jeff worked as an associate at Skadden, Arps, Slate, Meagher & Flom LLP in Washington, D.C. At Skadden, Jeff advised clients on a number of different matters before federal agencies and courts in the United States and abroad, with a particular focus on criminal grand jury investigations and private civil litigation. Jeff began his legal career in 2001 as a trial attorney in the Attorney General’s Honors Program with the Department of Justice’s Antitrust Division. At the Antitrust Division, Jeff worked in the Networks & Technology Section on civil merger and non-merger matters in the information technology, software, and fi nancial services industries.

Wilson Sonsini Goodrich & Rosati P.C. 1700 K Street N.W., Washington D.C. 20006, USA Tel: +1 202 973 8800 / Fax: +1 202 973 8899 / URL: http://www.wsgr.com

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