KNEPPELHOUT & KORTHALS: Applying for leniency in cartel cases: not always a safe bet02/28/2018
By Esther van Aalst, partner/attorney competition law
Recently the European Commission published the public version of its decision to fine recycling companies Campine, Recyclex and Eco-Bat €68 million for their participation in a car battery recycling cartel. As far as we know, this is the first time the Commission sets a fine relating to purchasing activities in the circular economy. This case is also remarkable because purchasing combinations are often held to generate efficiencies for the benefit of consumers. The case also shows that a race for leniency can be detrimental to one’s (in this case: Campine’s) legal position.
Recycling companies purchase used automotive batteries from scrap dealers and collectors. The batteries are obtained from collection points like garages and scrapyards. Subsequently, the batteries are recovered or recycled lead from the batteries is sold to battery manufacturers. Some recycling companies produce their own batteries. The involved recycling companies - Campine, Recyclex, Eco-Bat and Johnston Control - together occupy a large part of the market for scrap lead-acid batteries in the European Union.
Car battery cartel
From 2009 to 2012, the recycling companies were found to have reduced competition in the purchasing market for scrap lead-acid automotive batteries in Belgium, France, Germany and the Netherlands. They coordinated their purchasing behavior by exchanging information relating to prices, future market conduct and negotiations with suppliers. These exchanges mainly occurred in telephone calls, e-mails or text messages. Some contacts took place in bilateral or multilateral meetings.
The recycling companies took great effort to hide their conduct by using code language. For instance, they would refer to weather conditions as a code to indicate price levels: “After this wonderful Easter weather in Germany, temperatures are falling here significantly and even rain is forecasted” and “They announced […] mm of rain directly spread over the entire country, starting next week.” The ‘mm of rain’ relates to targeted price levels. The Commission held that the participants aimed to lower the value of used batteries sold for scrap and thus the purchasing prices, to the disadvantage of the sellers.
Discovery of the cartel and leniency
Under the Leniency Notice, cartel participants can benefit from full immunity or a substantial reduction in fine as a result. The first in line to apply for leniency is often granted full immunity whereas the following undertakings applying for leniency are at the mercy of the Commission. The information provided by the second and third (and so on) party must add significant value to the Commission’s investigation. A candidate for a substantial reduction in fine must furthermore disclose the companies role in the cartel as well as participate fully with regard to the investigation.
Johnston Control received full fine immunity as it lead the Commission to the discovery of the cartel by filing for leniency. The other three involved companies also submitted leniency applications. They did so right after the Commission raided their premises. As a result, Eco-Bat received a 50% fine reduction and Recyclex 30%. Campine’s leniency application did not qualify for a reduction because it did not amount to the disclosure of its participation in the cartel. Campine merely commented on the documents found during the investigation and therefore was not able to provide sufficiently valuable additional information compared to the information already provided by Johnston Control, Eco-Bat and Recyclex.
Note that the fact that Johnston Control, Eco-Bat and Recyclex qualified for leniency, does not mean that they cannot be sued for damages. Damages claims are made more often and can nowadays be expected soon after a company’s participation in a cartel becomes public knowledge.
Calculation of the fines based on purchase value
In the event the Commission decides to impose a fine, the 2006 Guidelines on the method of setting fines describe that the amount of the fine is based on the sales value which was affected by the cartel. In this particular case, the Commission calculated fines based on purchasing values, given that the infringement related to purchase prices and that the products concerned were inputs for the cartel participants.
The general method of setting fines is such that the more ‘successful’ a sales cartel is, the higher the value of sales and thus the amount of fine. In this case, the price-fixing of purchase prices is not to increase the purchase price but rather to reduce or prevent its increase. Consequently, there is a systematic lower starting point for the calculation of a fine. This particularity lead the Commission to increase the basic fine by 10% for each participant held liable for the infringement as the value of purchases in itself was unlikely to be an appropriate proxy for reflecting the economic importance of the infringement.
Cartels most commonly involve collusion on selling prices, whereas in this particular case the recycling companies colluded to reduce their purchase prices paid to scrap dealers and collectors. Hence, the Commission applied a slightly different approach by calculating the fines based on purchasing values.
Some of the parties argued that the fines should be set at a symbolic rate due to the fact that no consumer was harmed by the cartel. On the contrary, consumers benefitted from lower prices of lead-acid batteries. The Commission responded by stating that horizontal price-fixing is among the most harmful restrictions to competition. Therefore, there is no need to consider whether consumers were harmed or not (also see C-501/06 P in this respect). In any event, harm was done to the sellers of automotive batteries.
To take in account the particularity of the case as well as general deterrence, the Commission used its discretion under the Guidelines to increase the fines by 10%.
Applying for leniency can be beneficial when it results in a reduction of the fine imposed. However, not every leniency applicant can provide information of sufficient added value. Furthermore, full cooperation – i.e. full disclosure towards the Commission - is part of the leniency program. In this regard, it is valuable to know which cartel participants may have already applied for leniency. If a company is not the first in line, it is the more important to consider which strategy fits best – to focus on the defense, or try to come clean by cooperating with the Commission.