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The early worm escapes the bird. The (lack of a) binding effect of fining decisions for leniency whistle-blowers.

BACKGROUND

The claim for damages was brought by a German food discounter against a major chocolate and confectionery manufacturer. The defendant had been involved in the so-called Confectionery Cartel, which was fined by the German Federal Cartel Office in 2013. In this cartel, several chocolate and sweets manufacturers engaged in multiple acts of exchanging commercially sensitive information, inter alia regarding planned price increases and the timing of such increases. The cartelists were fined 63 Mio. EUR; but, crucially, the defendant received full immunity from fines due to its role as a whistle-blower.

THE PLAINTIFF’S CLAIM

The plaintiff demanded compensation for the harm that it suffered due to excessive prices paid for two products sourced from the defendant. It argued that the (factually undisputed) increase in the prices paid for the two products in 2008 was the result of price fixing. The coordination on prices in what it labels a “hard-core cartel” would be a strong indicator for an effect on the overall price level. There would be prima facie evidence that the cartel affected the purchase of the products in question, and that it was causal for the occurrence of the damage. The plaintiff claimed that the magnitude of the overcharge was sufficiently substantiated (including by an economic expert report), but that in any case its explanation of the facts of the case would allow the Court to freely estimate the harm.

THE DEFENDANT’S COUNTERARGUMENTS

The defendant challenged that the claim was sufficiently substantiated as regards its own antitrust violation, on the grounds that the plaintiff cited only the fining notices against other cartelists. These fining notices, however, would have no binding effect on the defendant. The fining notices would further not even have an indicative effect to the detriment of the defendants, as this would otherwise have created a “de facto” binding effect and thus circumvented the provisions of §33 (4) of the Act against Restraints of Competition (in its 2005 version).

Furthermore, the plaintiff would misrepresent a mere one-sided information exchange on planned price level increases for a wide range of products, which were internally decided due to cost shocks, as a “hard-core cartel”, incorrectly treating the entire annual price increase as a cartel-induced overcharge.

THE COURT’S REASONING

The Court stated that, in line with previous judgements by the Federal High Court of Justice, for there to be damage, there first must be causation between the violation of competition law and the damage sustained by the plaintiff.

The Court did not reach the conclusion that with sufficient certainty the plaintiff has sustained any harm.

For one, there would not be a prima facie evidence that the cartel in question actually increased prices. As such prima facie evidence would not even be valid in relation to quota or market sharing agreements - a legal guidance recently established by the Federal High Court of Justice much to the liking of various cartel offenders – such evidence would also not be valid for a mere information exchange.

Furthermore, the fining notices issued against the other cartelists would not be binding for the defendant, but at most have an indicative effect in fact and in law.

Whilst the Court recognised that it is generally bound by the facts laid out in decisions issued by competition agencies or Courts, it clarified that the binding effect is limited in so far as that the defendant must have had the opportunity to defend itself against the allegations contained in those fining decisions. In the case at hand, this was not possible as the case against the defendant was closed following the granting of leniency.

The Court noted that a criminal judgement regularly is not binding for civil procedures. Whilst the Court can make use of the facts derived from criminal proceedings, it has to make its own judgement on the facts in civil proceedings. As such, an admission of guilt in a criminal proceeding could be a strong indication of guilt in a civil case. Yet, for the case at hand there was no such admission of guilt – only a leniency application.

Such an application would therefore only be the starting point for an investigation of the cartel by the authorities. During this process, no fining notice will be issued against the whistle-blower. Therefore, he would not have the opportunity to defend itself and influence the wording of the fining notices against the other cartelists.

The Court considered that such a disadvantageous use of findings from the fining notices of other cartelists against the defendant in the context of civil damages case would be problematic with regard to Article 103 (1) of the Basic Law, which grants the right to be heard to any accused party.

Therefore, upon further consideration of the case as presented by the plaintiff and its overall assessment, the Court did not believe there was a reliable basis for ruling that due to the information exchange it would be overwhelmingly likely that there was any damage.

CONCLUSION

There is a commonly voiced concern in Germany and other jurisdictions that the emergence of private damages claims might counteract and ultimately outweigh the benefits of leniency applications for whistle-blowers, thereby threatening enforcers most used detection mechanism.

Yet, this remarkable decision has the potential to influence not only plaintiffs’ decisions as to whom to claim damages from, but also provides strong incentives to future whistle-blowers to rush for leniency. If the judgement passes the appeal procedure, future whistle-blowers may not only be spared of fines from the FCO, but also have a strong shield against any potential damages claims. Any claims brought against these whistle-blowers would first need to substantiate the causal link between cartel behaviour and harm suffer, much like a stand-alone claim. It would forego the advantage enjoyed by follow-on claims which can rely to some extend on the binding nature of fining notices.

The authors have acted as economic experts on behalf of a defendant in the context of the confectionery cartel. Any opinions expressed in this communication are personal and are not attributable to Competition Economists Group.

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