The European Commission's decision in the recent DRAM case sheds light on how the cartel settlement procedure is working in practice
With the adoption on 19 May of its decision in the DRAM case - imposing fines totalling €331.27m on nine producers of memory chips used in computers and servers - the European Commission has finally announced its first cartel settlement decision, two years on from the publication of the settlement notice. The case, which Competition Commissioner Almunia has described as "another milestone in the Commission's anticartel enforcement", is the forerunner of an anticipated first wave of settlement decisions to be issued by the Commission.
As such, the DRAM case sheds important light on how the settlement procedure is operating in practice and how it may develop further in the future.
Settling cartel cases
The adoption of the settlement notice in 2008 introduced to EU antitrust procedure the possibility of settling a cartel case.
Such settlement is possible when the Commission and the defendant reach a common understanding on the scope of the infringement, the defendant's liability and the maximum fine that the Commission may impose on the defendant. The introduction of direct cartel settlement was intended to allow the Commission to improve the efficiency of its cartel investigations and to free up its strained resources so as to deal with other pending cartel cases and the stream of new cases brought to the Commission's door as a result of its leniency programme. Settlement is also intended to have the knock-on effect of cutting the number of cartel appeals brought before the General Court in Luxembourg.
The settlement notice does not radically change the basic structure of EU antitrust procedure. However, for cases diverted to the settlement track, it allows the final part of the regular antitrust procedure to be abridged. Specifically, a settlement procedure bypasses the full access to file, written response and oral hearing that usually follow the issue of a statement of objections (SO). These are replaced by settlement discussions between the Commission and the defendants prior to the issue of a "settled" SO. During these discussions, the defendants are made aware of the Commission's objections, have access to key evidence and are given the chance to make oral and written representations to the Commission.
Having been informed of the Commission's case and the maximum level of the fine, each settling defendant is expected to acknowledge expressly to the Commission its liability for an infringement of article 101 of the treaty on the functioning of the European Union (TFEU) in a formal settlement submission. In return, the Commission will grant the defendant as a "settlement reward" a reduction of 10% on the fine that would otherwise have been imposed.
Based on the defendants' settlement submissions, the Commission will issue a "settled" SO and subsequently a "settled" decision. These are significantly shorter in length than their equivalents in a regular cartel case, as the Commission is able to rely on the defendants' own acknowledgements of the facts and liability, as well as on other evidence.
Lessons of the DRAM case
What then does the DRAM case tell us about the operation of the settlement procedure in practice?
First, experience of the process suggests that, in this first wave of settlement cases, navigating through the procedure has been a learning process for Commission officials and practitioners alike, with the first run of the procedure throwing up a number of issues that are not immediately dealt with by the settlement notice. Commenting on the DRAM settlement, Commissioner Almunia himself has acknowledged that the Commission had "learnt a lot" from this first case.
The novelty of the procedure explains why the first wave of settlement cases has been a long time in the making. In the DRAM case, it took more than a year for the settlement process to reach conclusion, from the initiation of settlement discussions in early 2009 to the Commission's decision of 19 May 2010. It is to be expected that, as the Commission gains further experience and builds up standard practices for dealing with settlement procedures, these teething troubles will be overcome, allowing future cases to proceed more smoothly and quickly. Indeed, taking into account the lessons that are being learnt through dealing with this first wave of settlement cases, Commissioner Almunia anticipates being able to conclude future procedures in no more than six months from inviting defendants to join settlement discussions.
Second, early experience confirms that the Commission remains in the driving seat throughout the settlement process.
This is not surprising: as indicated at the time the procedure was launched, the EU's settlement procedure is not conceived as involving negotiation or US-style plea bargaining.
Nonetheless, in practice, the settlement procedure allows defendants to engage directly with the Commission and to gain insight into the Commission's thinking in a way that is not possible in a regular cartel proceeding. Importantly, the settlement meetings allow for a frank and meaningful dialogue between the defendants and the Commission case team on points of contention. Though not amounting to negotiation, this gives defendants the ability to exercise some degree of influence on the Commission's thinking. This can be important in arriving at a common understanding that is acceptable to both the Commission and defendants.
From its perspective, the Commission has a clear interest in bringing to the table a final settlement proposal that is sufficiently attractive to defendants that they will choose to continue on the settlement path. This is made possible by enabling the defendants to engage directly with the Commission on factors that determine the level of the fine.
Such discussions give a party exposure to the Commission's views on these factors and provide an opportunity to have a positive impact on them. This is, for instance, the case for the value of sales that serves as the starting point for the calculation of the fine. Another example is the proportion of the value of sales used to compute the basic amount of the fine. As a result, the difference between the fine imposed by the Commission within the framework of the settlement procedure and the fine the Commission might impose under the regular procedure may well be significantly more than the headline 10% discount formally offered by the settlement notice.
Third, early experience suggests that, on the whole, the procedural safeguards provided for in the settlement procedure are operating effectively. The access to file granted during the settlement procedure is much abridged, compared to the full access to file that is granted during the regular procedure.
Rather than obtaining access to the full Commission file, the parties are given access to a selection of key evidence made by the Commission case team. Nonetheless, this process does effectively serve the purpose of allowing the parties to review and assess the strength of the Commission's case.
A defendant can also request access to additional documents in the Commission's file if this is necessary to enable the party to ascertain its position regarding any particular aspect of the case. Additionally, defendants are afforded opportunities to make both written and oral representations to the Commission in response to the case presented. Also, a representative from the hearing officer is present at all meetings between the settling party and the Commission. The settlement notice in addition foresees that a settling party may call upon the hearing officer at any time during the settlement discussions in relation to any issue bearing on due process.
Fourth, the Commission has shown itself to be conscious of the potential civil litigation risks for defendants linked to the settlement procedure. As part of the settlement procedure, each party needs to make a settlement submission to the Commission in which it explicitly acknowledges both its participation in a cartel infringing article 101 TFEU and its liability under EU law. In order to shield the parties' settlement submissions from discovery requests in civil proceedings, the Commission allows the settlement submission to be made orally. Furthermore, the Commission is prepared to extend other protections to reduce the risk of the "settled" SO becoming subject to disclosure in civil litigation in the hands of a settling company.
Questions that remain
Overall, the results of the settlement procedure's first run are promising. In particular, the Commission has taken a pragmatic and constructive approach to settlement discussions, which is essential in fostering the trust of defendants in going down the settlement path and thus the credibility of the whole settlement procedure. The Commission seems keen to craft a procedure that provides advantages to settling defendants going well beyond the headline 10% discount of the settlement notice.
Moreover, as mentioned, the Commission has announced that it wishes to refine and speed up the settlement process in its "second generation" of settlement cases.
Nonetheless, a number of important questions remain as yet unanswered.
First, uncertainty remains as to how the Commission will deal with what are known as "hybrid settlement cases". These are cases where the Commission proceeds against some defendants under the settlement procedure, while against others under the regular procedure. It is still not clear whether the Commission will really wish to proceed with settlement in these circumstances. This is because in such a case the Commission will not be able to generate all the procedural efficiencies contemplated under the settlement procedure.
Nonetheless, the Commission has not ruled out the possibility of pursuing settlement in hybrid cases.
Second, it is unclear how the Commission will deal with a situation where settlement discussions have been pursued with defendants but are then abandoned. In these situations, the settlement notice provides that the case will revert to being dealt with under the regular procedure. Any settlement submission that has already been made by the parties is deemed withdrawn and cannot be used by the Commission in evidence against the party in question. However, questions arise as to whether this in itself is sufficient to safeguard the parties' rights of defense during the resumed regular procedure. In particular, if the same Commission case team that was responsible for handling the settlement discussions remains responsible for the conduct of the resumed regular procedure, questions undoubtedly arise regarding due process. Even if a past settlement submission cannot be used in evidence, it is difficult to imagine that the case team will be able to disregard a party's previous acknowledgments of liability in their assessment of arguments raised in defense during the resumed regular procedure. In those circumstances, it would seem that due process guarantees can only be preserved by ensuring a new case team takes over the handling of the case following failed settlement discussions.
The final question that remains is whether the Commission's experiences with the settlement procedure so far will encourage it to use the procedure more extensively in future cases. The answer to this will largely depend on whether the Commission sees the procedure as effectively delivering the procedural efficiencies it was designed to produce. This may not become apparent until the procedure has bedded down further and the Commission has built up the necessary experience to run the procedure as efficiently and effectively as possible. Yet, even very early experience of the process suggests that the settlement procedure offers procedural savings and benefits for both the Commission and settling parties that may not be achieved through the use of the regular procedure.
References
For press release IP/10/586 on the DRAM case, see:
http://europa.eu/rapid/pressReleasesAction.do?reference=IP/10/586&format=HTML&aged=0&language=EN&guiLanguage=en
Originally published in Competition Law Insight / republished upon author request.
