10 key themes
Detecting cartels and compensating consumers — flexing the rules to reinvigorate enforcement
The starting gun is raised. Are you ready?
Various antitrust authorities have announced that it is ‘hunting season’ for cartel enforcement again. And they seem to go for more ‘digital’ or ‘remote’ dawn raids that create new challenges for searched companies.
The start of the 21st century saw corporate leniency programs across the globe successfully incentivizing cartel participants to self-report and cooperate with regulators to build cases against their co-conspirators. But recently, the leniency pipeline has dried up, and the number of cartel investigations pursued by regulators has fallen. For instance, the total number of criminal cases filed with the US DOJ has dropped by more than 50 percent in the last five years compared with the previous five, from an average of approximately 55 criminal cases per year to approximately 23 per year.
At a time when both sanctions and private civil claims by injured consumers have increased globally, both in number and in damages claimed, legislators and antitrust authorities are looking for ways to renew companies’ incentives to take advantage of leniency programs and blow the whistle on their competitors. One incentive being considered is immunity from civil damages claims in addition to immunity from administrative fines. Should these ideas come to fruition, the stakes for companies deciding whether to self-report would be raised even higher.
Authorities are thinking about flexing the leniency rules. But have they correctly diagnosed the issue?
A common view is that the increased costs associated with submitting a leniency application — exposure to follow-on damages, the complexity of navigating the leniency programs of multiple jurisdictions for cross-border cartel conduct, and stricter standards for successfully obtaining and retaining leniency — are the primary driver behind companies’ increased reluctance to blow the whistle. Antitrust authorities have responded by considering ways to make self-reporting more attractive.
The EC, the Bundeskartellamt and the UK government are all considering granting immunity from civil damages claims to the first-in applicant. Such a change would be controversial and may have unanticipated consequences. For example, because investigated parties other than the first whistleblower would bear increased follow-on damages exposure (by having to foot the bill for sales of the immune party), they would have less incentive to cooperate with the investigating authority. That would exacerbate a key problem authorities face: securing corroborating evidence.
Hong Kong has already implemented civil damages immunity for companies and is waiting to see the results. The US recently renewed its Antitrust Criminal Penalty Enhancement and Reform Act (ACPERA), which reduces but does not eliminate successful leniency applicants’ exposure to civil damages. However, many practitioners believe that ACPERA’s vague cooperation requirements will continue to limit its effectiveness.
Other measures to reinvigorate leniency, used particularly by the US DOJ, include agencies’ increased willingness to use deferred prosecution agreements (DPAs) to resolve criminal antitrust violations short of a criminal conviction, even for companies that missed being the first-in applicant. At the European level, we have seen a certain willingness to reward companies’ cooperation outside the leniency framework.
But would these measures return leniency to its earlier heights? We do not think so. Our sense is that global efforts to detect, destabilize and prosecute cartels have been successful. Companies are more aware of what constitutes classic unlawful cartel activity and have consequently undertaken immense compliance efforts. These endeavors, increased fines for cartel activity and the ever-present risk of civil damages exposure have helped to make “traditional” infringements less prevalent.
We are also seeing more nuanced information-exchange conduct without classic “hardcore elements” such as price-fixing or market allocation. This conduct is harder to assess and runs the risk of violating the law but is ineligible for leniency. Vertical conduct typically suffers similarly — it is scrutinized by the EC while even for a first-in applicant only a limited fines reduction may be available on a case-by-case basis. And authorities are increasingly focusing their resources on pursuing new theories of harm they would not have previously entertained, such as horizontal cooperation agreements in the ESG field. How should such novel and nuanced theories be dealt with? Authorities could offer up-front confidential guidance or informal advice mechanisms that de-risk the making of a leniency application in a borderline case or be open to accepting commitments instead of fines.
Mass claims risk continues
Granting immunity from civil damages claims to the first-in applicant could still result in litigation for the co-conspirators. While follow-on mass claims by private litigants have been the norm in North American jurisdictions for decades, other jurisdictions are catching up, making it even costlier for multinational companies to defend themselves.
Claimants are using various mechanisms, including claims vehicles and collective action procedures (in particular, the UK’s CAT appears to be adopting a more claimant-friendly approach to certification than the US or Canada). And third-party funders and claimant law firms are significantly investing in this area and engaging even more frequently and effectively in close cooperation across borders, also with consumer organizations.
Rapidly expanding mass claim and class action risks, combined with claimant-friendly approaches to class certification in some jurisdictions, are increasing the civil damages risks from anticompetitive conduct.
With thanks to Dominic Divivier, Ashmita Garrett, Tyler Garrett and Angela Landry for their contributions to this theme.
Looking ahead in 2022:
- Closely monitor authorities’ activities. Authorities publicize their fine-tuning of leniency regimes or introduction of new enforcement efforts or theories of harm. Then they look for cases to show they are serious about their new approach. The recently formed US Procurement Collusion Strike Force - geared to increase detection of collusion in government procurement - had more than 25 investigations ongoing in October 2021, several international in scope. And the EC has been conducting more dawn raids in pursuit of reinvigorating its investigation pipeline. So be vigilant.
- Is your compliance department fit for purpose? Compliance remains high on the agenda, especially with increased remote working. Have your policies been updated for new technology like ephemeral messaging or remote working arrangements? Regulators have indicated that a company’s corporate compliance program is an increasingly important factor in its resolution of antitrust cases.
A robust compliance program should address the antitrust risk posed by changes in the way employees communicate, including the use of ephemeral messaging apps.
- Be prepared for (remote) dawn raids. The EC, the Bundeskartellamt and the US DOJ among others, will not accept COVID-19 as an excuse for illicit behavior. And dawn raids are changing. Have you recently reviewed your dawn raid guidelines and training, including covering private homes? Can your IT department deal with expansive document requests for multiple custodians? Do you have policies for use of and data retention from apps or other informal business communication tools, such as chats?
- Prepare for follow-on claims. Be proactive in risk evaluation and management, coordinate business activities across the globe and deploy strategies to deter claimants or dispose of cases early, where appropriate. Cross-border coordination is vital to ensure that litigious decisions are not taken in one jurisdiction that adversely impact others.