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Thursday, January 1, 2009
Global trend

Cartels continue to be the target of competition regulators worldwide and penalties are becoming increasingly severe. Last week, the European Commission imposed the highest total fine ever imposed by any competition authority on four car-glass manufacturers. And the United States Department of Justice imposed its second highest criminal fine ever on a company involved in fixing the price of liquid crystal display panels.
The European Commission fined Asahi, Pilkington, Saint-Gobain and Soliver a total of €1 383 896 000 for dividing geographic markets, allocating customers and exchanging commercially sensitive information about target prices and deliveries of original branded car glass in Europe between early 1998 and early 2003. The EC’s press release indicates that these companies manufacture about 90% of the windscreens, sidelights, rear windows and sunroofs installed in new European cars, a market worth about €2 billion in the last full year of the infringement.  The EC found that these companies had allocated supplies of car-glass to car manufacturers in order to keep their market shares as stable as possible. This factor, as well as the duration of the cartel activity, was taken into account by the EC in imposing these very severe penalties.
The European Commission imposed the highest fine for an individual company to date (€896 000 000) on Saint Gobain - after increasing this fine by 60% because it was a repeat offender. The principle that repeat offences should be taken into account when setting fines in cartel cases - even when the original offences took place many years previously - is set out in the EC’s revised Guidelines on the Method of Setting Fines, which provide that repeat offenders may be penalised by an increase in the fine of up to 100% for each previous offence.
Comments Heather Irvine Director, Deneys Reitz Inc, “Given the amount of these penalties, it seems likely that one or more of these companies will appeal to the European Court of First Instance on the basis that the Commission incorrectly applied the formula for calculating penalties set out in the guideline or incorrectly assessed the nature and extent of the infringement. The application of these Guidelines is also likely to be challenged by one or more of the companies fined more than €676 million by the European Commission in October this year, in relation to their involvement in a so-called ‘Paraffin Mafia’ which fixed the price of paper and candle wax between 1992 and 2005.”
She says that in the liquid crystal display panel case, the Department of Justice reached a settlement with three companies involved in fixing the price of LCD panels supplied for use in computer monitors, televisions and mobile phones to companies like Apple, Dell and Motorola between 2001 and 2006. In terms of the settlement agreement, LG Display will pay US$400 million, Sharp US$120 million and Chunghwa, US$65 million. “These fines, totalling $585 million, are some of the highest ever imposed in America.”
“These cases reinforce that global competition authorities continue to regard price fixing, market division and collusive tendering as the most egregious contraventions of competition law,” she observes. “Fines imposed for cartel conduct have risen steadily in the last few years, and will probably continue to rise until they start deterring companies from colluding with their competitors.
“On the other hand, as the global financial crisis worsens, companies may increasingly be able to argue that fines should be reduced because they cannot pay them. Consumers would ultimately suffer if competitors were forced to cut down on investments in new technology, research and development, or even to exit the market, because they have to pay fines amounting to several years of profits.”
Irvine notes that these cases demonstrate that the ability of global competition authorities to detect and prosecute cartels operating in a number of different jurisdictions has greatly improved. “Companies should therefore ensure that they have an effective competition law compliance programme in place in each country in which they operate, in order to avoid contravening different national competition laws.
“This compliance programme should educate employees to avoid contravening competition law.  At the same time, it should put in place reporting procedures which are designed to detect violations and bring them to the attention of in-house legal counsel as soon as possible.” This places the company in the best possible position to apply for leniency. “But bear in mind, however, that the requirements for corporate leniency may differ from jurisdiction to jurisdiction and firms who apply for leniency will be required to fully disclose the nature of their participation in a cartel in order to qualify.”
Companies should seek legal advice as soon as possible to determine how to extract themselves from a cartel, whilst at the same time taking advantage of corporate leniency, simultaneously in several different jurisdictions if necessary. By Heather Irvine Director, Deneys Reitz Inc

Copyright © Insurance Times and Investments® Vol:22.1 1st January, 2009
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