DG COMP’s settlement procedure evaluated in Timab Industries

After the Alrosa case, the General Court once again had the opportunity to evaluate the difference between the different remedies used by the Commission to enforce Articles 101 and 102 TFEU. This time the case did not deal with the commitments procedure, but rather with the settlement procedure in Article 10a of Regulation 773/2004. The Commission often switches between the different procedures (as last seen in the Google case here) or pursues hybrid cases, such as in the present case, where some parties are part of the settlement procedure and some part of the standard procedure. It is therefore important to know to what extent the Commission can use these different procedures, how they are linked and what rights undertakings subject to these procedures enjoy. This is exactly what the General Court had to decide on in the Timab Industries case, handed down yesterday (May 20, 2015).

The facts of the case, in short, are as follows: Timab was part of a cartel concerning animal feed phosphates. When the Commission started investigating the case, it offered the settlement procedure to all parties in line with the Alliance One case law. Timab initially agreed, but then abandoned the settlement procedure after being told the accusations of the Commission and the envisaged range of the fine of EUR 41-44 Mio. The Commission subsequently continued its investigation according to the standard procedure, pursuant to a decision according to Article 7 of Reg. 1/2003, and finally imposed a fine of EUR 59 850 00 on Roullier, Timab’s parent. This fine is essentially what is contested in the case before the General Court, amongst other things because of the large difference between the fine range envisaged during the settlement and the fine actually imposed. The Court divides the pleas brought forward by Timab into three groups, the first relating to the settlement procedure, which is of interest here. The other two groups will not be discussed here, since they are less exhaustively discussed by the Court and bring no real news to the Court’s jurisprudence.

The Court rejected Timab’s pleas as regards the settlement procedure (just as all other pleas). In short, because the Commission used the same procedure to calculate the amount of the fine for the settlement procedure as for the standard procedure subsequently applied, which is why no case of unequal treatment exists. It furthermore holds that the settlement procedure and the standard procedure are separate procedures and the Commission is not bound by the fine range specified during the settlement procedure when imposing fines during the standard procedure.

The latter argument, in line the Alrosa case, distinguishing neatly between the different procedures is both following established case law and logical. As the Court points out, the main aim of settlements is to simplify the procedure by which the Commission takes decisions as the parties essentially agree to an exchange of assets: The Commission grants a 10% reduction of the fine and the undertakings admits liability to the infringements and surrenders a number of procedural guarantees (paras 60-62). The standard procedure has no such aim and neither are any sacrifices of the amount of the fine or liability made. Therefore, these two procedures should be seen as separate, even if they may occur as part of one and the same case.

Nevertheless, when such a situation occurs one should pay particular attention how the change from one procedure to the other is made and how the events of the one procedure may influence one another. This is where the Court’s first ruling as regards the amount of the fine comes in.

In the present case, the Commission had calculated as follows for the settlement: The basic amount for the infringement from 1978 to 2004 at 17% of the value of sales. Added to that 17% of the average sales during the same period for deterrence. Subtracted were reductions for the settlement procedure (10%), leniency (17%) and mitigating circumstances (35%). After the exit from the settlement procedure, the Commission adjusted the fine as follows: The basic amount remained the same, but the sum resulting became somewhat lower, because the period subject to the fine became shorter, as the Commission could not substantiate that Timab had been a member of a single and continuous infringement from 1978, resulting the cartel period being shortened to 1993-2004. As a result of that change of infringement period however, Timab lost several of the reductions previously applied and the amount added due to deterrence became higher, as the average sales during that shorter period of 1993-2004 were higher than during the longer period. As regards to the reductions, the 10% due to settlement were removed, the 35% due to mitigating factors were removed and the leniency reduction was reduced to 5%, resulting in a fine of almost EUR 60 Mio, significantly more than the range envisaged during settlement. According to the Court this was perfectly in order, as the Commission used the same methodology for both calculations. In general this is a logical conclusion. After all, settlements often take place at an earlier stage of the procedure and the Commission may not have had time to fully establish all relevant facts to the same degree as required during standard procedure. If it were required to do so, the efficiency gain won by a settlement would be null. If a change of procedure is made, the Commission is required to establish its case against the undertaking in question more securely, which may lead to changes of facts which in turn can lead to an increase of the fine beyond the amount that would be added by taking away the 10% reduction for the settlement.

What appears to have happened in the present case, however, seems to be a combination of information asymmetry and bad luck. Timab claims that it exited the settlement procedure to be able to rectify the false time period that the Commission held to be the basis of the fine, namely the period of 1979 to 2004. Timab claimed, and the Commission subsequently followed their argument, that the infringement before 1993 was separate from the infringement after 1993 and the period should therefore be shortened to 1993-2004. However, this had the effect that several of the reduction previously given to Timab were removed, namely the ones for leniency and for mitigating factors. The Commission holds that part of the reduction for leniency was because the leniency application allowed them to establish that the infringement had started in 1979. This also resulted in a further reduction for cooperating with the Commission by incriminating itself (para 29, sub-point 4 of the 2006 fining guidelines). Since Timab convinced the Commission that it had not been part of any infringement before 1993, these reductions were removed, resulting in the substantially higher fine. The Court’s judgment does not indicate this, but it appears unlikely that Timab was aware how exactly the fine to be imposed on it was calculated. Otherwise, it would have been odd to claim that the infringement had been shorter, obviously believing that this would lead to a lower fine. The only reason why Timab may have claimed so would have been to avoid private enforcement, though this seems unlikely. Thus, the question in this case becomes whether the information asymmetry to the advantage of the Commission is a problem when switching between the settlement procedure and the ordinary procedure. The Court itself says that indicating the range of the fine during the settlement procedure is to allow the undertaking to make “an informed decision” (para 67) about whether or not to settle. If the parties know just the range of the fine, can they make an informed decision? On the one hand, one could argue that a really informed decision should include knowledge of how the fine has been calculated. On the other hand, the settlement procedure requires that the undertaking abstains from its rights to access the Commission’s file and right to be heard, to instead simply accept the accusations brought by the Commission in exchange for the 10% fine reduction. If the Commission had to inform the undertaking of the details of its accusation and calculation of the fine, again the efficiency gain of the settlement could be lost. In the author’s opinion, the latter arguments are more convincing, leading me to the conclusion that the judgment by the General Court was correct. Unfortunately, Timab did not make any claim as to the information about the calculation of the fines, leaving us without a definitive answer to that question.