The statutory basis for challenging cartel behaviour/effects is the German Act against Restraints of Competition (ARC) (Gesetz gegen Wettbewerbsbeschränkungen, GWB). On the merits, Section 1 prohibits cartel behaviour (see 1.4 Definition of "Cartel Conduct"). Article 101 TFEU applies in parallel and is equally subject to the Federal Cartel Office's (FCO) (Bundeskartellamt) enforcement (unless the case falls into the European Commission's jurisdiction). Sections 32 – 32e ARC confer certain administrative powers to the FCO, inter alia to issue cease and desist orders.
Section 81 ARC provides for the possibility to impose administrative fines onto cartel members (both natural and legal persons). Further provisions on fines, in particular on the procedural aspects of fining proceedings, are contained in the German Act on Regulatory Offences (Ordnungswidrigkeitengesetz, OWiG), which are modified by the special provisions of the ARC to a certain extent. In addition, certain cartel conduct can fall under the Criminal Code, eg, bid-rigging.
While the provisions of the Criminal Code are only directly applicable to natural persons, legal persons involved in criminal behaviour such as bid-rigging may become subject to the provisions of the Associations Sanctions Act (Verbandssanktionengesetz), which is currently under discussion and is likely to enter into force in the course of 2020.
The most important public enforcer in the field of cartels in Germany is the FCO. If the conduct in question also amounts to a criminal offence (eg in bid-rigging cases), the public prosecutor will also be in charge of the proceedings against the natural persons involved, while the FCO remains in charge of the fining proceedings against the legal entity. Section 48 ARC also lists the Federal Minister of Economic Affairs and Energy and the Federal States' Competition Authorities as Competition Authorities in the meaning of the ARC, they only play a limited practical role.
While the Minister of Economic Affairs and Energy only has specific powers in the field of merger control, the Federal States' agencies' powers are restricted to cases with a regional scope. As regards the scope of liabilities within public enforcement, the most drastic sanction for legal entities is the possibility of administrative fines, which can amount to 10% of the undertaking's annual turnover (Section 81 (4) ARC). For individuals, the fine can be up to EUR1 million, but fines for individuals usually reach approximately one yearly gross salary.
In calculating the fine, the FCO follows its own methodology, which is set out in its guidelines for the setting of fines in cartel administrative offence proceedings (Bußgeldleitlinien). The Higher Regional Court of Düsseldorf, which has jurisdiction over appeals against the FCO's fining decisions, is not bound to apply the same methodology. As a result, there has recently been a series of cases, where an appeal effectively led to a reformatio in peius with substantially higher fines as a result from the appeal.
The tenth amendment to the ARC, which is currently in the legislative debate, is likely to introduce more specific criteria for the calculation of fines, but will not resolve the fundamentally different approaches between the FCO and the Higher Regional Court of Düsseldorf.
Since 2017, Section 81a ARC also provides for a liability of controlling entities, which is triggered if the fine cannot effectively be recovered from the undertaking involved in the cartel because it has ceased to exist after the start of the investigations has been announced or if important assets were removed from the undertaking involved in the cartel.
The FCO can also issue cease and desist orders (Section 32 ARC) or impose interim measures (Section 32a ARC). In administrative proceedings, the parties can also offer commitments, which can be declared binding by the FCO (Sections 32b ARC).
According to Section 34 ARC, the FCO may order the disgorgement of the economic benefit of the anti-competitive conduct and require the undertaking to pay a corresponding sum. This possibility exists irrespective of whether the FCO imposes an administrative fine or not (but is not very common in practice).
Contractual agreements, which violate Article 1 ARC, are automatically null and void by law, even absent any declaratory order by a competition authority.
Any person affected by cartel behaviour can claim damages arising from the infringement (Section 33a ARC). In addition, Section 33 ARC provides for the possibility to claim for injunctive relief and rectification. Thus, the right to claim damages exists irrespectively of whether a competition authority has previously investigated the case and issued a decision (follow-on claims) or not (stand-alone claims).
Where a binding decision by the FCO, the European Commission or national competition authorities from other EU Member States exists, the factual findings in a decision related to the cartel infringement are binding to the court and can not be rebutted by the defendants (see 5.1 Private Right of Action).
The law on cartel damage actions is one of the most dynamic fields of antitrust law in Germany, both in case law and statutory law. In 2017, new provisions to overcome alleged hurdles to damage claims were introduced into the ARC (also in light of the EU damages directive). In the course of the tenth amendment to the ARC, expected in early 2021, further amendments are likely to follow.
In practice, however, most cases that are currently dealt with before the courts are not yet subject to these claimant-friendly provisions - these provisions only apply to damages that have occurred after 27 December 2017. The law applicable to older damages is less claimant-friendly, in particular as regards the burden of proof of damages and the causal link between the cartel behaviour in question and the specific damage.
Section 1 ARC prohibits all agreements between undertakings, decisions by associations of undertakings and concerted practices, which have as their object or effect the prevention, restriction or distortion of competition. The definition is the same as under Article 101 TFEU, except for the requirement of a European Union dimension of the conduct.
According to the FCO's leniency notice, cartels are "in particular agreements on the fixing of prices or sales quotas, market sharing and bid-rigging".
Section 33a (2) ARC explicitly contains a legal definition of the notion of a cartel. According to this provision, a cartel is an agreement or concerted practice between two or more competitors aimed at co-ordinating their competitive behaviour on the market or influencing the relevant parameters of competition. Such agreements or concerted practices include:
1, the fixing or co-ordination of purchase or selling prices or other trading conditions;
2, the allocation of production or sales quotas;
3, the allocation of markets and customers, including bid-rigging, restrictions of imports or exports; or
4, anti-competitive actions against other competitors.
This narrower definition, which does not include any form of vertical agreements, covers important examples of prohibited cartel behaviour but it is somewhat misleading in the general context of antitrust enforcement. It is limited in its scope of application as it only refers to the provisions on cartel damage claims and, in particular, to the burden of proof. For the public and private enforcement of anti-competitive behaviour, only the broader definition of Section 1 ARC is relevant; other conduct, such as the exchange of competition sensitive information, can be classified as cartel behaviour and can entail significant fines.
Just like under EU law, anti-competitive agreements or concerted practices can be exempt from the prohibition, if they generate efficiencies, which are being passed on to consumers (Section 2 ARC). For small and medium-sized enterprises, the conditions precedent for such an exemption are lower (Section 3 ARC). The assessment whether or not a practice is exempt from Section 1 ARC lies in the responsibility of the undertakings (so called self-assessment). The FCO can issue no-action letters (Section 32c ARC), but is currently not obliged to do so. However, the tenth amendment may soon provide for an obligation of the FCO to decide on applications for a no-action letter within six months in certain cases.
There are some general exemptions from the prohibition of cartels under Section 1 ARC for agricultural producers (Section 28 ARC), publishers (Section 30 ARC) and public water suppliers (Section 31 ARC).
The limitation period for the imposition of administrative fines for cartel conduct is five years from the termination of the infringement (Section 81 (8) ARC and Section 31 (3) OWiG). However, investigations by the FCO or other competition authorities, including the European Commission, lead to an interruption of the limitation period, ie, the five-year period starts afresh after the termination of the investigative measures. The maximum limitation period in the case of an interruption is ten years.
The draft amendment to the ARC foresees changes to the statute of limitations of administrative fines. According to the draft, the limitation period shall also be interrupted in case of requests for information. More importantly, the maximum limitation period of ten years shall be extended by the time of court proceedings in appeal of a fine. Thus, if the court proceedings begin within ten years after the termination of the infringement and if the statutory limitation period has not yet expired, the imposition of fines will practically no longer be statute-barred, even if court proceedings take several years (which is not uncommon).
Private enforcement is subject to special limitation periods set out in Section 33h ARC, which are significantly longer than the limitation periods for other civil law claims. The standard limitation period is five years. It starts at the end of the year, in which the injured party obtained knowledge of the circumstances giving rise to the claim (or would have obtained such knowledge absent gross negligence).
In addition, the infringement must have ended to trigger the limitation period, which is particularly important in case of single and continuous infringements. Irrespective of such knowledge, claims become time-barred after ten years after they arise and after the infringement has ended.
The statute of limitations for damages that have occurred before 27 December 2017 provides for significantly shorter limitation periods. For these claims, the standard limitation period is only three years, irrespectively of whether the infringement has ended or not.
The FCO's powers follow an effects doctrine. According to Section 185 (2) ARC, the rules of the ARC can also extend to conduct that only occurred outside Germany, if they have an effect on German territory.
The German courts' jurisdiction over private claims follows the general rules of international procedural law, in particular the Brussels Ia-Regulation. For instance, German courts have jurisdiction if at least one of the defendants is based in Germany or if the harmful event occurred in Germany.
Within the EU, the FCO co-operates intensively in the ECN network and regularly applies the principles of comity laid out in Article 12 (1) of Regulation (EC) No 1/2003. This provision allows the Member States' competition authorities and the Commission to exchange and use in evidence any matter of law or fact for the purpose of applying EU competition law. Details of the FCO's powers with regard to the exchange of information with other competition authorities are laid out in Sections 50a and 50b ARC.
The FCO also co-operates with competition authorities outside the EU. Such co-operation can be based on bilateral agreements (eg, the Agreement with the United States Relating to Mutual Cooperation Regarding Restrictive Business Practices) or within multilateral networks, in particular within the OECD.
The FCO has a vast scope of discretion as to whether and how to open proceedings. They are usually triggered by leniency applications (see 2.17 Leniency, Immunity and/or Amnesty Regime), formal or informal complaints, anonymous hints or the FCO's own investigations, eg, from previous proceedings or sector inquiries. The FCO even operates a system for anonymous tip-offs via its website.
The first steps taken by the FCO depend on the nature of the infringement and on the evidence that the FCO has already obtained. In less severe or merely bilateral cases, the FCO may issue a statement of objections at an early stage and requests that the suspects comment on it. The FCO can also issue formal requests for information or documents.
In hard-core cartel proceedings, which go back to a leniency application, the FCO will usually first hear the leniency applicant before initiating further steps. It will request as much information as possible to be in a position to initiate dawn raids (see 2.2 Dawn Raids). At this early stage of the proceedings, the FCO will try to make sure that the investigation remains highly confidential in order not to put effective dawn raids at risk, and may even ask the leniency applicant to continue the cartel behaviour in order not to raise any suspicion.
Dawn raids are highly common in cartel investigations in Germany. They can be conducted at the premises of the suspect, including private homes, but also at third parties' premises. The obligations of a firm or individual faced with such an inquiry mainly depend on whether they are intending to cooperate with the FCO under the leniency notice or whether they intend to defend themselves.
In the latter scenario, persons affected by a dawn raid do not have an obligation to actively support the officials in their search, but they must tolerate it. However, there may be changes in this regard with the tenth amendment of the ARC (see 2.5 Procedure of Dawn Raids).
By contrast, if the undertaking has already applied or intends to apply for leniency or a reduction of fines under the leniency notice, it must fully and continuously cooperate with the FCO under the FCO's Leniency Notice.
To conduct a dawn raid, the FCO needs to obtain a search warrant from the District Court of Bonn. A search warrant is only dispensable in case of imminent danger. The search warrant determines the scope of the search.
For instance, if the search warrant has been rendered in light of alleged infringements concerning customers in a certain territory, any evidence that is clearly related to other customers may not be seized under this search warrant. In practice, the FCO sometimes obtains extensions to the search warrant or additional search warrants from the court by simple phone call on the spot.
The FCO usually takes copies of paper documents or portable electronic data and seizes original folders, phones, laptops and other parts of the IT infrastructure. It may also take a server copy and then analyse the content at its own premises in Bonn, often with highly specialised IT forensic experts. This may include extensive screenings of e-mails and other electronic data for relevant search terms.
There are no specific rules on spoliation of information in German competition law. The spoliation of information can qualify as disruption of official activities (Section 164 of the Code on Criminal Procedure), and can lead to a temporary arrest while the official activities are ongoing. If this obstructs the public enforcement of criminal charges (eg, in the case of bid-rigging), it can also amount to an obstruction of justice (Section 258 of the Criminal Code).
Criminal charges can also be applied if documents under official seizure are destroyed, damaged, rendered unusable, or removed or if premises that have been sealed by the authorities are opened (Section 136 of the Criminal Code). If the undertaking concerned cooperates in the context of leniency applications or settlement proceedings, any spoliation of information will put the positive outcome of these endeavours at risk. In a defence scenario, any attempt to impair the FCO's investigation would be considered as aggravating factor, which would increase the fine.
Currently, officers or employees are neither required to actively support the FCO's search nor to respond to questions during a dawn raid, unless they are duly summoned as witnesses.
However, Section 59b (3) of the draft amendment to the ARC provides that the FCO shall be entitled to request access to documents or to request information from directors and employees of the undertaking in order to get access to evidence or to receive explanations on facts or documents. Non-compliance with this duty to co-operate would also entail a fine.
The FCO is obliged to take minutes of the dawn raid, including lists of the individual pieces of evidence seized, and has to take these minutes to the case file. Access to file will be granted to legal counsel.
Any legal or natural person affected by an investigation has a right to a defence counsel (Section 137 of the Code on Criminal Procedure) and it is very important that suspects seek legal representation early on. External counsel and company counsel may be present during dawn raids, even though the FCO does not have to wait for the arrival of any counsel to start the dawn raid.
Company counsel may be present during the interview of an employee if the employee agrees, but they must not act as defence counsel of their employer or other employees of the undertaking under investigation (Section 46c of the Federal Lawyers' Act - Bundesrechtsanwaltsordnung).
According to Section 146 of the Code on Criminal Procedure, any counsel can only act on behalf of one person in one and the same proceedings. However, an exception to this rule is accepted to the simultaneous representation of the undertaking concerned and an individual (often a director) of the same undertaking. If several employees from the same company require legal representation, they need separate counsel, which can be part of the same law firm.
Once an undertaking and its counsel become aware of enforcement efforts, they immediately need to take the crucial decision whether the undertaking should co-operate with the FCO or defend itself. This decision determines every next step. In any case, counsel will have to engage in extensive internal fact finding in order to have a robust basis for any decision-making and to be able to analyse the best strategic approach.
If the undertaking decides to co-operate with the authority under the Leniency Notice, counsel will place a marker with the FCO as soon as possible and remain in close contact with the FCO. If the undertaking intends to defend itself against the allegations, the initial role of the undertaking (and counsel) is rather passive towards the authority until reception of the statement of objections.
In addition, counsel will also need to assist in ensuring that the infringement ceases effectively and instruct staff accordingly. This may be different in the beginning of a co-operation scenario if the FCO requests that the cartel be continued in order to guarantee the confidentiality of the investigation until further notice.
In fining proceedings, the hearing of witnesses follows Sections 48 et seq of the Code on Criminal Procedure. Interviews with the suspects follow Sections 133 et seq of the Code on Criminal Procedure and the taking of evidence other than the hearing of witnesses is governed by Sections 94 et seq of the Code on Criminal Procedure. In a co-operation scenario, the suspects' rights to refuse testimony under these provision conflicts with the duty to co-operate in order to receive immunity or reductions of the fines.
Under Sections 94 et seq of the Code on Criminal Procedure, the FCO can seize objects (including documents and data carriers). Binding requests for information are restricted to financial information (eg, turnover) and details on the corporate structure of the company under investigation (Section 81b ARC).
For administrative proceedings, Section 57 (1) ARC empowers the FCO to conduct all necessary investigations and collect all necessary evidence. In particular, the FCO can interview witnesses (Section 57 (2-6) ARC). The hearing of witnesses follows the general rules of the Code of Civil Procedure; iand witnesses can refuse their testimony under the conditions laid out in Sections 383 et seq of the Code on Civil Procedure (see 2.13 Other Relevant Privileges).
Witness statements must be recorded in writing and the FCO can also seize objects (including documents and data carriers) in accordance with Section 58 ARC.
The collection of other evidence than documents or testimony also falls under the wide legal basis described in 2.9 Enforcement Agency's Procedure for Obtaining Evidence/Testimony. Leniency statements, witness testimonies and the seizure of documents and data carriers are by far the most important means of evidence.
There is currently no general duty in fining proceedings to actively support the FCO. Documents only have to be provided to a restricted extent, ie, with respect to the company's turnover. The law does not differentiate between documents within or outside Germany.
German law does not specifically privilege attorney-client communication. The German Code on Criminal Procedure does in principle acknowledge attorneys' right to refuse testimony and grants protection from the seizure of documents. In practice, these safeguards are only applied with regard to correspondence that is directly related to the defence in a particular case.
Any other correspondence, in particular the results of internal investigations, may be subject to seizure. The Constitutional Court approved of such a narrow understanding of the relevant provisions in its 2018 Jones Day decision.
The protection from seizure does not extend to in-house counsel, unless the correspondence in the in-house counsel's possession constitutes defence communication with external counsel.
Witnesses can refuse testimony for the reasons set out in Sections 383 et seq of the Code on Civil Procedure, ie, for a refusal to testify on personal grounds. For instance, a witness does not have to testify against close relatives. Section 384 contains a list of factual reasons that would allow to refuse testimony, eg, if the testimony would entail the risk of being prosecuted for a criminal offence or an administrative offence (nemo tenetur).
The draft amendment to the ARC contains a severe – and likely too far-reaching – restriction to the principle of nemo tenetur. In case of requests for information (also in the context of dawn raids), the addressee may also have to provide self-incriminating information if the FCO cannot obtain this information otherwise. The relevant information may then be used against the undertaking. The use against the natural person providing the information would, however, require their prior consent.
The FCO can issue formal requests for information or documents. Such formal requests have to be answered and non-compliance with the request can lead to the imposition of fines. However, the scope of such requests for information is currently restricted. The FCO can only request information which is related to the undertaking's economic conditions. This notion is generally interpreted quite broadly, but is likely to be broadened expressis verbis in the course of the tenth amendment to the ARC ("all information or documents available to the undertaking").
Under the FCO's Leniency Notice, only full and constant co-operation can lead to a reduction of fines. Any refusal to co-operate, even in case of informal requests for information, bears significant risks.
Information and documents that need to be submitted to the FCO also include confidential information such as business secrets. However, such information will not be published in the public versions of the FCO's decisions.
The FCO grants access to the file to the parties subject to the proceedings once the statement of objections has been issued. However, access to file can only be obtained via external counsel which themselves are legally bound to protect business secrets of other parties. They may only forward such information to their respective clients that are necessary for defence purposes.
Nevertheless, this bears a practical risk that confidential information may become available to competitors or other third parties. Thus, parties to the proceedings should always consider carefully, which confidential information they are willing to disclose to the FCO.
Aggrieved third parties can also request access to the file; however, they will generally only receive the non-confidential version of the fining decision. Special rules apply in the context of civil claims for cartel damages (see 5.1 Private Right of Action).
There is no set procedure for defence counsel to raise arguments against enforcement. Facts and arguments can be brought forward at any time. However, in practice it may be advisable for strategic reasons not to bring forward any facts or arguments before the FCO issues its statement of objections and counsel can get access to the file.
The FCO will usually set a deadline to reply to the statement of objections.
The FCO applies a leniency program, which allows for the possibility of full immunity for the first leniency applicant and substantial reductions of the fines for subsequent applicants. Details are stipulated in the FCO's Leniency Notice (Bonusregelung).
The leniency program is available to natural persons, undertakings and associations of undertakings. The granting of immunity requires that:
If the FCO is already in a position to obtain a search warrant, full immunity is still possible. It then requires (together with the remaining conditions under points two to four) that the applicant is the first participant in the cartel to contact the FCO before it has sufficient evidence to prove the infringement and that no cartel participant is granted immunity under the conditions described above.
Reduction of Fines
If no immunity can be granted, the FCO can reduce the fine by up to 50% if an applicant provides the FCO with information and, where available, evidence, which makes a significant contribution to proving the infringement. Full and continuous cooperation with the FCO is also a prerequisite for the reduction of the fine.
The FCO's leniency program provides for the possibility to declare the willingness to co-operate ("marker"). The timing of placing the marker is decisive for the rank of the leniency application. It can be placed verbally or in writing, in German or English.
The marker must contain details about the type and duration of the infringement, the product and geographic markets affected, the identity of those involved and at which other competition authorities applications have been or are intended to be filed. After the marker has been placed, the FCO will set a deadline of eight weeks or less for the applicant to submit a full-fledged leniency application.
If an undertaking decides to apply for leniency with the European Commission because it considers the Commission to be the best placed authority, the FCO accepts a summary application in accordance with the ECN notice. It can then exempt the undertaking from filing a full leniency application until further notice.
The leniency program is currently only based on an FCO internal notice, which is – at least in theory – not legally binding. With the tenth amendment to the ARC, the leniency program is likely to be implemented in Sections 81i et seq ARC, without significant changes on the merits. However, the rules on summary applications in Section 81n ARC will be more detailed in order to comply with the ECN+ Directive.
In practice, the FCO hardly ever relies on witness statements from employees, even though it can theoretically summon company employees as witnesses both in administrative proceedings and in fining proceedings (see 2.9 Enforcement Agency's Procedure for Obtaining Evidence/Testimony).
The FCO can obtain documentary information from the target by means of dawn raids (see 2.2 Dawn Raids and 2.3 Restrictions on Dawn Raids) or seizure of objects (see 2.9 Enforcement Agency's Procedure for Obtaining Evidence/Testimony).
The FCO can obtain information from companies or individuals outside of Germany by seeking international legal assistance from the respective authorities. Co-operation within the ECN is well established.
Under Section 50c ARC, the FCO is entitled to share information with other agencies for the purpose of their respective tasks. This includes regulatory authorities like the Federal Network Agency, but also consumer protection authorities or the Federal Commissioner for Data Protection and Freedom of Information. If the FCO and the public prosecutor are conducting parallel investigations, there is extensive co-operation between the FCO and the public prosecutors under Section 82 ARC.
The FCO regularly co-operates with other enforcement agencies, especially in the context of the ECN (see 1.7 Principles of Comity).
Under German law, criminal law only applies to natural persons, which means that if a conduct (such as bid-rigging) also amounts to criminal behaviour, there will formally be two separate proceedings, ie, proceedings regarding administrative fines against the undertaking, and criminal proceedings against the individual(s). The investigations related to criminal cases (ie against the individual) are conducted by the public prosecutor. The FCO is in charge of the investigations against the undertaking but can choose to hand over these proceedings to the public prosecutor, as well.
As the FCO has a special expertise and staff for these cases, it will generally refrain from doing so. Under the draft Association Sanctions Act (Verbandssanktionengesetz), there may be changes to this allocation of responsibilities.
The public prosecutor will investigate the case and, once it has collected sufficient evidence, issue a bill of indictment to the criminal court - either the local court (Amtsgericht) or regional court (Landgericht) depending on whether the sentence is likely to exceed four years of imprisonment. At this stage, the suspect's defence lawyer has a right to access to the file. Before the indictment, access to file will depend on whether it may impede the investigation. The criminal court will then usually open the formal proceedings.
Under German law, the notion of "civil cases" in cartel matters only refers to private civil litigation (see 5 Private Civil Litigation Involving Alleged Cartels). The proceedings on administrative fines as described above is an administrative procedure conducted by the FCO. Appeals against the FCO's decisions can be brought before the Higher Regional Court of Düsseldorf, which will also take evidence if the appellants appeal certain facts.
Within its wide procedural discretion, the FCO usually initiates its proceedings against all or several of the undertakings and individuals involved in the cartel. Depending on the case and in particular the undertakings' decisions whether to enter into settlement talks or not, the FCO can then split off individual proceedings and, eg, settle one case while further pursuing others. It may also at any stage during the investigation stop proceedings against selected undertakings or individuals.
The FCO bears the burden of proof for all necessary facts to establish an infringement which applies to administrative proceedings and to fining proceedings. The only difference in the standard of proof concerns a potential exemption from the prohibition of cartels under Section 2 ARC/Article 101 (3) TFEU ("exempted agreements"). In fining proceedings, the FCO will have to demonstrate that the behaviour in question does not meet the exemption.
Within its competences, the FCO acts as the finder of facts and applies the law. If the FCO's decision goes to appeal before the Higher Regional Court of Düsseldorf, the court will act as finder of the facts and apply the law.
In criminal proceedings, the public prosecutor acts as the finder of the facts until the indictment. Then, the criminal court finds the facts and applies the law to those facts.
The FCO can and does regularly rely on information obtained in other proceedings, eg, regarding neighbouring product markets. Oftentimes, the FCO also gains insight into certain markets through sector enquiries and initiates proceedings based on these insights.
There are no specific rules of evidence for the FCO's proceedings. In case of an appeal, the Higher Regional Court can only rely on the means of evidence prescribed in the Code of Criminal Proceedings, in particular witnesses, experts and documents.
The FCO usually does not rely on external experts for its investigations in cartel proceedings. It is possible, at all stages of the investigation, to retain expert advice by either the FCO or the parties involved, eg, on the economics of relevant markets or constitutional issues. Parties may also consult economic experts (eg, auditors) should they consider invoking an inability to pay a fine.
See 2.13 Other Relevant Privileges.
If the cartel conduct amounts to criminal behaviour, the FCO and the public prosecutor can conduct proceedings in parallel. In this case, usually the FCO will lead the proceedings against the undertaking and the public prosecutor against the individuals involved in the cartel.
The FCO has authority to impose administrative fines directly. Administrative fines for undertakings can reach up to 10% of the economic entity's turnover in the previous financial year (see 1.2 Public Enforcement Agencies and Scope of Liabilities, Penalties and Awards).
The FCO's cartel proceedings are often terminated by settlements, which requires the undertaking to admit the wrongdoing and all the necessary facts to impose a fine in a settlement statement. There is no formal legal procedure for settlements. The FCO follows its own best practices that are laid down in an internal explanatory note. A settlement procedure usually involves several talks with the authority and only takes place later in the investigation, often after the statement of objections has been issued.
The FCO has an incentive to settle cases because it is fast and efficient.
Undertakings that engage in settlements are rewarded with a reduced fine (up to 10%) and the issuance of a shorter and less detailed fining decision (Kurzbescheid), which can be beneficial in the defence against damage actions. Another incentive for undertakings is the Higher Regional Court of Düsseldorf's recent practice of establishing even higher fines than the FCO. This gives the FCO a strong (albeit questionable) leverage in settlement discussions.
If an undertaking's cartel infringement is established by a competition authority, this has severe effects for potential follow-on damage claims. If the defendant in a damage claim is the formal addressee of a competition authority's final decision, the factual findings of this decision are binding to the court in the damage proceedings and can no longer be rebutted (Section 33b ARC). In practice, this binding effect goes even further.
Even if a defendant is not the addressee of a competition authority's decision but is mentioned in the decision addressed to another cartel member, it will be very difficult, if not impossible, for the defendant to rebut the facts stated in the decision.
In addition, cartel infringements can lead to an exclusion from public procurement. Final fining decisions will be published in the competition register, which is about to be created by the FCO and which will be accessible to all public entities for their procurement activities.
Under current German law, criminal law only applies to individuals, not companies. If an individual has committed a crime from within or to the benefit of a company, the company itself can only be sanctioned by means of an administrative fine. The new Associations Sanctions Act, which is likely to enter into force in the course of 2020, will not affect this general principle, but rather determine general administrative fines, other related consequences of criminal behaviour in the context of companies and the procedural framework.
As regards the individual, cartel behaviour is not per se a criminal offence. Concluding contracts on the basis of cartels can, in theory, be classified as fraud (Section 263 of the Criminal Code) but, in practice, it is very difficult to establish all of the relevant elements.
By contrast, the specific case of bid-rigging amounts to a criminal offence in itself (Section 298 of the Criminal Code). It can entail a criminal fine or imprisonment of up to five years. For the procedural aspects, see 3.6 Procedure for Issuing Complaints/Indictments in Criminal Cases.
See 1.2 Public Enforcement Agencies and Scope of Liabilities, Penalties and Awards.
So far, there are no clear rules on the effect of compliance programmes on the calculation of fines. While the FCO usually argues that the finding of an infringement merely proves that existing compliance efforts were not effective, the Federal Court of Justice ruled (in the context of tax law) that compliance systems can lead to a reduction of the fine. The FCO may, however, be willing to consider positive effects of compliance programs in the course of settlement talks.
Under the tenth amendment to the ARC, compliance efforts will likely become a mitigating factor. According to the draft Section 81g ARC, even compliance systems that were introduced as a reaction to the infringement shall be a factor to reduce the fine.
There is no legal obligation to consumer redress under German law but it can be a mitigating factor in the determination of a potential fine.
The FCO's decisions are subject to appeal. The appeal must be lodged with the FCO within two weeks after service of the decision. If the FCO decides to uphold its decision, it transfers the file to the public prosecutor, who is then charged to defend the decision in the court proceedings before the Higher Regional Court of Düsseldorf.
Appeals used to be rather frequent for fining decisions that were not issued as settlement decisions. However, companies have become much more reluctant to appeal since the Higher Regional Court of Düsseldorf has tightened its approach by applying a different calculation method for fines that often leads to even higher finds than with the FCO.
Private firms and individuals may claim damages that arise from cartel behaviour (Section 33a ARC et seq). In addition, the law provides for the possibility to claim for injunctive relief and rectification. Damage actions have become highly common in practice in recent years in Germany, with claims amounting to millions of Euros in individual cases.
For a damage action to be successful, the defendant has to have engaged in a cartel infringement, which resulted in a financial loss to a third party. If the cartel behaviour has already been established in a final decision of a competition authority, this finding is binding to the court and does no longer have to be proven by the claimant. Otherwise, the claimant bears the full burden of proof for the cartel infringement, which is why so-called stand-alone damage claims are rather uncommon. Hence, in follow-on proceedings, the main questions on the merits are usually:
Burden of Proof
Under general rules of civil procedure, the claimant would bear the full burden of proof with regard to all of these questions. Deviating from these general rules, the ARC provides for a shift of the burden of proof with respect to the existence of a damage, as Section 33 (2) ARC provides for a rebuttable legal presumption that cartels result in damages. However, this provision is only applicable for damages that have occurred after 27 December 2017.
Nevertheless, for damages that have occurred before that date, the courts also ease the burden of proof for the claimant to some extent. In particular, the courts can estimate the amount of the damage (Section 287 of the Code of Civil Procedure). In order to provide the court with the necessary factual basis for the estimate, the parties usually rely on economic expertise.
The draft tenth amendment to the ARC goes even further and provides for a rebuttable presumption that business with cartel members was affected by the cartel if it falls into the factual, temporal and local context of the cartel.
Preparing a Claim
To prepare or support a claim, claimants have a right to request documents or information from the defendant or any other person in possession of relevant information (Section 33g ARC). Requests for documents or information are only justified if they are proportionate and must not extend to leniency applications or settlement submissions.
Cartel damage claims have to be brought before the competent Regional Courts (Section 87 ARC). However, not all of the Regional Courts have jurisdiction over cartel related proceedings, because most of the Federal States have assigned jurisdiction over these actions to designated Regional Courts and designated chambers within these courts.
There are no class actions in Germany, although injured parties can assign their claims to a third party who can then file a bundle of claims. This practice has become particularly relevant for individuals, who would otherwise not be willing to seek legal recourse for their (comparatively) small damages.
In recent years, such bundling of claims has become more and more popular, also with the rise of legal tech and process financing via online-based platforms. However, courts do not always accept the legality of an assignment to such claims vehicles. In a spectacular judgement of February 2020, the Regional Court of Munich dismissed the claims of more than 3,000 freight forwarders against members of the trucks cartel because of a breach of the Legal Services Act (Rechtsdienstleistungsgesetz).
If this judgement is upheld, most of the claims in this case might be time-barred. Thus, injured parties need to consider very carefully, whether they assign claims to third parties.
The right to claim damages also extends to indirect purchasers. The procedural setting is the same as for claims by direct purchasers. On the merits, for a claim by an indirect purchaser to be successful, the cartel must have caused a damage to the direct purchaser of the product or service affected by the cartel.
In a second step, this damage must then have been passed on to the claimant. For damages that occurred before 27 December 2017, the burden of proof lies with the claimant. For damages that occurred after that date, Section 33c (2) ARC provides for a legal presumption that a damage has been passed on. The defendant can rebut this presumption.
If the claim is brought by a direct purchaser, the defendant can bring forward the passing-on defence. However, there is no legal presumption in his favour that the direct purchaser has passed on his damage to the next market level. In addition, the defendant at least needs to substantiate that there were no negative volume effects (lost profits) due to the anti-competitive sales prices.
Only in exceptional cases, such as intra-group sales, do courts shift the burden of proof that the damage was not fully passed on to the purchaser.
Final fining decisions from competition authorities are usually the core evidence in cartel damage proceedings and they are binding to the court (see 4.3 Collateral Effects of Establishing Liability/Responsibility and 5.1 Private Right of Action). Other evidence obtained from the public enforcement proceedings other than leniency applications and settlement submissions can also be used as evidence. However, the conditions for a claimant to obtain such documents as laid out in Section 89c ARC are strict.
In particular, the claimant must not be able to obtain the information otherwise, which includes the possibility to request the desired information or document from the defendant or third parties under Section 33g ARC.
The number of court proceedings in cartel damage claims is still on the rise, in particular after the transposition of the EU Cartel Damages Directive. Nevertheless, most cases are being settled, often before court proceedings have even been initiated. This is particularly true if the parties are still in an ongoing business relationship.
If a case ends up before court, the timeframe can differ significantly from case to case. It mainly depends on the legal and economic complexity of the case but also on the workload of the deciding chamber. A judgement in first instance can easily take two years and rarely less than one year.
The compensation of attorneys is in most cases subject to an agreement between the respective party and their attorney. The agreed fees must not be lower than the statutory fees, which mainly depend on the value of the claim. The value is capped at EUR30 million for the determination of the legal fees.
With a claim value equal to or exceeding this cap, the statutory attorney's fees are approximately EUR270,000. Contingency fees are generally prohibited under German law.
German procedural law follows a loser-pays-principle, which is limited to the statutory fees. These fees include both sides' attorneys' fees and the court fees (see 5.6 Compensation of Legal Representatives).
First instance judgements in cartel damage proceedings are regularly subject to appeal before the Higher Regional Courts. The appeal can either be based on a wrong application of the law or on an erroneous finding of the facts in the first instance. New facts and evidence may only be brought forward to a limited extent.
A first level appeal can again be appealed before the Federal Court of Justice if the Higher Regional Court admits such a second-level appeal. This review is restricted to questions of law.
Many cartel damage claims are still settled outside court, ie, without any formal claim at all or with an out-of-court settlement in the course of legal proceedings. It is essential, however, for both parties to seek legal advice for the conclusion of a valid and effective settlement agreement and to be prepared with necessary economic expertise at all stages.
Undertakings During COVID-19
A stronger need for undertakings in specific industries to co-operate with competitors for the purchase or sale of products and services has been observed. This can take many forms, ranging from the exchange of competitively sensitive information or the establishment of a purchasing co-operation to the allocation of sales territories or customer groups and agreements on joint development, production or distribution of products. Thus, there is a certain risk that undertakings may enter into illegal practices.
As some of these behaviours are a direct reaction to the COVID-19 crisis, discussions are underway about relaxing competition law to enable co-operation to secure food or medical supplies. Such relaxations are likely to take effect particularly at the level of the application of competition law by the authorities, leaving the legal framework untouched. In a recent joint communication, the FCO, together with other national competition authorities of the EU Member States has expressed the view that the current competition rules are flexible enough to take account of changing market conditions such as the social and economic impact of the crisis.
At the same time, the authorities have indicated that they will intervene strongly against agreements that seek to exploit the current crisis, in particular by raising prices inappropriately. However, the authorities have stated that they will not actively intervene against necessary and temporary measures to prevent supply shortages.
Even in sectors that are not directly relevant to the system, the rules currently in force provide flexible instruments that allow co-operations even though they may have a restrictive effect on competition. This is true, in particular, if such co-operation is necessary to create efficiencies that are passed on to consumers. In the current situation, important fields of application could be in particular research and development co-operations and specialisation agreements between competitors.
German competition law also contains an exemption for certain forms of co-operation between small and medium-sized enterprises (SMEs), which may become particularly important in the current crisis. Pursuant to this exception, agreements between SMEs, which have as their object the rationalisation of economic transactions through inter-company co-operation, are exempted if competition in the market is not significantly affected and the agreement serves to improve the competitiveness of the SMEs involved.
The statements made so far by politicians and competition authorities give reason to hope that the existing scope for enforcement of competition rules will be interpreted generously during the COVID-19 crisis. However, the admissibility of the above-mentioned co-operation projects is, as usual, subject to the self-assessment of the companies. Therefore, companies continue to bear the risk of inadmissibility under competition law with all its consequences.
In view of this uncertainty, however, competition authorities, including the FCO are expressly open to discuss such co-operations, which may considerably reduce the risk in practice.
According to a draft that has just been published before the editorial deadline of this article, the Federal Ministry of Economic Affairs intends to waive the obligation to pay interest on cartel fines for undertakings in financial difficulties until the end of June 2021.
The German Federal Cartel Office (FCO – Bundeskartellamt) has always been one of the most active competition authorities in the field of the prosecution of cartels in Europe. Its actions are governed by the Act against Restraints of Competition (ARC). The ARC is currently under scrutiny and will be subject to a 10th amendment, which was supposed to enter into force during 2020. The coronavirus crisis may have an impact on this timeframe, but since the amendment is (in parts) designed to transpose the ECN+ Directive and with the deadline for transposition expiring in February 2021, the German legislator has an incentive to adopt the new law in early 2021 at the latest.
EU Damages Directive Fosters Decline in Leniency Applications and Dawn Raids
In 2019 alone, the FCO imposed fines of approximately EUR850 million for illegal cartel activity. Since the beginning of 2020, the fines imposed by the FCO already amount to more than EUR150 million. Most of the FCO's fining proceedings in cartel cases are still triggered by leniency applications. However, in 2019, only 16 companies provided information on infringements in their industry via the FCO's leniency programme. This marks a further decline in leniency applications for the third year in a row. Accordingly, the number of dawn raids is also declining. In 2019, the FCO still conducted dawn raids at the premises of 32 companies in five proceedings. In 2018, 51 undertakings were subject to searches and in 2017, the FCO conducted dawn raids at the premises of 60 companies. According to this firm's assessment, this development is primarily a result of the increased (and increasing) risk of private antitrust damage claims following the implementation of the EU Damages Directive in November 2014. The risk of having to face damage claims affects all cartel participants, including leniency applicants, and now shows a deterring and eventually counter-productive effect, at least from the point of view of the cartel authority.
With the decline of leniency applications, the FCO sees the need to find new ways to identify cartel behaviour. In this regard, the FCO has announced that it will build on industry knowledge gained from sector inquiries more frequently. The cartel authority also increasingly relies on IT tools to identify cartels. For instance, it uses software to analyse data in public tenders to detect patterns that may hint towards cartel behaviour in relation to so-called bid rigging. The FCO's online whistle-blowing portal, which can be accessed via the website and has been in use since 2012, may also gain more relevance. According to the FCO, it regularly receives anonymous hints via this tool; eg, in 2017 and 2018 alone, over 550 individuals made use of it.
Digital Economy Draws Enforcement Attention
While future enforcement priorities are always difficult to predict, the FCO has shown (and expressed) significant interest in the digital economy. So far, the FCO's enforcement activities in this field have mainly concerned abuse of dominance cases (eg, Facebook) or vertical restraints (eg, Google/Eyeo). Further prominent examples in this business area are the examination of Amazon's terms of business and practices towards sellers in order to complement the EU Commission's investigation and a sector inquiry into online advertising. Nevertheless, it is conceivable that the FCO will sooner or later also take up cases concerning agreements or concerted practices by means of algorithms, especially since the FCO is known for not shying away from legally or factually challenging cases. The FCO also increases efforts towards transparency. A main ongoing task is the establishment of a nationwide competition register that enables contracting authorities in the area of public procurement to check whether companies committed cartel infringements and hence should not benefit from public contracts and concessions. The electronic register should become operational in 2020.
Appeals Carry Risk of Higher Fines Being Imposed
Companies that are subject to cartel investigations still face the significant problem that there is no aligned approach to fines calculation between the FCO and the Higher Regional Court of Düsseldorf. The latter is in charge of the cartelists' appeals against the FCO's fining decisions and has repeatedly confirmed the FCO's finding of an infringement on the merits, but at the same time overruled the FCO's calculation of the fine with the result of an even higher fine. Thus, undertakings will have to consider very carefully whether or not to appeal a fining decision because the appeal may backfire dramatically. In practice, this gives the FCO substantial leverage in settlement discussions. This development is highly critical under the rule of law and is also not addressed by the currently discussed 10th amendment to the ARC.
Landmark Cartel Rulings Hold Sway over Damage Claims
As regards private enforcement of cartel damages, a number of fundamental legal issues are still to be assessed by the higher courts and the Federal Court of Justice (BGH). Some German courts are currently overrun with claimants, mainly in the aftermath of the trucks cartel. Currently, there are, eg, over 250 actions pending before the Higher Regional Court of Stuttgart alone, and more than 100 before the Regional Court of Munich. In a judgment that – if upheld in appeal – has significant impact on the landscape of private cartel enforcement in Germany, the Regional Court of Munich recently dismissed one of the most spectacular claims, which exceeded the value of EUR500 million. The court found that the bundling of individual claims by means of assignment to an online-based claims vehicle (Financialrights) was null and void because of an infringement of the Legal Services Act (Rechtsdienstleistungsgesetz). The claims in these proceedings may therefore be time-barred in the meantime. Thus, potential claimants in cartel damage actions will generally have to consider very carefully whether an assignment of their claims is actually valid.
Another cartel that has significant impact on the legal framework for cartel damage actions is the railway and switches cartel, which goes back to a hardcore cartel that ended in 2011. In a landmark ruling on this cartel, the Federal Court of Justice found in December 2018 that quota-fixing and customer-sharing in themselves do not suffice as prime facie evidence but only trigger factual assumptions that the cartel caused damage and that it affected individual orders. In the aftermath, numerous lower-court judgments, particularly on the rail and truck cartels, showed a considerable divergence in the interpretation of the Supreme Court’s decision, which was seen as more defendant-friendly than most of the prior rulings. In January 2020, the Federal Court of Justice then issued another judgment on another claim for damages against the same cartel, but took a more lenient approach regarding the question of whether a party was "affected" by the cartel in the meaning of the ARC. It will remain to be seen how the lower courts will adopt this new approach in practice. In any case, the Federal Court of Justice emphasised the importance for the lower courts to analyse in detail the economic experts' reports provided by the parties.
Plaintiff-Friendly Provisions among Changes Proposed by ARC Amendment
It is against this background that the draft legislation for the 10th amendment to the ARC now provides for a new provision (Section 33a (5), ARC), which introduces a rebuttable presumption that all transactions falling within the material, geographical and temporal scope of a cartel are affected by that cartel. The corresponding reversal of the burden of proof goes even beyond the prima facie evidence propagated by the Higher Regional Court of Düsseldorf and a number of other courts, which “only” required the cartelists to demonstrate an atypical course of events. If adopted, the new provision will supplement the legal presumption for the existence of a causal link between a cartel and damages suffered by the cartel victims laid down in Section 33a (2) of the ARC, which was already introduced with the 9th amendment to the ARC. The suggested approach is testament to a more plaintiff-friendly policy intended to facilitate successful claims for cartel damages. This provision is also intended to benefit indirect customers in the case of a passing-on. While it does away with the legal uncertainty created by the Federal Court of Justice's rulings, the downside is an increased risk of free-riding. Also, the new law will not remedy the legal uncertainty for pending claims, as the respective provision will only be applicable to claims that arise after the 10th amendment to the ARC has entered into force.
The draft legislation also revises rulings issued by the Higher Regional Court of Düsseldorf, pursuant to which the duty to hand over evidence and to provide certain information in follow-on damage action, as introduced with the 9th amendment to the ARC, does not apply to claims that arose before the amendment came into force. The draft takes the opposite position and maintains that the additional procedural obligations are applicable independently of the time when the asserted damage claims arose.
The draft amendment to the ARC not only deals with private, but also with public enforcement. In this regard, it provides for at least some more detailed criteria for the calculation of fines. In particular, the draft stipulates that compliance efforts may be rewarded by lowering the fines. Compared to the legal status quo, the draft will limit a suspect's right to silence. By implementing the ECN+ Directive and thereby adopting the ECJ's Orkem standards, suspects may in the future be obliged to answer general questions on the circumstances of an infringement. Self-incriminatory statements may not be used as evidence against the individual, but against the respective company. According to the authors' assessment, the undertaking's defence rights will be lowered considerably if this part of the draft is adopted.
Finally, the draft also incorporates the leniency programme, which has so far only been based on an internal administrative guideline by the FCO, into the ARC. This results from the ECN+ Directive, which requires the member states to have their leniency systems enshrined in legislative acts, but may not bring substantial changes to the key features of the leniency programme already in place.