25 Feb 2010
(by Andreas Stephan) An and in last week’s The Economist were very critical of the European Commission’s enforcement of competition law. They argue that the combined roles of prosecutor, judge and jury make the system open to abuse. The authors point to the merits of US criminal antitrust enforcement where they suggest antitrust officials must ‘make [their] arguments in an open court’. What they fail to point out is that European firms can at least appeal a Commission decision. In the US, as many as 90 per cent of US defendants circumvent trial by striking plea bargains; waiving their rights to appeal and negotiating with the US Department of Justice in a closed process, not entirely unlike haggling for a rug at an Istanbul market.
Nevertheless, the Economist articles rightly criticise the European Commission’s enforcement of competition law for combining the roles of prosecutor, judge and jury. Due process and basic safeguards against abuse generally demand that these roles are kept distinct. Unlike the US, EU competition law enforcement occurs in an administrative, not criminal, system. Although the defendants are firms and not individuals, fines are criminal in size and character, leaving the enforcement system exposed to abuse by overzealous competition officials. So far so good.
Unfortunately, the articles cheapen this very valid criticism in two ways: firstly, they speak of cartel cases and abuse of dominance cases in the same breath; secondly, they suggest that the US system of antitrust enforcement is somehow less open to abuse.
Taking the first point, it is one thing to talk about Article 102 (abuse of dominance) cases such as and , where enormous fines are imposed for behaviour which is not necessarily harmful beyond doubt. This is evidenced by the significant divergence in approaches to monopolisation between the US and the EU. Price fixing and market sharing cases, on the other hand, are tantamount to theft and are far more common. The cooperation of multiple parties through the leniency programme means there is rarely any doubt as to whether a cartel existed. Appeals of cartel cases generally question how the fine or leniency discount was calculated, not whether the conduct constituted an infringement in the first place. In addition, the efficiency exception under Article 101(3) TFEU (formerly 81(3) EC) has almost never been successfully argued in a case of hardcore cartel conduct. There is certainly room for abuse in the way in which the Commission shares out the liability. A particularly worrying development is the lack of detail contained in recent Article 101 cartel decisions published by the Commission. However, the fact that each cartel case typically results in five to six appeals to the General Court (formerly the Court of First Instance) and the European Court of Justice, suggests that firms in Europe are hardly taking things from the Commission lying down. Appeals take up significant Commission resources and are a fundamental way of safeguarding their treatment of firms.
In relation to US antitrust prosecutors making their arguments in an open court, the reality is that nearly 90 per cent of public prosecutions are concluded through plea bargains. These are negotiated between the Department of Justice and the defendants behind closed doors, with the authority holding most of the cards. Although each plea bargain must be approved by a District Judge, the rigour of the adversarial court process quickly evaporates where the prosecutor and defendant are in agreement. Most worryingly of all, plea agreements involve defendants waiving their right of appeal in return for receiving a significantly reduced sanction. The difference between sanctions agreed at plea bargain and those potentially imposed at trial, have led many to complain that plea bargains punish defendants for exercising the right to defend themselves. This is compounded by the fact that US leniency only offers immunity to the revealing firm. Subsequent firms wishing to receive a discount in return for cooperation have no choice but to strike a deal.
Some defendants may prefer to pay an unjust fine in order to expedite the whole process and avoid the very public nature of open trials (the danger of follow-on actions for treble damages is never far from US defendants’ minds). Moreover, this process determines not only the magnitude of corporate fines, but the jail sentences of individual executives. Surely the danger of abuse in relation to individuals’ liberty is more serious than the danger of unjust corporate fines on large corporations?
The merits and problems associated with both systems are discussed in my article, published in the .