Law360, New York (May 20, 2010) -- The European Commission’s announcement on May 19, 2010, of its settlement in DRAM represents the first successful outing for the Commission’s direct settlement procedure. It has been hailed by the Commission itself as a “milestone” in EU anti-cartel enforcement. As such, the Commission’s handling of the DRAM settlement provides important indications of how the Commission is fleshing out the bare bones of the settlement procedure set out in the Settlement Notice and of how the procedure looks set to evolve further.
The basic framework of the settlement procedure is straightforward enough: The Commission’s 2008 Settlement Notice introduces the possibility of settling a cartel case where, through a process of “settlement discussions,” the Commission and defendants reach a common understanding of the scope of the latter’s liability for a cartel infringement. As part of this procedure, a settling defendant must make a “settlement submission” in which it expressly acknowledges the relevant facts and its liability for an infringement of EU competition law. As a reward for making these acknowledgements, the Commission grants the settling defendant a discount of 10 percent on the fine that would have been imposed on it in the absence of settlement.
While the framework is clear, the Settlement Notice largely leaves the precise course of the settlement discussions and management of the procedure in the hands of the Commission. It is here that the DRAM case provides useful practical insights. In particular, the case shows that the Commission intends to develop the procedure so as to offer advantages to settling defendants that go beyond the 10 percent settlement discount formally offered by the Settlement Notice. As such, the Commission goes no small way toward answering criticisms expressed at the time of the Settlement Notice’s adoption that the 10 percent discount did not represent a sufficient incentive to settle.
Initiation of Settlement
Unsurprisingly, experience of the DRAM settlement confirms that the EU settlement procedure is a Commission-driven process. Initiative in launching the procedure lies with the Commission. In addition, the Commission retains the ability right up until the adoption of a final “settled” decision to abandon settlement and divert a case back to the regular procedure.
Invitations to open settlement discussions will only be made after the Commission has completed the fact-finding stage of its investigation and then only in cases that the Commission has selected for their suitability for settlement. The DRAM case, which had already been settled in the United States and which involved a large number of leniency applicants, represented an ideal case for the procedure’s first test run.
Settlement Discussions
According to the Settlement Notice, the settlement procedure is conceived as a series of “bilateral discussions” between the Commission and each individual defendant.
In practice, the settlement procedure is structured around a series of meetings between each defendant and the Commission, as well as preparatory and follow-up telephone contacts. In essence, this series of contacts allows the Commission to bring forward various procedural steps which in a regular cartel case follow a Statement of Objections. These steps include setting out the Commission’s case, allowing access to file and hearing oral and written representations from defendants. In the settlement procedure, such steps precede the issuance of a Statement of Objections.
Soon after beginning the settlement procedure, the Commission holds a first meeting with each defendant during which the Commission sets out its case in a “statement of case.” Although not comparable in terms of length or detail, the statement of case, like the Statement of Objections in a regular procedure, defines the essentials of the Commission’s case in terms of facts and legalassessment.
As a next step, defendants are afforded a shortened form of access to file. Rather than being given access to the whole of the Commission’s file, which may amount to tens of thousands of pages, the parties are given access to a smaller settlement file, comprising a much reduced number of documents, amounting to a few hundred or a few thousand, which have been selected by the Commission case-team for their relevance. Though reduced, this form of access is effective in identifying the key documents being relied on by the Commission and allowing defendants to quickly weigh up the strength of the Commission’s case. In addition, upon reasoned request, a defendant can obtain further access to the Commission’s file.
Following access to file, the defendants have the opportunity to make representations regarding the facts or legal assessment relied on by the Commission in its statement of case and to present its arguments to the Commission orally during a second meeting. In effect, this second meeting corresponds to the hearing in the regular procedure. However, far from the case-team and the defendants sheltering in their trenches, the second meeting allows for a full and frank exchange of views on points of potential dispute. It fosters a degree of engagement that is not witnessed during the typically confrontational hearings that take place in regular cartel cases. Indeed, while clearly not amounting to negotiation, experience suggests that the settlement discussions allow a defendant a greater insight into the Commission’s thinking and the ability constructively to engage with the case-team.
Some time after the second meeting, the Commission indicates to the defendants whether or not it accepts any arguments they have put forward. At that point, having heard the Commission’s response, each defendant has to confirm whether it has reached a common understanding with the Commission on the case.
Assuming this is the case, in a third meeting, the Commission indicates to each defendant the range of maximum fine that the defendant can expect to face when the Commission adopts its final decision. In practice, this indication is given only following internal consultations within the Commission, including with the Commissioner responsible for competition and the full College of Commissioners. This range of maximum fine will include a “settlement reward” of 10 percent of the fine that would otherwise have been imposed on the defendant in the absence of settlement.
The settlement reward is however only one factor relevant for setting the fine. The settlement discussions enable a defendant to have a dialogue with the Commission about other factors that determine the fine. This is, for example, the case for the relevant value of sales affected by the infringement and the proportion of such sales taken as the starting point for the fine calculation. As a result, the effective reduction in the fine that a defendant can achieve through engaging in settlement discussions may be substantially more than the 10 percent reduction the Settlement Notice promises on paper.
Settlement Submissions
According to the Settlement Notice, if the defendant wishes to proceed with settlement after having being informed of the range of the maximum fine, it must file a settlement submission. In its settlement submission, the defendant is required to make a “clear and unequivocal acknowledgement” of the infringement. The settlement submission must also contain an indication of the maximum amount of the fine the defendant would accept within the framework of settlement in line with the range of maximum fine indicated by the Commission during the third meeting.
In reality, a defendant’s settlement submission is prepared in close consultation with the Commission case-team. In the making of the settlement submission, the Commission has also shown itself to be very conscious of the civil litigation risks surrounding the acknowledgements made by defendants and has developed various means of protecting the contents of settlement submissions from disclosure. These protections give an added degree of comfort to defendants in settlement proceedings.
Once the settlement submission is made, the defendant cannot revoke it (unless the Commission goes on to adopt a Statement of Objections or a decision that is not consistent with the contents of the submission). The Commission can then proceed with the adoption of a streamlined “settled” Statement of Objections. This document summarizes the objections raised by the Commission against the defendants, based on the acknowledgments made by them in their settlement submissions. The Commission sets a short deadline within which the defendants must respond by simply confirming that the Statement of Objections corresponds to the contents of their respective settlement submissions.
“Settled” Decision
The defendants’ confirmation that the “settled” Statement of Objections reflects their settlement submission allows the Commission to proceed with adopting a decision based on that Statement of Objections. It furthermore allows the Commission to impose a fine not exceeding the maximum indicated by the defendants in their settlement submissions.
The “settled” decision (like the “settled” Statement of Objections) is much shorter than a decision issued under a regular procedure, running to only a few tens of pages, rather than hundreds of pages, and setting out a summary description of the infringement and the Commission’s legal assessment. As such, a “settled” decision will be of much less use to a plaintiff in any potential civil suit than a full-form decision, which will often provide a plaintiff a ready-made roadmap for litigation. Again, the shorter form decision and more limited information that become publicly available represents a potentially important benefit of the settlement procedure to defendants.
Conclusion
In sum, the DRAM case serves to highlight the practical working of the new settlement procedure as well as the potential benefits it may generate for defendants interested in engaging in settlement discussions. This is, of course, not to say that settlement is the appropriate course for all defendants in all cartel cases. Nonetheless, in cases where there is little factual or legal dispute with the Commission, settlement is an avenue that should be explored and one that the Commission appears keen for defendants to pursue through developing a procedure that provides incentives going well beyond the letter of the Settlement Notice.
