EU Competition Compliance Programmes

Acting to rid European Union markets of restrictive trade practices like seemingly endemic industrial cartels, the European Commission has long sought to employ an arsenal of weapons to deter violations of European competition law.  The Commission has prosecuted scores of cartels.  It has levied very substantial fines and penalties.  It has employed so-called dawn raids to capture evidence from the unwary.  It has lobbied EU member states to criminalize cartel activity by business.  If the statistics published by the Commission each year on its website are any indication, the European Commission is making some progress, however limited, to stem the tide of activity which undermines the benefits of free and open markets.

Recently, the European Commission has adopted a radically different approach to deterrence.  In addition to long-standing efforts to detect and prosecute competition wrong-doers, the Commission has launched a campaign to encourage compliance as a matter of business self-interest.  Since the 2004 modernization of EU competition rules, individual enterprises have been forced to assume much increased responsibility to assure compliance.  To that end, the Commission is now promoting the adoption of competition compliance programs as one important means to curb illegal activity.  Through its recent publication “Compliance Matters: What companies can do to respect EU competition rules” the European Commission provides a useful tool-kit for company advisors and executives seeking assistance with these issues.

Antitrust violations

This EU Commission initiative should not come as a surprise to most multi-national companies, particularly firms with significant sales and market share around the world.  Given the tremendous risks stemming from antitrust violations in countries like the United States, an effective antitrust compliance policy has long been recognized as an essential compliance “best practice” -- a central element of promoting appropriate business and reducing litigation risk.

The rationale and the constituent elements of the EU Commission’s compliance policy as well would be very familiar to U.S. lawyers and business people.  In terms of the rational for compliance, there are, of course, the expected “sticks” to promote compliance  - substantial fines on companies, growing risk of sanctions for individuals, damage exposure, business disruption from investigations/scrutiny and the more ephemeral issue of corporate image and branding.  Many of the Commission’s recommended components of an effective EU policy, as well, are typical of sophisticated compliance programs – a clear commitment to, and an endorsement of, a culture of compliance mandated by top management, training in core substantive competition issues, periodic staff certification of compliance and monitoring/auditing.

Unpleasant surprises

However, beyond these elements of significant commonality between European and other compliance models and assumptions, there are a number of distinct differences that require careful consideration in order to avoid a number of potential serious problems or unpleasant surprises.  Thus, enterprises with significant European activity whether stemming from distribution, franchise, joint venture or direct investment through merger/acquisition or otherwise should proceed carefully in assuring that they have dealt with all of the essential elements of European-style compliance.  Simply extending the provisions of an existing policy, used in North America for example, to operations in the European Union is a shorted-sighted course of action fraught with risk.

A natural starting point in comparing the EU model is to look to the United States Sentencing Guidelines.  While these US guidelines are just that – guidelines rather than mandatory sentencing criteria for US judges – they are nevertheless very influential.  The first very important difference between US and European norms is the issue not of the stick, but the carrot.  Unlike the EU model, the US Sentencing Guidelines explicitly and extensively make it clear that the existence of a well-conceived and effective compliance program should have the positive beneficial effect, all other things being equal, of reducing the penalty that would otherwise be appropriate for the offense charged.

The EU competition compliance policies do not hold out any such carrot. While the European Commission has issued guidelines on how it will impose fines in competition cases, these guidelines do not accord any weight to a compliance policy of an enterprise being sentenced.  Of course, the Commission does have wide discretion in imposing fines.  However, its discretion seems limited to issues of the gravity and duration of the infringement and the limits or ceiling of its fining authority.  Importantly, aside from the avoiding penal “sticks,” there is no credit or “carrot” that would reward, through a reduction of fines, the implementation of an antitrust compliance program.  The absence of a meaningful compliance “carrot” is a significant gap in the European Commission’s campaign to promote compliance which should be addressed.

Self-policing

The second major difference between European and North American compliance programs goes directly to the question of a program’s effectiveness.  Again, the US sentencing guidelines pose a stark contrast, outlining the elements of an effective compliance and ethics program. Many of the constituent elements of an effective U.S. and a European program are the same.

Where the two approaches part company is on the issues of self reporting and cooperation.  First, while North American and European competition law enforcement procedures have highly refined and well-tested leniency programs, the benefits of such  -- immunity from or dramatic reductions in fines are highly dependent on self-detection of a problem.  Such self-policing detection is highly dependent on whistle-blowing and confidential hotline procedures, which can be the essential key to achieving the benefits of self-reporting and cooperation.

In North America, competition compliance programs that provide for a confidential hotline to senior corporate management to report corporate misfeasance are very common considered standard “best practices.”  Instead of being viewed positively as a procedure to empower and protect employees with evidence of corporate wrongdoing (thus facilitating legal compliance), such policies in Europe are vigorously opposed as unlawful and unacceptable intrusions into the workplace and violations of fiercely held and defended rights of privacy.  Reflecting sharp cultural and historical differences with the United States, European privacy policies, in particular, with anonymous hotlines are contended to pit employees against one another and, thus, highly suspect.

Given this reality, international companies seeking to extend their “normal” corporate compliance” policies and procedures to Europe need to proceed with great care, particularly given the requirements of US legislation that may mandate such whistle blowing and hotlines.  Indeed, EU data privacy protection laws have been interpreted to virtually eliminate the possibility of a confidential hotline given what is seen as the lack of proportional value between the hotline and the benefits achieved. Beyond EU data privacy protections that constrain fulsome American-style compliance programs and procedures, EU member state labor protection laws further restrict the ability of companies to compel employees to participate in programs to facilitate legal compliance through means of hotlines and whistle blowing procedures.  Accordingly, great care must be taken to avoid these potential mine-fields in extending a North American style compliance program to Europe.

Finally and perhaps often forgotten as antirust/competition authorities seek to harmonize their laws, there remain profound substantive difference between U.S. and EU antitrust principles in a number of important areas.  While there are few if any significant differences on issues involving traditional cartel activity – price-fixing/market allocation – there are significant difference in the area of vertical restraints.  These differences are most profound in areas of exclusivity, resale price maintenance, minimum advertised pricing, internet sales restrictions and price discrimination.

Moreover there are significantly more rigid standards imposed in the EU on issues of horizontal cooperation, particularly related to information sharing and trade association statistical programs.  Thus, in addition to the need for careful consideration to the components of a proposed  competition compliance program, there is a need for thoughtful review of the substantive differences that may affect how the compliance policy should be structured and operate.

Howard W. Fogt , Partner, Foley & Lardner LLP Washington, D.C. and Brussels, Belgium