European Commission is not bound to settlement negotiations if a party later chooses not to settle
In its recent Timab-Judgment, the European Court of Justice (“ECJ”) has confirmed that the European Commission’s settlement procedure and the ordinary procedure for finding an infringement of competition law are distinct. It confirmed that the Commission is only bound to its statements during the settlement procedure as long as the party engages in a settlement. After a withdrawal from the settlement procedure, the ordinary procedure applies as if there had been no settlement discussions.
Background of the case
With the exception of Timab, all companies under investigation eventually settled with the Commission. Timab withdrew from the settlement negotiations after the Commission notified Timab that the infringement lasted between 1978 and 2004 and that the expected fine would be between 41 and 44 million Euro. This expected fine took account of a 17% leniency discount, the 10 % settlement reduction and an additional reduction of 35 % for mitigating circumstances because the companies had enabled the Commission to find a longer cartel duration.
Timab decided not to settle and to go back to the ordinary cartel procedure. The Commission finally found that the respective duration is between 1993 and 2004 and imposed a fine of 59.85 million Euro.
Settlement discussions do not set legitimate expectations
During the appeal to the Union’s General Court and ultimately to the ECJ, Timab, inter alia, claimed that this decision infringed the principle of legitimate expectations. In essence, it stated that the Commission did not warn Timab that it would not apply the reduction for mitigating circumstances anymore. Timab considered it “paradoxical” that a higher fine was imposed even though the duration was shortened.
The ECJ rejected these claims and stated that Timab’s withdrawal from the settlement procedure caused a reversal to the ordinary procedure. Timab could have foreseen that the 35 % reduction the Commission intended to grant for the fact that Timab enabled it to prove that it participated prior to 1993 would not be granted if Timab denied this participation during the ordinary procedure.
Companies engaged in settlement discussions should thus carefully assess if a reversal to the ordinary procedure is advantageous – both with regard to fines levied during the administrative procedure as well as with regard to additional benefits the settlement procedure might hold for follow-on litigation.
Any questions? Please contact: Alexander Israel, Jan Moritz Lang
Practice Group: Antitrust & Competition