Silviase/jgov_v1.4_full_ann huggingface dataset:
only on the firms’ premises but also on the homes (and private vehicles) of the firms’ managers and employees, the latter possibility not being allowed under the old Regulation 17/1962, and introduced because experience showed the EC that often compromising cartel documents have not been kept in offices but in private homes.

Fining policy Under EU competition law, fines can be imposed only on firms (although national laws in some European countries do allow for criminal penalties, and/or administrative sanctions to be imposed on firms' managers), and Regulation 1/2003 establishes that fines may not exceed 10 per cent of the firm's turnover (although actual fines rarely go anywhere close to such a ceiling), and that they should be fixed with regard to the gravity and the duration of the infringement of the law.

The Commission has considerable discretion in the determination of the fines: although in a January 1998 Notice it has established some criteria that it uses to fix the fines, such criteria are far from being precise and the calculation of the fine is to a large extent unpredictable (even if the EC does try to rationalise it in its decisions); further, there is no attempt to estimate the actual damages created by a cartel (or any other illegal practice) and to make the fines proportional to the damages.

In practice, it is widely believed that the Commission has toughened its stance against cartels over time, although it is not clear to what extent the fines imposed by the EC are a real deterrent for cartels. $ ^{32} $ A OECD study, for instance, estimates that only in a minor proportion of cases have the actual fines exceeded the cartel gains obtained by the firms (OECD, 2002). Given that deterrence is created by expected fines, that is the monetary fines times the probability of the cartel being uncovered and successfully prosecuted, the latter being difficult to estimate but certainly quite far from 1, it is difficult to believe that firms refrain from engaging in collusive practice because they fear the fines.

Recently, in the EU there have been some discussions about making collusion a criminal offence. If this was the case, executives found guilty of collusive agreements could be imprisoned, as in the US or in the UK. Arguably, this provides a stronger deterrent of collusion as risk averse managers would find it very dangerous to collude. However, it is unlikely that there will be sufficient support by EU Member States for a reform of competition law which introduces criminal penalties. More feasible is perhaps another way to increase the firms' expected costs from being caught colluding, which is damages to private parties (in the US, treble damages). So far, private actions have been rare in EU competition law, but there seems to be a tendency towards an increase of such actions. If this leads to important damages being recognised to clients and
consumers hurt by cartels, the effect will be to substantially add to the fines that firms have to pay, thereby increasing deterrence.

Even though they are arguably not yet a sufficient deterrent for cartel activities, increased fines have not been the only sign that - from the second half of the 1990s - fighting cartels has become the priority for the EC. Indeed, two other important changes which are worth stressing have occurred in the EU competition law. First, the Commission has started a process of 'Modernisation' which has led to some of its powers being given to national competition authorities and national courts, with the aim of better employing its resources and devoting them to important cases (such as cartels) rather than on minor agreements. Second, it has introduced a leniency policy which has arguably been the main novelty in the fight of cartels.

Leniency policy “Leniency programmes” grant total or partial immunity from fines to firms that collaborate with the authorities. They work on the principle that people who break the law might report their crimes or illegal activities if given proper incentives. $ ^{33} $ In competition law, the Antitrust Division of the Department of Justice (DOJ) in the US have been the first to introduce such a law, in 1978, granting immunity from criminal sanctions if certain conditions occurred. (In August 1993, this scheme was thoroughly redesigned by the DOJ, giving rise to a stream of firms applying for leniency and giving evidence which permitted to uncover a number of cartels.).

The EU introduced a leniency policy in 1996. It established that a fine might have been very substantially (75-100%) reduced if a company informed the European Commission before an investigation started; and substantially (50-75%) reduced if co-operation took place after an investigation had started, but before the EC had obtained sufficient grounds for initiating the procedure; in both cases, the company had to be the first to report, terminate all cartel activities and must not have been the instigator of the cartel. The fine might have been significantly (10-50%) reduced if the company cooperated with the EC in the investigations (for instance by not challenging the EC findings and allegations) without the previous conditions for more generous reduction of fines being met.

However, this policy did not give the results the EC hoped for, mainly for two reasons. First, leniency was given in a discretionary way by the EC (rather than being automatic like in the US), and firms did not know what fines they would get until the final Decision was adopted by the Commission. This clearly reduced the benefit from disclosing evidence. Second, firms did not receive immunity if an investigation had already begun.

In February 2002, the EC adopted a new leniency policy. It improves on
the first point since it introduces transparency and certainty: complete immunity from fines is given to the firm first reporting a cartel and, upon providing evidence, the firm will receive (conditional) immunity in writing from the EC. Further, the new rules specify that any firm can apply for immunity as long as it had not coerced other firms to participate in the cartel (the previous condition, requiring a firm not to be an “instigator” of the cartel, left room for interpretation).

It also improves on the second point, since immunity is given to a firm that provides evidence that enables the EC to establish an infringement even when the EC is already in possession of enough information to launch an inspection (but not to establish an infringement). $ ^{34,35} $

The use of leniency programmes in anti-trust has been studied first by Motta and Polo (1999, 2001). $ ^{36} $ They show that such programmes might have an important role in the prosecution of cartels provided that firms can apply for leniency after an investigation has started. This is because as soon as an investigation starts, a firm’s expected probability of being found guilty suddenly increases, thus modifying the balance between cost and benefit from a cartel. If given the possibility to apply for leniency, the firm might then decide to give up its participation in the cartel in exchange for a total or partial reduction of the fine.

Leniency also helps in that it saves resources of the authority: building up a convincing enough case to be defendable in courts is very costly, but the cost of this prosecution stage can be avoided or greatly reduced by leniency, since the firms would bring themselves enough evidence to the authority.

### 3.2 Standards of proof: which practices violate EU law?

In Section 2 above I have already stressed that a collusive outcome might arise without firms agreeing or communicating to coordinate their behaviour. This raises the crucial issue of whether 'tacit' collusion, and not only explicit collusion, represents a violation of competition law. $ ^{37} $ In what follows, we discuss how the European Commission and the Courts have dealt with this important issue.
Parallel behaviour is not per se unlawful. Perhaps the prototypical case of 'tacit' collusion is given by a situation where firms behave in a parallel way over time, that is tend to imitate each other in their price decisions. Suppose for instance that - even without common shocks on demand or input prices - one day a seller increases prices by 10%, and that the next day a rival follows suit. Absent any other documentary evidence (such as proof that the firms have agreed on prices), does this price parallelism represent evidence that firms have infringed article 81? Or, in the terms of EU law, is this evidence that the firms have engaged in a concerted practice? $ ^{38} $

The answer is that the Commission has been tempted to answer positively this question, but the European Court of Justice, especially in its Wood Pulp judgement, which is the most recent on this issue, seems to exclude this possibility.

The Wood Pulp judgment In 1984, the EC adopted a decision (Wood pulp) that found that forty wood pulp producers and three of their trade associations had infringed article 81 (then art. 85) of the Treaty by concerting on prices. In 1993 the European Court of Justice issued a judgment (Ahlström and others v. Commission) that annulled most of the EC decision, partly on procedural grounds and partly on substantive issues.

The Commission found an infringement of article 81 due (among other things) to parallel behaviour, which consisted of: (i) a system of quarterly price announcements; (ii) the simultaneity or quasi-simultaneity of the announcements; (iii) the fact that announced prices were identical. As the ECJ rightly argues, absent documents which directly establish the existence of collusion between the producers concerned, the problem was to understand whether the three elements (i), (ii), and (iii) are proof of collusion (“constitute a firm, precise and consistent body of evidence of prior concertation”) or can instead be explained by normal competitive behaviour:

“In determining the probative value of those different factors, it must be noted that parallel conduct cannot be regarded as furnishing proof of concertation unless concertation constitutes the only plausible explanation for such conduct. It is necessary to bear in mind that, although article 85 (now article 81) of the Treaty prohibits any form of collusion which distorts competition, it does not deprive economic operators of the right to adapt themselves intelligently to the existing and anticipated conduct of their competitors.” (Ahlström and others v. Commission, para. 71; emphasis added)

To establish whether parallel conduct was in this case proof of collusion, the ECJ commissioned two expert’s reports, whose conclusions were devastating
for the European Commission, in that they indicated that parallelism could well have been the result of the normal oligopolistic interdependence among competitors.

(i) The EC believed that the system of quarterly price announcements and the fact that all firms quoted prices in the same currency were practices expressly adopted by the wood pulp producers so as to increase the transparency of the market, thus rendering collusion easier. The experts found that it was the purchasers who, after World War II, demanded the introduction of that system of announcements, in order to better estimate their costs. Further, they found that the US dollar was first introduced by the North American producers during the 1960s (before the period of the alleged concerted practices), and subsequently adopted by other producers; they also found that this development was welcomed by the buyers.

(ii) According to the EC, the close succession of price announcements could only be explained by a concerted practice. However, it had another, innocent, plausible explanation according to the expert’s reports. Several market features, including the existence of common agents that work for several producers, implied that information on announced prices would spread very quickly.

(iii) The third element in the EC’s construction was that the prices announced by the wood pulp producers involved were the same (or very similar) although they had different production costs, different rates of capacity utilisation, different costs of transportation to a given market; and they were at an artificially high level in some years, whereas the low prices in two particular years corresponded to a punishment phase. However, the experts and the ECJ noted that same pattern of prices could also be consistent with an alternative explanation, that is competitive behaviour in an oligopolistic industry. First, the fact that (average) prices were high in some years and low in others might be explained by specific demand and supply shocks (such as the introduction first - and discontinuation later - of storage subsidy schemes by the Swedish government, the evolution of the Canadian and US market, and relative exports to European markets). Second, the experts argued that the fact that prices over the economic cycle were the same (or similar) across producers was compatible with the firms behaving independently: a competitor decides to set the same price as its rivals simply because it fears the reactions that would take place if it did not so. $ ^{39} $

In the light of the experts’ reports, the ECJ arrives at the conclusion that “concertation is not the only plausible explanation for the parallel conduct.” (Ahlström and others v. Commission, para. 126, italics added) $ ^{40} $
At this point, one can ask the broader question of whether one can ever find an infringement of anti-trust laws by simply looking at parallel conduct. The answer is that this is possible, but the standard of proof is (rightly) high, as one should prove that communication and/or coordination of some kind among the firms must be the only plausible explanation for parallelism. In another important case, Dyestuffs, price rises were so simultaneous that it is impossible that they had not been previously agreed upon:

“In Italy, apart from Ciba who had already ordered its Italian subsidiary to increase prices, all other producers, with the exception of ACNA, sent by telex or fax - from their headquarters, seated in places very distant from each other - instructions to their respective agents in the afternoon of 9 January: Sandoz at 17.05, Hoechst at 17.09, Bayer at 17.38, Francolor at 17.57, BASF at 18.55, Geigy at 19.45, and ICI at an undetermined time, since instructions were given by phone.” (Dyestuffs: 2. My translation.)

Therefore, in that case, even absent documentary evidence the Court agreed with the Commission’s finding of a concerted practice.

Tacit market-sharing schemes? Another example of possibly tacit collusion is given by situations where each firm limits itself to selling in one particular market. Indeed, a market outcome where two (or more) firms sell in, say, their domestic markets only may be the result of an explicit market-sharing agreement but could also be due to 'tacit collusion': each firm is happy to limit its sales to the domestic territory because it anticipates that if it started to sell also abroad a retaliation would follow, resulting in overall competition and the loss of the domestic monopoly.

An important case in this respect is Soda-Ash, which deals with an alleged concerted practice of market-allocation. (Note that the Commission decision was taken after the Wood Pulp Commission decision, but before the Wood Pulp judgement.) Soda-ash is a commodity used as a raw material in the production of glass. ICI, a British company, and Solvay, a Belgian company, are the main producers in the industry. The two firms had a long history of explicit market-sharing agreements (at times when cartels were not illegal), started in the 1870s and renewed immediately after the 2nd World War with a so-called 'Page 1000' agreement, which divided Europe (and some overseas markets) into spheres of influence: for instance, ICI was to sell in the United Kingdom and Solvay in Continental Europe.

The agreement (that the defendants indicated as being out of date since 1962) was terminated as of 31 December 1972, when the UK entered the European Community (so as to comply with the anti-trust rules of the Treaty), but as the EC said in its decision:
“The alleged desuetude of the ‘Page 1000’ arrangement did not however manifest itself in any significant change in the commercial policy of Solvay or ICI in the soda-ash sector, either in 1962 or at any later stage. Neither ever competed with the other in their respective home markets in the Community. Similarly in overseas export markets each continued to respect the other’s sphere of influence.” (Soda-Ash: 27)

What is noticeable is that each firm admitted that it had no intention of invading the other’s home market, but simply because it feared retaliation if it had done so (Soda-Ash: 43-44). They therefore justified a collusive outcome as the result of independent decisions that made sense from a business viewpoint. In this case, continuing to share markets was an easy way to reach tacit collusion.

The other interesting point here is whether tacit collusion is an infringement of article 81 (ex-85). In this case, the Commission decided that it was, and that the term ‘concerted practice’ mentioned in article 81 among the prohibited practices covered also tacit collusion:

“The Commission fully accepts that there is no direct evidence of an express agreement between Solvay and ICI to continue to respect the ‘Page 1000’ cartel in practice. However, there is no need for an express agreement in order for article 85 to apply. A tacit agreement would also fall under Community competition law.” (Soda-Ash: 55)

The Court of First Instance annulled the Commission Decision but on procedural grounds, while being silent on the merits of the question. $ ^{41} $ Interestingly, the EC later re-adopted the decision, and the case is still pending at the Court. In the light of the Wood Pulp judgment, absent documentary evidence it would be difficult for the Commission to persuade the Court, since - in the words of the Court - article 81 "does not deprive economic operators of the right to adapt themselves intelligently to the existing and anticipated conduct of their competitors."

To sum up, the EU jurisprudence requires documentary evidence for the finding of a cartel law infringement. Absent documentary evidence, proof of a concerted practice can be found from market outcomes (such as parallel behaviour) only to the extent that the coordination of competitors' decisions is the only plausible explanation for those outcomes.

This approach based on observable elements which are verifiable in a court of law seems very sensible to me, in that it privileges legal certainty and avoid the uncertainty that would inevitably follow if firms had to constantly second-guess what would happen if they behaved independently but in a similar way to their competitors. Clearly, though, not everybody might be happy with this approach, which minimises Type I errors (the possibility to find "guilty" firms which are not), but permits Type II errors (as firms which are colluding but do not leave traces behind would not be found in violation of the law).
One may argue that such an approach is too lenient with the firms: since they know that they could reach a collusive outcome even without an explicit agreement, and that such tacit collusion is not unlawful, how could one ever believe that collusive outcomes could be successfully avoided? There are at least two answers to this concern.

First, it is true that tacit collusion might be sustained by firms. However, we have also seen that there are very good reasons why firms would like to communicate and/or to coordinate their actions. They might want to avoid unnecessary and costly experiments with the market and choose instead the best (for the firms) prices, or they might want to create facilitating practices and more generally an environment which improves observability of firms' actions so as to favour collusion. This will lead firms to try and communicate among themselves so as to coordinate their actions, thereby leaving traces of hard evidence behind them. Firms have known for a long time that they will be found guilty if there is any written proof of their coordination, and yet anti-trust authorities keep on uncovering such hard evidence in cartel cases. $ ^{42} $

Second, in order to make sure that cartel violations do not persist, anti-trust authorities (and more generally governmental institutions) have also another instrument, which is to intervene so as to render the market environment less prone to collusive outcomes. A tough stance on practices that allow firms to exchange information so as to monitor each other's behaviour is an example of this approach. $ ^{43} $

Agreements to exchange information as a concerted practice. According to a very authoritative commentator, "[a]n important element in establishing the existence of concerted practices is contact between the parties, which must involve intentional communication of information between them, either directly or through an intermediary" (Goyder, 2004: 75).

It is important to note that such exchanges of information which would give rise to a concerted practice do not necessarily take the form of communications on the prices that firms intend to charge, nor do they need to be part of a precise agreed-upon scheme. In the Peroxygen judgment (1985), for instance, the ECJ finds that the firms had engaged in a concerted practice:

"Full exchange was made of information about production, so that each knew the others' general commercial policy. It was held that these arrangements constituted a concerted practice: although the
parties had not necessarily agreed a precise or detailed plan in advance, it was sufficient that by their mutual involvement they had departed from the basic requirement that each must determine independently the policy which it intended to adopt on the market" (Goyder, 2004: 76-7).

As emphasised in Section 2 above, the ability to observe the market decisions of competitors is a crucial ingredient to sustain collusion, and this calls for a prohibition of the exchange of sensitive commercial information among rivals. The EU jurisprudence seems entirely consistent with this approach, since the presence of exchange of information of a detailed and disaggregate nature is sufficient to a finding of concerted practice. In Fatty acids, three producers of oleine and stearine were fined for having set up a system to exchange information on market shares, prices, and orders. $ ^{44} $ In VNP/Cobelpa, Belgian and Dutch paper manufacturers exchanged - through their national trade associations - detailed data at the individual firm's level on prices, discounts, terms of supply, sales, and payments. $ ^{45} $ In UK Agricultural Tractors, the Commission fined seven UK producers or importers of agricultural tractors for a sophisticated agreement to exchange information on sales at a very disaggregate level, both in geographic terms (sales were broken down at such a fine level that one could even in some cases identify the buyers) and in product terms (information was provided on which type of tractor was sold). Both the CFI and ECJ upheld the Commission's decision, clearly establishing the principle that setting up a scheme to monitor each other's sales data amounts to a concerted practice. $ ^{46} $

These judgments are important, because they indicate that it is possible to prove infringement of the law even absent documentary evidence of meetings and agreements, provided that there is enough evidence that firms have intentionally created an environment where collusion can be more easily sustained. $ ^{47} $

Interestingly, there also seems to exist some awareness that transparency is bad when it takes place on the supply side only, whereas transparency which involves also the demand side should be positively looked at - as argued in Section 2. In Covisint, a decision which concerns the creation of an automotive internet marketplace (set up by agreement of six car manufacturers), the Commission dismissed objections that the agreement could have made collusion easier by making prices more transparent, and found instead that B-2-B marketplaces would have pro-competitive effects.