COMMISSION DECISION of 21 October 1998 relating to a proceeding under Article 85 of the EC Treaty (Case No IV/35.691/E-4: - Pre-Insulated Pipe Cartel) (Notified under number C(1998) 3117) (Only the Danish, German, English, Italian and Finnish texts are authentic) (1999/60/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Community,

Having regard to Council Regulation No 17 of 6 February 1962, First Regulation implementing Articles 85 and 86 of the Treaty (1), as last amended by the Act of Accession of Austria, Finland and Sweden, and in particular Articles 3 and 15 thereof,

Having regard to the Commission's decision of 19 March 1997 to open a proceeding pursuant to Articles 3 and 15(2) of Regulation No 17,

Having given the undertakings concerned the opportunity to make known their views on the objections raised by the Commission pursuant to Article 19(1) of Regulation No 17 and Commission Regulation 99/63/EEC of 25 July 1963 on the hearings provided for in Article 19(1) and (2) of Regulation No 17 (2),

Having consulted the Advisory Committee on Restrictive Practices and Dominant Positions,

Whereas:

I. THE FACTS

A. Summary of the infringement

(1) This Decision imposing fines for an infringement of Article 85 is addressed to the following undertakings:

- ABB Asea Brown Boveri Ltd,

- Brugg Rohrsysteme GmbH,

- Dansk Rørindustri A/S (Starpipe),

- Henss/Isoplus Group,

- Ke-Kelit Kunststoffwerk GmbH,

- Oy KWH Tech AB,

- Løgstør Rør A/S,

- Pan-Isovit GmbH,

- Sigma Tecnologie di rivestimento srl,

- Tarco Energi A/S;

(2) The infringement consists of participation in a complex of anti-competitive arrangements which began with a national cartel in Denmark in about November 1990, was extended to other Member States (Italy, Germany) during 1991 and in 1994 was organized so as to cover effectively the whole of the Community, by the producers of pre-insulated pipes for district heating who, in concert and complicity, and contrary to Article 85(1)

- divided national markets and eventually the whole European market amongst themselves on the basis of quotas,

- allocated national markets to particular producers and arranged the withdrawal of others,

- agreed prices for the product and for individual projects,

- allocated individual projects to designated producers and manipulated the bidding procedure for those projects in order to ensure that the assigned producer was awarded the contract in question,

- in order to protect the cartel from competition from the only substantial non-member, Powerpipe AB, took concerted measures to hinder its commercial activity, damage its business or drive it out of the market altogether,

- used quality norms to keep up prices and delay the introduction of new cost-saving technology;

(3) The undertakings participated in the infringement for the following duration:

- ABB, Løgstør, Starpipe, Tarco: from about November/December 1990 to at least March or April 1996,

- Pan-Isovit from about November/December 1990 up to the same time,

- Henss/Isoplus from about October 1991 up to the same time,

- KWH from at least March 1995 up to the same time,

- Brugg from about August 1994 up to the same time,

- Ke-Kelit from about January 1995 up to the same time,

- Sigma from about April 1995 up to the same time.

(The participation of Brugg, Ke-Kelit and Sigma was confined to arrangements on their respective national markets);

B. The Pre-insulated Pipe Industry

1. The product

(4) Pre-insulated pipes, used principally in district heating systems, consist essentially of steel pipes enclosed within pipes, with a layer of foam insulation between.

District heating systems are commonly employed in the more northerly West European countries and in the former Eastern Bloc countries, where the climate is severe. Water is heated in a central location and transported via underground pipes through a municipality or district to provide heat to individual residential and commercial buildings.

As environmental concerns have grown, particularly in connection with the efficient use of energy, the potential for district heating systems has increasingly been recognised, for example in the combination of powerplants with district heating systems ('co-generation`): surplus heat generated by power stations or by industry is used for district heating.

Given that the hot water (or steam) has to be transported underground over long distances, the temperature is very high (up to 140 °C) and to ensure efficient and safe distribution the pipes have to be pre-insulated.

(5) Pre-insulated pipes have three major components:

- a steel (or sometimes copper) 'carrier pipe` which is the core of the product and carries the hot water,

- a concentrically arranged protective outer 'casing pipe` made of plastic,

- a rigid foam insulation between the two pipes.

District-heating pipes are usually produced in rigid lengths of 6, 12 or 16 metres. Standard pipe diameters run from 250 to 800 mm but larger sizes can be produced. The manufacturers supply a complete range of pipes, bends and special fittings, including monitoring systems to detect leakage. Some of the producers involved in these proceedings also manufacture flexible pipes which are mainly used for connecting individual households to the main pipe system. Flexible pipes are not the subject of this procedure.

Products are standardised and have to comply with quality norms fixed with the cooperation of manufacturers, customers and standards authorities, the principal norms being EN 253, EN 258, EN 488 and EN 489. The traditional production method involves the lengths of steel carrier pipe being gripped by spacers and covered with the plastic outer pipe, with foam then being sprayed in between the two concentric pipes. Innovation is an important aspect of the industry. Safety, efficiency and environmental concerns predominate. One recent development is the introduction in 1988 of non-CFC material for insulating foam. The development at about the same time of a process for the continuous production of pipes has made possible substantial cost savings. In this technique, pipes are moved forward throughout the production stage without interruption, while under the traditional route pipes are taken one-by-one to an injection site and filled with foam. The approval of this production method and its introduction on a fully-commercial scale was, however, opposed for some years by manufacturers who used the traditional route.

2. The market for district heating systems

(6) In Western Europe the final customers for district heating pipes are primarily municipally-owned energy or specialist district heating supply companies. Contracts may relate either to specific projects or to annual supply agreements.

In the first type of contract, the municipality or other public/local authority engages a civil engineering contractor for the particular project following the appropriate tendering procedure and the successful contractor then calls for offers for pre-insulated pipes from the pipe manufacturers. (Contracts for the supply of pipes worth over ECU 400 000 are also subject to Community Public Procurement rules (3)). The installation of the pipes supplied by the pipe manufacturer is carried out by the contractor. This type of contract accounts for some 60 % of the total European market.

In the case of annual contracts (also known as the 'retail` market) the municipality or other end-user agrees to purchase pipes and fittings up to a designated value each year directly from a pipe manufacturer, usually for the partial replacement or maintenance of an existing district heating system. (In some cases, the contractual period may be three or even five years.)

(7) The Community market for district heating pipes in 1995 was worth some ECU 400 million, involving an increase over the previous year of 15 %. The product is marketed in virtually all the Member States. There is a substantial trade between Member States. ABB has production facilities in several Member States. Henss/Isoplus produces in Austria and Germany. Denmark, the main centre of production, accounts for around 50 % of Community pipe manufacturing capacity and supplies the product to all the other Member States where district heating is used. Germany is the largest Community national market (at some ECU 160 million accounting for 40 % of total Community consumption). At least two-thirds of the district heating pipes laid in Germany are supplied from other Member States, primarily Denmark, but also Austria, Finland and Sweden. Denmark is the Community's second largest national market, with 20 % of total consumption. The Community-based producers together supply a European export market (Eastern Europe, Nordic and Baltic States) worth another ECU 100 million, and further rapidly expanding markets are Russia and China.

3. The producers

(8) During the material period, eight producers supplied the West European market with preinsulated pipes on an appreciable scale: ABB, Løgstør, Dansk Rør ('Starpipe`), Tarco, Pan-Isovit, Henss/Isoplus, KWH and Powerpipe. Community production is particularly concentrated in Denmark where four of the producers are located, three of them in the town of Fredericia.

(a) ABB

(9) The largest producer of district heating pipes (and the only large multinational group active in the sector) is the Swedish-Swiss industrial combine ABB Asea Brown Boveri Ltd, which has its headquarters in Zürich. ABB was formed in 1988 as a result of a merger of the interests of Asea AB of Stockholm, Sweden and BBC Brown Boveri Ltd, Baden, Switzerland. It is owned in equal shares by the two parents, which now function purely as holding companies and are known as ABB AB and ABB AG respectively. ABB Asea Brown Boveri Ltd stands at the head of a corporate group of over 1 000 companies with a consolidated turnover in 1997 of some USD 31,3 billion (ECU 27,6 billion). More than half of its operations are located in Europe.

ABB's group organisation is based on overlapping matrices, one regional and the other segment-oriented.

The governing body of ABB is the Board of Directors. Under this, its top executive organ is the Group Executive Committee consisting (as at August 1993) of the Chief Executive Officer and seven Executive Vice-Presidents representing the three geographical regions of ABB's operations and the four main business or product segments. For most of the period with which this Decision is concerned, the four business segments whose Chairmen sat as Executive Vice-Presidents on the Executive Committee were: Power Generation; Power Transmission and Distribution; Industrial and Building Systems, and Transportation (4).

Each business segment of ABB is further divided into 'Business Areas` (BAs) which have responsibility for their particular industrial activity on a world-wide basis. In all, ABB now has some 37 business areas, one of which is District Heating.

ABB is at the same time organised into three geographic regions (Europe, the Americas and Asia-Pacific), the structure cutting across business segments and product boundaries and being aimed at dealing with overall strategic issues and ensuring coordination between segments and countries.

(10) After a reorganisation of ABB's structure in August 1993, the District Heating Business Area (designated 'BA-VDH`) was part of the Transportation Segment and reported directly to the Chairman of that segment (who as an Executive Vice-President with seat on the Group Executive Committee was one of ABB's most senior corporate officers).

ABB's District Heating Business Area (BA-VDH) includes manufacturing companies located in Fredericia, Denmark (ABB IC Møller A/S), Finland (formerly Ecopipe), Germany (ABB Isolrohr GmbH), Sweden and Poland. The sales/distribution of preinsulated pipes is managed in the Community by these companies, by other ABB subsidiaries, or by agents. ABB has approximately 40 % of the overall West European market in district heating. It is the market leader and largest supplier in most of the countries in which it operates. Stating off in Denmark as ABB IC Møller, ABB has expanded in this market, largely through the acquisition of smaller producers. All of these companies were integrated into ABB's operations. ABB's Annual Report values the 'orders received` by the District Heating Business Area in 1995 at USD 283 million (ECU 216 million).

Although IC Møller is the principal ABB company operating in the district heating sector, and its Chairman is head of the Business Area District Heating, in terms of corporate structure it does not act as a holding company for the other companies in the District Heating business area: Isolrohr GmbH is, for instance, a wholly-owned subsidiary of ABB's main German company.

(b) Løgstør

(11) Løgstør Rør A/S, the second largest manufacturer of district heating pipes in the Community, is a family-owned company and began production in 1960 in the town of that name in Denmark. Løgstør underwent a corporate reorganisation in 1988, its activities being transferred to a new company. Its market share in Western Europe is about 20 %. In 1993 it acquired a small plant in Finland, later known as LR Putki, which closed at the end of 1996 after making substantial losses. It also has a joint venture company with production facilities in Italy making mainly fittings. Løgstør was the first producer to introduce a continuous production process: it claims to have reduced cost price by some 15 to 20 % compared with traditional manufacturing techniques using the batch process. A thinner outer jacket and less insulating foam is required so substantial savings are made on material. According to Løgstør, it had considerable difficulty in penetrating markets with the new product since its competitors who produced in the traditional manner challenged its compliance with norms: they insisted on the retention of the old standards regarding jacket thickness and foam density.

Løgstør acquired the German producer Pan-Isovit (also an addressee of this Decision) with effect from 1 January 1997.

(c) Tarco

(12) Tarco Energi A/S has its manufacturing facilities in Fredericia, Denmark and sells principally in Denmark and Germany. It also operates in Scandinavia, Italy, the Netherlands and some East European markets. Its West European market share is about 14 %. Tarco Energi A/S is part of an industrial group Tarco A/S of Nyborg which is owned by a consortium of more than 80 Danish municipalities: many of these are customers for district heating.

(d) Dansk Rørindustri

(13) Dansk Rørindustri A/S, known as 'Starpipe` is also based in Fredericia, Denmark. It has a market share of about 6 % in Western Europe. Its main markets are Denmark and other Scandinavian countries, Germany and the East European countries.

(e) Pan-Isovit

(14) At the material time, Pan-Isovit GmbH, then based in Speyer, Germany, together with its Swiss sister company Pan-Isovit, Regensdorf, was owned 100 % by Pan-Isovit Holding AG, itself a wholly owned subsidiary of a Swiss industrial group WMH - Walter Meier Holding AG. The main plant for district heating pipe was in Speyer: the Swiss factory made only fittings. Pan-Isovit, which had around 12 % of the West European market, was acquired by Løgstør after the investigations in this case.

(f) Henss/Isoplus

(15) Isoplus Fernwärmetechnik Gesellschaft mbH has a manufacturing plant in Hohenberg in Austria and (via a 100 % subsidiary) another plant at Sondershausen in Germany. The latter Member State is its principal market. Isoplus also has manufacturing facilities in Hungary and the Czech Republic. Isoplus was set up in 1989 and in 1990 acquired ABB Isolrohr's factory in Austria. In the period covered by this Decision, Isoplus's sales in Germany were made exclusively through two companies: Dipl-Kfm Walter Henss GmbH of Rosenheim and Dipl-Kfm Walter Henss Rohrleitungsbau GmbH Berlin (5). Henss Rosenheim also acted as the sales agent of ABB IC Møller for Bavaria, this commercial relationship with ABB being explained by the fact that the Henss family had previously owned Isolrohr and had sold it to IC Møller in 1987. The agency agreement with ABB gave rise to recurring differences and was the subject of arbitration proceedings. The Henss and Isoplus companies together formed a de facto group although according to public company registers there was no link of ownership between them. Henss/Isoplus has around 9 % of the West European market.

(g) KHW

(16) Oy KWH Pipe AB of Vaasa, the only Finnish-owned producer, is principally concerned with the manufacture and marketing of plastic (HdPE, PVC) pipes for civil engineering and municipal applications. KWH Tech is the division responsible, inter alia, for manufacturing pre-insulated pipes for district heating (the 'Thermopipe` business; its other business unit is the 'Machine Unit` which produces and sells machinery equipment and technology for pipes). KWH, whose district heating activities in Western Europe are confined to the Scandinavian countries, has some 2 % of the total Western European market. Since 1992 it has specialised in setting up joint-venture companies for promoting district heating in non-Community markets to which it transferred technology and know-how.

(h) Local suppliers

(17) There are a number of suppliers of district heating which primarily serve their own national market: Brugg (Germany/Switzerland), Sigma (Italy) and Ke-Kelit (Austria). Brugg now manufactures flexible pipes only. For district heating projects for which it competes with the other producers, it buys in rigid pipes from Starpipe, having closed its own production facilities for this type of pipe at the end of 1994. Ke-Kelit is an independent company which supplies, in its own right, pipes which it buys from Løgstør.

Sigma, formerly owned by the Italian State-owned steel group Ilva, was acquired by the Riva group on denationalisation in 1995. Despite its being owned by a major group, it operates at a local level only.

(i) Powerpipe

(18) Powerpipe AB was formed in 1986 by former employees of the Swedish producer Ecopipe after that company's acquisition by the Finnish company Uponor. Following a composition with creditors in 1988 and financial restructuring guaranteed by a private investment company, Birka Business Development AB, Powerpipe was taken over by Birka and became a wholly-owned subsidiary of that company. In 1988 Powerpipe was one of the first producers to develop a CFC-free insulation foam for pre-insulated pipes (using CO2-based technology). Powerpipe's share of the overall West European market for pre-insulated pipes in 1994 was about 2 %, its activities being principally in Sweden and Finland.

From about 1993, Powerpipe pursued a policy of expansion into other European markets, including Germany. One reason stated for this change in strategy was what Powerpipe described as the inexplicably low price level obtaining in Sweden (where ABB was the market leader). Powerpipe believed that the larger producers were deliberately depressing the prices in Sweden in order to damage its business.

According to Powerpipe, the established producers had from the very beginning sought to eliminate or neutralise it as a competitive threat. From 1991 onwards the other producers made persistent approaches to Birka and its owner with a view to acquiring Powerpipe, but the negotiations were never successful.

In January 1997 Birka sold the business of Powerpipe to a new company owned by a Danish-French investment group which specialises in small and medium-size industrial companies. The corporate entity Powerpipe AB changed its name and remains in the Birka group. The new company has continued the business under the name of Powerpipe AB. It has no connection with Birka.

4. Trade association: EuHP

(19) In 1991, at the initiative of ABB, a trade association was set up and named the European District Heating Pipe manufacturers Association ('EuHP` for short). According to EuHP's statutes, its primary objective was to ensure the quality of the product itself as well as of installation, service and training. EuHP has laid down its own technical standards and also required compliance with the European norms (EN) for the product.

The other stated objects of EuHP included:

- promotion of research and technical development,

- promotion of the use of district heating,

- participation in environmental and standardisation work,

- providing technical assistance and advice.

The moving force behind EuHP was ABB, which effectively controlled the organisation and provided its staff. Originally the only members were the individual ABB companies in the sector and the three Danish producers. KWH joined EuHP somewhat later (in April 1992) and the following year Pan-Isovit also became a member. Henss/Isoplus made determined efforts (including threatening legal action on the basis that EuHP was a cartel from which it was excluded) to be admitted to EuHP from 1993 onwards and was finally allowed to join in mid-1995. Powerpipe has never been a member.

During the course of this procedure, ABB announced that it had decided to withdraw from EuHP. Løgstør terminated its membership of EuHP as of 31 December 1997. Other producers have apparently also terminated their membership. The precise status of EuHP at the time of the Decision is not known.

C. Procedure

1. The Powerpipe complaint

(20) By letter dated 18 January 1995 Powerpipe made a complaint to the Commission, the essential content of which was as follows:

- that the other manufacturers/suppliers of pre-insulated pipes, in particular ABB, Løgstør, Tarco, Starpipe, Pan-Isovit and Isoplus had formed an unlawful and clandestine cartel by which they had divided the European market amongst the participants on the basis of a quota system, agreed prices for the product and for individual projects and cooperated in manipulating the bidding procedure for individual projects so as to ensure that the contract in question was awarded to the producer designated in advance by the cartel,

- that in order to protect the cartel from competition and maintain its control of the market the above producers had taken concerted steps to damage the business of Powerpipe and/or confine its activities to the Swedish market and/or drive it out of business altogether by (inter alia) systematically luring away key management personnel and unlawfully interfering with its contractual relations with customers and suppliers.

(21) The owner of Birka (Powerpipe's parent company) had on two separate occasions in early 1994 brought the matter to the attention of ABB by writing personally to the Chairman of the Transportation Segment (see (10)) in Zürich and proposing a meeting. The latter rejected as completely unfounded the allegations of unfair and anticompetitive behaviour, and indeed declined to meet Powerpipe's owner on the grounds that his letters could be construed by the competition authorities as an attempt to induce ABB to enter into unlawful arrangements. Subsequently, Powerpipe's owner informed a member of ABB's Board of Directors of the activities of the cartel and the effects it was having on Powerpipe's business, and requested the Board of ABB to act immediately to cease the infringement. In December 1994, after Powerpipe's legal advisers had once more raised the matter with ABB, ABB's Head Office in Zürich denied emphatically that the Group was 'engaged in any concerted practices or arrangements which would distort, restrain or otherwise affect competition in the district heating and pipe systems business`. It asserted that Powerpipe's allegations as to illegal behaviour were entirely unfounded and warned that 'ABB will fiercely defend any improper action or interference with its business and seek indemnification for any damages it may suffer`.

Following this reaction from ABB, Powerpipe lodged its complaint with the Commission.

2. The investigations

(22) On 28 June 1995, acting under a Community Decision of 12 June 1995, officials of the Commission and representatives of the national competition authorities of the Member States concerned carried out simultaneous and unannounced investigations at the following undertakings or associations:

- ABB IC Møller A/S, Fredericia, Denmark,

- Dansk Rørindustrie A/S, Fredericia, Denmark,

- Løgstør Rør A/S, Løgstør, Denmark,

- Tarco Energie A/S, Fredericia, Denmark,

- European District Heating Pipe Manufacturers Association, Fredericia, Denmark,

- Dipl-Kfm Walter Henss GmbH, Rosenheim, Germany,

- Dipl-Kfm Walter Henss Fernwärmerohrleitungsbau GmbH, Berlin, Germany,

- Pan-Isovit GmbH, Speyer, Germany,

- Isoplus Fernwärmetechnik GmbH, Hohenberg, Austria,

- Oy KWH Pipe AB, Vaasa, Finland.

The investigations resulted in the Commission, obtaining a considerable volume of documentary evidence at most of the undertakings visited, including detailed notes of meetings, internal memoranda, working documents, tables and lists all of which tended to confirm the facts alleged by Powerpipe.

3. Article 11 requests

(23) On 13 March 1996 the Commission addressed requests for information under Article 11 of Regulation No 17 to ABB IC Møller, Løgstør, Tarco, Starpipe, Pan-Isovit and four individual companies of the Henss/Isoplus group. The requests required the undertakings in question to provide additional information and detailed explanations regarding the documents found at their premises during the investigations made the previous year under Article 14(3).

4. The undertakings' reactions

(24) After they had received the requests for information under Article 11, a number of the undertakings approached the Commission admitting in general terms their participation in serious violations of Article 85 of the Treaty and informing it of their intention to cooperate fully with the investigation and to provide information relating to the infringements over and above the scope of the requests for information under Article 11 (which had each been almost entirely confined to the specific documents found in the possession of the producer in question).

Most of the undertakings involved subsequently provided to the Commission, of their own volition, information and documentary evidence which not only confirmed and corroborated the evidence found during the investigation but also disclosed that the cartel had originated with market-sharing and price-fixing arrangements between the Danish producers as early as November or December 1990 and had continued to operate almost unabated for at least nine months after the date of the investigations, with additional precautions being taken in order to conceal its existence from the Commission (such as holding meetings outside the territory of the Community).

Having first, in response to the Article 11 requests, denied all knowledge of or participation in any infringement and/or declined to address the relevant issues, the Henss/Isoplus undertakings subsequently admitted limited participation (by Isoplus only) in an infringement of Article 85 and also provided certain documentary evidence.

5. The Statement of Objections

(25) In its Statement of Objections of 20 March 1997 the Commission alleged that beginning in Denmark in or about November 1990, and progressively extending first to Germany in or about October 1991 and by late 1994 to the whole of the common market the addressees had infringed Article 85(1) by participating in a clandestine cartel by which they eventually divided the European market and individual national markets amongst themselves on the basis of a quota system; had agreed prices for the products and for individual projects; had allocated individual projects to designated producers and manipulated the bidding procedure in order to ensure that the designated producer was awarded the project in question; and, in order to protect the cartel from competition, had taken concerted steps to damage Powerpipe's business, confine its activity to Sweden or force it out of business altogether.

The Statement of Objections defined the duration of the participation of the various producers as follows:

- ABB, Løgstør, Starpipe, Tarco: from November 1990 to at least March or April 1996,

- Pan-Isovit from about December 1990 up to the same time,

- Henss/Isoplus from about October 1991 up to the same time,

- KWH from about March 1995 up to the same time,

- Brugg from about August 1994 up to about the same time,

- Ke-Kelit and Sigma, from about the beginning of or early in 1995 up to the same time.

The alleged participation of Brugg, Ke-Kelit and Sigma was limited to arrangements on their respective national markets.

6. Replies to the Statement of Objections

(26) In their replies to the Statement of Objections, the majority of the producers admitted taking part in an infringement of Article 85 but with the exception of ABB (which did not contest the essential facts alleged by the Commission or its conclusions) argued that the duration of the infringement and the extent of their participation was less than alleged and denied taking part in any scheme to damage or eliminate Powerpipe.

Løgstør and Tarco claimed that rather than one continuous infringement there had been two entirely separate cartels, the first being confined to Denmark and running from the end of 1990 or beginning of 1991 to early 1993, while the second covered a wider market and had begun only in late 1994.

For its part Starpipe did not specifically address this issue but claims to have played only a minor role in attempts by ABB and Løgstør to dominate the market.

Although the Commission had alleged that the Henss/Isoplus companies formed a single undertaking, in the absence of an identified group holding company it addressed the Statement of Objections to the Henss and Isoplus companies and in the procedure Henss and Isoplus were separately represented.

Isoplus, which strongly denied that it formed a group or had any links of ownership with the Henss companies, said it took no part in any market-sharing arrangements before the end of 1994/beginning of 1995.

The two Henss companies argued that although their owner took part in occasional discussions with producers from 1991 onwards aimed at ending a price war, these were totally inconclusive until the end of 1994. If after that date there had been a cartel in which the principal owner of Henss was mandated by Isoplus to attend meetings on its behalf, no infringement was ever committed by the Henss companies since they were only the sales agents of Isoplus, and as such could not be a party to a 'producer cartel`: any infringement of Article 85 was the sole responsibility of Isoplus.

Pan-Isovit also insisted that whatever the contacts it may have had with other producers before the end of 1994, it did not joint the cartel before 1994/1995.

(27) KWH did not substantially contest the facts on which the Commission based its statement of objections but claimed it was coerced by ABB into joining the cartel in May (not March) 1995 and only cooperated with the cartel to avoid systematic reprisals from the other producers.

Brugg admitted a limited participation in the cartel (a role which the Statement of Objections had fully acknowledged) but only from December 1994 instead of August as alleged; it also claimed to have attended meetings to avoid eliminated from the market by its larger competitors, particularly ABB.

Ke-Kelit minimised its role and said it was presented by the others with a fait accompli and had no alternative but to accept the quota for Austria allocated to it by the others.

Sigma (which seems to equate participation in the cartel with membership of EuHP, which it did not join) said that in most cases its participation in meetings concerning Italy was limited to technical matters, and in the rare cases that anti-competitive arrangements were mooted, it had accepted no restrictions on its commercial freedom.

As regards the actions detailed in the Statement of Objections which were aimed at the elimination of Powerpipe as a competitor, apart from ABB all the producers against which the allegation was raised (which excluded Ke-Kelit or Sigma) denied taking part in or implementing any such measures. KWH argued that it came under pressure to comply with a collective boycott of Powerpipe but defied the instructions of the cartel.

D. Details of the infringement

1. The market background

(28) In 1987, just before the merger with ASEA, Brown Boveri Company, which owned the Danish producer IC Møller (later to become ABB IC Møller A/S) embarked on a strategic programme of acquisition of district heating pipe producers across Europe, including Isolrohr (now ABB Isolrohr) in Germany, Austria and Hungary and Ecopipe and Dyrotan in Scandinavia.

While Denmark was the 'home base` of the district heating industry, Germany was already the largest single national market, but by the end of the 1980s it was regarded as a mature market with few opportunities for new installations as opposed to maintenance and updating of existing district heating systems.

According to the larger producers, the district heating market in general was, at the time, characterised by strong competition which tended to drive price levels down.

ABB for its part considers that it was unfairly having to bear all the cost of industry reorganisation while the other producers obtained a 'free ride` (ABB's Article 11 Reply, p. 14). Its perception is that in the latter half of the 1980's there was irresponsible price cutting by suppliers attempting to improve their share of a market which was not expected to grow appreciably in the foreseeable future.

ABB says that restructuring was essential as there were too many small producers making poor quality pipes whose lack of durability 'undermined the economic case for district heating`: systems which did not adhere to CEN quality norms might be 10 to 20 % cheaper than approved material but lasted only ten instead of twenty years.

(29) In Germany, the German, Austrian and Swiss manufacturers set up a trade association known as BFW (Bundesverband Fernwärmeleitungen) which they claimed to group the companies which alone were qualified to meet the exacting quality standards of the German market. Producers which did not have manufacturing facilities in Germany were not permitted to join. The Danish producers (which included ABB IC Møller) were excluded, but were eager to gain greater market penetration in Germany; Løgstør states, however, that once Brown Boveri had acquired Isolrohr in 1987 it relaxed the pressure since it could now itself produce in Germany (Løgstør, Article 11 Reply, Statement II, p. 87).

Price tables produced by ABB show that the market price in Germany remained fairly stable in the period 1985 to 1990: with slight fluctuations the price level was the same at the end of this period as it had been at the beginning, while market volumes were stagnating.

The Danish market which was supplied exclusively by the four domestic producers was, however, generally considered a high-price market; the stability of price levels on the home market provided the local producers with a firm foundation for exporting to neighbouring countries.

(30) In 1988/1989, ABB initiated a series of meetings between itself, Løgstør, Tarco and Starpipe with a view to finding a 'solution` to the perceived problems of the industry (Løgstør, Article 11 Reply, Statement I, p. 72; Statement II, pp. 86 and 87).

Soon after the discussions began, market conditions changed dramatically. The opening to trade of the former Eastern bloc countries in 1989 meant a massive increase in demand: the total potential market for the West European suppliers increased from some DKK 2 500 million (ECU 315 million) in 1988 to DKK 3 500 to 3 700 million (ECU 440 to 470 million) in 1991.

All producers increased their production capacity to meet the new demand, which came particularly from the former East Germany where the Federal Government and the new Länder were investing in the replacement of sub-standard infrastructure. If the German market grew by 20 % in only one year, prices did not however increase, and according to the producers they actually fell in Germany by 10 % in 1991 compared with the previous year.

The main reasons for the continuing low level prices in Germany were identified by ABB as essentially structural, particularly:

(i) the concentration of Federal Government investment in the former East Germany;

(ii) the fact that the growth in Eastern Germany was almost exclusively project-based as opposed to replacement business: the direct customers were thus contractors (rather than the local authorities) who stimulated price competition amongst the producers in order to increase their own margins;

(iii) resort to loss-leading by producers to gain customers in a new market.

In addition the shift to the public works tendering procedure as the basis of allocation for most projects may have led to greater competition between the producers.

2. The Danish cartel

(a) The quota scheme and price fixing

(31) Although as early as 30 October 1989 ABB (Appendix X1 to the Statement of Objections (6*)) had assessed a number of possibilities including (1) an offer by Løgstør to confine its activities to Denmark, Germany, Finland and Sweden and (2) a 'peace agreement` in Denmark covering all four producers with a freeze on market shares, the first clearly-defined market-sharing arrangements of which the Commission is apprised came into effect for the year 1991.

Agreement was reached between the four Danish producers on the basic principles for general cooperation on their domestic market at a meeting in Jutland at the end of 1990. At the time imports from Germany into Denmark were negligible. The participants were all senior company officers holding the rank of managing director or above (ABB's Article 11 Reply, p. 49; Løgstør, Article 11, Reply, Statement I, p. 72; Tarco statement of 26 April 1996, p. 2).

One of the first actions was to coordinate a price increase which was due to come into effect in Denmark in two steps totalling 10 to 12 % (there were different dates for the different producers) and on export markets between 6 and 10 % (Appendix 19).

To finalise the detailed terms of the agreement, which was to include a quota and customer allocation system, there followed several more meetings: the managing directors (who adopted the sobriquet 'the Popes`) met on 16 January 1991.

(32) Quotas - supposed to be valid for the next two years, 1991 and 1992 - were agreed in the 16 January meeting but were modified two months later (on 4 March 1991) to give ABB and Løgstør a slightly larger allocation.

The quotas definitively agreed on 4 March were:

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The basic principle on which the market-sharing system for Denmark was based was the observance of 'established customer` relationships: each supplier kept its existing customers and there was to be no aggressive targeting of another producer's customers.

The quota scheme agreed by the managing directors was implemented and monitored by the lower-tier group of sales managers (the 'Sales` or 'Contact` group) which met once (per Tarco) or even twice (per ABB) a month.

The managing directors met about every three months to resolve difficulties or disputes.

(b) The operation of the cartel

(33) A retired business executive with close personal connections to ABB who had formerly been on the Board of IC Møller was engaged as a consultant to act as the 'coordinator` of the cartel.

The Contact Group, which allocated the business amongst the cartel members, maintained a data base of projects and customers on a lap top computer. It was decided in advance who was going to 'win` the contract in question. For each project, the 'favourite` (that is, the firm to which the contract was assigned) informed the other participants of the price which it intended to quote and they then submitted tenders at a higher price in order to 'protect` the supplier designated by the cartel.

Usually the project was allocated by the cartel to the customer's traditional supplier. Denmark being a mature market, the majority of the contracts are for direct sales to existing customers. The 20 to 30 'new` projects put out for tender each year (with a value ranging from DKK 500 000 to DKK 30 million) were assigned among the four producers so as to ensure that their total sales were in line with the agreed quotas.

The market-sharing arrangements in Denmark was supported by a compensation scheme. The auditors of each producer certified the total sales of pipes during the year, and the certificates were then exchanged among the cartel participants.

(34) At the end of 1990, the four Danish producers had concerted on increases in their domestic and export price lists as well as on the timing and the stages of the increases which varied from producer to producer (see p. (31)).

To facilitate the operation of the scheme, the producers exchanged their individual price lists, which ABB compiled into a single reference document on 23 January 1991. Later on, in March 1991, the amount of discounts from listed prices was agreed and the agreement was implemented by the sales managers issuing instructions to their sales personnel showing the scale of permitted rebates: compliance was ensured by the producers' exchanging copies of these internal instructions (Tarco statement, p. 3).

Price increases were agreed from time to time. In the autumn of 1991 the four Danish-based producers discussed their annual list price increases for both Denmark and for export. By October, the two German producers joined them in regular meetings (point 41). As a result, an agreement which included Pan-Isovit and Henss/Isoplus was reached to raise prices outside Denmark by about 6 to 8 % with effect from 1 January 1992 (ABB's Article 11 Reply, pp. 18 and 19; Løgstør Reply to Statement of Objections, pp. 30 to 31).

(35) During the first year of the Danish quota scheme (1991), ABB was on target but Løgstør took significant market share from the two smaller producers (Appendix 22). Any dissatisfaction on the part of the latter was muted, since prices had gone up and all producers had seen a substantial rise in earnings. In any case, according to Tarco, the compensation mechanism applied.

There is no dispute that the compensation mechanism was operated at the end of 1991 (there is considerable documented evidence of the calculations) but the exact details of how compensation was paid are unclear. Tarco (the main beneficiary of compensation) has stated that cash was paid, the transfer being accounted for in the company books by the issuing of invoices for non-existent deliveries of pipes (Tarco's Statement, p. 4; Reply to second Article 11 request, p. 1). Løgstør strongly denies this version of events and claims that Tarco's demand (for some DKK 4,5 million) was settled by (a) taking into account orders for plastic covers and other materials which Løgstør had already placed during the year with Tarco and which gave that company a positive contribution and (b) its relinquishment in favour of Tarco of its share in a joint project in Iceland (Løgstør reply to Article 11 request of 26 August 1997).

Whatever the precise procedure for settling compensation had been in 1991, it was agreed that for 1992 a new system would apply: surplus market share would be 'rolled over` and re-assigned to the producers who were below their allocated quota.

(36) Although the quotas agreed for Denmark in March 1991 had been intended to apply for two years (1991 and 1992), they were renegotiated after only nine months.

In a series of meetings at the end of 1991 and beginning of 1992, a new market allocation was agreed to run for 1992 and 1993.

The new quotas for Denmark were:

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It is not clear whether achieved market shares in 1992 were in line with targets (Løgstør says its share was close to 35 % but its own internal Strategic Plan for 1994 to 1997 records its 1992 share as 29,5 %; see also Appendices 24 and 49). It was however expected that Løgstør would be substantially above quota for 1993, owing in part to its introduction, despite difficulties in getting approval in EuHP, of the lower-cost continuous production process.

In late 1992 and early 1993 Løgstør was demanding that its improved performance and potential be formally recognised by the attribution of a higher quota (this would free it from liability to compensate the others), which led to ABB offering it 1,5 % from its own share and another 1 % to be divided between the two smaller producers, who predictably demurred.

(37) Løgstør claims (Reply to Statement of Objections, p. 22) that already in late 1992 it threatened to leave the cartel unless it was given a higher quota. It was intended that the market shares in Denmark for 1993 should remain the same as for 1992 (Annex 8 to ABB's Article 11 Reply). Whether or not Løgstør made such a threat, the fact is that it remained in the cartel (it claims, however, to have been forced into doing so by ABB: Reply to Statement of Objections, p. 24). In March 1993 Løgstør was still demanding a new quota of 34 %, while ABB was accusing it of breaking the agreement by 'dumping` the price level in Denmark.

Relations between the Danish producers at the end of 1992 and beginning of 1993 were complicated by two additional factors:

- a demand by ABB for a shareholding of up to 10 % in Løgstør,

- increasingly insistent pressure from Henss/Isoplus and Pan-Isovit to be allocated a share of the Danish market.

Whatever disagreements may have arisen between the producers at the time, Løgstør itself admits that 'the coordination in early 1993 was mainly based on an understanding of respect for traditional customer relationships`. (Reply to Statement of Objections, p. 23).

The Commission has obtained from Tarco a detailed table (dated 25 March 1993) of projects for 1993, showing not only the successful bidder and the price for tenders already awarded for the year, but also the 'expected supplier` and 'expected price` for procedures that were still open and for projects that were likely to be announced. The above data was collated in connection with the exercise described in point 33 and shows that at that date the cartel was still very much in operation (Appendix 23).

Since spring is the 'high season` when most tenders are being awarded this meant that the majority of the business for the year had already been allocated by this time.

It is accepted, however, by the Commission that from about March-April 1993 prices for new business in Denmark began to fall. There where also examples later in the year where the 'traditional customer` understanding for Denmark broke down.

There were mutual recriminations: Løgstør claims that ABB engineered the whole situation in order to discipline the other producers and force them to continue in the cartel. It says it was even told by ABB that the latter had allocated a credit line of DKK 50 million to eliminating Løgstør in a price war (Løgstør Reply to Statement of Objections, pp. 22 to 24, 32, 40 and 42). ABB, however, attributed the blame to Løgstør's demands for an increase in its quota, a view apparently shared by Henss which judged (Minute of Beiratsitzung of 3 February 1994, included in Isoplus Article 11 correspondence) that Løgstør had taken a major 'traditional customer` from ABB at low prices in order to persuade ABB to give up market share in favour of Løgstør.

On either version of events, the price fall in Denmark was the result of a trial of strength inside the cartel, not of its abandonment. Indeed at the very same time, Løgstør and ABB were working towards an 'overall solution` and agreements were being made for Germany (see (49) to (51)). Discussions to resolve the disagreements on the Danish market were combined with those for Germany and formed part of a single process (ABB's Article 11 Reply, p. 59).

3. Extension to other markets

(38) The cooperation between the Danish producers had not been confined to their national market: the first concerted price increase applied also to export markets, effective from 1 January 1991. In Germany, ABB's increase was 7 %, Tarco and Løgstør 10 % and Starpipe 6 % as of 1 December 1990 (Appendix 19).

Further, at the same time (late 1990, early 1991) as the Danish producers were finalising their secret arrangements to control the market in Denmark, initiatives had already begun to extend the cooperation on market-sharing to other markets and to bring in the German producers.

Such moves were at first relatively fragmented. ABB - which had taken over Isolrohr in 1987 and so had a foot in both German and Danish camps - was involved in bilateral discussions with Pan-Isovit in December 1990 to January 1991 on forming an 'informal strategic alliance` (Appendices 30 and 31, ABB's Article 11 Reply, pp 7-9). These two producers together supplied the major part of the German market at the time: Isoplus, which had only recently bought Isolrohr's Austrian factory, was still in the process of being set up as a serious contender to enter the German market, with Henss as its commercial agents.

There was no question at this time of a formal alliance being formed between all four Danish producers and Pan-Isovit: the latter regarded Løgstør, Tarco and Starpipe as 'pirates` who had attempted to seize market share in Germany by low prices. ABB as the owner of Isolrohr in Germany was its natural partner. It no doubt served ABB's strategic interest to have an understanding with both sides.

In addition to technical cooperation, the discussions between ABB and Pan-Isovit covered the framework for a division of the market between them as the two largest producers supplying in Germany. The underlying idea was to divide client areas and to maintain existing market shares.

(39) It was agreed that a structure would be set up, involving the formation of a 'Board Group` and a 'Strategy Group`, to coordinate the activities of the two producers and ensure their joint domination of the German market.

Pan-Isovit also expressed its support for the 6 to 8 % price increases which ABB (and the Danish producers) had recently agreed on their export markets, including Germany.

According to ABB, Pan-Isovit subsequently had reservations regarding the technical cooperation proposed and, after it had also declined an invitation to join EuHP (7), the bilateral discussions on market cooperation lapsed in April 1991.

(40) The arrangements between the Danish producers extended to Italy, even if in March 1991 Tarco was reporting that on price ABB IC Møller and Løgstør were 'not behaving entirely in accordance with the agreements for the Italian market`: ABB had only applied the 6 % increase in the second half of the year, while Løgstør had increased its list prices but simultaneously given rebates which kept prices at 1990 levels (Appendix 33).

As regards the allocation of projects, a major contract in Turin, which was regarded by the industry as a 'flagship` for the market, was the subject of a 'one for all and all for one` agreement in October 1991 by which the producer winning the contract would share it with the others in certain agreed proportions. (In the event, the agreement was not applied because an outsider put in the lowest bid: ABB's Article Reply, pp. 53 to 55; Appendix 32).

Pan-Isovit was also involved in discussions with its Danish competitors on sharing the Turin project in July 1991. There is some indication that reciprocity was already a feature of the market: ABB is reported as having told other participants in a meeting that Løgstør had given up the Turin project in favour of IC Møller 'against some other international compensation` (Additional documents, Nos 1 to 4).

(41) By the autumn of 1991, the institutionalised cooperation between the Danish producers was being extended on a more formal basis to the German market, and from October the two German producers Pan-Isovit and Henss/Isoplus (the latter now established in Germany) joined them in the collusion. From this time on, regular meetings were held between all six main suppliers to the German market with the aim of improving the low price levels (ABB's Article 11 Reply, pp. 31 and 51).

(42) Meetings of the managing directors (or equivalent) are known to have been held on at least the following occasions:

- 9 (or 10) October 1991,

- 10 December 1991,

- 19 February 1992,

- 6 March 1992,

- 1 April 1992,

- 30 June 1992,

- 11 August 1992,

- 11 November 1992,

- 20 April 1993,

- 30 June 1993,

- 18 (or 19) August 1993,

- 8 (or 9) September 1993.

(43) There had been obvious tensions between the two national groups: Henss/Isoplus accuses the Danish producers of using the profits generated by the well-established cartel on their local market to finance a 'price war` designed to gain market share in Germany for themselves at the expense of Henss/Isoplus.

At this time the collusion between the producers outside Denmark had not reached the level of sophistication that was to be achieved three years later. The participants had different objectives in seeking an overall dispensation on the market. ABB's interest was a grand plan for securing strategic control of the industry, while Tarco's aggressive pricing in Germany had provoked the German producers into prospecting the Danish market, to the displeasure of Løgstør and Starpipe. The German companies were, however, clearly interested in reaching a market share agreement in order to protect their position against the Danish producers.

ABB considered it folly for the producers to fight each other on price when the market was in rapid expansion, and regarded it as vital for action to be taken at top level (Appendix 35).

(44) ABB was pressing for an agreement on prices in Germany, which would serve the dual purpose of reining in the activities of Tarco and allowing ABB to raise its price to its agents. In a meeting in Frankfurt on 9 or 10 October 1991, attended by all six producers, an increase of around 6 % in list prices was agreed. (Only the previous day, the Danish producers had agreed that the managing directors would discuss the situation in Germany and other export markets: ABB's Article 11 Reply, p. 51).

The price agreement was confirmed in a later meeting in Hamburg on 10 December 1991, the upshot being the following:

- all producers were to implement an immediate 6 % price rise,

- a 'hot line` was to be established between the participants,

- further meetings were to be held once a month,

- a minimum price list was to be prepared by 13 January 1992.

According to ABB, the participants also discussed whether market-share figures should be exchanged (Appendix 36, ABB's Article 11, Reply, pp. 18 and 19).

(45) Over the next year meetings at senior level were held at fairly regular intervals 'to discuss issues of common interest` (as it was put in one of the invitations) (8).

The coordinator of the Danish cartel also acted as an 'honest broker` for the Germany group with the function of summoning the meetings and facilitating agreement in order to raise price levels.

It may well be that lower-level meetings of managers for Germany were also held but no details are available (see (69)).

As previously agreed, a price list was drafted by an employee of ABB IC Møller based on information provided by Henss and on ABB's 1992 'K3` price list. (Løgstør describes ABB and Henss as the 'driving force` in the German round: Reply to Statement of Objections, p. 28). The list in question was intended to be used as a guide for setting individual price levels as part of the plan of raising overall prices. It was to be distributed by 10 April 1992 at the latest.

(46) At this stage, no final agreement had apparently yet been reached on market shares, and complex negotiations took place on the division of the German market between the two national groups. The Commission during its investigations obtained hand-written notes of some of these meetings made by Tarco and Starpipe (Appendices 37, 44 and 45).

The producers did decide to exchange details of market shares (see (44) as can be seen from a note made by Starpipe of one of the earlier meetings (Appendix 37). Against the name of each of the six participants, it gives under the heading 'previous` (tidligere) the value of its sales and a corresponding percentage share of the market, and under the heading 'new` (ny), a different set of percentages. The year in question appears to be 1991 but is not possible to conclude with certainty whether the 'new` percentages given are targets or simply estimates of sales. The German producers are said to have wanted sales of DEM 130 million (Henss valued the total market at DEM 180 million) and a price increase of 15 %.

In a later meeting held in Brussels in November 1992, a table was drawn up of the producers' sales and market shares in Germany for that year, presumably as a step towards a quota agreement (Appendix 44). The Danish producers Løgstør, Tarco and Starpipe were demanding 40 % of the German market between them.

Løgstør says (Statement I, p. 73) that during 1991 and 1992, despite distrust between the manufacturers, an effort was made to implement a Danish Model in several countries, including Germany.

The distribution of market shares was based on the various producers' achieved market shares in the preceding two years 'together with consideration about the size of the market share company would be able to gain on their own`. (Løgstør adds that the German manufacturers were not satisfied with the way in which the market shares were distributed, and the efforts were a failure).

By the beginning of 1993, the major producers were looking to an overall settlement in the industry, and indeed ABB was already adumbrating (Appendix 48) a 'European solution` covering Denmark, Sweden, Finland, Germany, Austria, the Netherlands, France and Italy (together referred to as the 'old West European domestic heating market`), under which it would have a 42 % market share and Løgstør 25 %. With a market share between them of 67 %, the two producers would effectively control the whole market.

ABB believed that its situation could be consolidated by its taking a shareholding of up to 10 % in Løgstør, in return for which it would secure an increased quota for Løgstør within the cartel. (This idea never in fact became a reality).

(47) By this time, the two principal markets - Germany and Denmark - were being regularly discussed in the same forum (ABB's Article 11 Reply pp. 58 and 59).

ABB's tactics to secure agreement were characterised by Løgstør (Reply to Statement of Objections, p. 37) as a 'carrot and stick` approach - holding out inducements while making threats if its proposals were not accepted.

The Commission fully accepts that during much of the period in question and despite the agreement reached to increase prices as of 1 January 1992 general price levels in Germany remained low, as each producer wanted a higher market share.

The German producers had tried to induce the four Danish suppliers to sell in Germany at the same prices as those they could obtain on their home market. For their part, the Danish producers had in early 1993 attempted to secure the agreement of Isoplus to stay out of Denmark, apparently as a quid pro quo for Tarco and Starpipe's abandoning or refraining from entering the Austrian market.

(48) ABB continued to take the leading role. Its policy was to consolidate its position as market leader via the cartel, in combination with a strategic alliance with at least one of its competitors. Apart from its demanding a shareholding in Løgstør (and offering it an increased quota within the cartel) ABB attempted - unsuccessfully - via agents to buy out Isoplus and later warned it to stay out of the Danish market (Isoplus Statement of 10 October 1996, p. 23).

In mid-1993 Pan-Isovit and Isoplus lost patience with the negotiations and in order to obtain more 'leverage` decided to enter the Danish market. They argue that this foray was proof that no cartel existed but it is clear it was a negotiating ploy to persuade the Danish producers to increase their prices in Germany.

Thus the Henss/Isoplus plan for Denmark was to obtain individual business only by agreement with ABB or Løgstør: the idea was to manifest 'a certain solidarity` with ABB but to wait for Løgstør to approach it (Isoplus 'Beiratsitzung` minute, see (37).

(49) Whatever their disagreements, and however robust the nature of their diplomacy, the six producers were still working towards a resolution of their differences and the reaching of a settlement.

Representatives of the major producers again met in Hamburg on 20 April 1993 to restart progress towards a common price list and to agree a common price increase for Germany (ABB's Article 11 Reply, pp 32 and 33). Løgstør had summoned the meeting in its capacity as the Chairman of the Danish producers' association.

ABB says, however, that Løgstør's representative was apparently unable to attend the meeting, a statement which Løgstør echoes in its reply to the Statement of Objections (p. 35): the information which it had earlier provided to the Commission under Article 11 indicates nonetheless that its sales director attended a 'European meeting` on that date.

The day before the meeting, Tarco had distributed to the other Danish producers tables (Appendix 49) showing the sales and market shares of all the suppliers (including the German producers) in each national market for 1992, the information having been compiled from information provided by the sales managers in an earlier meeting. On Tarco's own admission (Reply to first Article 11 letter, p. 8) its purpose was to assist in calculating the overall European market (presumably for 1993); the connection of this exercise with some market-sharing scheme cannot be contested.

On 30 June 1993 a meeting in Copenhagen attended as usual by the managing directors of ABB, Løgstør, Tarco, Starpipe, Isoplus and Pan-Isovit, again discussed market-sharing arrangements for Germany, including the proposed 60/40 split. According to ABB's note of only a few days later (Appendix 48), this division was 'almost agreed` but Løgstør says it was unacceptable to the German producers. What the six definitively agreed was to commission an independent audit of 1992 sales which would serve as the basis for an agreement on market quotas in Germany.

The extension of discussions from attempts to create a common price list to a 'more structured attempt at market-sharing` from June 1993 resulted from a realisation that attempts to raise prices without a market-sharing or quota agreement would always fail (ABB's Article 11 Reply, p. 35).

ABB's preparatory note for a meeting in Zurich on 5 and 6 July 1993 between its senior executives and those from Løgstør predicted with some confidence that a comprehensive European solution would soon be reached (Appendix 48).

(50) As part of the moves towards a global settlement, Løgstør promised the parent company of Pan-Isovit in a meeting on 18 August 1993 (Appendix 52) that it would combine with ABB to bring Tarco 'under control` in Denmark and Germany. (Løgstør was said to be interested in principle in a price agreement in Germany provided it was given the right quota.)

Following the audit (carried out by Swiss accountants), which ascertained the figures for each producer's 1992 revenue (Appendix 53), the producers met in Zurich on 18 or 19 August 1993 and reached agreement on the following points:

- the market shares achieved in Germany for 1992 were to be maintained for 1994 with slight adjustments,

- a new uniform price list was to be drafted,

- Pan-Isovit was to prepare a scheme for sanctions in case of deviation from agreed quotas. (ABB's Article 11 Reply, pp. 34 and 35).

(51) The agreed 'targets` for the German market for 1994 were:

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The solution was in effect to allocate to the three Danish producers a 33 % quota as the cartel coordinator had earlier suggested.

Tarco is said to have had 'reservations` as it wanted another 1 % added to its quota.

Further meetings on the quota system, including discussions about machinery for fining those who exceeded the quota, were held on 8 or 9 September 1993 in Copenhagen and Frankfurt.

A general consensus appears to have emerged. Tarco's share was increased to 17,7 % (Annex 7 to Løgstør's Reply to the Statement of Objections) and a penalty scheme was devised, an initiative which Løgstør attributes to ABB 'with the strong support of Henss`.

The plan, due to come into effect on 15 September 1993, was to have involved monthly reporting by each producer and quarterly audits of their return by the firm of Swiss accountants which had conducted the earlier audit. Fines for exceeding quota were to be paid into the Swiss bank account of a new trade association which was to be set up ostensibly for the promotion of district heating.

The uniform price list was to be used as a target to bring general price levels up, in progressive steps, by some 25 % over six months.

(52) Is was envisaged that the agreement was to be put in writing and signed, but this final step was apparently never taken. Løgstør claims it refused to sign because it never wanted to make any agreement for Germany, but this assertion leaves unexplained Løgstør's willing participation in the audit by the Swiss accountants and is contrary to Pan-Isovit's assessment that Løgstør was interested in a quota system (Appendix 52).

The other producers were not willing to go ahead on the basis of handshakes.

Løgstør claims that in a meeting in Denmark on 29 September 1993 it was pressurised by ABB to sign up to the compensation scheme, this being demanded by ABB, Henss/Isoplus and Pan-Isovit as the condition for cooperation in Germany.

Its refusal to sign (says Løgstør) provoked a strong negative and personal reaction from ABB. In a high-level meeting in Copenhagen - which Løgstør places on 2 December - the then Chairman of ABB's Transportation Segment (whose active role in promoting the cartel is amply documented) allegedly criticised Løgstør executives in immoderate language for their perceived failure to cooperate (Løgstør Reply to Statement of Objections, page 39). ABB has not disputed Løgstør's graphic account of this incident.

Although in terms of volume the market continued to expand, particularly in Germany, the producers say that a 'price war` broke out again: price levels in the major markets indeed fell by 20 % in a few months. ABB states that there was a 'breakdown in confidence` which effectively ended the attempts to seek a comprehensive settlement of the German market. However, the producers continued to meet, even if for some time the multilateral meetings were replaced by bilateral and trilateral contracts. It is most probable that such contacts involved efforts by ABB to broker a new dispensation to restore 'order` in the market (see Isoplus Article 11 Reply, p. 25).

Indeed, as early as 21 December 1993 Løgstør's Chairman was arranging a meeting with ABB and the cartel coordinator for 28 January 1994 (Appendix X1): Løgstør's list of contacts with competitors, supplied under Article 11, shows the scheduled meeting took place on that date.

Further bilateral meetings took place between ABB and Løgstør (on 23 February and 11 March 1994) Løgstør and Tarco (8 January and 19 March 1994) and Tarco and Pan-Isovit (22 February 1994). ABB says there were also a number of bilateral meetings between ABB managers and representatives from Pan-Isovit, Tarco and Henss (ABB's Article 11 Reply, p. 44). However, apart from Løgstør's claim that Tarco had unsuccessfully demanded compensation from Løgstør of DKK 16 million (its 1993 deficit) as the pre-condition for 'peace talks` (Reply to Statement of Objections, p. 25) no details are available.

4. The Europe-wide cartel from 1994

(a) Initial contacts

(53) Plenary meetings of the six producers restarted with the participation of Managing Directors and Sales Managers of 7 March, 15 April and 3 May 1994.

ABB explains that the 'price war` of late 1993 and early 1994 had resulted in such heavy losses for nearly all the district heating suppliers that the smaller producers amongst them were forced to seek a concerted effort to return the price level to the status quo ante bellum. (ABB's Article 11 Reply, p. 62).

Løgstør's assessment is that the producers had 'spent the whole of 1993 trying to get in position to tackle a new situation like the one that used to rule in Denmark . . . . Several agreements were made but never carried through because the main principle was that those who didn't speak, disagreed.` During 1994, however, with a change in managing directors at many of the producers, a new climate prevailed: 'ABB put a lot of effort into this project, and all the Danish manufacturers backed the attempt` (Løgstør Article 11 Reply, Statement I, p 74, and Appendix 55).

(54) The meetings in March and April involved discussions on price increases but seem to have been inconclusive. A letter from Løgstør to Ke-Kelit of 17 March 1994 refers to meetings with 'colleagues` to discuss the price situation but was not optimistic about finding a solution until later in the year: Appendix 55. However, following the meeting on 3 May 1994 at the Hanover Trade Fair attended by ABB, Henss, Pan-Isovit and Løgstør a price list was drawn up which was to be used as the basis for all supplies to the German market (Appendix 56; ABB's Article 11 Reply pp. 42 and 43).

It would seem that the common price list was immediately put into use to coordinate price offers for individual projects, although its employment was problematic. The invitation sent out on 10 June 1994 for a directors' meeting on 18 August 1994 refers to the 'list of 9 May` stating that as it had in some respects been incomplete, having led to 'confrontation an differences of interpretation` when offers were being compared. The cartel coordinator therefore attached a modified and extended price list to the invitation (Appendix 56).

(55) Although Henss and Isoplus in their replies under Article 11 of Regulation No 17 originally denied all knowledge of such a price list, Henss later claimed that the list was distributed by other producers as part of a plan of force Isoplus out of Denmark, although precisely how it was intended to produce that result was not explained.

Tarco states that is was in fact Henss which drew up the list, possibly in collaboration with ABB's adviser who acted as the coordinator of the cartel (Article 11 Reply, pp. 8 and 9).

Løgstør also attributes the authorship of the list to Henss and the cartel coordinator (Reply to Statement of Objections, pp. 41 and 42). Their account of the provenance of the price list is corroborated by other documents, the most striking being a fax of 28 June 1994 from the executive vice-president of ABB who headed the Transportation Segment in Zürich (see points 10, 24, 52) to the newly-appointed managing director of ABB IC Møller in Denmark endorsing the latter's instructions to the cartel coordinator and confirming that he (the executive vice-president) had called both the coordinator and Henss 'to state that your instructions had to be followed. (The coordinator) expressed that he had now clearly understood the message and is setting up a meeting in Germany in August` (Appendix X9).

(56) The new managing director of ABB IC Møller (who reported direct to the executive vice-president referred to above) regarded it as his first priority to bring order to the district heating market in Western Europe (KWH Statement of 29 November 1996, p. 6).

The meeting of 18 August 1994 (see ABB's Article 11 Reply, pp. 43-44) on the German market was in fact held in Copenhagen and was attended by senior representatives of the six major firms plus (for the first time) a representative of Brugg. Brugg had not officially been invited by the coordinator but attended at the suggestion of Henss. (Brugg says that it had been given to understand that if it did not align itself with the cartel it might suffer reprisals via its main customers).

The meeting considered proposals to bring up price levels in Germany, and it seems likely that it was agreed to prepare a new common price list and to limit discounts to an agreed level (15 % or 30 %).

At this time KWH was a member of EuHP but had not yet been admitted to the cartel and was not present. In any case it had almost no presence in Germany. At an EuHP technical meeting a few days later (on 23 August) its representative became aware of some understanding between the other participants, and wrote in his diary 'the boys met, it seems as if the market has been agreed?` (translated from original Finnish: KWH Statement, p. 7; KWH Schedule B.2.b; Appendix 185).

Løgstør attempts to minimise its role and says it 'kept a low profile` in the meetings concerning Germany as it had no major interest in that market. It says that it was only because of the adverse effects of the price war that it was compelled to contact the cartel coordinator at the end of June and sue for peace. Indeed it even claimed in its reply to the Statement of Objections (p. 42) not to have attended the meeting of 18 August, but this assertion is refuted by the information provided by Løgstør itself under Article 11, showing that its sales director had attended the meeting in question on that date. (In fact Løgstør had already been actively involved in the initial contacts in March-April and on its own admission attended the 3 May meeting in Hannover and received the price list which was subsequently drawn up and distributed by Henss and the cartel coordinator).

(b) Sharing of the European market: basic agreement on quotas

(57) Following their initiatives on the crucial German market, the managing directors of ABB, Løgstør, Tarco, Starpipe, Pan-isovit and Henss/Isoplus did not take long to reach an overall settlement on the sharing of the European market in the autumn of 1994. (The aspirations of KWH, whose activities were mainly in Scandinavia and Eastern European, appear to have been accommodated somewhat later).

This market-sharing agreement covered not only the Community but also Switzerland, the non-member Nordic countries, the Baltic republics and several Eastern Europe countries.

Quotas (in %) for the total market were agreed for each producer. The value of the total market (in DKK) was calculated and the percentage Europe-wide quotas of each producer were translated into money terms. Individual national markets were then divided accordingly with the producers having different quotas in each.

(58) The fundamental aim of the scheme was to raise price levels. It was realised by all that this objective could only be achieved by an agreement on quotas. Tarco states that the purpose of the agreement 'was to increase prices by approximately 30 to 35 % within a period of two years. It was expected there would be gradual increases every quarter . . . . Not all companies were supposed to increase their prices but the same percentage at the same time. The usual practice was to have a 6 to 8 % increase per quarter depending on the individual company price list` (Tarco's Reply to second Article 11 request, p. 18).

Pan-Isovit's notes setting out details of the scheme (Appendix 60) confirm that the plan was to increase prices by at least 25 % in 1995.

The minutes of an ABB Business Group meeting held on 30 September 1994 refer to the wish of ABB and its competitors to get prices up and continues: 'Relative price increases of 10 % and another 10 % to cover the increase of material prices can be expected` (Appendix 61).

(59) From the version of evens given by the different producers (such as ABB's Article 11 Reply, pp. 62 to 65; Løgstør's Reply to Statement of Objections, pp. 43 to 45. Tarco's Reply to first Article 11 request, p. 5; Tarco's letter of 10 July 1996; Pan-Isovit's Article 11 Reply, pp. 54 and 55) it appears that there was first a meeting of the four Danish producers in Billund on 16 September 1994, when ABB explained its proposal for a new European arrangement.

After that there were plenary 'strategic` meetings of all six producers on 30 September, 12 October and 16 November 1994 in which the overall quotas for the European market were negotiated and settled in principle.

At the first meeting on 30 September in which ABB's proposals were discussed it was decided that ABB should visit all the participants and also seek to bring KWH and Brugg formally into the European quota scheme.

It was at this meeting that agreement was reached in principle that an overall quota system be set up for Scandinavia, the rest of Western Europe and Eastern Europe with detailed figures for each national market to be agreed and passed to the lower level marketing meetings for implementation (ABB's Article 11 Reply, pp. 62 and 63).

ABB says that the global figures for the European-wide quotas were agreed in the (third) strategic meeting on 16 November (ABB's Article 11 Reply, p. 64).

(60) Tables found at Pan-Isovit (Appendix V to Article 11 request to Pan-Isovit; Appendix 60) indicate that at this stage the basic quotas ('earlier decisions`) were agreed as follows:

>TABLE>

Pan-Isovit's note (Appendix 60) which sets out the details of the cartel agreement shows the scheme as coming into effect as from 1 October 1994.

(61) KWH and Brugg were not present at the meeting of 16 November but, since ABB was optimistic that they could be accommodated in the scheme, it was mandated by the cartel to work out a final agreement with these two producers and report back n early 1995 (Løgstør's Reply to Statement of Objections, p. 45).

Brugg - which had been in the Copenhagen meeting on 18 August and attended the local meetings for Germany from December 1994 - seems to have been accommodated first: it says that it was told in December that there was a quota agreement for Germany but as yet it did not have a specific allocation. Not long afterwards (it says) it was informed by ABB that it had been given its own quota (corresponding to 4 % in Germany) by the directors' club (Article 11 Reply, p. 6). Løgstør (Statement I, p. 74; Reply to Statement of Objections, p. 45) attributes a somewhat more active role to Brugg: it says that Brugg had demanded a 2 % share of the market overall and 4 % of the German market. Brugg also wanted flexible pipes to be excluded from the agreement and a guarantee that there would be no new competitors in Switzerland. Its conditions seem to have been accepted; at any rate, only those projects in which Brugg was competing with the other pipe producers counted towards its quota.

(62) According to KWH, it came under sustained pressure from the other producers either to quit the market entirely or to come to an accommodation with the cartel. This may well be true, but there is also considerable evidence suggesting that KWH was hoping to secure a larger share of the market than the others were willing to give it. KWH was also prepared to quit the district-heating market entirely if it were given a five-year guarantee that the others would buy pipes from it, and detailed discussions took place on this proposal.

KWH was drawn into the scheme of collusion earlier than it admits. At the end of 1994 it had already met ABB's Finnish subsidiary 'regarding expectations for market volume` (ABB's Supplementary Article 11 Reply, p. 26).

The managing director of KWH Pipe Oy (who was also Chairman of KWH Tech) attended a meeting with ABB on 19 January 1995 in Copenhagen at which on its own admission 'market trends` were discussed. (KWH's Article 11 Reply, p. 9).

KWH first attended the Danish contact group (see (77) on 4 April 1995 (ABB's Supplementary Reply, p. 7).

The evidence found at Pan-Isovit (Appendix 60) indicates that by this time KWH had already made known its aspirations for an allocation under the quota system. KWH also admits attending a 'working dinner` on 14 March 1995 with the managing director of ABB IC Møller to discuss market shares (KWH Statement, p. 8; KWH Schedule B.2.a.).

According to the detailed note made by Pan-Isovit's managing director of a Directors' Club meeting in March or April 1995 (Appendix 60) the initial reaction to KWH's demands for quotas in various markets was 'Can't do!`

(63) In late April 1995 KWH took the decision to join the directors' club (KWH Statement, p. 10). As a result, ABB was able to produce a definitive table of market shares for each national market, including the Baltic and East European countries. The first meeting which KWH attended was on 5 May. At, or just before, that meeting its quota in the cartel was doubled from the proposed DKK 76 million to DKK 144 million (3,8 %).

The Commission has obtained from both Tarco (Appendix 62) and KWH (Appendix 186) the table setting out the quotas for each country in percentage and money value based on an estimated total market of DKK 3 794 million (ECU 513 million).

It was approved at the directors' meeting in Budapest on 5 May 1995.

(64) The principle underlying the quota system was that, in future, market share could only be 'bought`. Løgstør explains (Statement II, p. 90) that ABB insisted on a 'deadlock` in the market: market shares were to be frozen. If a producer wanted to increase its overall market share, it could do so only via the acquisition of a competitor. This is corroborated by a Pan-Isovit note: 'Market shares can only be bought - not taken` (Appendix 60).

Those producers whose market shares in particular countries were considered too low were encouraged or required to withdraw from those markets because their marginal commercial presence tended to push down price levels. (Appendices 63, 64: Løgstør Statement II, p. 90; Starpipe's Article 11 Reply, sub K(g); Pan-Isovit Article 11 Reply, pp. 28-32). In return for giving up this business, they received compensation in the form of an increase of their quota allocation in other markets in which they were already present.

In practice, the 'swap deals` were made on a bilateral basis. Pan-Isovit left the Netherlands and was compensated in Italy; Isoplus was the other way round.

(65) To police the quota system, a compensation scheme was conceived, ABB says (Article 11 Reply, p. 63) that, when the arrangements were being discussed in 1994, Henss had strongly advocated a system of fines for non-compliance but agreement was not reached on this point.

Detailed notes of a directors' club meeting in March or April 1995 made by Pan-Isovit (Appendix 60) sets out the basis for a compensation mechanism which penalises 'cheating` on individual projects, namely by taking the contract from the designated favourite by undercutting the agreed price:

'- min price level - not to go under in any case/any market (except when decided, e.g. Powerpipe),

- penalty if lower price in any one object/customer,

- obj/customer subtracted from market share that year (if 11 million project is taken for 8, penalty is 4).`

Tarco says, however, that the compensation system did not in fact operate at this level, namely for individual projects: the producers had in fact envisaged equalisation on a comprehensive basis to adjust for deviation from quotas. The basic principle was that at the end of the year the performance of each producer against quota was ascertained and discrepancies would be regularised either in the allocation of the following year's quotas or by payment of compensation.

(c) The European cartel structure

(i) The directors' club

(66) The pan-European cartel involved a two-tier structure on the Danish model.

The supervisory body consisting of the chairman or managing directors of the participating producers was known as the 'directors' club`.

The participants in the directors' club were:

- ABB,

- Løgstør,

- Starpipe,

- Tarco,

- Henss/Isoplus,

- Pan-Isovit,

- KWH (from 5 May 1995).

(67) Having agreed the quotas in the global market, the directors' club (now also called the 'Elephant group`) met subsequently to fix the individual market-share allocations in the different national markets, including Germany, Denmark, Austria, the Netherlands, Finland, Sweden and Italy. It was at this time (November-December 1994) that Powerpipe had brought the matter to the attention of ABB's executive committee and had been warned to refrain from making 'unjustified` allegations (Appendices 8 to 16).

The directors continued to meet at approximately monthly intervals at various locations both inside and outside the Community. KWH joined the club and attended its meetings from 5 May 1995.

The directors' club was also the forum for agreeing overall price increases.

Detailed contemporaneous notes of several meetings of the directors were found at Pan-Isovit (Appendices 60, 65 and 66).

(ii) Contact groups

(68) 'Marketing` or 'contact` groups consisting of local sales managers were set up in each important national market and were given the task of administering the cartel arrangements under the overall supervision of the directors' club. The national contact groups did not decide quotas: these were fixed for each country at the more senior level. Their task was to assign individual projects and coordinate the collusive bidding procedure.

The 'established customer` principle, which had been the basis of the Danish cartel was again employed. For most projects, the traditional supplier was designated the 'favourite` and the other producers had to either decline to bid or give a higher 'protect` quote so as to ensure that it received the contract. In the case of major projects, where there might be several suppliers, the producers which normally supplied the customer were supposed to bid and to share the contract between them.

In the case of new tenders for large projects where there was no firm existing customer relationship, the contract was allocated to one or other producer in accordance with the remainder of its agreed annual quota. Any project announced which was worth more than a specified amount had to be registered with the 'coordinator` appointed by the cartel for the market in question. In Germany this threshold was DEM 50 000.

Contact groups were set up for (at least) Germany, Denmark, Austria, Italy, Sweden, the Netherlands, the United Kingdom and Finland as well as for some non-member countries (Appendix 67). In the main, the members were the local sales managers or directors but on occasions more senior executives participated. Details of how the contact groups operated in each Member State are set out in the following section.

(d) Implementation in national markets

(i) Germany

(69) The contact group for Germany, where the market for 1995 was initially estimated at almost ECU 180 million (later revised to ECU 160 million), met every week or fortnight. Its first meeting under the new arrangements was held on 7 October 1994, the six major producers (and Brugg) having met in Copenhagen on 18 August to decide the measures which could be taken to increase the price level in Germany.

The usual participants were:

- ABB (Isolrohr),

- Løgstør,

- Tarco,

- Starpipe,

- Henss/Isoplus,

- Pan-Isovit,

- Brugg (from 7 December 1994).

(ABB's Article 11 Reply, p. 67: Tarco's Statement, p 7; Brugg's Article 11 Reply, Annex 2; Henss' Supplementary Statement, Annex 7).

The managers of the German producers had, however, already been meeting to examine individual projects in Germany from May 1994 and probably long before. ABB says (Supplementary Article 11 Reply, p 10) that in contrast to the other contact groups the German marketing group was not a new group established by the director's club, but the reconstitution of a body which had previously 'convened periodically over an extended period`. In its earlier incarnation, this group had been organised by the same retired business executive who had been engaged as the 'coordinator` of the cartel and had arranged the regular meetings of managing directors in 1991-1993 (see (33), (42) and (45)).

(70) The quotas on the German market (Appendices 62, 68 and 69) were originally:

>TABLE>

Brugg, first included among 'others` ('Sonstige`) was subsequently given a quota of 4 % in Germany or 2 % overall. (Løgstør Article 11 Reply, Statement I, p. 74; Brugg's Article 11 Reply, p. 6).

(71) Once the reconstituted German contact group was fully operational, its main function was to allocate individual projects in accordance with the 'established customer` principle and the annual quotas, and to coordinate and monitor the bidding procedure for each project to ensure that the agreement was respected. All projects worth over DEM 50 000 were to be subject to the allocation and bid-rigging procedure.

The new 'coordinator` for the German market was the managing director of ABB Isolrohr GmbH (the retired Danish executive who had previously performed this role having by this time ceased to play an active part in the cartel). The various suppliers were originally required to provide him every month with details of their turnover figures, the value of orders supplied and their offers for individual projects including those in which the bidding had not closed. Firms were also required to report all known projects during contact groups meetings. The information was kept on a data base on a portable computer and an updated list of projects was produced by ABB Isolrohr for each meeting. By January 1995 meetings were being held virtually every week. The participants had to notify ABB Isolrohr each Wednesday of the projects for which they had bid and the sum they had quoted for each. This computerised list kept by ABB indicated the value of projects, the 'favourite` (meaning the supplier designated by the cartel) and the firm to which the contract was actually awarded.

(72) This complex mechanism enabled the German Contact Group to monitor some 1 400 to 1 500 projects per year which were over the DEM 50 000 threshold. Examples of the project lists were obtained during the Article 14(3) investigations at both Henss in Berlin and Tarco, and further examples have been provided to the Commission by the latter (Appendices 68, 71, 72 and 73).

Other lists (headed 'Favorit + Angebotsumme` and 'Auftrag + Angebotsumme`) used for control purposes were maintained both for the German market as a whole and for each of the Länder (Appendices 74, 75 and 76).

Similar tables and lists relating to the allocation of projects in Germany were provided to the Commission by Henss on 10 October 1996 (Appendices 77, 77 and 79).

(73) As the basis for their pricing calculations, the members of the German Contact Group used as so-called 'Europa-Preis Liste` (also called the 'EU-list` or 'Euro price list`) which was intended to serve as a common price list for all supplies. The producers say that despite its name, it was intended for the German market only.

This Euro price list was in essence the one which had been referred to in the invitation to the Copenhagen meeting (Appendix 56) as the 'list of 9 May`, presumably enlarged and updated. By most accounts it was drawn up by ABB and Henss. As originally conceived it gave prices which were some 30 % above the then-prevailing price levels, the idea being that it should provide a target price or point of reference with the progressive reduction of discounts.

There were numerous references to this list in the documents found at various undertakings during the investigations, but it was only in April 1996 that a copy was obtained from Tarco (Appendices 80-81).

Whereas in their replies under Article 11 of Regulation No 17 in early 1996, ABB, Tarco, Starpipe and Brugg all described in some detail how it was employed, the Henss/Isoplus companies originally denied all knowledge of it and even of the German contact group (Henss' Reply to Article 11 request, pp. 14 and 15). Isoplus finally admitted the existence of the Euro price list in its Statement of 10 October 1996 (p. 26) and indeed provided a copy.

(74) Soon after the German Contact Group began to meet, it was agreed (4 November 1994) that orders taken prior to 15 October could be at Euro price list levels, minus 30 %, orders after 15 October at list-price minus 15 %, and that no discounts at all were to be granted after 1 January 1995. (ABB's Article 11 Reply, pp. 67 and 68; Appendix 82, found at Pan-Isovit). Brugg, which says it was given the Euro Price list when it started coming to contact group meetings at the end of 1994, recalls that the producers which were not allocated a particular contract could quote at 5 % below the list-price, while the 'favourite` could go down to 10 % below. At the meeting on 10 January 1995 ABB says that it was agreed that all orders below the Euro price list would be written up to list price (See also Starpipe's note of the meeting, Appendix 70).

There were, however, still complaints about indiscipline and low prices, and on 20 March 1995 the directors decided that as from 10 a.m. the next day the Euro price list was to be applied without exception in the German market (Starpipe's Article 11 Reply, under J, K and L; Appendices 83 and 84).

(75) During the regular meetings of the contact group, individual projects were monitored and the progress of the bidding procedure and the offers of each producer scrutinised so as to ensure compliance.

Hand-written notes which relate to this control mechanism were discovered at Henss' premises in Rosenheim, Germany. For each of a series of pending projects, the 'list price` (presumably less the appropriate discount) is compared with the offers which the different producers had declared in accordance with the reporting procedure described at point 71. Clearly, the producers were required to explain themselves if any deviation from the agreement was suspected (Appendix 85).

There is a considerable amount of documentary evidence that where - contrary to the rules of the cartel - a rival submitted an offer below that of the 'favourite`, pressure was exerted on it to withdraw its offer. Henss in particular was eager to enforce the agreements. Thus for two projects (Stassfurt, Zeitz) Starpipe had to promise Henss in writing that it would not quote below a particular price (Appendices 86 and 87); in the case of Erfurt-Tiergarten, Løgstør had (at Henss' behest) to withdraw its offer and give an excuse (Appendices 92 and 93); where Tarco had in Henss'view undercut the 'Euro price` and thereby been promised a project (Straubing) which Henss had claimed, the managing director of Henss Rosenheim 'reacted in an uncontrolled fashion and demanded that I withdraw our offer` (Appendices 88 and 89). In other cases Tarco did indeed withdraw from certain projects following pressure from Henss (Tarco's first Article 11 Reply, p. 4; Appendix 91). Tarco was one of the main offenders and claims to have misrepresented the real prices it quoted. However (says Tarco) Henss was always able to discover what the true prices and orders were and in telephone calls and at meetings of the directors' club repeatedly accused Tarco of cheating. Henss and ABB kept special lists of projects where Tarco had allegedly cheated (Appendix 90).

(76) Contact group meetings for Germany, as well as other cartel meetings, continued long after the Commission carried out its investigations at the end of June 1995.

Following the Commission's investigations, it had been considered prudent to hold the meetings outside the Community, and they were moved to Zurich. (According to Løgstør, it was principally ABB which pressed for the meetings to continue).

The meetings in Zurich continued with all the same participants as before until 25 March 1996 - some days after the undertakings had received the Article 11 requests from the Commission.

Løgstør (Reply to Statement of Objections, p. 51) states that in January ABB had proposed setting up a permanent secretariat in Zurich for the German cartel, and that as late as May/June 1996 ABB's German operation was still contacting Løgstør's local subsidiary company.

(ii) Denmark

(77) The new Danish contact group was set up in October 1994. It met approximately once a month, usually in hotels in Jutland.

The members of the group were: ABB, Løgstør, Tarco, Starpipe, Isoplus, Pan-Isovit and KWH. (See Tarco's Statement, p. 7; ABB's Article 11 Reply, p. 66; ABB's Supplementary Article 11 Reply, p. 7).

Tarco says that when the contact group was originally set up, the four Danish producers first met together privately and afterwards they either let KWH, Isoplus and Pan-Isovit join them or delegated one of their number to meet the three non-Danish manufacturers; later, however, all firms participated in the Danish contact group on an equal footing. Pan-Isovit claims (Article 11 Reply, p. 63) that the Danish market was dominated by the four local producers and that the other three rarely attended meetings: they simply met the new producers (from Løgstør) who told them what projects had been allocated to them. (This account appears to be confirmed by ABB's Supplementary Article 11 Reply.) Indeed, it seems that in August 1994 the four Danish producers had met and agreed that Pan-Isovit ought to withdraw from Denmark (Appendix 98). Since 75 % of sales in Denmark are made direct to established customers, the market-sharing agreement was implemented here principally on the basis of respect for existing relationships.

(78) The fidelity arrangement operated well and according to ABB (Article 11 Reply, p. 66) was complied with in 70 to 80 % of cases. There were therefore only a limited number of cases in Denmark where a new project had to be allocated among the producers. If a competitor underbid the usual supplier and 'stole` the business, this was generally corrected by the allocation to the aggrieved favourite of another project in compensation.

A reporting system similar to that used (on a much larger scale) in Germany seems to have been employed (Appendices 99 and 100).

The cartel originally estimated the total market for 1995 at some DKK 640 million (almost ECU 90 million), a figure which was later revised to DKK 610 million (ECU 83 million).

The last full meeting of the Danish contact group was held on 11 March 1996, but two short meetings took place on 18 April 1996 between executives of ABB and Løgstør: each blames the other for taking the initiative to call these meetings so as to find a way to continue the cooperation by other means (ABB's Supplementary Article 11 Reply, p. 9; Løgstør's Reply to Statement of Objections, p. 52). By this time, the participants had received the requests for information under Article 11, and indeed ABB's legal advisers had twice written to the Commission informing it of their clients' willingness to cooperate with the investigations.

(iii) Netherlands

(79) The Netherlands contact group was originally supposed to meet only twice a year. (ABB's Article 11 Reply, p.70) The first meeting was held on 14 March 1995 in Amsterdam. According to other producers, ABB took the initiative in setting up the group and chairing the meeting (Starpipe's Article 11 Reply, under H; Pan-Isovit's Article 11 Reply, p. 59). Participants at this meeting were from ABB, Løgstør, Tarco, Starpipe and Pan-Isovite together with local representatives. (ABB's list of participants also includes a representative of Isoplus; this company hand quit the Italian market in return for an increased quota in the Nether