The German ‘sausage cartel’ has truly turned into the gift that keeps on giving. However, while so far the gifts given were, with only one setback, rather in favour of the Bundeskartellamt (Federal Cartel Office) with high fines totalling EUR 338.5 million being imposed on members of the cartel, the latest developments seem like a welcome gift for the sausage manufacturers. The recent developments also hold the potential to shape the attractiveness of appealing the Bundeskartellamt’s fines decision in general as well as to subject future raids and proceedings by the Bundeskartellamt to considerably more severe scrutiny.
To recall, the sausage cartel was based on an agreement between 21 sausage and other meat products manufacturers and 33 individuals in Germany (see here and here). The manufacturers exchanged information on price increases and explicitly agreed to jointly implement price range increases for the sale of sausage products from 2003 on. In July 2009, the Bundeskartellamt undertook raids and searches of the undertakings in question and, subsequently, imposed one of the highest total fines ever imposed by the authority.
In addition to the high total fine, the sausage cartel has achieved some fame for revealing the so-called ‘sausage gap’ (Wurstlücke) – a gap in German competition law which allowed cartel members Böklunder Plumrose, and Könecke Fleischwarenfabrik, both members of the same broader corporate group, to escape fines by internally reorganizing their corporate structure. This gap had allowed the two firms to escape fines of EUR 128 million. German cartel law has recently addressed this issue in the latest amendment to the German cartel law, the 9th amendment of the Act against restraints of competition (ARC). § 81(3a-e) of the ARC now extend liability to the successors of restructured companies and their parent companies, which prevents cartel members from escaping fines by means of internal re-structuring.
Of those undertakings that were not lucky enough to benefit from the sausage gap, several undertakings appealed the fines before the Oberlandesgericht (‘OLG’ – Higher Regional Court) in Düsseldorf. Traditionally, this is not an uncontroversial move, as the judges have the competence to fully determine the fine anew. While, of course, the parties proceeding before the OLG Düsseldorf hope for a reduction of fines, an increase in fines imposed is well within the law and, most importantly, within the demonstrated practice of the judges. One of example of a heavy increase in fines by the OLG is the vertical price fixing case of Rossmann, in which the court increased the fines for the German drugstore chain from 5 to 30 million Euros earlier this year.
In case of one of the undertakings accused of participating in the cartel and proceeding before the OLG Düsseldorf, quite extraordinarily, the opposite has now happened. The meat product manufacturer Heidemann achieved a reduction of fines (so far, so not necessarily unusual) to zero – a development that is a first in German Cartel proceedings before the OLG Düsseldorf.
The court founded its decision on two reasons: firstly, it did not find the evidence to be sufficient to substantiate the participation of Heidemann in the cartel. Secondly, it found that the Bundeskartellamt had imposed the fine on the wrong member of Heidemann’s corporate group (on the recent developments also see here; in German).
The second one of the recent developments might induce friends of bad puns to claim that ‘the wurst has happened’ for the Bundeskartellamt. During the testimony of one of the principal witnesses of the whistleblower undertaking Nölke, it was revealed that the Bundeskartellamt apparently had knowledge of the cartel several months before the raids at the undertakings’ premises were carried out. More importantly, the Bundeskartellamt had apparently failed to mention that fact to the district court in Bonn from which it obtained the search warrant for the raids. Before the court, the Bundeskartellamt had in fact claimed the raids were based on an anonymous tip and failed to mention the whistleblower Nölke.
The Bundeskartellamt tried to justify its actions by claiming the need for anonymity for the whistleblower. The meat industry was a small one in which ‘everyone knew each other’ and it had therefore been necessary to protect the whistleblower’s anonymity. In that spirit, the Bundeskartellamt had conducted a raid of Nölke’s business premises just as it had on the ones of the other cartel members. With regard to obtaining further information from other cartel members in terms of additional leniency applications by them and in order to verify that Nölke had delivered all possible evidence of the cartel and its involvement in it, those proceedings don’t seem to be off. There is, however, no indication as to why informing the district court Bonn of the true origin of the tip would be compromising the whistleblower’s anonymity, at least for a certain amount of time during and after the raids. Usually, files can be declared ‘indispensable due to ongoing investigations’ for a certain amount of time, especially if large amounts of information have to be evaluated, as is usually the case after a cartel raid. Furthermore, the Bundeskartellamt failed to substantiate that knowing the whistleblower’s identity would prevent the other undertakings involved from applying for leniency.
The OLG did not take kindly to these revelations and even spoke of apparently ‘tuned files’. The Bundeskartellamt’s statement that the protection of the whistleblower’s anonymity was necessary as in the meat- and slaughterhouse industry, there would be a particular risk for life and limb if that anonymity was not properly protected, exudes more than a faint air of desperation on part of the authority to come up with some justification for this apparent lapse.
What the courts make of the Bundeskartellamt’s conduct remains to be seen. For now, the court has demanded for the internal files surrounding the first contacts between Nölke and the authority to be produced – something the Bundeskartellamt so far seems to have failed to do.
More importantly, these recent developments stand to influence future cartel appeals and decisions. Firstly, the fact that a complete waiver of fines before the OLG has now moved from being a theoretical possibility to one actually having come to pass might encourage undertakings accused of participating in other cartels to try their luck to appeal any fines imposed on them. The court’s reasoning in this case, once published, might also give the lawyers representing those firms a much more concrete framework within which to seek to achieve such a revocation of fines.
Furthermore, this development might have a pre-emptive effect and lead to the Bundeskartellamt dropping more cases without imposing fines in the first place. Up until now, it seemed more certain that some amount of fines would be imposed once the Bundeskartellamt had decided in favour of fines; the question before the court was merely that of the amount. Now, and in particular with regard to the deeper scrutiny of Bundeskartellamt proceedings that is to be expected because of the Bundeskartellamt’s file ‘mishap’, the authority might decide not to invest time and energy in less certain cases in the first place and play it more safely when imposing fines – potentially to the ultimate detriment of consumers.
Secondly, as has been alluded to, the Bundeskartellamt’s behaviour surrounding the sausage cartel raids may prompt the courts to take a much closer look at the timelines of whistleblowers and raids of undertakings and the general procedural spotlessness of the Bundeskartellamt’s proceedings in the future – something that should not prove an issue for any exemplarily working authority. However, in practice this might prompt the Bundeskartellamt to put particular emphasis on prioritizing procedural immaculateness over efficiency or to focus its efforts on more certain and ‘easy’ cases, while potentially neglecting cartels that may be more difficult to prove before a critical court.
Another important question in this regard will be whether the issues with the Bundeskartellamt’s files have any implications for the whistleblower mechanism. The whistleblower mechanism is of integral importance to the Bundeskartellamt in detecting illegal cartels and making the mechanism easy and particularly attractive for cartel members is of utmost importance for its success. While the claims of a threat to life and limb were the whistleblower’s identity revealed are clearly too far-fetched in this case, there is still some truth in the thought that the whistleblower may have a heightened interest in remaining anonymous to the other cartel members as well as to its sector of activity in general for as long as possible. One must hope that the OLG honours the integral importance the whistleblower mechanism has in detecting and prosecuting cartels. It will be interesting to see whether this leads to the court choosing to avoid a too severe ‘crack down’ on the Bundeskartellamt’s attempts to keep the identity concealed for a longer period, so as not to influence the attractiveness of the mechanism and not to deter future whistleblowers from coming forward. In the same vein, the court will have to anticipate whether a too strict reaction to the Bundeskartellamt’s lapse in this case might indeed lead to the authority ranking efficiency at the bottom of its priorities – something which is neither in the interest of the undertakings concerned nor the courts.
At the same time, however, the whistleblower mechanism and indeed cartel prosecution as such will and can only work if all parties involved as well as the consumers, as party protected by the competition rules, can have faith in the procedural accountability of the Bundeskartellamt and of the evidence found.
It will be up to the court to find a balance between these interests and since both a strong whistleblower mechanism as well as strict procedural adherence are ultimately in the interest of everyone involved, this may prove a difficult balance to strike.