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01 February 2015

Settlements with the Austrian Competition Authorities: Outlook

In its recently published guidelines, the Austrian Federal Competition Authority (FCA) outlines the regulatory framework for settlements in antitrust proceedings – a procedural instrument that is becoming more and more attractive in Austria. But do the guidelines provide sufficient incentives for companies to pursue settlements as an “early exit” route, and what are the benefits and pitfalls of such process?

How does the settlement procedure work in Austria?

The Austrian settlement procedure seeks to simplify and expedite antitrust procedures. As a trade-off for not contesting the results of an antitrust investigation by the FCA, the undertaking concerned is offered a reduction in fine as well as an accelerated proceeding before the Austrian Cartel Court. In a nutshell, the settlement procedure comprises the following steps:

  • First, the FCA and the undertaking concerned must have a general interest in exploring a settlement. If so, settlement discussions may be opened informally by both sides. Such discussions typically take place outside the court room, well in advance of any Cartel Court proceedings.
  • Second, during the settlement discussions, the FCA will lay out the key elements of the infringement. Most importantly, the FCA will present the facts and evidence of the case, its legal qualification and the fine to be expected. Eventually, the undertaking must agree with the factual findings of the FCA and refrain from objecting the FCA’s legal qualification of the conduct as a breach of competition law.
  • Third, the FCA will consult with the Austrian Federal Cartel Prosecutor (FCP) and bring the case before the Austrian Cartel Court. During the court proceedings, the undertaking concerned (as well as the FCP) will have the opportunity to comment. If the FCP does not object, the decision of the Austrian Cartel Court may not be higher than the fine settled with the FCA.

Which cases are suitable for settlements?

A settlement can be an interesting option for a number of cases. Unlike at the EU level, the guidelines of the FCA cover not only (hardcore) cartels but also unilateral conduct, such as abuse of dominance or gun jumping in merger control proceedings.

Specific factors that may suggest that a case is eligible for a settlement are (i) the probability of reaching a common understanding with the FCA in a reasonable timeframe and (ii) the prospect of achieving procedural efficiencies. Hence, a settlement is suitable first and foremost for cases that do not require infinite (legal) discussions.

However, in exceptional circumstances also cases that touch upon new legal theories may qualify for a settlement. This is because the FCA guidelines do not foresee a time restriction for the opening of settlement discussions. Hence, a (legally) complex case may be brought before the Austrian Cartel Court to clarify certain aspects of the alleged infringement, but eventually be settled with the FCA before a full-fledged evidential procedure has been conducted by the court.

What is the incentive for a company to settle?

From a company’s perspective, the most attractive feature to a settlement is financial. In return for the acknowledgement of the facts of the infringement, the undertaking is granted a reduction of up to 20% of the envisaged fine (twice what the European Commission would grant in its settlement practice). The FCA guidelines explicitly note that a bonus for settlements does not exclude a further reduction of the fine for the company’s cooperation (be it as leniency applicant or otherwise). The accelerated settlement procedure also saves legal and consultancy fees and allows the company’s management involved in the proceedings to quickly return to its everyday business.

Furthermore, and in terms of numbers not the least import, a cooperative dialogue with the FCA may well influence the scope and duration of the alleged infringement as the FCA – unlike in litigious cases – is more prepared to focus on key conduct and the key periods in order to achieve a settlement. This will not only reduce the amount of fine to be expected but also limit the information that becomes available to the public (Cartel Court decisions must be published since the most recent antitrust reform that entered into force in 2013). Additionally, coverage in the media and the negative perception of the public may also be significantly lower in a “silent settlement procedure” than in contested cases, which may last for years.

What are the downsides and pitfalls of the settlement procedure?

As a drawback to the “early exit” route, the participating undertaking must accept certain restrictions of procedural rights:

  • The FCA guidelines do not foresee specific measures to safeguard the undertaking’s right to be heard in the settlement process before the FCA. In this respect, the participating undertaking depends on the goodwill of the authority.
  • As regards the calculation of the settled fine, the overall coherence and consistency of the level of fine will be scrutinised by the Austrian Cartel Court. During the settlement discussions with the FCA, it is therefore advisable to specifically label the mitigating measures that will lead to a reduced fine.
  • It is also important to include the FCP at an early stage of the settlement process. Otherwise, there remains a certain risk that the FCP will request a higher fine or subsequently contest the settlement decision of the Cartel Court, if he disagrees with the compromise sought (only in leniency applications is the right of the FCP to request a fine statutorily excluded).
  • There is little chance for an undertaking concerned to credibly appeal a settlement decision of the Austrian Cartel Court, if it correctly reflects the facts to which the undertaking has consented to vis-a-vis the FCA (even though a waiver of the right to appeal may not be requested in advance of the Cartel Court proceedings). Therefore, a legally binding settlement statement should be made only once the case had been brought before the Austrian Cartel Court.
  • Finally, a settlement may backfire in potential follow-on damage claims due to the acknowledgement of facts and the non-objection of its legal qualification, which will be reflected in the settlement decision (a non-confidential version of which will be published by the Austrian Cartel Court). Considering the recently adopted EU directive on antitrust damage actions, the risk of civil cases is likely to increase significantly as the directive – once implemented into national law – may lower the burden of proof and facilitate the quantification of harm for which a third party may seek damages. On the plus side, however, settlement decisions are likely to be less detailed than a fully reasoned decision and therefore – at least potentially – of less use as a basis for damage claims.

In determining whether a settlement is an attractive option in antitrust proceedings, an undertaking must balance the risk of increased exposure in follow-on damage claims against the prospect of a reduced fine and less media attention.

authors: Franz Urlesberger, Valerie Ditz-Stimakovits