Farminveste/Pararede - First Settlement for Gun-Jumping in a merger case

In a press release of August 2014, the Portuguese Competition Authority (“AdC”) announced its first settlement in an infringement procedure for the early implementation of a concentration subject to mandatory filing (“gun-jumping”), in violation of the stand-still obligation of the Competition Act. Under the settlement procedure, the defendants received a 33% reduction of the fine originally imposed, in compensation for confessing the facts and waiving their right to a judicial appeal¹.

The case

The case goes back to January 2013, when the AdC imposed a fine of 150,000 Euro on the Portuguese Pharmacies Association (Associação Nacional de Farmácias, “ANF”) and two of its subsidiaries, for the early implementation of the concentration Farminveste/Pararede, a transaction subject to mandatory filing under the previous Competition Law (18/2003), without waiting for the AdC’s approval.² This decision was however annulled on appeal by the Court of Competition, Regulation and Supervision in September 2013. The court found that the AdC violated the defendants’ rights of defence for not conducting a hearing

on the implications of new facts taken into account in the final decision (although such facts were brought to the AdC’s knowledge by the defendants themselves).³ The case was sent back to the AdC, which elected to close it by means of a settlement procedure.

The settlement procedure

The settlement procedure was introduced in 2012 by the new Competition Act (19/2012). Although destined primarily to cartel cases, the settlement procedure in Portugal is in theory applicable for all infringements to the Competition Law, and has advantages both for the AdC and the defendants: the Authority is able to close and decide cases more quickly (thereby allocating resources more efficiently to new cases), while the defendants, besides benefitting from a reduction in the fine, will also save time and costs that would be incurred in a lengthier procedure and in a subsequent judicial appeal.

Farminveste/Pararede is only the second settlement decision taken by the Authority. The first settlement decision dates from June 2013 and concerns the Polyurethane foam cartel.

Settlement and leniency

Despite the advantages inherent to the settlement procedure, this procedure may collide with the so-called “leniency” regime, under which companies involved in cartels may benefit from immunity from fines, or reduction in a fine that would be otherwise be imposed, for cooperating with the AdC. Immunity is granted to the first company that reports an unknown infraction (or that presents evidence that proves its existence), whereas reductions (up to 50%) are given to the companies that strengthen the AdC’s case by submitting evidence of significant added value.

The two instruments are supposed to be complementary, as they have different purposes. The leniency regime is intended to incentivize the disclosure of cartels that would otherwise remain secret, while the settlement procedure only aims at obtaining procedural efficiencies and ensuring a swift conclusion of a case.

Under Portuguese law the AdC is entitled to determine the amount of the settlement discount on a case-by-case basis. However and as acknowledged by the Authority, granting a settlement reduction which is equivalent to, or higher than, the reduction granted to a leniency applicant could undermine the effectiveness of the leniency mechanism. With the prospect of obtaining at any rate a high discount for settling the case, fewer companies would apply for leniency, thereby jeopardizing the discovery of new cartels.

In this regard it is important to note that in the Polyurethane foam cartel decision, the first case settled by the Authority, the reduction in the fine was between 38% and 40% of the original fine, whereas the defendants in Farminveste/ Pararede received discounts of 33%. These reductions are significantly higher than the fixed 10% reduction defined by European Commission for settlement procedures at the European level, and which, according to AdC, may be used as a first reference.

Comment

The challenge facing the AdC therefore resides in finding values that make the settlement procedure viable, but not to the extent of depriving the leniency regime of its meaning, since at present leniency is recognised as the main investigation mechanisms at the AdC’s disposal to find new cartels.

As Farminveste/Parade shows, the AdC strongly encourages the use of settlement for all infractions to the Competition Act (cartels, abuse of dominance or merger control infringements), if it is deemed appropriate. It is therefore likely that the use of this instrument will become more frequent in the future.

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