February 28, 2008
At the end of last week, the German Federal Cartel Office (FCO), Germany’s competition authority, fined several manufacturers of personal care products for price-fixing. Interestingly, an additional fine has been imposed for the sharing of sensitive information among the cartelists — a rather new approach taken by the FCO. When seen in the context of recent record fines set by the authority, this case might herald a turning-point in its approach vis-à-vis anti-competitive behavior in general and information sharing in particular — even in comparatively less serious infringement cases.
The FCO found that a number of manufacturers of personal care products, including units of Henkel, Sara Lee and others, had fixed prices for certain beauty products like soaps, shower gels and toothpaste. It had started its investigation after one cartelist blew the whistle and (successfully) applied for leniency. The authority found that the companies agreed to uniformly raise the prices of certain competing toiletries in 2005/2006. For this purpose, sensitive pricing information such as price rebates granted to retailers was exchanged during regular meetings. The FCO imposed a fine totaling EUR 37 million, an exceptionally high amount compared to previous fines in similar cases.
What is striking in this case is that the FCO not only imposed a fine for price fixing, but allocated almost half of the total fine (EUR 18 million) to the sharing of pricing information among the companies involved. Moreover, in an accompanying press release, the FCO’s president emphasized the harm of information sharing among competitors.
The file is not yet closed; German regulators said they would be extending their enquiry into information sharing by investigating other companies shortly.
German Practice in Relation to Information Sharing
Prices can be fixed in many ways. In addition to setting the price itself, or determination of a minimum price, price-fixing may include elements like rebates, surcharges, and margins. However, in order to achieve price-fixing (or other forms of coordination), the exchange of information between the participating companies will usually be required.
So far, the Federal Cartel Office has not imposed fines on grounds of information sharing among competitors as such. Although such sharing of competitively sensitive information is prohibited under German law, it was rather the consequences of such behavior, e.g. price fixing or market-sharing, which were penalized.
General Trend Towards Higher Fines in Germany
By way of background, it is useful to briefly recall the German watchdog’s recent fining practice. It was only a few weeks ago that the FCO set the highest fine ever for an abuse of market power in Germany: two major private television companies had offered rebates to advertising agencies. Through these rebates, advertising budgets were directed away from smaller television companies that could not afford to offer the same rebates as the two market leaders. The record fine imposed of EUR 216 million was seen as a clear sign that the FCO has firmly decided to make full and efficient use of the fining powers it possesses under the recently amended German Antitrust Act.
This case so far represents the culmination of a series of decisions in which the FCO increasingly made use of the statutory range of fines. Furthermore, the frequency of proceedings opened and fines imposed has increased significantly over the past years.
While the full details of the Henkel case still need to be made public, it is becoming evident that in Germany, companies with a certain market power should be increasingly concerned about growing scrutiny by the competition authority, particularly with regard to areas of anti-competitive behavior that were not separately pursued in the past like the mere sharing of competitively sensitive information with competitors. This development marks the next level in the German antitrust authority’s fight against cartels. It can be expected that the announced proceedings against the other participants in this case of information sharing will shed further light on the FCO’s future approach.
Gibson, Dunn & Crutcher lawyers are available to assist in addressing any questions you may have regarding these issues. Please contact the Gibson Dunn attorney with whom you work or Michael Walther (+49 89 189 33-180, [email protected]) or Ulrich Baumgartner (+49 89 189 33-180, [email protected]) from our Munich office.
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