2012 Conference Review – Session Four

(Reviews by Ali Massadeh, CCP PhD Student)

The Baby and the Bathwater: The Relationship between Private Enforcement, Criminal Penalties and Leniency Policies

Angus MacCulloch (Lancaster University Law School) & Bruce Wardhaugh (Newcastle Law School, Newcastle University)

With the recent European desire to eliminate cartels from forming in the first place, this paper examines the relationship between the interrelated issues: leniency, criminal sanctions, and private actions for damages.

The main focus of the authors’ presentation was on leniency applications and how it should be handled, in light of the current practice of ‘bundling’ the individual criminal leniency to the undertaking’s leniency application. The authors were very critical in regard to the current system of leniency applications, they highlighted that individual criminal immunity and corporate immunity should be treated separately by Competition Authorities (CAs). They argue that individual criminal immunity requires much more than cooperation with the prosecutor, which is the case in corporate leniency application. The authors highlighted many tensions between both types of immunity. They mentioned that under the current practice individual immunity tends to be treated as an adjunct to corporate leniency; which means that the leniency application is managed by the undertaking’s lawyers, and the majority of the evidence will be held by the undertaking and, most importantly, the prosecutor (CA) is heavily monitored by the undertaking’s lawyers. Hence, in order to have more effective leniency application, a separate representation of leniency applications would protect and present the interest of the witness (individual). As a consequence, this would improve the quality of the evidence produced by a leniency application.

The authors then went on to highlight the impact of private enforcement on leniency. They highlighted that individual recovery of anticompetitive conduct is done through the courts of Member States (1). According to them, there is a conflict between damages claims and the fear of disclosing leniency evidence for private parties to claim damages. These concerns have been expressed in the opinion of Advocate General Mazák in Pfleiderer (2). The authors raise four issues to show the relevance of their concern; the following are the issues that raise the concern and how the authors propose a remedy for each of them:

1. Member states’ private damages are sufficiently weak, so that at present defendants are not paying the full amount of the damages.

Remedy: Disclosure of information in leniency file as enhancing damages.

2. Increased transaction costs of (multiple) private damages defences

Remedy: This should not be a problem, as firms create harm in a number of Member States, then they should bear the responsibility of their acts. Furthermore, this would be an additional deterrent.

3. Exposure to joint and several liability

Remedy: Decoupling joint and several liability

4. Creation of additional evidence as part of the leniency application

Remedy: Disclosure of documents created for the purposes of leniency applications

All in all, the authors conclude that private enforcement and criminalisation should be seen as adjunct to public enforcement. Hence, public enforcement should be seen at the top of the enforcement hierarchy because it is the most developed and well-resourced enforcement tool (3). As a result resolution of conflicts should be done in favour of public enforcement in order to enhance its effectiveness.


(1) Citing Courage and Crehan

(2) See Advocate General Mazák in opinion’s Pfleiderer (Para. 38)

(3) Again, the authors made reference to the opinion of Advocate General Mazák in Pfleiderer (Para 40)

Legal Uncertainty and the Choice of Enforcement Procedures

Yannis Katsoulacos (Athens University of Economics and Business) and David Ulph [presenter] (University of St Andrews)

This paper examines the choice of enforcement procedures (Per Se enforcement procedures and Effects-Based enforcement procedures) that the Competition Authority (CA) may use when applying competition law. This paper aims to analyse the welfare ‘cost of legal uncertainty’. The work done in this paper is based on work previously done by the authors about optimal legal standards (1).

In competition policy issue of legal uncertainty arises in comparison of Effects-Based and Per Se legal standards. Legal uncertainty emerges because of two main reasons. First, firms face uncertainty or incomplete information about the ultimate bases of making a judgment. Second, firms face uncertainty about how decisions are taken by the CA.

Ulph starts with highlighting the possible implications for using Per Se or Effects-Based enforcement procedure, and how the latter may produce legal uncertainty unlike the former. However, the authors argue, as they found in a previous work, that legal uncertainty may be welfare enhancing in certain situations. This is because Effects-Based procedures generate variability of treatment but not necessarily uncertainty of treatment. They highlighted that welfare under Effects-Based standard is higher than under Per Se standard in situations where legal uncertainty does not exist, given that Effects-Based rule reduces error cost. They also stated that in situations where Effects-Based rules produce legal uncertainty, Effects-Based rules are superior to Per Se rules because of the deterrence effects produced as a result of the uncertainty generated. Furthermore, in situations where there is ‘partial legal uncertainty’ may be welfare superior to having no legal uncertainty.

The main finding of this paper is that Per Se procedure is always worst to be used by the CA, given that Effects-Based procedures entail lower costs of decision errors than Per Se and that Effects- based procedures are good enough to enable the CA to effectively discriminate. This is based on the following conclusions:

• The presence of Legal Uncertainty does not reduce the attractiveness of Effects-Based procedures, in fact it can enhance their attractiveness;

• Having some degree of legal uncertainty (partial) can allow the CA to fine-tune penalties to generate maximal differential deterrence;

• Based on the authors’ analysis, an Effects-based rule is always superior to a Per Se rule under any degree of legal uncertainty in terms of welfare enhancement.


(1) See Katsoulacos and Ulph, “Optimal Legal Standards for Competition Policy” (2009) 57(3) Journal of Industrial Economics, 410-437; Katsoulacos and Ulph “Optimal Enforcement Structures for Competition Policy: Implications of Judicial Reviews and of Internal Error Correction Mechanisms” (2011) 7(1) European Competition Journal, 71-88

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