Sullivan & Cromwell's Juan Rodriguez and Axel Beckmerhagen set out the considerations for companies opting to hold their hands up to competition breaches

In April of this year, the European Commission (EC) fined Procter & Gamble, Unilever and Henkel a total of €315.2m (£275m) for fixing the prices of laundry detergents in Europe. Procter & Gamble was fined €211.2m (£184m) and Unilever received a fine of €104m (£91m), while Henkel escaped penalty because it acted as the whistle-blower on the cartel.

The case is an example of how perfectly legitimate, and even desirable, co-operation between competitors can go horribly wrong. In the late 1990s, the trade association representing the manufacturers of detergents in Europe launched an environmental initiative to promote sustainable consumption of laundry detergents by recommending manufacturers to reduce dosage and weight of their detergents as well as package sizes.

In addition to implementing the association's recommendations, Procter & Gamble, Unilever and Henkel decided to take the initiative a step further. They agreed not to pass on to consumers their respective cost-savings resulting from the reduction of product weight, volume and package sizes. Consequently, prices of laundry detergents would be kept at pre-initiative levels, essentially maintaining the price of detergents to consumers.

Between 2002 and 2005, Procter & Gamble, Unilever and Henkel, through these arrangements, fixed prices for laundry detergents in Belgium, France, Germany, Greece, Italy, Portugal, Spain and The Netherlands. While many forms of co-operation between competitors can yield benefits for consumers, this case serves as a reminder that companies engaging with their competitors must at all times be vigilant of anti-competitive behaviour and should monitor and evaluate cross-industry initiatives.

If, in an internal audit or during due diligence in the context of a proposed merger, a company discovers that its employees have engaged (intentionally or unwittingly) in anti-competitive behaviour, fines may still be avoided. There is a get-out-of-jail-free card in the European Union, and Henkel successfully played this hand in the detergents case.

In 2008, Henkel discovered that the environmental initiative with its competitors had crossed the line that separates lawful conduct from unlawful conduct and blew the whistle on the arrangements to the European Commission. It lodged an application for immunity from fines with the European Commission under the Commission's leniency notice.

In return for providing incriminating evidence of the cartel and co-operating in the ensuing investigation, the Commission, like most national competition authorities in the EU, offers a reduction of the potential fine for anti-competitive behaviour.

If the Commission is first made aware of a cartel by the leniency applicant and the applicant provides sufficient evidence for the Commission to dawn-raid other suspected cartelists or to prove an infringement of EU competition law, the leniency applicant can be granted full immunity from fines.

The rewards for whistle-blowing can be substantial. The potential fine in the EU for participating in hardcore cartel behaviour is calculated, inter alia, as a percentage of the turnover generated from the sale of the cartelised products multiplied by the number of years that the participant took part in the cartel. As the Commission explains in its decision in the detergents case, Henkel would have faced a fine of between €310m (£271m) and €360m (£314m) for its participation in the arrangements if it had not been granted immunity.

Although full immunity from fines is available only for the leniency applicant who brings the cartel to the attention of the Commission (thereby encouraging a race between the cartel participants to apply for leniency), there are still ways for the companies concerned to reduce their exposure to fines. Like the first leniency applicant, the other companies can also lodge leniency applications with the Commission under the leniency notice. In return for providing evidence of the cartel that represents "significant added value" to the Commission's case, a leniency applicant will be eligible for a reduction of its fine of up to 50%.

The next applicant providing evidence of significant added value may expect a reduction of up to 30%, and all subsequent applicants providing such evidence may be granted reductions of up to 20%. Both Procter & Gamble and Unilever applied for leniency in the laundry detergents case and were granted reductions of their fines of 50% and 25% respectively.

Since 2008, the Commission can also offer companies that participated in a cartel to formally settle the proceedings by agreeing to pay a fine. In cases that the Commission deems appropriate for settlement, cartelists can apply for settlement and will then be shown the evidence that the Commission has compiled against them. In return for a written admission of participation in the cartel, the settling company will be granted a reduction of 10% of its fine. This reduction applies in addition to any reduction granted under the leniency notice. Both Procter & Gamble and Unilever settled the laundry detergents case and secured a further 10% reduction of their fines.

Juan Rodriguez (pictured) is a partner and Axel Beckmerhagen an associate at Sullivan & Cromwell.

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