On May 7th the Bundeskartellamt (Federal Cartel Office, FCO) carried out unannounced inspections on the premises of various potato producers and distributors searching for evidence of price-fixing.
In its press release the FCO pointed out that the inspections should not be regarded as prejudging, however, the FCO had sufficient grounds to suspect illegal behavior since the agency had successfully convinced a judge to order these searches. As the so-called dawn-raids took place at a very early stage of the proceedings the press release of the FCO is deliberately limited in substance and allows only for a preliminary assessment.
The FCO refers to anticompetitive price-fixing in general terms and mentions companies in the German food retail market as the main customers affected. Further statements suggest that the alleged activities were implemented mainly by intermediate dealers and their organizations causing harm to farmers as well as retailers. Especially vigorous competition in the retail sector of the German food industry might have incentivized suppliers of potato products to form an illegal counterbalance for stabilizing prices.
However, there is no information publicly available on whether the dawn-raids trace back to an application for leniency filed with the Bundeskartellamt and very little is known about the companies subject to the proceedings. According to media reports the alleged cartel operated over a period of 10 years and affected approx. 80 % of the German potato market. It is speculated that the amount of damage caused by the cartel might range between 100 million and 1 billion Euros.
Although details about the parties and the alleged anti-competitive behavior are missing, it is clear that the Bundeskartellamt suspects violations of Art. 101 of the TFEU and Section 1 GWB (Gesetz gegen Wettbewerbsbeschränkungen - German Act against Restraints of Competition, ARC). These provisions apply to horizontal as well as vertical agreements, whereas price-fixing between competitors constitutes the most severe form of cartelization within the meaning of these statutes. Jörg Witting, partner in the Düsseldorf office of Bird and Bird, commented in a television report on the investigations by the German public broadcasting company “Westdeutscher Rundfunk” (interview broadcasted in the leading German news program “Tagesschau” and “Tagesthemen” of May 11, 2013) that fines, in particular imposed on members of price-fixing cartels, have risen to very substantive levels in recent years.
The potato case constitutes yet another peek in enforcement activities against illegal behavior in the food retail sector: sweets, coffee and some years ago also sugar have been products subject to prominent investigations.
Cartel members not only face administrative penalties but also civil litigation. In the aftermath of governmental proceedings, it is an increasing tendency that customers more and more seek damages for buying overpriced products. In this respect, German competition law provides that affected companies can be admitted to participate in the administrative proceedings at the FCO. Pursuant to Section 54 ARC the FCO can confer, upon application, the status of a party on “persons whose interests will be substantially affected by the decision”.
Irrespective of the possibility to participate in administrative proceedings before the FCO, potentially affected companies can pursue private damage claims based on Section 33 Subsection 3 ARC. For the purpose of effective litigation, plaintiffs can rely on subsection 4 which declares binding on German courts the finding of illegal price-fixing identified by the Bundeskartellamt in a final decision. Thus, it is necessary for both alleged cartel participants as well as potential cartel victims to assess from the beginning the impact of the investigations in terms of subsequent damage proceedings.
Although the proceedings against German potato producers are at a very early stage and it is not possible to predict any outcome, it is recommendable to closely observe further developments.
For further questions please contact our German Competition Practice Group in our Düsseldorf office (Contact: Dr. Jörg Witting, Dr. Martin Jäger).