When conducting antitrust compliance trainings or otherwise advising businesses on antitrust compliance, now and then one hears “but the customers want it that way” as a justification for conduct that could raise antitrust issues. A typical response might begin with “That is appreciated, but unfortunately antitrust law is not at the disposal of the customer…” That has now been (re-)emphasized by the German Federal Cartel Office.
As the German regulator itself put it, in a case that broke “new ground” (press release here), for the first time it issued fines for:
- agreements between a customer and a supplier (vertical bid rigging); and, at the same time,
- agreements between competing suppliers (“traditional” horizontal bid rigging).
The setup seems to have looked like this:
Vertical bid rigging
The vertical bid rigging part is what makes the case exotic: Supplier A colluded with the customer to make sure that only a few potential suppliers would be invited to bid for contracts. Besides supplier A and supplier B, only potential suppliers that could be expected to submit non-competitive tenders were to be invited to bid for a given contract. Also, if supplier A did not want to take on a particular contract, at least most of them were to be awarded to supplier B.
Now, how is that an issue for antitrust law? If the customer only wants to award its contracts to supplier A, why not come to a general agreement? Well, there is a
fine line: Where the responsible personnel at the customer circumvent their own internal rules and, according to the President of the Feder Cartel Office, “undermine the principle of economic and efficient procurement”, the involved companies may be fined.
That of course does not mean that the regulator will fine any company that does not procure as efficiently as it could. However, things go too far where bids are rigged to make sure that only one potential supplier can win, in particular where that supplier then colludes with its main competitor, thereby harming competition overall.
Horizontal bid rigging
Horizontal bid rigging generally is a classic: In parallel to the vertical bid rigging, the two (potential) suppliers exchanged information about the pricing behaviour of supplier B, so that supplier A could adjust its own bids in order to win (or not win) a contract from the customer.
The matter is far from settled
While supplier A no longer exists, the customer and supplier B submitted leniency applications and cooperated with the Federal Cartel Office. The customer also settled the case with the regulator. Yet, supplier B has appealed the fine and has taken the case to court.
That is another exotic twist to the case: A cooperating leniency applicant that later decides not to settle but to appeal the decision. So, things might not be as clear-cut as they seem from the Federal Cartel Office’s press release. It will be worth observing whether the ground-breaking case will hold up in court – and will be one to point to in compliance trainings once in a while.
[Picture by Viktoria Goda]