The European Union handed down €875 million in fines against four major German automakers on 8 July 2021, saying that they had “colluded to limit the development and rollout of car emission-control systems.” The four automakers in question are BMW, Volkswagen, Audi, and Porsche.
 
While no publicly available version of the full decision has been released to date, it was stated in a statement issued by Executive Vice President Margrethe Vestager on the European Commission’s decision to fine the automakers that:
 
“These car manufacturers illegally colluded to restrict competition in the area of emission cleaning technology for diesel cars. This is the first time that the Commission finds that cooperation on technical elements, as opposed to price fixing or market sharing, amounts to cartel behaviour.” ¹
 
Key Elements of the Cartel
 
The European Commission stated that the automakers held regular meetings to discuss the technical development of ‘selective catalytic reduction (SCR)-technology’ which uses urea (commonly known as “AdBlue”) to reduce harmful nitrogen oxide (NOx) emissions from diesel passenger cars.²
 
The Commission added that during these meetings, the automakers deliberately colluded by reaching a common understanding to avoid competing on the effectiveness of the SCR-system technology and by indicating to each other that none of them would aim to provide better cleaning standards beyond the minimum required by law even though they possessed the technology to surpass those standards.
 
Among other things, the automakers agreed to limit the size of the AdBlue tanks installed in diesel vehicles. Larger AdBlue tanks would have been more effective at neutralising polluting emissions but would have taken up space in the vehicle which the automakers could use to add other amenities. The automakers had also exchanged sensitive information regarding future AdBlue tank sizes, ranges and average AdBlue consumption of future car models.
 
The above conduct is said by the Commission to constitute an “infringement by object in the form of a limitation of technical development.” This is a type of infringement explicitly referred to in Article 101(1)(b) of the Treaty for the Functioning of the European Union (“TFEU”) and Article 53(1)(b) of the European Economic Area (EEA)-Agreement.”
 
In setting the severity of the fines on the automakers, the Commission took into account multiple factors including “the value of the parties’ sales of diesel passenger cars equipped with SCR-systems in the EEA in 2013 (the last full year of infringement), the gravity of the infringement and the geographic scope.”
 
However, an additional reduction was applied for all parties as this was the first ever cartel prohibition decision based solely on restricting technical development as opposed to the more common anti-competitive practices like price-fixing, marking sharing or customer allocation. A further 10% reduction in fines was granted to all parties in view of the automakers’ acknowledgement of their participation in the cartel and of their liability in this infringement. Daimler who disclosed the existence of the cartel to the EU under the leniency regime was granted full immunity from fines which would have amounted to €727 million while the Volkswagen Group benefitted from reduced fines as a result of their cooperation and the evidence supplied by them to the Commission which helped prove the existence of the cartel.
 
Comments
 
This case is noteworthy and novel in that it is the first time that the Commission has concluded that collusion on technical development constitutes a cartel. Such a case would unlikely be caught by EU competition laws in the past and even if it were to be subject to the prohibition of Article 101(1) TFEU³, there is the possibility that such a scheme may be allowed if it can be established that cooperating on research and development and product development is in fact pro-competitive. The question therefore is where does the boundary lie? It is thus interesting to see the extent competition authorities will take innovation competition into account in antitrust proceedings moving forward particularly with the growing challenges of the digital economy and environmental protection, irrespective of the effects on prices, market divisions or the other points that have been more relevant in antitrust practice to date.
 
In Malaysia, similar to Article 101(1)(b) of the TFEU, section 4(2)(c) of the Competition Act 2010 (“CA 2010”) deems as anti-competitive a horizontal agreement between enterprises which has the object to limit or control technical or technological development. Based on publicly available information, the Malaysia Competition Commission has to date not relied on the said provision to investigate or find any cartel whose object is to restrict or control the use or development of technology. Given that the CA 2010 is modelled on the EU competition law and in view of the unequivocal language of section 4(2)(c) of the CA 2010, it is possible that the Malaysia Competition Commission would follow the footsteps of the European Commission, by taking action against coordination which seeks to limit the full potential or development of any type of technology.
 
Alert by Tan Shi Wen (Partner) of the Competition Law Practice of Skrine

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