Antitrust damages risk and leniency

Leniency is in decline… isn’t it?

Much debate continues around whether increased damages risk is causing a decline in leniency applications. Many authorities rely on leniency programs to generate cases, so may need to change their approach if faced with a considerable and enduring decline in leniency applications.

While leniency provides certain benefits, including significantly lower fines or even avoiding fines entirely (if full immunity is secured), it does not generally offer the same protection against damages risk. And amounts claimed in damages typically far exceed levels of fines.

Authorities increasingly accept that damages risk has reduced leniency’s attractiveness. But not entirely – e.g. the UK Government sees “mixed evidence” on the extent to which this is frustrating leniency programs. The UK is interesting – damages risk has increased considerably, yet leniency applications leapt from 12 in 2020 to 23 in 2021. Is Brexit a factor (the transition period ended on December 31, 2020)? Or was 2021 an unusual year? It will be particularly interesting to see UK data for leniency applications in 2022 when available.

The European Commission’s Maria Jaspers (Director for Cartels) recently highlighted an increase in leniency applications to the Commission, with twice as many applications in 2022 than 2021 and three times as many as 2020. This indicates the Commission received 12 applications in 2022 – having received six in 2021 and four in 2020. Despite this recent increase, 12 applications is far less than, for example, the 32 applications the Commission received in 2015.

Like the UK, South Africa has seen a recent jump in leniency applications. South Africa’s Competition Commission received less than ten leniency applications for five years in a row, but then 21 applications in its 2021/22 financial year.

Are other factors also at play?

While many countries now see a general downward trend in leniency applications, historic data shows peaks and troughs, with leniency applications sometimes varying considerably each year – as demonstrated by some of the examples above.

Global cartels trigger leniency applications across multiple jurisdictions, but there has been a lack of global cartel cases over recent years. The COVID-19 pandemic may be a factor, but any such impact should subside. In cross-border cases, potential applicants may also be being discouraged by knowing they are unlikely to secure immunity everywhere (e.g. no single party secured immunity in every jurisdiction where the Maritime car carriers/RoRo cartel was investigated).

In addition to damages risk, onerous and costly cooperation obligations, lasting many years until the end of any appeals are another disincentive from seeking leniency. The costs typically include significant management time.

Some jurisdictions have also made changes to their leniency programs that arguably make leniency less attractive – e.g. Canada (four applications in 2021) made changes in 2018 delaying the grant of immunity, removing automatic immunity for individuals, and basing leniency discounts on the value of cooperation. In the US, the DOJ changed its leniency policy for the first time in nearly 30 years in 2022. The US changes include new eligibility criteria – including a requirement to “promptly” self-report (without clarifying what this means) – and reduced protections for individual employees under most leniency applications. Meanwhile, overall DOJ policy continues to stress the critical importance of self-reporting violations. See our briefings here and here to learn more about the changes in the US.

Effective compliance programs are also likely to be contributing to a decline in leniency applications – companies taking compliance seriously and improving at adhering to competition rules. No problematic conduct means no need to seek leniency.

Finding another way

Facing declining leniency applications, many authorities are emphasizing the importance of using all available investigative tools and finding new ways to generate cases – e.g. anonymous whistleblowers, and data analytics/tools to identify potentially problematic conduct. Companies should therefore not become complacent – robust compliance remains crucial.

From a policy perspective, an important consideration for authorities/legislators is whether to offer leniency applicants any protection from damages claims, and if so what level of protection. The recent changes to Brazil’s damages regime (see our discussion on the continuing rise of antitrust damages actions), for example, include certain protections for parties cooperating through leniency or settlement – such parties are not subject to double damages and (unlike other cartel members) not jointly and severally liable for damages.

The EU Damages Directive and UK regimes also provide some protection for immunity applications, including regarding joint and several liability. But should leniency applicants have full immunity from damages claims? The UK and Germany have been contemplating this, but not taken this forward so far.