Austria part 2 – competitive spirit

Austria’s competition authority is one of the smallest enforcers in Europe, but recently it hasn’t shied away from taking on tough cases against major companies

What do beer, sugar, lifts, freight forwarders and plumbers all have in common? They were all industries subject to big cartel cases in Austria in the past few years. The once-sleepy Bundeswettbewerbsbehorde, or Austrian Federal Cartel Authority (FCA), has displayed new bite: it’s taken on several big new investigations against major companies and is keen to issue some hefty fines. It has caused consternation in the market with its tough new approach, knocking on the doors of major corporates in dawn raids, and has even started issuing press releases while cases are ongoing. All of this has meant an interesting, and very busy, few years for Austria’s select band of specialist cartel lawyers.

New dawn

The FCA has been up and running for ten years, but for much of its short life it was largely viewed as a damp squib. Investigations that resulted in fines were rare, and the

office was understaffed and little talked about. Most of the cases that it worked on originated at EU level or in other European jurisdictions. But all that has changed in the past two years, as it adopted a much more aggressive approach, and is now actively seeking out cartel cases rather than waiting for them to land in its lap. Consequently lawyers at all the top Vienna firms have seen a major uptick in competition work and increasing focus by clients on this previously unloved practice area.

‘We think the way the authority communicates is appalling,’ says the head of competition at a major Austrian firm. ‘It has no sense of what it can and can’t say. The press releases are very biased, but because it is a public authority it has the air of truth.’

That’s a trend seen at Austria’s largest firm, Wolf Theiss. ‘Our department had a fantastic year mainly due to cartel work,’ says Guenter Bauer, head of competition. ‘The competition authority is starting to take the initiative and enforce the law,’ he adds.

That sentiment is echoed by Christian Herbst, an M&A partner at Austria’s second largest firm Schönherr: ‘We see the competition area as booming. There is a lot more going on in terms of cartel and merger control work.’

 

Leniency and whistleblowers

One of the major reasons that the FCA has changed its stance is that a relatively new whistleblowing law finally seems to be gaining popularity. Leniency proceedings that allow whistleblowers to get a reduced fine or immunity from prosecution were first introduced in Austria in 2006. However, it was not until 2008, when the FCA issued new guidelines clarifying the application of the leniency procedures, which could see a reduction in fines of up to 50% for whistleblowers, that lawyers and clients really started to take note.

‘Competition was a sleeping beauty, but we are now seeing quite a lot more cases pending,’ says Stephan Polster, a competition partner at major independent firm Dorda Brugger Jordis. ‘It’s all because of the possibility of using leniency applications that many more cases are surfacing.’

That trend is being seen at firms across Vienna. ‘There have been significantly more cartel cases with the FCA due to its more active use of the leniency programme,’ says Bernt Elsner, a competition and public procurement partner at CMS Reich-Rohrwig Hainz. Stefan Korab, head of competition and antitrust at Fiebinger Polak Leon, agrees: ‘Whistleblowing and the leniency programme have had a remarkable impact on the rate of uncovering cartels.’

 

The freight-forwarding cartel case is a good example of this. Back in 2010, European rail freight company Schenker & Co applied to the FCA for leniency.  Because of the leniency application, the authority filed an application to the Cartel Court to impose fines against 30 to 40 freight-forwarding companies. The companies were accused of colluding to set their prices for carrying cargo on domestic freight-forwarding services.

As the case has unfolded over the past two years, it has sucked in dozens of Viennese law firms, from one-man bands to the biggest practices in the country. It’s hard to find a firm that wasn’t involved in it to some extent, but a few players picked up the majority of the important work.

The Vienna office of Freshfields Bruckhaus Deringer, led by partner Axel Reidlinger, is representing Schenker, while Schönherr antitrust partner Franz Urlesberger is representing courier service DHL. Mid-sized firms also picked up their share of the work, with Astrid Ablasser-Neuhuber of bpv Hügel representing freight-forwarder Logwin, and Dieter Thalhammer at Eisenberger & Herzog representing the railway carrier ÖBB. Even sole practitioners managed to score major roles, with the well-respected Karin Wessely representing Lagermax.

In 2011 the case was referred to the Austrian Supreme Court, which found that no fines should be imposed. The matter is now with the European Court of Justice with no ruling expected for another 18 months.

 

Show of strength

The internal politics of the FCA have played a major part in its new-found confidence. The Director General of the FCA, Theodor Thanner, is up for reappointment in 2012 and seems keen to prove his worth by flexing the authority’s muscles.

‘We see the competition area as booming. There is a lot more going on in terms of cartel and merger control work’ says Christian Herbst of Schönherr

‘The director’s first term comes to an end in 2012, will he stay in his position?’ asks Martin Eckel, a competition partner at e|n|w|c. ‘If he is running for a second term, it will help him if he can show some of the benefits from his first term,’ he adds. ‘The Austrian competition agency is still quite young; it only launched in 2002,’ he continues. ‘It is asking for more resources, which might be a reason it is pushing cartel work forward.’

2012 is also set to be a year of change as a new cartel law is set to pass through the statute books before the summer. Additionally, the FCA is still relatively sparsely staffed compared to similar bodies in other countries, and many commentators believe that the authority wants to increase its size. One way to push for greater staffing levels and for the changes to the law it wants is for it to show the politicians some corporate scalps. It is certainly trying: in 2011 alone it opened new investigations into collusion in the plumbing, brewing, insulation, cleaning supplies and construction sectors. As these cases are at an early stage, details of the law firms instructed on these investigations remain under wraps, but Vienna’s leading competition firms, which include Freshfields, Schönherr, bpv Hügel and Wolf Theiss, are widely expected to play key roles.

 

Aside from taking on cases that were subject to leniency in 2011, the authority also demonstrated its strength by conducting its first dawn raids in many years. In the previous ten years it had conducted only one, but last summer saw a flurry of raids on unsuspecting companies.

In June several breweries were subject to dawn raids after being suspected of limiting the supply of beer kegs to keep prices artificially high. Then, in September, the premises of gas providers suspected of price-fixing import contracts were also raided. ‘The competition authority used to say that it thought it got the same information from companies that it invited to its offices as it did from doing dawn raids. That has clearly changed,’ says Wolf Theiss’s Bauer.

 

Publicity stunt

On top of the dawn raids last summer, the FCA also started issuing press releases on its judgments for the first time. In most countries this is common practice, but in Austria many lawyers and judges who felt that the press releases were inaccurate and massively skewed against the defendants met this development with consternation and even anger.

‘We think the way the authority communicates is appalling,’ says the head of competition at a major Austrian firm. ‘It has no sense of what it can and can’t say. The press releases are very biased, but because it is a public authority it has the air of truth.’ Lawyers and judges may not like the press releases, but they have had the effect of moving competition up the agenda for both the public and companies.

‘Competition was a sleeping beauty, but we are now seeing quite a lot more cases pending,’ says Stephan Polster of Dorda Brugger Jordis. ‘It’s all because of the possibility of using leniency applications that many more cases are surfacing.’

‘In a nutshell, this stance is good for the competition authority and good for us as lawyers, because the outside world knows that cartel cases should be taken seriously,’ says Andreas Zellhofer, a competition partner at Eisenberger & Herzog. But Zellhofer also points out that the authority’s bullish approach to communicating with the media makes it difficult to sell leniency applications to clients.

‘I’m not so sure it does itself any favours in the long run, because companies may not be inclined to apply for leniency,’ he says. ‘All in all, it’s become much harder to convince clients that applying for leniency is a good idea because their name will be in the media for a number of years.’

 

Fringe benefits

In many ways it seems that the FCA can’t win. It’s either criticised for having no teeth or for being too belligerent. ‘Until recently the FCA was seen as a “lame duck” because of its inactivity,’ says Schönherr’s Urlesberger. ‘But now, because things have changed so drastically, the same people complain about an overly aggressive authority. I think that it’s now on its way to establishing itself as a credible competition authority,’ he adds.

 

Aside from an increase in cartel work the new-found zeal of the FCA has had a bonus knock-on effect for lawyers. The press releases and dawn raids have pushed competition compliance up the agenda and many firms now report that clients are contacting them at an early stage to check they have the right procedures in place. ‘The advantage of this aggressive stance means that many clients come to us to check their compliance,’ says Zellhofer. ‘We have seen a sharp increase in clients asking us questions about if they comply.’

Fiebinger Polak Leon’s Korab echoes that point. ‘The general trend is that there is more awareness of competition law issues among companies. This has led to an increase in client demand for support in the field of competition compliance,’ he explains.

While lawyers may complain about inappropriate press releases and dawn raids, they shouldn’t complain too loudly. In a tough market all this has been a boon for competition lawyers. LB