The SCR-system
The conduct under investigation concerned the development of a standard technology to clean cars’ gas emissions (the “SCR-system”) using a liquid urea solution (“AdBlue”). AdBlue is added from a special tank to the exhaust produced by the engine and plays a fundamental role in cutting NOx car emissions by 90%. The size of the tank, together with the level of consumption of the liquid, determines how far the vehicle can be driven without refilling the tank. Typically, drivers consider this an unnecessary cost and therefore are sensitive to the number of times they are required to refill their tanks.
Notably, the SCR-system was crucial for the Undertakings to meet EU car emission standards set out in framework Directive 2007/46/EC,[2] which introduced—respectively—the Euro 5 (2009) and Euro 6 (2014) standards for commercial vehicles (“EU emission standards”).
The conduct in question
The Commission found that for several years representatives of the Undertakings met regularly as a group, known as the “circle of five,” to discuss issues related to the production of passenger cars and their components. These meetings also concerned the development of SCR-systems. Specifically, on June 25, 2009, the Undertakings agreed that for cars manufactured in the EEA they would use small AdBlue tanks (providing a range of about 10,000 km), corresponding to 8- to 10-liter tanks, that they deemed sufficient to meet the relevant national and EU emissions standards for most cars. However, after further exchange of information on SCR-systems, in 2011 the Undertakings agreed to move to smaller AdBlue tanks and thus reduce the range covered between refills. On this basis, the Undertakings coordinated development of their AdBlue tanks until July 2014.
The Commission pointed out that when the Undertakings were colluding on SCR-system development, they knew that the technology would have been more effective in terms of gas reduction with higher quantities of AdBlue, and they had the potential to go beyond the requirements of EU emission standards. Nevertheless, the parties consciously agreed to use smaller—and less effective—AdBlue tanks for five years, though they were expecting potential new stricter EU emission standards.
This cooperation between the Undertakings both increased the transparency between them on the use of SCR-systems and possible use of related technologies and quashed competition among the Undertakings to achieve environmental performances better than those required by law, despite the relevant technology being available.
The procedure and the Commission decision
Daimler applied for immunity under the leniency regime[3] in 2015. Afterward, the Commission started the proceedings, and it carried out dawn raids in 2017. The year after that, the Commission opened a formal investigation into possible collusion between the Undertakings on the development and deployment of technology to clean the emissions of diesel and gasoline passenger cars, and ultimately it turned its focus to the SCR-systems mentioned above.
In 2019, the Commission issued a statement of objection that included allegations of collusion concerning other components, namely Otto particulate filters. However, in response to a Commission proposal, the Undertakings entered into settlement talks under the related procedure and the case was eventually the subject a new statement of objections in May 2021. This time, the Commission found the Undertakings violated Articles 101(1) TFEU and 53(1) of the EEA Agreement by colluding on the technical development of SCR-systems between June 25, 2009, and October 1, 2014, but dropped the allegations concerning collusion on Otto particulate filters.
The Commission concluded that the conduct in question was liable to restrict competition related to product characteristics, particularly with regard to technical developments in the field of NOx-cleaning for new diesel passenger cars in the EEA. Most importantly, the Commission established that this conduct ultimately limited customer choice with respect to the environmental performance of cars. The Commission affirmed that discussions of SCR-systems were relevant to competition, even though the Undertakings claimed that was not the case at “circle of five” meetings. According to the Undertakings, these meetings were organized in such a way as to avoid competition law issues. However, the Commission argued that the development of SCR-systems is relevant to competition, as car manufacturers use environmental performance for advertising purposes. Moreover, internal documents showed that the Undertakings considered issues related to AdBlue refill strategies relevant for customers and, therefore, for competition.
Therefore, the investigated conduct constituted an infringement by object in the form of a limitation of technical development. Although Articles 101(1)(b) TFEU and 53(1)(b) of the EEA Agreement explicitly refer to this type of infringement, this marks the first time the Commission has categorized it as cartel conduct and imposed a fine relying solely on the reduction of technical development and on the related theory of harm. Because of this, the Commission reduced the total fine by 20%. The Undertakings benefitted from an additional 10% reduction when they agreed to settle the case, thus admitting the infringement.[4]
In addition to Daimler receiving full immunity as the first leniency applicant, the Volkswagen Group benefited from a 45% reduction of the fine under the leniency program in relation to its contribution to the investigation in the form of actively providing information to the Commission. Daimler avoided an aggregate fine of approximately EUR 727 million.
New draft Horizontal Guidelines on specialisation and R&D agreements. Final remarks
According to Margrethe Vestager’s statement, this “decision is about how legitimate technical cooperation went wrong.”[5] Vestager went on to note that not all forms of cooperation between undertakings can be considered illegal under European competition law. While it may be lawful to cooperate to fulfill minimum environmental requirements, cooperation becomes collusion when it aims to restrict competition to achieve additional environmental objectives that go beyond the minimum legal requirements or to develop innovations that improve product quality standards. Indeed, as Vestager confirmed, environmental sustainability is often used as a yardstick in cases of cooperation on technical development. This decision seems to be emblematic of the Commission’s willingness to step up competition enforcement against practices that may obstruct environmental efficiency, even when such practices are not among the “classic” types (such as price fixing, market sharing, and customer allocation).
In this respect, in order to regulate sustainability agreements between competitors and provide legal certainty, on March 1, 2022,[6] the European Commission published draft revised Horizontal Block Exemption Regulations on Research & Development and Specialisation agreements and draft revised Horizontal Guidelines.
The Horizontal Guidelines devote an entire chapter—chapter nine—to agreements that set sustainability standards, which are expected to be the most frequent form of cooperation for pursuing sustainability objectives. The chapter also explains when such agreements do not fall under the scope of Article 101(1) TFEU. The chapter offers guidance on how sustainability agreements will be assessed when they fall within the scope of that provision and may qualify for an individual exemption pursuant to Article 101(3). Those sustainability standards are different from the technological standards addressed in chapter seven of the Horizontal Guidelines.
Given this background, car manufacturers can expect close scrutiny from the Commission, especially in light of their crucial role in meeting the requirements set forth in the Fit for 55 energy and climate package and the European Union goal of reaching carbon neutrality by 2050.[7]
On a final note, it will be interesting to assess the effects that the legal basis used to define this breach – i.e., Article 101.1 (b) – might have on the outcome of the follow-on actions that could be brought across the European Union.
[1] European Commission, July 8, 2021, Case AT.40178 – CAR EMISSIONS, https://ec.europa.eu/competition/antitrust/cases1/202146/AT_40178_8022289_3048_5.pdf.
[2] European Parliament and Council, 5 September 2007, Directive 2007/46/EC establishing a framework for the approval of motor vehicles and their trailers, and of systems, components and separate technical units intended for such vehicles (Framework Directive), https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32007L0046&from=IT.
[3] Commission Notice on Immunity from fines and reduction of fines in cartel cases, https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52006XC1208(04)&from=EN. For an overview of the revised leniency program, please refer to https://ec.europa.eu/commission/presscorner/detail/en/IP_06_1705.
[4] Commission Notice on the conduct of settlement procedures in view of the adoption of Decisions pursuant to Article 7 and Article 23 of Council Regulation (EC) No 1/2003 in cartel cases, https://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2008:167:0001:0006:EN:PDF.
[5] Margrethe Vestager, July 8, 2021, Press release, https://ec.europa.eu/commission/presscorner/detail/en/ip_21_3581.
[6] European Commission, March 1, 2022, Press release, https://ec.europa.eu/commission/presscorner/detail/en/ip_22_1371.
[7] For an overview of the Commission’s plan to fight climate change, please refer to the following link: https://ec.europa.eu/info/strategy/priorities-2019-2024/european-green-deal/delivering-european-green-deal_en.
