CN02 - The car emission cleaning cartel or how legitimate technical cooperation can go wrong

On 8 July 2021, the European Commission found that five car manufacturers illegally colluded to restrict competition in relation to emissions technology for diesel cars and imposed a total fine of EUR 875 million. This is the first time ever that the European Commission has concluded that collusion on limiting technical development amounts to a cartel.

Key takeaways

• Cooperation between competitors to achieve sustainability objectives or requirements, when pro-competitive, can be permitted under EU antitrust rules.
• However, sustainability agreements must not be a cover for a cartel.
• Competition authorities will take issue not only with price fixing, market sharing or output limitation but also with agreements between competitors to limit the full potential of a technology.

Background

In 2007, EU law introduced minimum standards to reduce harmful emissions from vehicles, which were to be implemented over time by car manufacturers.

Between 2009 and 2014, Daimler, BMW, and the Volkswagen Group (which includes Volkswagen, Audi and Porsche) held regular technical meetings to discuss the development of the selective catalytic reduction ("SCR")'s technology to meet these EU regulatory requirements. This technology eliminates nitrogen oxide ("NOX") emissions from diesel passenger cars through the injection of liquid urea (also known as "AdBlue") into the gas stream.

Following inspections conducted in 2017, in July 2019 the European Commission adopted a Statement of Objections against the five car manufacturers. Its preliminary view was that they restricted competition on innovation for (i) SCR systems and (ii) Otto particle filters ("OPF") (which reduce particle emissions from the exhaust gases of new petrol passenger cars). The European Commission ultimately decided not to pursue the OPF-aspect further as it considered that the evidence was insufficient.

The decision

The Decision concludes that, for over five years, the car manufacturers agreed not to compete on exploiting SCR-technology's full potential above the minimum standards required by EU law. More specifically, they:

• agreed on AdBlue tank sizes and ranges until the next refill;
• reached a common understanding on the average estimated AdBlue-consumption; and
• exchanged commercially sensitive information on these elements.

The European Commission found that such conduct - which restricted competition on product characteristics relevant for the customers - constitute an infringement by object in the form of a limitation of technical development. While this type of infringement is explicitly referred to in article 101(1)(b) TFEU, this is the first cartel prohibition decision based solely on a reduction on technical development (and not on price fixing, market sharing or output limitation).

The European Commission imposed a total fine of EUR 875 million. In setting the level of the fine, it took into account 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 its geographic scope. Given the novelty of the theory of harm, the Commission reduced the fine for all parties by 20%. In addition:

• under the Leniency regime, Daimler received full immunity and the Volkswagen group benefited from a 45% reduction of the fine for its cooperation; and
• under the Settlement notice, all parties benefitted from a 10% reduction as they agreed to settle the case (and therefore to acknowledge their participation in the cartel and their liability for it).

Comment

As stressed by the European Commission's Executive Vice President Vestager, the decision is about "how legitimate technical cooperation went wrong". While recalling that "EU antitrust rules do not stand in the way of pro-competitive cooperation between competitors on R&D and product development", she warned that "companies must not coordinate their behaviour to limit the full potential of any type of technology". 

Given the novelty of the case, the European Commission provided guidance to the companies on aspects of their technical cooperation which raise no competition concerns, such as the standardization of the AdBlue filler neck, its quality standards, or the joint development of dosing software platform.

The decision and guidance letter, once published, will no doubt provide useful guidance on the boundaries between legitimate cooperation to achieve sustainability objectives and illegal collusion. 

With thanks to Jessica Bracker of Ashurst for her contribution.