German carmakers' EU probe may spark debate on invoking 'innovation' harm

21 September 2018 10:30am

18 September 2018. By Lewis Crofts, Matthew Newman and Nicholas Hirst

The European Commission’s probe into five German carmakers for alleged collusion over the rollout of new emissions technology may spark a new fight over the role of innovation in antitrust cases.

The commission said today it had opened an in-depth probe into discussions between the “circle of five” — BMW, Daimler, Volkswagen, Audi and Porsche — over allegations they colluded to impede the development of technologies to reduce harmful car exhaust emissions in gasoline and diesel passenger cars.

The commission says the carmakers’ actions harmed innovation by dampening technical development. This emphasis — rather than a traditional antitrust probe into price fixing or market sharing — is bound to stir debate because of the difficulty in showing that the behavior actually had an effect on the technologies’ development.

Competition Commissioner Margrethe Vestager acknowledged the novelty of the case during a conference* at the European Parliament today. She said officials suspected that the carmakers had colluded in “not using the best possible technology to limit air pollution.”

“This is a new thing, because this is not a suspicion of collusion of setting prices, or disabling choice as such,” Vestager said. “Having a cartel is much more than just agreeing on prices.”

Lawyers for the carmakers, though, could argue that the goal of competition law enforcement is to crack down on collusive behavior, not to go after companies for failing to develop new technologies to improve the environment.

One problem the commission may face is trying to prove that the companies’ innovation was actually harmed by their meetings on the development of technology to reduce harmful car exhaust emissions.

If the companies hadn’t worked together, it’s possible that the development of the emissions technology would have been done at a much higher cost, leading to more expensive cars.

— Leniency applications —

The initiation of formal proceedings comes after two companies — Daimler and, reportedly, VW — sought leniency by revealing more than a thousand meetings between the companies over a litany of technical subjects, ranging from maximum speeds for cruise control to how to improve crash tests. The allegations were reported by Der Spiegel in July 2017, which said the discussions began in 2006.

Daimler has been granted full immunity from fines, MLex understands.

After collecting evidence during dawn raids against the five companies just under a year ago, investigators have whittled down their possible concerns to focus on those meetings discussing the deployment of a single system designed to reduce diesel cars’ nitrogen oxide emissions, and filters designed to reduce particle emissions from gasoline engines.

Among other things, the companies discussed the injection strategy and the size of tanks for AdBlue, a fluid that cleans diesel exhaust. Smaller tanks meant more space for other features. The AdBlue technology has been an international standard since 2006.

Investigators suspect participants sought to hamper innovation in this area. They consider the case a possible “by-object” antitrust violation, which would exempt the commission from having to show a negative effect on the market or on innovation.

The companies’ defense may rest in portraying the discussions as genuine attempts to improve the technology. The commission’s challenge will be to prove that innovation was harmed.

Similar reasoning led investigators to conclude that they were un-concerned with many other discussions between the “circle of five.”

The commission said those meetings, discussing topics from cruise control to crash tests, sought to improve the companies’ end products.

The probe bears no relation to revelations that a number of car makers used defeat devices to hide their cars’ emissions, which has become known as the Dieselgate scandal. It also deals strictly with EU air pollution standards.

— Innovation effects —

This not the first time commission cartel investigators have scrutinized a behavior’s possible effect on innovation. The issue also featured, though to a much smaller degree, in the recent ruling against a trucks cartel, where producers coordinated the introduction of new technology to comply with emissions standards.

However, recent moves by the commission to pay greater attention to innovation in merger cases have generated controversy.

When assessing the merger between Dow and DuPont, investigators said the merger could reduce future innovation in the market, prompting the parties to sell R&D facilities. Critics said the commission’s assessment was too speculative and that it was ill-placed to predict how innovation would unfurl.

Any predictions about how emissions technology would have developed in the absence of the talks between the carmakers will put the commission back in that controversial space.

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