This paper, available here, provides a brief overview of a number of important issues regarding fining in Europe up to 2018. There is no specific argument being made, just an overview of the state of play at the time this paper was published.
Section I discusses how the statute of limitations affects fine amounts.
The Commission’s power to impose fines for substantive infringements is subject to a 5-year limitation period from the date the infringement was committed – or, in the case of a continuing or repeated infringement, from the date when the infringement ceased – unless formal steps to investigate or prosecute the infringement have been taken by a competition authority during that period.
Each interruption produces effects erga omnes, in so far as the limitation period starts running afresh in respect of all undertakings that participated in the infringement. Furthermore, the fact that the conduct of subsidiaries falls outside the scope of the statute of limitation does not preclude proceedings from starting against their parent company, in respect of which the limitation period had not expired – even when the parent company’s liability was wholly-derived from that of its subsidiaries.
Sections II to IV focus on how correctly to calculate fines in light of the available guidelines.
The Commission enjoys a significant margin of appreciation when it sets fine amounts, even if its scope of action is nevertheless limited by objective criteria by which the Commission has to abide – including the maximum legal fine, fining guidelines and leniency notices – and which are controlled by means of the EU Courts’ unlimited jurisdiction. The mere fact that undertakings are not able to know precisely the level of fines that the Commission will adopt in each individual case does not call into question their legality. Nor does the retroactive application of the fining guidelines infringe the principle of legal certainty.
To determine the basic amount of the fine, the Commission first calculates ‘the value of sales’, which is generally considered the best proxy for the economic impact of the sanctioned conduct and the relative weight of each participant in the infringement. In exceptional cases, the value of sales may not be an appropriate proxy. For example, in some cartels that fix purchase prices, the Commission has chosen to rely on the value of purchases instead.
A particular challenge in this regard has been whether (and how) to take into account sales outside the EEA – in particular whether sales of cartelised products to an undertaking located outside the EEA, which then incorporates the products into finished goods sold within the EEA, are relevant for the purposes of calculating the amount of cartel fines. The European courts have recently answered ‘no’ to this question as regards the LCD cartel. On the other hand, the courts also held that sales of cartelised products outside the EEA to another company of the same economic group, who then incorporates them into finished products sold within the EEA, are relevant for this calculation. Nonetheless, the court left open a number of questions as to how this calculation is to be done – questions which are likely be addressed in the forthcoming Airfreight appeals.
Once the relevant value of sales is identified, the Commission will identify a share of this value that reflects the gravity of the infringement. This will usually be 30% for cartels, for which an ‘entry fee’ will also be added. Case law has displayed a focus on the nature of the infringement as the main, if not the sole, criterion for assessing the gravity percentage and ‘entry fee’ – to the detriment of alternative criteria such as the number of product lines or geographical markets affected.
The amount reached at this stage is then multiplied by the number of years of infringement.
To this ‘basis amount’ are then added aggravating and mitigating factors. The authors note that the European courts seem to be taking an increasingly strict approach with respect to mitigating circumstances. For example, circumstances such as playing an exclusively passive or follow-my-leader role in the cartel, which were listed in the 1998 Guidelines, but not in the 2006 Guidelines, no longer constitute a mitigating circumstance. In spite of this restrictive approach, the Commission seems prepared to be more lenient and has granted a number of discounts for limited participation in a cartel.
The fine amount may not, in any event, exceed 10% of the fined undertaking’s total annual turnover. With recent increases in fine amounts, this threshold has become an issue invoked in a number of recent appeals. The courts have dismissed challenges regarding the disparate impact that the fine calculation method has on mono- and multi-product firms, in particular arguments that the former are sanctioned disproportionately. The courts have also established that, when an undertaking responsible for an infringement has been acquired by another undertaking during the course of the infringement, the 10% ceiling must be applied to the subsidiary’s turnover alone in respect of the unlawful acts committed before the acquisition. On the other hand, the 10% ceiling must be applied to the whole undertaking’s turnover for the acts committed after the acquisition.
An issue related to increasing fine amounts is inability to pay. The Commission may, upon request, take into account an undertaking’s inability to pay if a company faces (i) an insuperable difficulty in paying the fine and (ii) a specific social and economic context. These conditions are strictly evaluated by the courts, and the Commission seems to only take these concerns into account sparsely. Nevertheless, the Commission’s findings are not necessarily final, as a worsening of the financial situation of an undertaking may lead to a request to re-assess the situation.
Section V focuses on joint and several liability, in particular on how European courts have recently reaffirmed that joint liability applies to undertakings (understood as corporate groups), as opposed to the companies that form them. Consequently, the Commission’s power to impose penalties does not extend to determining the shares to be paid by those held jointly and severally liable from the perspective of their internal corporate structure.
Section VI deals with fines other than for competition infringements, while section VII deals with the principles governing the payment of fines, and I will skip them.
Section VIII looks at the judicial scrutiny of fines.
The General Court’s unlimited jurisdiction as regards fines consists in ‘carrying out an in-depth review both of the legality of the contested decision and of whether the amount of the fine set out in that decision was appropriate’. However, neither the exercise of the General Court’s review of legality nor its unlimited jurisdiction as regards fines can amount to a review of its own motion.
The General Court alone has jurisdiction to examine how the Commission appraised the gravity of unlawful conduct. The Court of Justice will ensure that the General Court took into consideration, all the essential factors to assess gravity and that it addressed, to the requisite legal standard, all the arguments raised by the appellant with a view to having the fine cancelled or reduced. However, the Court of Justice will not substitute, on grounds of fairness, its own assessment for that of the General Court. Despite this apparently constrained scope of review, the Court of Justice has not shied away from verifying that the General Court carried out an in-depth review of both the legality of the contested decision and level of the fine.
This paper provides a good overview of a number of issues that arise when imposing fines for competition infringements in Europe. However – and this is solely my fault – it is already a bit out of date, given recent developments such as the European court decisions in HSBC and Printeos (to mention only a couple of cases decided in the past month alone).