The European Commission Gets Tough—Fines Are Set to Rise
June 29, 2006
On 28 June 2006, the European Commission (Commission) adopted revised guidelines on setting fines for infringements of the prohibition under EC competition law of cartels and other anti-competitive conduct. In recent years, the Commission has increased the level of fines it has imposed. For example, in May 2006 it imposed fines of €344.5 million on producers of acrylic glass for price fixing. This is the fourth largest cartel fine that the Commission has imposed. (The collective penalty of €855 million against the members of the Vitamins cartel in 2001 still remains the largest fine ever imposed by the Commission). Despite these substantial fines, the Commission considers that it is being too lenient on offenders. With the publication of these revised guidelines, it sends out a clear warning to companies that they will face even more severe penalties for violations of EC competition law.
The guidelines set out a new framework for the calculation of fines. Going forward, the Commission will seek to ensure that any fines imposed carry sufficient weight to constitute a real deterrent. It will also consider the markets and products affected by the infringement and the duration of the illegal activity in setting a fine of an appropriate magnitude to deter any future activity. In addition, although the maximum level of the fine (10 per cent of the group’s total worldwide turnover in the previous financial year) remains unaffected, it is anticipated that fines may now actually approach this level as a matter of course.
In adopting the revised guidelines, the Commission has drawn from its experience over the last eight years applying the current rules. Under those rules, fines are calculated using a formula whereby the Commission sets a basic amount which will then be adjusted to reflect aggravating or mitigating circumstances. Three key changes to the existing policy will be introduced:
- The basic level of the fine will take into account the value of sales made in the product areas affected by the illegal activity and its duration. As a general rule it is expected that the proportion of the value of sales taken into account will be up to 30 per cent of the value of sales, and the amount will be multiplied by the number of years of participation in the infringement.
- The most serious infringements of competition law—horizontal price-fixing, market sharing and limiting production—will receive the most severe punishment; whereby the cartel participants will also be fined an “entry fee” of between 15 to 25 per cent of annual revenues in the relevant market (other infringements may also be subject to this additional amount).
- Repeat infringers will face a significant increase in the level of fines with the basic level of the fine increasing by up to 100 per cent (departing from existing practice of increasing the fine by 50 per cent).
Other factors, including a failure to cooperate or acting as a leader in the infringement, will also support an increased fine. Conversely, full cooperation, providing evidence of limited participation or evidence of termination of the infringement as soon as the Commission has intervened, will secure a reduced fine.
The adoption of these guidelines is intended to send a clear message to companies doing business in Europe—“Don’t break the antitrust rules”. Failure by companies to comply with European and other competition laws will result in severe sanction. In addition to higher fines, Competition Commissioner Neelie Kroes has also been vocal in promoting private antitrust damages actions against EU antitrust offenders. Add to this the criminal penalties which can be imposed on individuals in the United Kingdom and other EU Member States, and it can be seen that the stakes are clearly being raised. Compliance is key—any other course is an increasingly high-risk game.
