Commission Guidelines Fines Competition Infringement

28 July 2006

Wilko Van Weert

July 2006

On 28 June 2006, the Commission adopted new Guidelines on the method of setting fines for companies that infringe the EU competition law rules. The Guidelines revise those adopted in 1998 (the validity and application of which had been upheld many times by the European Courts) in an attempt to increase the deterrent effect of the fines. The Guidelines will not affect National Competition Authorities, who retain full discretion over fining, even when they are applying Articles 81 and 82 EC. The Guidelines introduce a new method for calculating fines and a more severe penalty for repeated infringers.

As before, companies may be fined up to 10 per cent of their total annual turnover (see Article 23(2)(a) of Council Regulation 1/2003). This ceiling, however, has never been reached in any case of EU competition law infringement.

Within this limit, the new Guidelines provide that fines will be based on up to 30 per cent of a company’s annual sales to which the infringement “directly or indirectly relates”, multiplied by the number of years of participation in the infringement (1). Moreover, a part of the fine – the so-called “entry fee” – may be imposed irrespective of the duration of the infringement (2). Finally, repeat offenders will also be fined more than in the past (3). As Competition Commissioner Neelie Kroes pointed out, this adds up to a three pronged attack on infringing behaviour, the message being: don’t break the competition law rules; if you do, stop it as soon as possible; and do not break them again.

It is expected that if fines are based on a percentage of the actual annual sales in the relevant market (as opposed to a lower proportion of the total turnover of the company) the deterrent effect will increase. The Commission may impose a fine representing up to 30 per cent of such related sales. In order to decide whether the proportion of the value of sales to be considered in a given case should be at the lower end or at the higher end of that scale, the Commission will have regard to a number of factors, such as the nature of the infringement, the combined market share of all the undertakings concerned, the geographic scope of the infringement and whether or not the infringement has been implemented. In order to fully reflect the duration of the infringement, this amount will be multiplied by the number of years of participation in the infringement (by a half-a-year factor if less than six months). Under the 1998 Guidelines, the starting point of the fine was based on a lump sum, varying with the seriousness of the breach, to which a 10 per cent uplift was added per year of infringement.

In addition to this basic fine, the Commission may add a sum equal to 15 to 25 per cent of the yearly relevant sales, regardless of the duration of the infringement (the “entry fee”). This entry fee will only apply to certain very serious infringements, against which the Commission wants to have an additional deterrence. For example, the mere fact that a company enters into a cartel could “cost” it at least 15 to 25 per cent of its yearly turnover in the relevant product.

In respect of repeat offenders, the Commission wishes to strengthen the deterrent effect of the measures available. In addition to its own past decisions involving a particular party, the Commission will now also take into account decisions of National Competition Authorities applying the EU rules to establish whether the party is a repeat offender. The maximum fine increase for repeating an infringement has been doubled from 50 to 100 per cent of the basic fine. Other considerations, such as aggravating and mitigating circumstances, will continue to be applied.

The 2002 Leniency Notice will also continue to apply as before, rewarding companies which, in cartel cases, co-operate with the Commission, thereby justifying an immunity from fines or reduction of the fine set in accordance with the new Guidelines adopted.

The new Guidelines will enter into force as soon as they are published in the EU Official Journal in all official languages of the Union, which is expected within the next month or so. From then on, the Guidelines will apply to every anti-trust fining decision for which a Statement of Objections is notified to parties. Note that the Guidelines do not apply to fines imposed by the Commission for failure to comply with a decision (‘periodic penalty payments’), provided for by Article 24 of Regulation 1/2003.

Source: The English text of the new Guidelines can be found on the website of the Commission at: German and French versions are also available.