Competition Law (Sanctions)

by Friedrich Wenzel Bulst

1. Scope, purpose and procedure

Competition (antitrust) law infringements can become an issue in a public law context as well as in a civil or criminal law context. Accordingly, the range of possible legal consequences of such infringements is broad. Public law sanctions may serve the purpose of bringing the infringement to an end, of restoring competition (competition (internal market)), of individual as well as general deterrence and of penalization. Generally, criminal law sanctions are equally aimed at individual and general deterrence as well as penalization. Civil law sanctions are, in principle, intended to compensate the victims of an infringement as well as to have an (individually and generally) deterrent effect. Under both Union law as well as under the national law of most Member States, it is subject to debate whether civil law may or should also have a punitive effect (competition law (private enforcement)).

European competition law (prohibition of restrictive agreements and exemptions; abuse of a dominant position), as laid down in Arts 101, 102 TFEU/81, 82 EC, is publicly (ie administratively) enforced by the European Commission as well as the Member States’ national competition authorities (competition law (procedure)). Criminal and private law sanctions for violations of Arts 101, 102 TFEU/81, 82 EC are only imposed by national courts and, occasionally, national competition authorities (competition law (private enforcement)).

Articles 101, 102 TFEU/81, 82 EC stipulate legal obligations and sanctions only for undertakings and associations of undertakings. According to the case law of the Union courts, the concept of an undertaking encompasses any entity engaged in an economic activity regardless of its legal status, the way in which it is financed and whether it pursues the aim to make a profit. Natural persons as such are thus not subject to Union competition law, if they act as directors or officers of an undertaking responsible for a competition law violation. Under many national laws, however, natural persons are subject to sanctions if they infringe national competition law and/or Union competition law.

The competition laws of the Member States are enforced solely by the national authorities and courts (competition law (procedure); competition law (private enforcement)).

2. Sanctions

a) Union law

Union law sanctions for violations are laid down in Art 101(2) TFEU/81(2) EC as well as in Reg 1/ 2003 in conjunction with the Commission’s new guidelines on setting fines.

Voidness: Pursuant to Art 101(2) TFEU/81(2) EC, any agreements or decisions prohibited under Art 101(1) TFEU/81(1) EC (prohibition of restrictive agreements and exemptions) are automatically void. This voidness pursuant to Union law only extends to those portions of agreements or decisions which fall under the cartel ban. The agreement is only void in its entirety under Art 101(2) TFEU/81(2) EC if the prohibited portion(s) cannot be separated from the remainder of the agreement (ECJ Case 56/65 – Société Technique Minière [1966] ECR 235, 250). Subordinated (downstream) contracts with third parties, eg a sales contract between a cartel member and its customer, are generally not covered by Art 101(2) TFEU/81(2) EC. Further legal consequences of Art 101(2) TFEU/81(2) EC, if any, must be determined according to national law.

Remedies: According to Art 7 Reg 1/2003 the Commission may require an undertaking responsible for an infringement to bring the infringement to an end and may impose all remedies proportionate (principle of proportionality) and necessary to bring the violation to an end. The Commission may thus not only oblige an undertaking to refrain from certain market behaviour but also impose concrete measures, such as the conclusion of licence agreements, the disclosure of certain information or the distribution of competing products. Such remedies are of particular importance in the context of Art 102 TFEU/82 EC (abuse of a dominant position). Remedies can be both of a behavioural or structural nature. Where there is a substantial risk of a lasting or repeated infringement that derives from the very structure of the undertaking, an infringement may be sanctioned by changing the structure of the undertaking concerned, ie by breaking it up (dissolution) (recital 12 of Reg 1/2003).

The Commission may also, if it has a legitimate interest in doing so, find that an infringement has been committed in the past. In cases of urgency, Art 8 Reg 1/2003 allows for the ordering of interim measures.

Undertakings may offer commitments in order to avoid the finding of an infringement. Pursuant to Art 9 Reg 1/2003, the Commission may make commitments binding on an undertaking if they meet the Commission’s competition concerns. Commitments may also provide for structural remedies.

Fines: Pursuant to Art 23 Reg 1/2003 the Commission may impose fines. Intentional or negligent infringements of Arts 101, 102 TFEU/ 81, 82 EC can attract fines of up to 10 per cent of the total turnover of the undertaking concerned in the preceding business year. According to the above-mentioned definition of ‘undertaking’, this 10 per cent cap (‘ceiling’) is applied in principle on the basis of the turnover of the entire group rather than the turnover of the subsidiary or subsidiaries immediately responsible for the infringement.

The method according to which the Commission sets fines is laid down in the fining guidelines of 2006, which have replaced the guidelines of 1998. According to the new guidelines, the Commission will multiply a proportion (generally up to 30 per cent) of the value of sales of the goods or services to which the infringement relates by the number of years of infringement. The turnover generated with the product in question is used as a starting point in order to take account (albeit approximately) of the economic importance of the infringement as well as the undertaking’s illicit profits and to thereby achieve a deterrent effect. When determining the adequate proportion of the value of the relevant sales, the Commission takes several factors into account, in particular 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 (such as a restrictive agreement) has been implemented. The Commission will (or may, depending on the nature of the infringement) then add a sum of between 15 per cent and 25 per cent of the value of sales (known as ‘entry fee’) irrespective of the duration of the infringement in order to discourage an undertaking from even a short participation in an infringement. The result of this addition is the so-called ‘basic amount’ which is subject to an increase or decrease on the basis of an overall assessment taking into account all relevant aggravating and mitigating circumstances.

The guidelines provide for a number of aggravating and mitigating circumstances, such as the role of the undertaking in the infringement (ringleader or instigator vs negligent and marginal participation only accompanied by competitive behaviour) and its conduct during the Commission’s investigation (obstruction vs cooperation outside the leniency programme (competition law (procedure)) beyond what is required by law). Recidivism may attract an increase of the basic amount by up to 100 per cent. In order to guarantee effective deterrence, fines to be imposed on undertakings which have a particularly large turnover beyond the sales of goods or services to which the infringement relates may be increased. Where the total amount calculated according to these principles exceeds the 10 per cent cap, the fine is reduced to the legal maximum. A fine may also be reduced if it would irretrievably jeopardize the economic viability of the undertaking concerned.

Under the Union courts’ case law the Commission may not depart from its guidelines without risking a breach of the general principles of law, such as equal treatment or the protection of legitimate expectations. The General Court of the European Union (GC) (formerly, CFI) and the European Court of Justice (ECJ) held with respect to the guidelines of 1998 that a prudent undertaking can foresee in a sufficiently precise manner the method and order of magnitude of the fines which it incurs for certain conduct. The fact that it may not, in advance, know precisely the level of the fines which the Commission will impose was not considered to constitute a breach of the principle that penalties must have a proper legal basis. Rather, due to the gravity of the infringements in question, the ECJ concluded that the objectives of punishment and deterrence justified foreclosing a scenario whereby undertakings could take account, in advance, of the amount of a potential fine and thoroughly assess the benefit from their participation in an infringement. (ECJ Case C-266/06 P – Evonik Degussa [2008] ECR I‑81 para 55; CFI Case T-279/02 – Degussa [2006] ECR II‑897 para 83).

The highest fine imposed so far for a violation of Art 81 EC/101 TFEU amounted to approximately €896 million (Saint-Gobain – car glass (2008); the total fine for the entire cartel added up to approximately €1.3 billion). The highest fine imposed so far for a violation of Art 82 EC/ 102 TFEU amounted to approximately €1 billion (Intel (2009)).

Undertakings which have committed an infringement may avoid or reduce a fine by participating in the Commission’s leniency programme (competition law (procedure)).

According to Art 23(5) Reg 1/2003, the Commission’s fining decisions are not of a criminal law nature. In view of the level of the fines this is occasionally put into question in appellate briefs and by commentators, in conjunction with calls for the direct application of the procedural rights stipulated in Art 6(3) ECHR (human rights and fundamental rights (ChFR and ECHR); European Court of Human Rights (ECtHR)) to the Commission’s competition investigations (competition law (procedure)). The applicability of the ne bis in idem-principle, however, is beyond dispute and, according to the ECJ, subject to the threefold condition of identity of facts, of the offender and of the legal interest protected. Under this principle it is thus prohibited to sanction the same undertaking more than once for the same illegal behaviour in order to protect the same legal interest. In case of competition law violations which may affect trade between Member States, not only the Commission but also the national competition authorities, according to Art 3(1) Reg 1/2003, apply Arts 101, 102 TFEU/81, 82 EC (potentially alongside national competition law) and thus the same legal rules.

Penalty payments: Article 24 Reg 1/2003 authorizes the Commission, inter alia, to impose periodic penalty payments on undertakings which do not comply with their obligations under Arts 7, 8 or 9 Reg 1/2003. Such payments can amount to up to 5 per cent of the average daily turnover of the undertaking in the preceding business year for each day of non-compliance. It is on this basis that the Commission imposed penalty payments of approximately €280 million (2006) and €899 million (2008) in its first Microsoft case (COMP/37.792).

Remedies: When an undertaking appeals a Commission decision in front of the Union courts, these review the legality of the decision (competition law (procedure)) and may annul, reduce or increase any fine or periodic penalty payment imposed, see Art 31 Reg 1/2003 and Art 261 TFEU/229 EC. Although the Union courts have acknowledged that the Commission enjoys a margin of discretion when setting fines, this margin is limited in particular by the principles of equal treatment and principle of proportionality.

b) National law

The national competition authorities enforce Arts 101, 102 TFEU/81, 82 EC following national procedural law (competition law (procedure)). Regulation 1/2003 obliges them to enforce these treaty provisions, and Art 5 Reg 1/ 2003 lists all the types of decision permissible in this context, which are identical to those that are at the Commission’s disposal according to the regulation (with the exception of the finding of an infringement committed in the past and the finding of inapplicability of the treaty’s competition rules pursuant to Art 10 Reg 1/2003 competition law (procedure)). Before Reg 1/ 2003 came into force, only half of the then Member States were authorized by national law to enforce Arts 101, 102 TFEU/81, 82 EC. In the meantime, all Member States have taken the measures necessary to ensure that the national competition authorities may adopt almost all of the decisions listed in Art 5 Reg 1/2003. Structural remedies can, however, only be adopted by about every second national competition authority. Penalty payments as envisaged by Art 24 Reg 1/2003 are also not available in all Member States.

Member States, in principle, apply identical legal sanctions and procedures to infringements of European and of national antitrust law. The sanctions provided for under national law include fines against undertakings (and sometimes natural persons) and at times, as an alternative, also the disgorgement of profits derived from a violation. In about two-thirds of the Member States there is a ceiling on fines equalling 10 per cent of the undertaking’s annual turnover. Methods for calculating the relevant turnover as well as the relevant reference period do, however, differ. Some of the Member States that have joined the Union in 2004 operate absolute caps (see 3. below). In a few Member States, such as the United Kingdom, Ireland, Romania and Estonia, directors and officers responsible for a cartel are subject to fines or imprisonment of up to five years. In other Member States, such as Germany, Austria and Hungary, criminal sanctions are limited to cases of bid rigging. In some Member States bid rigging may also result in an exclusion from public tenders for a defined period.

As regards civil law sanctions, including voidness pursuant to Art 101(2) TFEU/81(2) EC, under Art 6 Reg 1/2003 the national courts also have the power to apply Arts 101, 102 TFEU/81, 82 EC. According to the ECJ, any individual has a right to damages for loss caused to him by a violation of Arts 101, 102, TFEU/81, 82 EC (competition law (private enforcement)). Whether this right stems directly from Union law or whether there is (only) an obligation on Member States to provide for such a right is subject to some debate. The difference is, however, hardly of relevance in practice as, in the absence of relevant harmonization, the Member States are, within the limits of the principles of effectiveness and equivalence (principle of effectiveness), obliged to take the steps necessary to ensure the enforcement of this right in any event. In theory, victims of competition law infringements have a right to damages in all Member States. Yet in the majority of Member States this right is largely irrelevant in practice. The right to damages tends to be limited to compensation of damage incurred and is thus of a purely compensatory nature. Punitive damages have only been awarded in very isolated cases (competition law (private enforcement)).

3. Perspectives

In recent years, the level of the fines imposed by the Commission has increased. While the General Court used to only make small corrections regarding the level of fines imposed by the Commission, which mainly consisted of limited decreases, there now appears to be a tendency towards a more comprehensive review, which also entails an increase of fines (CFI Joined Cases T‑101/05 and T‑111/05 – BASF [2007] ECR II‑4949).

Convergence and remaining differences:Since Reg 1/2003 came into force, there has been considerable convergence regarding the sanctions available to national competition authorities towards the standard set by the regulation. This development is most notable with respect to the power to take interim measures, make commitments binding and—although in this respect convergence is least advanced—impose structural remedies.

As regards the methods for setting fines, less than half of the national competition authorities use guidelines which provide for a step-by-step approach starting with a basic amount that is subject to a number of adjustments (as the Commission’s guidelines do). The remaining national competition authorities take a number of criteria into account, the relative weight of which is not, or is not as, strictly determined. Further divergences relate to the calculation of the basic amount, if there is one at all, and to the definition of the turnover relevant for determining the maximum fine to be imposed (cap).

Despite these differences, there is also a considerable degree of convergence in the area of fines. There is widespread agreement on the importance of the turnover generated with the product to which the infringement relates for the purpose of setting fines. All Member States with the exception of Denmark provide for a cap on fines. These caps are mostly expressed in terms of turnover (and are thus not absolute). This suggests that there is broad consensus regarding the aim of achieving individual and general deterrence through fines. In addition, the list of relevant aggravating and mitigating circumstances (see 2. a) above) is largely identical in all Member States even if their relative weight may vary. In May 2008, the working group ‘sanctions’ of the European Competition Authorities (ECA), a discussion forum composed of the competition authorities of the EEA Member States, the Commission and the EFTA surveillance authority, adopted non-binding recommendations on the setting of fines in competition cases against undertakings with the aim of aligning the level of fines imposed by the ECA members (Principles for Convergence).

In April 2009, the Commission published a report on the functioning of Reg 1/2003 which concludes that the regulation has contributed to stronger enforcement of the European antitrust rules. The report identifies a limited number of areas meriting further evaluation. These include remaining instances of divergence between national enforcement regimes regarding both fining policies as well as matters such as the liability of undertakings and the succession of undertakings, prescription periods and standards of proof.

Literature

Dorothe Dalheimer, Christoph T Feddersen and Gerald Miersch, ‘EU-Kartellverfahrensverordnung—Kommentar zu VO 1/2003’ in Eberhard Grabitz and Meinhard Hilf, Das Recht der Europäischen Union—Nach Art. 83 EGV (2005) (special edition); Wouter PJ Wils, Principles of European Antitrust Enforcement (2005); Philip Lowe and Frank Maier-Rigaud, ‘Quo Vadis Antitrust Remedies’ in Barry Hawk (ed), International Antitrust Law & Policy: Fordham Competition Law (2007) 597; ECA, ‘Pecuniary Sanctions Imposed on Undertakings for Infringements of Antitrust Law, Principles for Convergence, May 2008’ <www.nmanet.nl/‌Images/‌ECA%20Principles_tcm16-117437.pdf>; Heribert Franz Koeck and Margit Maria Karollus (eds), The Modernisation of European Competition Law—Initial Experiences with Regulation 1/2003, FIDE Congress 2008, vol 2 (2008); Callum Campbell (ed), Cartel Regulation (2009); Per Hellström, Frank Maier-Rigaud and Friedrich Wenzel Bulst, ‘Remedies in European Antitrust Law’ [2009] Antitrust Law Journal 43; European Commission, ‘Communication from the Commission to the European Parliament and the Council, Report on the Functioning of Regulation 1/2003’ (COM(2009) 206 final, 29 April 2009) and accompanying Staff Working Paper <http://ec.europa.eu/‌competition/‌antitrust/‌legislation/‌regulations.html>; Wouter PJ Wils, ‘The Increased Level of EU Antitrust Fines, Judicial Review, and the ECHR’ [2010] World Competition 5.