Chillin'Competition

The Court of Justice was in a facetious mood yesterday. It’s latest joke is plain excellent.

Here’s the background: In Commission / Alrosa, the Court was asked to rule on Article 7 (Finding and termination of infringement) and 9 (Commitments) of Regulation 1/2003.

Now,  the Court’s joke goes as follows:

“Those two provisions of Regulation No 1/2003, as noted in paragraph 38 above, pursue different objectives, one of them aiming to put an end to the infringement that has been found to exist and the other aiming to address the Commission’s concerns following its preliminary assessment”.

[… Laughter …]

And the upshot of this:

“47. There is therefore no reason why the measure which could possibly be imposed in the context of Article 7 of Regulation No 1/2003 should have to serve as a reference for the purpose of assessing the extent of the commitments accepted under Article 9 of the regulation, or why anything going beyond that measure should automatically be regarded as disproportionate. Even though decisions adopted under each of those provisions are in either case subject to the principle of proportionality, the application of that principle none the less differs according to which of those provisions is concerned.

48. Undertakings which offer commitments on the basis of Article 9 of Regulation No 1/2003 consciously accept that the concessions they make may go beyond what the Commission could itself impose on them in a decision adopted under Article 7 of the regulation after a thorough examination. On the other hand, the closure of the infringement proceedings brought against those undertakings allows them to avoid a finding of an infringement of competition law and a possible fine”.

On this later §, read again recital 13 of Regulation 1, which says that “Commitment decisions are not appropriate in cases where the Commission intends to impose a fine“.

(Image possibly subject to copyrights: source here)

In a decision adopted last Weds, the Commission has put a dent into its conservative position that firms participating to cartels ought not to benefit fines reductions on grounds of  financial difficulties. The decision relates to a cartel in the bathroom equipment sector. Hereafter, a quote from the press release:

More exceptionally, the fines of three companies were reduced by 50% and those of another two by 25% given their difficult financial situation. A total of ten companies claimed they would be unable to pay a fine: to assess their claims, the Commission looked at recent financial statements, provisional current year statements and future projections, several financial ratios that measure a company’s solidity, profitability, solvency and liquidity, and relations with banks and shareholders. The Commission also looked at the social and economic context of each company. Finally, the Commission assessed whether the companies’ assets would be likely to lose significant value if the companies were to be forced into liquidation as a result of the fine. The analysis is company-specific and aims to be as objective and quantifiable as possible to ensure equal treatment and preserve the deterrence aspect of EU competition rules.

Obviously, this will not come as a surprise to those familiar with the 2006 Guidelines on fines, which expressly provide for such reductions:

F. Ability to pay

35. In exceptional cases, the Commission may, upon request, take account of the undertaking’s inability to pay in a specific social and economic context. It will not base any reduction granted for this reason in the fine on the mere finding of an adverse or loss-making financial situation. A reduction could be granted solely on the basis of objective evidence that imposition of the fine as provided for in these Guidelines would irretrievably jeopardise the economic viability of the undertaking concerned and cause its assets to lose all their value.

Yet, this decision contrasts with (i) the tough stance on fines that prevailed until recently at DG COMP; and (ii) the Commission’s commitment to keep competition enforcement unaltered in times of crisis.

On top of this, the Commission’s decision will surely add to the debate that is currently raging in France. In CA Paris, 19 janvier 2010 AMD Sud Ouest, Arcelor Profils et autres c Conseil de la concurrence, the Court of Appeals of Paris has reduced the fines imposed by the NCA by €500,000,000 on the ground – inter alia – that the NCA had not sufficiently considered the effects of the ongoing crisis on the infringing firms.

(Image possibly subject to copyrights: source here)