Chillin'Competition

The (Extended) Fourth Chamber of the General Court annulled on Tuesday, for the first time, a Commission’s cartel settlement decision.The unusually brief Judgment is available here.

What happened in the case is essentially that, as if often happens with mono-product companies, the potential fines would have in principle exceeded the 10% turnover cap. In order not to exceed the said cap, the Commission granted reductions that ensured the fines would remain below it. The reductions granted were different for every company, but the fact is that the precise rates of reductions were undisclosed and that the decision did not explain the reasons for those differences (there was also one non-mono product company that benefited from an adjustment for equity reasons).The decreases in the fine resulted in adjusted basic amounts that revealed important discrepancies in terms of percentage as regards the 10% maximum.

According to yesterday’s Judgment, the Commission failed to meet its obligation to state reasons regarding the “weighting and assessment of the various factors taken into account in determining the amount of fines”, particularly when acting outside the framework set in the fining guidelines and in light of the obligation to have due regard to the principle of equal treatment. Since on the basis of this reasoning the parties would not have been able to dispute the merits of the decision with regard to the principle of equal treatment nor to ascertain whether equal treatment of different situations were objectively justified, the General Court annuls the decision.

A few comments beyond the newsletter headline:

A first, really? Actually, the issue had been brought to Court before in another settlement case (Euro Interest Rate Derivatives) but the appeal (by Société Générale) was withdrawn following an amended decision. It was then reported, however, that SG had submitted wrong turnover figures and that the new fine was calculated using new data but the same methodology as the earlier one. A related issue nevertheless did arise in Pilkington before the ECJ (see comment below) although it related to the General Court’s full jurisdiction rather than to the Commission’s fining powers.

–Is the General Court in annulment mood following the shortage of antitrust cases (only 11 last year)? Several judges (including Ian Forrester at the Chillin’Competition Conference) have recently encouraged more competition appeals and conveyed the message that companies and lawyers should not lose faith in the Courts and that appealing might well pay off. This could perhaps be seen as one more signal creating incentives.. Things may be different in the State aid front, particularly these days, given the political implications often at stake (some will understand what I mean).

-On the context and the effects on the Commission’s current policy. That fines reached the 10% used to be a bit of an oddity, but not so much for mono-product companies following the latest revision of the fining guidelines. This has given rise to concerns about compliance with the principle of non-discrimination between mono-product and non-mono product companies. Perhaps you remember that the impact of the current fining method was of particular concern to Commissioner Almunia. Back in 2011 he said in a few speeches that he was “examining how the mono-product ratio of companies – usually SME’s – can be taken into account when setting fines, so that they will not be treated in a discriminatory way”. The issue even attracted the attention of the European Parliament, which in a Resolution of February 2012 on the Commission’s competition annual report indicated that it “[a]waits an adaptation of the fining guidelines concerning ‘mono-product’ undertakings and SMEs, as announced by Commission Vice-President Joaquín Almunia“.In several cases (settlement or not) the Commission made sure to say that in those situations fines were reduced “taking into account the mono-product nature of the companies and their different degrees of involvement in the cartel” (see e.g. the window mountings). The policy, however, changed and the Commission does not do this anymore.

What now? The Commission is placed at a tough spot now if it wishes to grant reductions to mono-product companies or small and medium enterprises. And even if it does not, it still finds itself between a sword and a hard place in this case: what should it now do with the fine in this case? Paras 60-68 (in particular para. 66) of the Pilkington ECJ Judgment from September 2016 (which in a way may have anticipated this ruling) further complicate the issue as they could even suggest that reductions to mono-product companies are illegal (“the difference in the proportion represented by the fine in relation to the total turnover of the undertakings concerned does not, as such, constitute a sufficient justification for departing from the method of calculation that the Commission imposed on itself. That would be tantamount to conferring an advantage on the least diversified undertakings on the basis of criteria that are irrelevant in the light of the gravity and the duration of the infringement. When the amount of the fine is determined, there cannot, by the application of different methods of calculation, be any discrimination between the undertakings which have participated in an agreement or a concerted practice”). Admittedly the case law is not a paradigm of clarity in this regard.

–Reinterpreting the 10% limit? What it has seemingly done until recently is to (more or less, and in an admittedly opaque way) grant the reductions necessary for all companies to be below the cap (which necessarily implies very different reductions that are more related to turnover than to participation) and then, I guess, do some more or less sophisticated adjustments to reduce manifest differences in treatment between the different fined companies. The problem, of course, is that this reduction method may perhaps be commendable but cannot be exactly objective and proportionate and is therefore very hard to explain, as this case shows.

If from now onwards the Commission the Commission still wanted to reduce fines in this way (which, again, does not seem to be the case), then it would arguably have to set the max fine of 10% for the undertaking with the greatest turnover and participation, and none of the others could also reach the cap (unless their situation is pretty much the same as that of the “worst offender” in every case). Effectively, what this means is that at the very least in these cases the 10% limit would cease being a cap and will become the upper limit for the “worst” infringer. And this would somehow approach the re-interpretation of the limit to the interpretation given by the German Federal Supreme Court reinterpreted the cap in February 2013. As you may remember, despite the German cap being worded mirroring the EU text, the cap was reinterpreted as the maximum fining range precisely out of concern for discrimination of mono-product companies and SMEs (with the result that SMEs are now likely to face smaller fines and large companies, conversely, much larger fines).

In any event, and thinking about the bigger picture, it is pretty obvious that the 10% cap doesn’t guarantee that fines are no excessive or disproportionate to the finances of the sanctioned entity as it only looks at one –sometimes not useful- parameter of its financial status. Is it really a useful cap or should we think of alternatives?

–Judicial bias, really? -The reporting Judge in the case is Viktor Kreutschik, a former member of the Commission’s legal service whose appointment was doubted by some comments in this blog out of concern for a possible bias in favor of the Commission. As I wrote back then, it could actually be the other way around (see “Revolving doors: a contrarian view) and this Judgment suggests I may have had a point (for once). To be sure, I do have an issue with Judgments being annulled only for more or less important case-specific technicalities (I already said this not long ago, see here) and not so much when they deal with fundamental issues of principle and the stakes seem to be high (more on this coming soon).

–Want more? In the unlikely case that this post opened you appetite for more readings on fines, we suggest (aside from our usual self-promoted writings) that you take a look at this very recent OECD document.

-It’s all about the general principles. All these developments, by the way, confirm what I always say in my lectures on EU competition procedure, that when it comes to Court cases procedure (or rather general principles of law) often matters more than substance. So for more on this, we invite you to register for our module on procedure at the BSC 😉