New German Cartel Fine Guidelines

by McDermott Will & Emery
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The German Federal Cartel Office has just published new Guidelines on the Setting of Fines for antitrust law infringements.  With these guidelines, the German Federal Cartel Office departs from the method of setting fines used by the European Commission and other national competition authorities in Europe. As a result of the new guidelines, the potential liability for multi-product firms whose infringement concerned only a specific product in their portfolio and whose other products achieve significant turnover may increase.

The German Federal Cartel Office has published new Guidelines on the Setting of Fines for antitrust law infringements, implementing the German Federal Court of Justice’s recent decision, according to which the 10 per cent maximum fine does not constitute a cap but the upper limit of the fining range.

According to the German Act against Restraints of Competition, the fine imposed for an infringement of EU or German competition law must not exceed 10 per cent of the total turnover of an undertaking or an association of undertakings achieved in the business year preceding the decision of the authority. In its previous guidelines on the setting of fines for antitrust infringements, the FCO has interpreted the 10 per cent rule as a cap. This is common practice, e.g., for the European Commission and competition authorities in other EU Member States. In a 26 February 2013 decision concerning a cement cartel, the German Federal Court of Justice interpreted the 10 per cent rule not as a cap but as the upper limit of the fine range laid down by the law. Now the German Federal Cartel Office (FCO) is legally required to impose fines up to the maximum value for serious infringements and to exhaust the full range of fines. This necessitated a conceptual overhaul of the previous guidelines on the setting of fines.

The new guidelines determine the fine by the application of a two-step test: (i) determination of a fine range with an upper limit of 10 per cent of the group’s total annual worldwide turnover, and (ii) determination of the fine with an overall assessment of factors concerning the infringement and the infringer.

Determining the Fine Range

In the first step, in determining the fine range, the 10 per cent rule sets the absolute upper limit. Thus, e.g., if a company has an annual worldwide turnover of EUR 20 billion, the upper limit will constitute EUR 2 billion. Given this upper limit, the range of the fine is furthermore determined by the following:

  • The “gains and damages potential”, depending on German turnover relating to the infringement, and 
  • A factor depending on the total worldwide turnover of the group

The FCO generally assumes that the “potential gains and damages” make up 10 per cent of the German turnover of products and services related to the infringement and achieved during the period of the infringement. Thus if, e.g., the infringement relates to a German annual turnover amount of EUR 20 million and the infringement period spans two years, the gains and damages potential will be EUR 4 million (EUR 20 million x two years x 10 per cent).

This calculated “gains and damages potential” is then multiplied by a factor of two more based on the overall group turnover, as set out in the following table.

 Factor   

2-3 

3-4 

4-5 

5-6 

>6 

Total group turnover in EUR Less or equal to 100 million 100 million up to 1 billion  1 billion up to 10 billion 10 billion up to 100 billion  More than 100 billion

Thus in our example (assuming a group turnover of EUR 20 billion, German turnover relating to the infringement of EUR 40 million, and thus damages and gains potential of EUR 4 million), the FCO would consider a fining range of up to EUR 20 million, as follows:

  • Group turnover of EUR 20 billion: factor 5
  • German turnover relating to the infringement (annual turnover of EUR 20 million over 2 years): gains and damages potential of EUR 4 million.
  • EUR 4 million times factor 5: Fining range of EUR 20 million

The Guidelines state that this fine range of EUR 20 million may only be exceeded under particular circumstances, especially in case of a much higher gains and damages potential, which would have to be demonstrated in each individual case.

If in a specific case this calculation leads to an amount exceeding 10 percent of the group’s worldwide turnover (in our case EUR 2 billion), the fining range would not exceed the 10 percent rule, and would thus be “capped”.

Aggravating and Mitigating Factors

In a second step and on the basis of the fine range according to the method described above, the FCO takes into account the aggravating and mitigating factors concerning the infringement and the infringer.

  • Factors in relation to the infringement are, e.g., the nature and duration of the infringement, qualitative influencing factors (such as geographical reach of the concerned markets and significance of the companies party to the infringement), significance of the markets and the degree of organisation among the participants. Hard-core restrictions will be generally placed at the upper end of the range.
  • Factors in relation to the infringer are, e.g., the role of the company in the cartel, its position in the relevant markets, and the degree of intent or negligence. The FCO does take into account the economic capacities of the company.

The rules on taking into account leniency and settlement agreements remained unchanged. If a company that has participated in the infringement submits an application for leniency, it may still benefit from a waiver or a reduction of the fine. Moreover, a 10 per cent reduction of the fine may be granted under a settlement agreement.

What Has Really Changed

In practice, the new Guidelines will not constitute a radical departure from the old system. Although the philosophy behind the 10 per cent rule is fundamentally different, the FCO will still depart from the German turnover relating to the infringement. While under the old system, the FCO would start with a fine amount of up to 30 per cent of this amount, it will now generally take 10 percent of this amount as a starting point. Under the old system, the FCO would then be able to apply a deterrence factor of two (100 percent) taking into account the size of the group. In the new system, the size of the group is taken into account with factors of two or more, potentially stretching the fining range beyond a factor 6. The aggravating and mitigating factors will then be taken into account.
The following table sets out a comparison between the old and new systems.  

 

Old System

New System

Basic amount

German turnover relating to infringement (GT) 

German turnover relating to infringement (GT)

Percentage of basic amount

 0-30

 10

Factor

 2 (deterrence)

 = 2

Fine Range

 < GT x 0.6

 GT x 0.2 to > GT x 0.6

Other factors     

 Aggravating and mitigating

Aggravating and mitigating

Absolute maximum

10 per cent of group worldwide turnover

10 per cent of group worldwide turnover 
 

Thus, in most cases, the fine range will not be fundamentally different from the fine range under the old system. However, the comparison also shows that for large companies with multi-product offerings, the fine range may be closer to the 10 per cent rule as before. The cap of 10 per cent was often not applicable to such firms because the calculation of the overall fine even in the case of hardcore cartels led to a fine amount well below that threshold. Smaller companies (in particular those which mainly sell one product), on the other hand, are likely to receive lower fines than before.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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