UK’s Top Antitrust Regulator Issues New Fines Guidance: Penalties to Better Reflect the Impact of Relevant Conduct
On 10 September 2012, following extensive consultation and in the wake of a number of judgments overturning fining decisions, the United Kingdom’s Office of Fair Trading (OFT) issued revised guidance on how it will set penalties for antitrust infringements. The revised guidance brings the UK approach into line with the fining policy of the European Commission and several other competition authorities.
Deterrence of anticompetitive conduct is seen to be key under the revised OFT guidance, as is the objective of ensuring that the seriousness of a relevant infringement is reflected adequately but proportionately in the final value of any fine. Although the revised guidance deals with how financial penalties will be imposed on companies, these penalties must be seen alongside the criminal sanctions that can be imposed on individuals who have engaged in cartel conduct such as price fixing and market sharing in the United Kingdom. What emerges from the revised guidance is that fines may in some circumstances be more severe than under the previous UK antitrust fines regime. Real compliance efforts, on the other hand, may still be looked upon with favour, an approach that stands in contrast with the European Commission's approach to fines.
The Revised Guidance on Fines
The revised guidance lays down a number of factors for calculating the final amount of the fine. Reaching the final total involves a six step process. The first step involves the calculation of the basic fine, having regard to the seriousness of the infringement and the relevant turnover of the company. The subsequent five steps involve adjustments for specific factors as follows:
To reflect the duration of the offence
To reflect aggravating or mitigating circumstances
To ensure that it will have an adequate deterrent effect, while being proportional
To ensure the maximum penalty of 10 per cent of the worldwide turnover of the company is not exceeded, the fine will be adjusted downward if this is the case
To reflect any discounts for leniency and/or settlement, as well as financial hardship.
1. The starting point
The base level of the fine is calculated with reference to both the seriousness of the infringement and the relevant turnover of the company. The OFT will set the fine at a rate of up to 30 per cent (up from a maximum 10 per cent under the previous fining regime) of the relevant company’s turnover in the relevant product and geographic market affected by the infringement in the company’s last business year.
The OFT will set the fine at the upper limit (i.e., 30 per cent) where a company has committed a particularly serious violation of the competition rules, such as price fixing, market sharing and predatory pricing by companies in a dominant position. In assessing the seriousness of a relevant infringement, the OFT will take into account factors such as the nature of the product and the market shares of the company, the harm incurred by consumers and the need to send a message to other companies that relevant anticompetitive conduct will not be tolerated.
The base fine may be increased or reduced depending on the duration of the infringement in question. In the case of infringements lasting for more than one year, the base fine cannot be multiplied by more than the number of years of the infringement; parts of a year may be treated as full years for the purpose of calculating fines. In exceptional cases, the starting point may be decreased where the duration of the infringement is less than a year.
3. Aggravating or mitigating circumstances
The base fine can be increased further if there are aggravating circumstances, or lowered if there are mitigating circumstances.
The OFT has identified several circumstances that it will consider to be aggravating:
Persistent and repeated unreasonable behaviour that delays the OFT’s enforcement action. According to the OFT, this includes behaviour where, for example, the company under investigation disrespects OFT time limits, or otherwise “persistently” delays the OFT’s investigation. The OFT has, however, stated expressly that the full exercise of a party’s rights of defence is not considered unreasonable behaviour.
Acting as a leader, or instigator, of the infringement, i.e., the company was a “ringleader”.
The involvement of directors or senior management in the infringement.
Engaging in retaliatory or coercive measures against other companies in order ensure the continuation of the infringement.
Continuing the infringement after the OFT commences its investigation.
Repeated infringements by the same company.
The infringement is intentional, rather than merely negligent.
Engaging in retaliatory or coercive measures against a leniency applicant.
The OFT has identified a somewhat shorter list of mitigating factors. These include situations where the company under investigation
Acted under “severe duress” or pressure
Was genuinely uncertain as to whether the agreement or conduct at issue constituted an infringement of competition law
Took “adequate steps” to ensure compliance with Articles 101 and 102 of the Treaty on the Functioning of the European Union and the Competition Act Chapter 1 and Chapter 2 offences
Terminated the infringement as soon as the OFT intervenes
Cooperated with the OFT, enabling the enforcement process to be concluded more effectively and/or speedily.
The OFT’s stance vis-à-vis compliance programmes, which follows extensive OFT efforts to make business aware of the advantages of compliance, stands in contrast to that of the European Commission, which does not give any reduction for compliance programmes. To qualify for a reduction of up to 10 per cent of the total fine based on compliance efforts under the UK guidance, the OFT has stated that it is not enough to merely have a compliance programme in place. Rather, the party seeking a reduction in fine on account of compliance efforts must produce evidence of an “unambiguous” commitment to competition law compliance throughout the entire organisation, and evidence of having taken appropriate steps relating to competition law risk identification, risk assessment, risk mitigation and review activities.
4. Deterrence and proportionality
The size of the penalty imposed at this stage of the construction of the fine may be increased to ensure the penalty has a deterrent effect on the infringing company. Account will be taken, for example, of the specific size and financial position of the company. At this stage, the OFT will also ensure that that the overall penalty is appropriately proportionate.
5. Maximum penalty of 10 per cent of worldwide turnover
The final amount of the penalty calculated may not, in any event, exceed 10 per cent of the company’s worldwide turnover in its last business year. In order to ensure this, the OFT at this stage of the fining process will take into account any other penalties that have been imposed on the company under scrutiny, such as fines levied by the European Commission or another EU Member State competition authority in relation to the same conduct found to be infringing by the OFT.
6. The leniency programme and settlement
Finally, the OFT will decrease any amount of the fine where there is a relevant leniency agreement with the company. The decrease will reflect the conditions of leniency that have been satisfied by the company. In addition, the OFT will also reduce a fine where the company agrees to settle, subject to it admitting participation in the relevant infringement. At the end of the fine calculation, the OFT may take into account the fact that the company is in a difficult financial situation. Much like the situation with regard to the fining process adopted by the European Commission, claims that fines should be reduced for financial hardship will be scrutinised carefully and accepted only in exceptional circumstances.
The OFT’s revised guidance has introduced a greater degree of transparency and clarity into the way in which the OFT approaches the fining process. Fines will better reflect the seriousness of the infringement but at the same time ensure that they have a deterrent effect not only on companies under the specific scrutiny of the OFT, but also on other companies. Companies from both sides of the Atlantic, which may be in breach of UK antitrust rules, must remain aware, however, that not only may fines be high, but also that criminal sanctions against individuals may be imposed. Moreover, the OFT has kept the stakes for antitrust compliance programmes high, as robust compliance programmes could be rewarded with a reduction of up to 10 per cent of the fine.