Guidelines for setting fines

KEY POINTS

Regulation (EC) No 1/2003 (see summary), based on Article 103 TFEU (ex Article 83), gives the Commission powers to enforce the competition rules and to fine companies for infringements. The guidelines, which replace previous guidelines adopted in 1998, impose tougher fines on firms that violate EU rules prohibiting cartels and other restrictive business practices.

Article 23 of Regulation (EC) No 1/2003 indicates that fines shall be set with regard to both the gravity and the duration of the infringement. Fines can reach up to 10% of the worldwide turnover of the corporate group to which the infringing company belongs in the previous business year.

To achieve its objectives of imposing fines that are sufficiently high both to punish the firms involved and to deter others from practices that flout the competition rules, the Commission takes certain factors into account such as:

• the value of the sales of goods or services to which the infringement relates;
• the duration of the infringement — the fine needs to reflect the number of years during which a firm participated in the infringement in order to appropriately account for its impact on the market;
• the gravity of the infringement, in particular by reference to the fine type and nature of the infringing conduct and certain other factors;
• factors specific to individual companies that may justify increasing or decreasing a fine.

Two-step methodology

The Commission:

1. determines a basic amount of fine for each undertaking or association of undertakings; and
2. may adjust that basic amount upwards or downwards.

Basic amount of the fine

• The basic amount is calculated as a percentage of the value of the sales connected with the infringement, multiplied by the number of years the infringement has been taking place.
• The percentage of the value of sales is determined according to the gravity of the infringement (nature, combined market share of all the parties concerned, geographic scope, etc.) and may be as much as 30%. For cartels, which are among the most harmful restrictions of competition, the gravity percentage will be set in the upper half of the range (minimum 15%).
• The Commission may add to this initial calculation a further amount that is applied to all cartel cases and, at the Commission’s discretion, to other infringements. This will be between 15 and 25% of the value of annual sales, irrespective of the duration of the infringement. This is known as the ‘entry fee’ and is intended to deter firms from engaging in illegal practices even for a short period.

Adjustments to the basic amount of the fine

• The Commission may adjust the basic amount for individual undertakings; downwards if it finds that there are mitigating circumstances, or upwards in the event of aggravating circumstances.
• Repeat offenders are fined more heavily. Firms that re-offend can face a 100% increase in their fine for having committed past infringements.
• In order to ensure that fines have a sufficiently deterrent effect, the Commission may also increase a fine applied to an undertaking that has a particularly large group turnover that is unrelated to the value of sales affected by the infringement.
• The guidelines for setting fines do not affect the application of the EU’s leniency rules, which can reduce, or grant immunity from, fines for undertakings reporting their participation in a cartel and cooperating with the Commission’s investigation.
• Fines can be further reduced pursuant to the Commission’s policy on cartel settlements or, in infringements other than cartels, on the basis of effective cooperation and acknowledgement of the infringement by the undertaking(s).
• The maximum fine for each firm is set at 10% of its total turnover in the preceding business year (Regulation EC No 1/2003).