On 10 September 2012, the UK's Office of Fair Trading (OFT) published new guidance on how it will set penalties for competition law infringements. According to the OFT, the guidance will allow it to continue imposing substantial penalties to deter anti-competitive conduct, while ensuring that penalties are proportionate in light of the specific circumstances of each case.
The new guidance will replace the OFT's former guidance dating from 2004, which has been the subject of strong criticism. Although the 2004 guidelines did not explicitly make reference to this principle, in setting the fine, the OFT applied a so-called "minimum deterrence threshold" ("MDT") which represented a minimum penalty to deter undertakings from engaging in anti-competitive behaviour. Under the former guidelines' fine-setting process, an initial set of steps was used to calculate fines for each infringer based on the seriousness and duration of the conduct and its turnover in the relevant market. The OFT would then apply the MDT to raise the fine for deterrence purposes if it was of the view that the basic fine was not a sufficient deterrent in view of the relevant company's overall size.
In a series of recent Competition Appeal Tribunal ("CAT") judgments, the OFT's method for setting fines, particularly with regards to the application of the MDT, suffered serious setbacks. In March 2011, the CAT had found that penalties imposed on the appellant companies in the construction bid-rigging case were excessive and disproportionate considering the nature of the infringement, the harm it was likely to cause, and the relevant mitigating factors (see VBB on Competition Law, Volume 2011, No. 3, available at www.vbb.com). The fines were also considered excessive because of the way in which the OFT had applied the MDT to increase penalties. The mechanistic manner in which MDT was applied added a pre-determined percentage of a firm's total worldwide turnover to the basic fine, without giving proper consideration to the individual circumstances of each case. In the CAT's judgment, such a "one size fits all" approach was inconsistent with the requirement to make an individual assessment on a case-by-case basis. Finally, the OFT had allegedly used the incorrect relevant turnover year to calculate the fines. As a consequence, therefore, the CAT significantly reduced the fines on the appellant companies, in some cases by as much as 90%.
In light of these developments, the OFT came under intense pressure to revise its guidance on penalties. The OFT carried out a public consultation various stakeholders, including lawyers, businesses, regulators, and other interested parties.
The aim of the new revised guidance is to impose penalties on infringing undertakings which better reflect the seriousness of the infringement, and to ensure that the threat of penalties will deter even further both the infringing undertakings and other undertakings that may be considering anti-competitive activities from engaging in them.
Under the new guidance, the OFT will apply a six-step approach to calculating fines:
- Calculation of the starting point having regard to the seriousness of the infringement and the relevant turnover of the undertaking. Changes to this step entail an increase by the OFT of the maximum starting point for penalty calculations from 10% to 30% of an undertaking's relevant turnover to reflect more adequately the seriousness of different types of infringements, especially the most important breaches of competition law (e.g., hardcore cartel activity and the most serious abuses of dominant position). This brings the OFT's fining policy closer to that of the European Commission under the 2006 Fining Guidelines and of other EU national competition authorities. In addition, the guidance makes clear that the turnover used for calculating the starting point for the penalty is now to be based on the last business year before the infringement ended;
- Adjustment for duration. Penalties for infringements which lasted more than a year may be multiplied by not more than the number of years of the infringement;
- Adjustment for aggravating or mitigating factors. Aggravating factors include persistent and repeated unreasonable behaviour that delays the OFT's enforcement action and repeated infringements by the same undertaking (recidivism). Mitigating factors include acting under severe duress or pressure, and evidence of taking adequate steps to ensure compliance with competition rules;
- Adjustment for specific deterrence and proportionality. Under the new guidance, the MDT principle which was previously applied has been dropped and the focus of deterrence is now on proportionality. The OFT will consider specifically whether a penalty is proportionate "in the round". This should ensure that the level of penalties may be decreased to avoid being disproportionate or excessive. The penalty will take account, amongst others, of the undertaking's specific size and financial position, the nature of the infringement, the role of the undertaking in the infringement, and the impact of the undertaking's infringing activity on competition;
- Adjustment if the maximum penalty of 10 per cent of the worldwide turnover of the undertaking is exceeded and to avoid double jeopardy;
- Adjustment for leniency and/or settlement discounts. The guidance provides detail on how the OFT will grant immunity or discounts for undertakings which come forward to reveal the existence of anti-competitive behaviour and take steps to comply with competition law. For instance, the immunity or reduction in the level of financial penalties for competition law infringements may now be granted both before and after an investigation has commenced, provided that the undertaking concerned satisfies the OFT's compliance conditions.
For more information, the new revised guidance may be accessed at: http://oft.gov.uk/shared_oft/business_leaflets/ca98_guidelines/oft423.pdf.
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