: Setting sanctions in practice: the 2006 Fining Guidelines
On a more practical note, the mentioned Fining Guidelines set a three-step procedure for the calculation of sanctions. Firstly, the basic amount of the fine is determined. Secondly, the basic amount is adjusted following an overall assessment of the relevant circumstances. Lastly, the legitimacy of the amount is verified against the so-called turnover cap.
Although each of these three steps will be described below, greater attention will be paid to the first phase.
a) The first phase: Setting the basic amount of the sanction
Also the fine’s basic amount is determined by the Commission through a three-step procedure.
The first step is the calculation of the "value of sales” (“VbS”) directly or indirectly related to the infringement. A percentage up to 30% is then applied to the VoS to reflect the infringement’s gravity. Lastly, the VoS, already adjusted to reflect the infringement’s gravity, is multiplied by the number of years of infringement.
The rationale behind relying on the VoS affected by the infringement is that such value is considered the most adequate proxy to assess the economic relevance of the infringement and, in case of collusive practices, also a good parameter to reveal the role of each participant in the infringement. The scope of application of the notion shall be analysed from a temporal, geographic and material perspective.
As per the temporal criterion, the Guidelines prescribe that sales made during the last business year of participation in the infringement shall be taken into account. If appropriate'1, this rule can be derogated and the Commission may for example refer to the average of the yearly sales during the whole infringement or to the sales made in years other than the last one: this may result necessary, inter alia, if concerned markets experienced unusual volatility'2 or if extraordinary transactions occurred (such as concentrations or divestitures),'5 which may lessen the connection between the infringement’s economic relevance and the last business year’s sale.
A certain flexibility applies also with regard to the geographic dimension. The general rule is that all sales made within the European Economic Area (EEA) on the relevant geographic market affected by the infringement are taken into account. However, if the geographic scope of the infringement extends beyond the EEA, sales made within the EEA may no longer be the adequate proxy to determine the role of each undertaking. The exemplary case is that of worldwide market-sharing agreements where some of the cartelists refrain from selling within the EEA precisely to cartelize the market. Since the lack of sales within the EEA would prevent the possibility to set the sanction’s basic amount, the Commission is allowed to follow a different approach: firstly, the total VoS affected by the global cartel on the worldwide market is set; secondly, the share of the sales of each undertaking on the worldwide market is determined; lastly, the share of each undertaking on the worldwide market is applied to the aggregate sales affected by the cartel within the EEA.
Sales made within a specific area of the EEA can be considered for sanctioning purposes only if the Commission proves that the infringement actually affected such area. By contrast, the Commission is not requested to prove that specific sales made within the area affected by the infringement were actually affected by the infringement. A presumption of relevance applies: undertakings may rebut it by providing specific evidence demonstrating that some of the sales were performed at market conditions despite they occurred in an area covered by the infringement. Therefore, two different standards of proof apply to the establishment of an antitrust infringement and to its sanctioning.
As per the material aspects, the practice identified different categories of sales. The main distinction is between direct and indirect sales. Direct sales concern both the product affected by the infringement and any transformed product incorporating the former, even if the infringers manufactured the final product outside the EEA. The opposite solution would harm the goals pursued by Article 23(2) of Regulation (EC) No 1/2003, reducing the effectiveness of Articles 101 and 102 TFEU. Indirect sales are instead not relevant for sanctioning purposes. This term refers to sales of transformed products sold within the EEA by innocent undertakings that purchased outside the EEA - and incorporated within their transformed products - a product affected by an antitrust infringement. In these cases, the connection between the infringers’ conduct and the internal market is too weak to activate the Commission’s enforcement powers.
The above are only the basic principles and of course several controversial issues remain unsettled. For example, some cases suggest that the notion of direct sales includes also internal sales, i.e. sales between legal entities of the same group; although based on the principle of effectiveness, this assumption may conflict with the notion of undertaking, which will be discussed below. Another peculiar case is that of undertakings that, although involved in an antitrust offence, do not operate on the market affected by the infringement:3 the VoS affected by the violation is not an adequate proxy to assess the relevance of their role in the infringement, simply because there are no sales. To quantify' their sanctions, the Commission is therefore allowed to follow different approaches and to choose parameters other than the VoS.
Another much-debated issue concerns the different impact that sanctions - due to the methodology used to calculate them - have on mono-product and diversified undertakings. Indeed, the centrality of the VoS parameter entails that fines imposed on mono-product undertakings cannot but represent a higher proportion of their total turnover if compared to diversified undertakings. The ECJ not only rejected the conclusion that this difference could conflict with the principles of proportionality and equal treatment, but also clarified that diversifying the regimes would be equivalent to grant mono-product undertakings an unfair competitive advantage vis-à-vis diversified undertaking.
Once the VoS is determined, the procedure to set the sanction’s basic amount continues with the assessment of the infringement’s gravity. This assessment is performed on a case-by-case basis: all the relevant circumstances are evaluated, such as the nature of the infringement, the infringers’ combined market share, the infringement’s geographic scope and the intensity of its management and implementation. As said, a percentage up to 30% of the VoS can be applied.8' The Commission may - but is not obliged to - take into account the actual impact of the infringement on the market to decide whether the value of the percentage should be set at the lower or at the higher end of the mentioned range. Groups of undertakings to which different gravity percentages are applied can be created. A so-called “entry-fee” can be applied to increase deterrence against the most serious antitrust infringements: the aim is to render unattractive for prospective infringers even the very first steps of collusive behaviours; the amount may vary between 15% and 25 % of the VoS.
b) The second phase: The fine-tuning of the basic amount
As anticipated, during the second step of the procedure for the calculation of sanctions, the basic amount is adjusted through an overall assessment of the relevant circumstances, including aggravating and mitigating ones. While aggravating circumstances (e.g., refusal to cooperate with the Commission, persisting with the infringement, recidivism or the undertaking’s leading role) may cause an increase of the sanction up to 100% of the basic amount, the percentage of the reduction for mitigating circumstances (e.g., cooperation, or negligence rather than intent)8 is not specified. It is not clear whether the limited involvement in the infringement does constitute a mitigating circumstance.
The Commission actually enjoys a broad margin of discretion not only with regard to the amount of the reduction but also on the reduction as such. Submitting evidence supporting the existence of one of the mitigating circumstances listed by paragraph 29 of the Fining Guidelines does not secure a reduction; even if the undertaking meets the burden of proving the presence of one of those circumstances, the Commission is still free to assess the appropriateness of the request on the basis of all relevant circumstances.
Deterrence plays a significant role also in this phase. The Commission shall not reduce sanctions if the reduction could hamper their deterrent effect and undermine the effectiveness of competition rules. Moreover, sanctions can be increased, inter alia, if imposed on undertakings having particularly large turnovers or to exceed the profit made or the harm caused by the infringers. Reference to these concepts reflects the mentioned distinction between the deterrence and the internalisation approach.
c) The third phase: The application of the turnover cap
The last phase of the procedure for the calculation of sanctions is the easiest to describe. Pursuant to Article 23(2) of Regulation (EC) No 1/2003, antitrust sanctions cannot exceed 10% of the total global turnover of the undertaking in the previous business year.
As mentioned, the turnover cap is actually the only certain element of the sanctioning process: except for it, undertakings can hardly anticipate the level of sanctions that they risk if breaching competition rules. The turnover cap, however, conceals one of the most debated issues concerning the Commission’s fining policy, namely the regime of corporate group liability, which will be discussed below.