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In Competition

Well fine then…

5 July 2013

In June, Germany’s competition regulator published new guidelines on the setting of fines for cartel conduct, in response to a recent decision by the Federal Court of Justice.

Under German law, a company found to have participated in a cartel can be fined up to 10% of its annual group turnover.

Under the regulator’s previous guidelines, the 10% rule was treated as a capping threshold. That is, the regulator would consider the appropriate penalty having regard to penalty factors such as the gravity and duration of the infringement and the turnover achieved from the infringement. The company’s total annual turnover would then be considered if the regulator’s penalty calculation exceeded that 10% cap. This is similar to European guidelines for imposing fines on cartel participants.

However, in a recent decision relating to cement cartels, the Federal Court of Justice interpreted 10% of turnover as an upper limit to the range of fines that can be imposed. That is, the maximum penalty will itself be a factor in determining the final penalty.  In accordance with this interpretation, under the new guidelines, the regulator will always consider the annual turnover of the group in setting a range of potential fines. The regulator will then apply its usual penalty factors to determine a final penalty that falls somewhere within that range.

The regulator does not expect the new guidelines to substantially impact the setting of fines in most cases. However, at the margin, large companies operating in multiple markets (only one of which was affected by the cartel) may tend to incur larger fines whereas small, single-product companies could expect to be penalised by slightly lower fines.

In Australia, the Competition and Consumer Act 2010 imposes a similar maximum penalty of 10% of the company’s annual turnover where the gain from the cartel can’t be ascertained and where the turnover amount is greater than $10 million. Our recent post on Viscas discusses some of the factors Australian courts look at when assessing penalties for cartel conduct. Australian courts have tended to favour the European approach of applying the 10% maximum penalty as a cap, rather than factoring this into the penalty calculation.

But this may not always be the case. As Finkelstein J stated in ACCC v Bridgestone Corporation (2010) 186 FCR 214, 225:

  • Penalties in Australia are still something of a light touch notwithstanding the new penalty regime that was introduced in 2006. If they are to be reviewed, perhaps the place to begin is not to lose sight of the maximum aggregate penalty that can be imposed in a particular case. Although only to be applied in the worst possible case, there must still be some relationship between the maximum penalty and the penalty that is imposed.

Photo credit: Images_of_Money / Foter / CC BY

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