On November 12, 2014, the EU Court of Justice (CoJ) issued its judgment in Guardian.  The judgment highlights the need for the European Commission (EC) to abide by the principle of equal treatment when calculating fines for cartel infringements.  In particular, the judgment requires the EC to treat vertically and non-vertically integrated undertakings equally when setting the basic amount of the fine. 

Background to the Dispute 

In 2007, the EC issued its Decision in which it fined a number of undertakings, including Guardian Industries Corp. and Guardian Europe Sàrl (together, Guardian), for price-fixing in the flat glass sector in the European Economic Area (EEA).  The EC imposed the highest fine (€148 million) on Guardian, despite the fact that it was the smallest producer amongst the investigated undertakings.  This was due to the fact that the EC chose to exclude from each fine calculation the value of sales the investigated undertaking made to entities belonging to the same corporate group (intra-group sales).  Since Guardian did not have intra-group sales, it did not get to benefit from this approach.  The exclusion only applied to the other investigated undertakings, which led to the imposition of lower fines relative to their aggregated sales of the affected products. 

Guardian challenged the EC’s Decision before the EU General Court (GC), arguing, among others, that the EC had infringed the principle of non-discrimination.  Guardian contended that the exclusion of intra-group sales from the calculation of the fines imposed on the other investigated undertakings should have been offset by a proportionate reduction in the fine imposed on it.  Following the rejection of its arguments by the GC, Guardian lodged an appeal before the CoJ. 

The CoJ’s Findings 

The CoJ recalled that the EC’s discretion in imposing fines for cartel infringements is constrained by the 2006 Fining Guidelines (the Guidelines).  According to the Guidelines, in determining the basic amount of the fine to be imposed on an undertaking, the EC must have regard to its “value of sales” – i.e. the value of the undertaking’s sales of goods to which the infringement directly or indirectly relates in the relevant geographic market.  The objective is to have as a starting point an amount that reflects both (i) the economic importance of the infringement and (ii) the relative contribution of each undertaking to the infringement. 

In light of this two-fold objective of the Guidelines, the CoJ reached the following conclusions: 

  • The value of sales should not include sales made by the undertaking that did not fall within the scope of the alleged cartel. 
  • The value of sales should not necessarily be restricted to sales for which there is evidence that they were actually affected by the cartel.  Such a limitation would lead to the imposition of fines that bear no relation to the actual scope of the infringement. 
  • The value of sales should not be subject to distinctions depending on whether the sales were made (i) to independent third parties (external sales) or (ii) intra-group.  Ignoring the value of intra-group sales would allow a vertically integrated undertaking to avoid a fine that is proportionate to the undertaking’s importance on the product market to which the infringement relates.  In this regard, the CoJ pointed out that vertically integrated undertakings may benefit from horizontal price-fixing agreements by (i) passing on downstream input price increases, which in turn raises the final products’ prices, or (ii) not passing on downstream input price increases, which in turn secures cost advantagesvis-à-vis competitors who obtain cartelized (and, therefore, more expensive) inputs. 

On the basis of the above, the CoJ sided with Guardian and found that the EC had infringed the principle of equal treatment because of how it had calculated the fines.  The CoJ proceeded to give final judgment in Guardian’s action, rather than sending the case back to the GC.  In accordance with its unlimited jurisdiction to review fines imposed by the EC, the CoJ lowered the fine imposed on Guardian by 30%. 

Why Does the CoJ’s Judgment Matter?

According to well-established case law, the EC has broad discretion in imposing fines for cartel infringements.  Guardian marks one of the rare occasions in which the EU judicature placed a limit to this discretion and lowered the fine imposed on an investigated undertaking. 

Guardian does not require the EC to always include intra-group sales in the calculation of fines.  Were such an obligation to be imposed upon the EC, it would run afoul of its abovementioned broad discretion.  Rather, Guardian requires the EC to ensure that the way it calculates fines is not discriminatory towards some of the investigated undertakings: the fines need to reflect the relative contribution of each undertaking to the infringement.  As a result, if the EC excludes intra-group sales from the calculation of fines in the future, it may also need to grant a fine reduction to those undertakings that do not have intra-group sales. 

It remains to be seen whether and to what extent the CoJ’s ruling in Guardian may affect the pending appeals in (i) liquid crystal display (“LCD”) panels before the CoJ (C-227/14 P and C-231/14 P) and (ii) cathode ray tubes (“CRTs”) before the GC (T-82/13T-84/13T-91/13T-92/13and T-104/13).  Both LCD panels and CRTs raise issues of discrimination between vertically and non-vertically integrated companies – but the factual patterns in them are more complex, as they deal with the treatment of intra-group sales in the calculation of fines for cartel conduct taking place outside the EEA. 

In particular, at first instance in LCD panels, Innolux argued that the EC’s method of fine calculation benefited vertically integrated companies (see our briefing).  This was because sales of LCD panels made by investigated undertakings to their European subsidiaries, which then incorporated them into finished products, were taken into account only when the finished products were sold to independent third parties within the EEA.  In contrast, LCD panels sold by Innolux to independent third parties within the EEA, for final incorporation into a finished product, were taken into account even when the finished products were eventually sold outside the EEA.  In case this method of calculation inflated Innolux’s contribution to the infringement compared to the other investigated undertakings, the precedent set by Guardian may prove to be of use.