This week the French Competition Authority, the Autorité de la concurrence, published a draft notice providing guidance on the method of calculating fines in antitrust cases, and it launched a public consultation process that will end next month. Last year, the French Minister of Economy, Christine Lagarde, ordered a report by an independent commission composed of Jean Martin Folz, the former president of PSA; Christian Raysseguier, Advocate General of the French Supreme Court; and Alexander Schaub, former Director General of Competition at the European Commission. Charles de Navacelle, of Jones Day's Antitrust & Competition Law Practice, was coordinator ("Rapporteur") of the independent commission.

The 17 January draft notice follows many of the recommendations of the final report from the independent commission and adopts a widely accepted method for setting fines in antitrust cases. However, some proposed improvements did not make it into the draft notice.

The need to issue guidance on the method of setting fines was triggered by a landmark ruling last year, by which the Paris Court of Appeal reduced by more than seven times the fines imposed by the Competition Authority for cartel behavior in the steel industry. The ruling illustrated the need for consistency and better foreseeability in the calculation of fines for antitrust infringements. The final report from the independent commission ordered by the Minister of Economy had called for the issuance of formal written guidelines describing the method that the Competition Authority would follow to calculate fines in antitrust cases.

A calculation method in line with the EC's approach, with some flexibility

The draft notice proposes a calculation method to a large extent like those of the European Commission and many national competition authorities. The calculation first sets a base amount related to the infringement, which then can be adapted according to mitigating or aggravating circumstances (role of leader, cooperation, etc.) in each case.

Calculation. The proposed method consists of first calculating an amount derived from the value of the sales of the product or services directly related to the infringement. The notice suggests a range between 0 and 30% of the value of annual sales concerned by the wrongful behavior – the top of the range (15 to 30%) being applicable to hard core cartels and the lower to less serious infringements such as vertical restrictions. The draft notice nevertheless insists that fines should be proportionate to each individual case, not based solely on an arithmetic formula.

Duration. Consistent with the final report from the independent commission ordered by the Minister of Economy, the draft notice proposes to take duration into account through a degressive system – such that conduct in the years prior to the last year of infringement counting for only 50% of the value of sales. This is an improvement over the straight multiplier by number of years used by the European Commission, which often has led to very high fines.

Harm to the economy. The draft notice is consistent with the rules adopted by competition authorities across Europe, but retains the French practice of taking into account the harm caused to the economy by the illegal behavior.

In practice, the Competition Authority will look at four criteria to evaluate the fine: the seriousness of the infringement, its duration, its repetition, and the harm caused to the economy. This last criterion has been subject to much debate. The draft notice reaffirms that it will be mainly treated as a qualitative criteria, such that a precise quantification of the harm need not be calculated. The Authority will look at a number of factors to consider the harm done to the economy, including the magnitude of the infringement, the characteristics of the economic sector concerned (size, entry barriers, margins, etc.) and the structural damages to the economy (impact on competitors, consumers, etc.). In instances where the illegal gains can be quantified, the Authority may at its own discretion take that into account.

Possible improvements not addressed by the draft notice

A number of improvements put forward by the final report from the independent commission ordered by the Minister of Economy were not included in the Competition Authority's draft notice. In particular, many commentators called for more debate earlier in the proceedings on the determination of the fine and more transparency on its calculation, in order for the parties to be able better to exercise their rights of defense on the setting of the fine. Under the current system, the fine is discussed only at the very end of the proceeding, during the oral hearing, leaving little opportunity for defendants to debate the method for setting the fine.

In addition, the draft notice does not address the role of compliance programs, when the existence or not of such programs could be taken into account. Companies that have made serious efforts to comply should be rewarded, and conversely companies that have not should be encouraged to do so in the future.

Issuance of the notice is a positive step, as it introduces more transparency and some degree of foreseeability as to the financial risks that companies may face for violation of antitrust laws in France.

The Competition Authority's public consultation process will end on March 11, 2011.

The French Competition Authority's draft notice can be found here (French / English).

The report of the independent commission (English) can be found here.