Following a public consultation exercise earlier this year, the OFT has now published its revised guidance as to the appropriate amount of penalty. The changes in the guidance reflect the OFT's experience of setting penalties for competition infringements and also take into account recent judgments of the Competition Appeal Tribunal (CAT) and the Court of Appeal. One of the key changes is the revised threshold for calculating the starting point, which has been increased from 10% to 30% mainly in order to provide greater scope to distinguish between the relative seriousness of different types of infringement. This also brings the OFT's guidance in line with that of the European Commission and a number of other national competition authorities. As recommended by the CAT in the construction recruitment and construction cases, the OFT will now also take a 'step back' and consider whether the proposed penalty level is proportionate and necessary to achieve its policy objectives.
The new guidance came into effect on 10 September 2012 and will apply to cases where a statement of objections is issued after that date. Where a statement of objections has already been issued the OFT will continue to have regard to its previous guidance, even if a supplementary statement of objections is issued after 10 September 2012.
- Although the 30% threshold for the starting point for calculating fines is likely to result in higher fines (this was the case with EU Comission fines when the Commission made similar changes to its guidelines in 2006), it is important to bear in mind that this does not affect the statutory maximum level of fines the OFT can impose of 10% of an undertaking's worldwide turnover.
- In addition, a new step has been added to the calculation process to ensure that the proposed fines are proportionate in the round, and if the level of fine is disproportionate or excessive it will be reduced to ensure that a fair penalty is imposed.
- The higher starting point is also expected to result in fewer and smaller uplifts for specific deterrence, as general deterrence will now be addressed at the starting point percentage.
- A new aggravating factor of "persistent and unreasonable behaviour that delays the OFT's enforcement action" has been added, which will include situations where undertakings persistently and repeatedly disrespect OFT deadlines. The guidance makes it clear however that the OFT will not treat the proper exercise of the parties' rights of defence as unreasonable behaviour.
- The guidance provides greater clarity as to the type of compliance measures that will qualify as a mitigating factor. The guidance makes it clear that, whereas the mere existence of compliance activities will not be sufficient for this purpose, evidence of adequate steps taken to achieve a clear and unambiguous commitment to competition law compliance throughout the organisation, together with appropriate steps relating to risk identification, risk assessment, risk mitigation and review of activities, may result in a reduction of fines of up to 10%.
- On the whole the new guidance provides greater clarity and transparency in the process of setting fines, but the calculation of fines is never a precise mathematical exercise. An element of unpredictability is in the nature of the fines, and the guidance is of course not intended to enable companies to weigh up the possible benefits of an infringement against the level of anticipated fines. Also, until a body of practice and case law develops under the new guidance, it may be harder to advise on the likely level of fines.
Summary of the OFT's six-step approach in determining the level of a penalty under the new guidance
Step 1 – starting point
The starting point for determining the level of fine is calculated having regard to both the seriousness of the infringement and the relevant turnover of the undertaking. The OFT will apply a rate of up to 30% (previously 10%) of relevant turnover, with the upper end of the range applied to the most serious infringements.
Seriousness of an infringement will be based on factors such as the nature of the product, structure of the market, market share of the undertaking involved, need for deterrence and damage caused to consumers. The relevant turnover is the turnover of the undertaking in the relevant product and geographic market affected by the infringement.
Step 2 – adjustment for duration
The starting point may be increased (or in exceptional circumstances and where the duration of the infringement is less than a year, decreased) to take into account the duration of the infringement. Part years will be rounded up to the nearest quarter year, and in exceptional circumstances the OFT may decide to round up the part year to a full year.
Step 3 – adjustment for aggravating and mitigating factors
The basic amount, adjusted as appropriate at step 2, may be increased where there are aggravating factors or decreased where there are mitigating factors.
Aggravating factors include:
Persistent and repeated unreasonable behaviour that delays the OFT's enforcement action; role of the undertaking as a leader in, or an instigator of, the infringement; involvement of directors or senior management; retaliatory or other coercive measures taken against other undertakings aimed at ensuring the continuation of the infringement; continuing the infringement after the start of the investigation; infringements which are committed intentionally rather than negligently; repeated infringements by the same undertaking or other undertakings in the same group (recidivism).
Continuation or recidivism may result in a 100% increase to the amount of the fine as calculated under the previous steps. The OFT indicates that it only expects to apply such an increase where a prior EU or UK decision found that the infringement had a UK impact. The OFT will also not apply an uplift for recidivism in respect of prior infringement decisions made more than 15 years before the start of the investigation.
Mitigating factors include:
Role of the undertaking, for example, where the undertaking is acting under severe duress or pressure; genuine uncertainty on the part of the undertaking as to whether the agreement or conduct constituted an infringement; termination of the infringement as soon as the OFT intervenes, co-operation which enables the enforcement process to be concluded more effectively and/or speedily; adequate steps having been taken with a view to ensuring compliance with Articles 101 and 102 and the Chapter I and Chapter II prohibitions.
The OFT explains that its starting point with regard to competition law compliance activities will be neutral, but that it will consider carefully whether evidence of an undertaking's compliance activities in a particular case merits a discount from the penalty of up to 10%. Evidence of adequate steps having been taken to achieve a clear and unambiguous commitment to competition law compliance throughout the company (from the top down), together with appropriate steps relating to competition law risk identification, risk assessment, risk mitigation and review activities will likely be treated and a mitigation factor.
Step 4 – adjustment for specific deterrence and proportionality
General deterrence will be addressed at the starting point (step 1) and at this stage the only adjustments that may be required will be for specific deterrence. The figure reached after steps 1 to 3 may be increased to ensure that the penalty is sufficient to deter the undertaking concerned from breaching competition law in future. In considering whether to make adjustments at this stage for specific deterrence or proportionality, the OFT will have regard to appropriate indicators of the size and financial position of the undertaking concerned.
Under this step the OFT will also assess whether the overall penalty proposed is appropriate in the round. Where necessary, it will be decreased to ensure that the level of penalty is not disproportionate or excessive. In carrying out this assessment the OFT will have regard to the undertaking's size and financial position, the nature of the infringement, the role of the undertaking in the infringement and the impact of the infringing activity on competition.
Step 5 – adjustments to prevent maximum penalty being exceeded and to avoid double jeopardy
The final penalty will be adjusted to ensure that it does not exceed the statutory maximum of 10% of the undertaking's worldwide turnover. If a penalty has been imposed by the European Commission or by a court or other body in another Member State in respect of the same agreement or conduct, the OFT must take that into account when setting the amount of a penalty in order to make sure that an undertaking is not penalised again in the UK for the same anti-competitive effects.
Step 6 – application of reductions under the OFT's leniency programme and for settlement agreements
The application of leniency and settlement discounts has now become a formal step in the guidance. The OFT will reduce an undertaking's penalty where that undertaking has a leniency agreement with the OFT and the conditions of the leniency agreement are met. The OFT will also apply a penalty reduction where an undertaking agrees to settle with the OFT.
In exceptional circumstances the OFT may also reduce a penalty where the undertaking is unable to pay due to its financial position. The OFT emphasises that such financial hardship adjustment will be exceptional and that there can be no expectation that a penalty will be adjusted on this basis.
As under the previous guidance, the new guidance also contains a summary of the OFT's leniency policy framework. This section now clarifies the requirement for undertakings making a leniency application to accept that the undertaking participated in cartel activity. The section also clarifies the OFT's practice of rejecting applications which do not provide it with a sufficient basis for taking forward a credible investigation. A separate consultation exercise was carried out in respect of the OFT's detailed guidance on applications for leniency and no-action in cartel cases, and the revised version of this will be published by the OFT in due course.