Antitrust Alert: UK’s OFT Issues New Guidelines on Penalties for Competition Law Violations
The UK Office of Fair Trading (“OFT”) has published new guidelines on how it will set fines for competition law violations (“Guidelines”). The Guidelines take into account developments in case law since the 2004 previous guidelines and bring the OFT’s policy on financial sanctions into line with that of the European Commission. They introduce a number of changes to the methodology for calculating penalties, including listing factors which may lead to a higher or lower fine (so-called aggravating and mitigating factors), which all companies should take into account. The Guidelines provide greater transparency on the OFT’s fining methodology. In particular, for the first time the OFT provides that a fine may be reduced if a company actively maintains a competition compliance program. The OFT also provides a cutoff point after which past infringements will not be taken into account when setting a fine.
The Guidelines are intended to herald higher fines, especially for cartel participation and abusive conduct by dominant firms.
This alert summarizes the key features of the Guidelines.
The OFT’s new approach to the calculation of fines
The OFT will follow six steps when calculating penalties:
(1) Calculate the starting point, having regard to the seriousness of the infringement and the relevant turnover of the undertaking
Followed by adjustment for:
(3) aggravating or mitigating factors
(4) specific deterrence and proportionality
(5) ensuring the maximum penalty does not exceed 10% of the worldwide turnover of the undertaking (the maximum fine still cannot exceed 10% of the undertaking’s worldwide turnover) and
(6) leniency and/or settlement discounts.
Apart from the revised methodology, the Guidelines introduce several changes that may affect the level of fines the OFT imposes.
Increased starting point and specified relevant turnover. The starting point for a fine was formerly 10%, it can now be up to 30% of the undertaking’s turnover in the market affected by the infringement, for the last business year before the infringement ended. The OFT’s reason for this substantial increase is to enable it to set penalties that better reflect the gravity of the most serious competition law breaches – hardcore cartels and serious abuses of dominant positions. For these types of infringement, the Guidelines specify that the starting point will be towards the upper end of the range. In other words, the OFT intends to impose bigger fines.
New aggravating factors. The Guidelines introduce two new aggravating factors, in addition to recidivism and a commitment to compliance procedures, which may affect fines:
The more important of the new aggravating factors is “persistent and repeated unreasonable behaviour that delays the OFT's enforcement action.” The Guidelines specify that this will include situations where an undertaking persistently and repeatedly disrespects OFT time limits or otherwise persistently delays the OFT’s investigation. However, the OFT will not treat the full exercise of the party’s rights of defense as unreasonable behavior.
The second aggravating factor is “retaliatory measures taken or commercial reprisal sought by the undertaking against a leniency applicant.” The OFT distinguishes this from retaliatory measures aimed at ensuring continuation of the infringement.
Repeat offences – recidivism – remain an aggravating factor. However, the OFT now provides a cutoff point; it will exclude from its calculations UK or EU competition violations involving the company that are more than 15 years old. Recidivism can lead to an increase of up to 100% of the amount resulting from the application of steps 1 and 2 – so repeat offenders beware!
The Guidelines also confirm that evidence of a clear, continuous, and unambiguous commitment to competition compliance, from top down in an organization, may merit a discount on a fine of up to 10%. The mere existence of compliance activities will not be treated as a mitigating factor.
Proportionality added. The introduction of the proportionality element in the penalty calculation (above) is a key change. Previously, in determining the level of a fine, the OFT applied a vague “adjustment for other factors.” Now the OFT will consider whether a penalty is proportionate “in the round,” to ensure that overall a penalty is not disproportionate or excessive in the particular circumstances of the case, for example, if the majority of a firm’s turnover is derived from markets other than one affected by the infringement.
Deterrence clarified. The OFT clearly intends for fines to deter against future offences. The OFT may therefore increase a fine where an undertaking’s relevant turnover is very low or zero. The Guidelines mention as examples bid-rigging cases, or where an undertaking’s turnover in the last business year before the infringement ended was unusually low.
Financial hardship. The Guidelines say that in “exceptional circumstances” financial hardship will be taken into account to reduce a penalty, where the undertaking is unable to pay the penalty proposed due to its financial position. The Guidelines emphasize, however, that there can be no expectation that a penalty will be adjusted on this basis.
The Guidelines clarify the OFT’s fining practice. The OFT has intended to get tougher on infringers, so it should be expected that the Guidelines would herald tougher financial sanctions. The express acknowledgement that companies that maintain a competition compliance program may benefit from a reduced fine is welcome. It serves as a reminder to companies that they are not only expected to have a compliance program, but that all company personnel, from the Board down, must abide by it.
For more information, please contact your principal Jones Day representative or either of the lawyers listed below.
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