International Perspectives: Jurisdictional Considerations In Penalty Guidelines – US, EU, & UK

Update: 2023-11-30 05:23 GMT
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On 26th October 2023 the MCA released a notification[1] asking the CCI to issue penalty guidelines u/s 64 of the Competition Act, 2002, which gives it the authority to publish non-binding guidelines on the provisions of the Act. The Supreme Court in the Excel Crop Care Case[2] settled the law by incorporating the ‘Doctrine of Proportionality’ i.e. the penalties under the Competition...

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On 26th October 2023 the MCA released a notification[1] asking the CCI to issue penalty guidelines u/s 64 of the Competition Act, 2002, which gives it the authority to publish non-binding guidelines on the provisions of the Act. The Supreme Court in the Excel Crop Care Case[2] settled the law by incorporating the ‘Doctrine of Proportionality’ i.e. the penalties under the Competition Act could not be disproportionate and should not lead to shocking results.

The Supreme Court in the Excel Crop Care case attempted to set out various illustrative factors that the CCI should consider when applying penalties.[3] These included: (a) the nature, gravity and extent of the contravention; (b) the role played by the infringer; (c) the duration and intensity of participation; (d) the bona fides of the infringer; (e) the profit / benefit derived from the contravention; (f) loss or damage suffered as a result of the contravention; (g) the market circumstances in which the contravention took place including: (i) the nature of the product; (ii) market share of the entity; and (iii) barriers to entry in the market. This was the starting point to the research regarding penalty guidelines in jurisdictions namely EU, US and UK.

European Union

The European Union relies on the EC Guidelines for the authority to impose a penalty of up to 10% of the total turnover or worldwide turnover of an undertaking. To determine the order of penalty, the European Commission (“EC”) relies on the European Commission Guidelines, which proposes a two- step procedure to ascertain the penalty.

In the first step, the basic penalty amount is determined, taking into account the value of the undertaking's sales related to the infringement. The percentage of relevant sales, which can go up to 30%, is used to calculate this basic penalty, with the percentage varying based on the severity of the infringement. Various factors like the nature of the infringement, market share, geographic scope, and implementation are considered.

In the second step, the basic penalty is adjusted. It can be increased for aggravating circumstances, like repeated infringements, and reduced for mitigating circumstances, such as evidence of termination or negligence in committing the infringement.

Article 23 of the EC Guidelines[4] outlines the imposition of fines by the European Commission on undertakings and associations of undertakings for various violations. These fines are non-criminal in nature, and can be imposed when incorrect or misleading information, incomplete books or records are provided, during inspections; seals affixed by officials are broken etc. These are violations of Articles 81 or 82 of the Treaty, contravention of interim measures, or failure to comply with binding commitments. The fines can reach up to 1% of total turnover for specific violations and up to 10% of total turnover for infringements of Articles 81 or 82.

The severity and duration of the infringement are considered when determining the fine amount. If an association of undertakings is not solvent, its members may be required to contribute to cover the fine, and payment may be directly demanded from individual members involved in decision-making bodies. However, members not implementing the infringing decision and distancing themselves from it may be exempted from such payments, with the financial liability not exceeding 10% of their total turnover.

United Kindgom

The Section 36(8) of the UK Competition Act, 1998[5] states that the penalties for contraventions may not exceed 10% of an undertaking's turnover. The Competition Market Authority’s Guidance as to the appropriate amount of penalty[6] (“CMA”) highlights a six-step procedure to arrive at the penalties which is as follows:

  1. Assess Relevant Turnover: The CMA considers the undertaking's turnover in the relevant product and geographic markets affected by the infringement in the last business year, adopting a starting point of up to 30% of that turnover, which varies based on the seriousness of the infringement.
  2. Adjust for Duration: The penalty amount from the first step is adjusted based on the duration of the infringement.
  3. Consider Aggravating and Mitigating Factors: The CMA evaluates aggravating factors (e.g., leadership in the infringement or continuation of the violation during the investigation) and mitigating factors (e.g., cooperation or termination of the infringement) to potentially increase or decrease the penalty.
  4. Apply Deterrence Factor: The penalty is further adjusted to ensure it serves as a deterrent to prevent future competition law breaches.
  5. Check Proportionality: The CMA reviews the penalty's proportionality and ensures it does not exceed the maximum limit, reassessing the penalty amount.
  6. Consider Financial Hardships: As a last resort, the penalty may be further reduced if the undertaking demonstrates an inability to pay due to financial hardships or other circumstances.

The United States

The U.S. Department of Justice (“DOJ”) has taken several measures to expand its criminal antitrust enforcement efforts. These efforts include prosecuting labour-related antitrust violations, pursuing criminal enforcement of monopolization offenses, and utilizing algorithmic tools to detect collusion while adjusting its approach to information exchanges.

In the area of labour markets, the DOJ is determined to criminally prosecute alleged no-poach and wage-fixing agreements, despite facing challenges in court. The DOJ's theory is that such agreements should be considered per se violations of the Sherman Act, subject to criminal prosecution, even though juries have often returned not guilty verdicts in related cases.[7]

The DOJ has also announced its intent to pursue criminal prosecutions of alleged violations of Section 2 of the Sherman Act, which covers monopolization and attempted monopolization. This marks a significant departure from previous practices, where criminal charges were primarily limited to Section 1 violations, such as price-fixing and bid rigging. The DOJ's recent Section 2 cases involve unique facts and demonstrate a willingness to bring criminal charges for monopolization-related offenses.

Part R of the United States Sentencing Commission Guidance Manual, 2021[8] prescribe guidelines for penalty against anti-trust offences specifically focusing on bid-rigging, price-fixing, or market-allocation agreements among competitors. The penalties are as follows:

  1. 1.(a) Base Offense Level: 12
  2. 2.(b) Specific Offense Characteristics-
  3. -If the conduct involved participation in an agreement to submit non-competitive bids, increase by 1 level.
  4. -If the volume of commerce attributable to the defendant was more than $1,000,000, adjust the offense level as follows:
  5. More than $1,000,000: Add 2 levels
  6. More than $10,000,000: Add 4 levels
  7. More than $50,000,000: Add 6 levels
  8. More than $100,000,000: Add 8 levels
  9. More than $300,000,000: Add 10 levels
  10. More than $600,000,000: Add 12 levels
  11. More than $1,200,000,000: Add 14 levels
  12. More than $1,850,000,000: Add 16 levels

The volume of commerce for an individual participant is determined by the commerce done by them or their principal in goods or services affected by the violation. Special instructions for fines are also provided, including a range of fines for individuals based on a percentage of the volume of commerce, not less than $20,000.

For organizations, the guideline fine range is determined under Chapter Eight (Sentencing of Organizations). The minimum multiplier for organizations is at least 0.75, ensuring that fines will be significant, serving as an effective deterrent to antitrust offenses.

This guideline aims to tie the offense level to the scale or scope of the offense to ensure punitive sanctions and provide incentives for compliance. The volume of commerce is used as a measurable substitute for damages. The Commission believes that most antitrust defendants have the resources to pay the fines, either upfront or through instalments, over time.

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