Shockwaves rippled from Brussels to the suburbs of Detroit last month when Guardian Industries, a US privately owned manufacturing group, was hit with a £106M fine for price-rigging. It was the largest single element of an Euros 487M penalty imposed by the EC on 4 glassmakers for running a cartel in the market for flat-glass. The fine was lower than predicted, but the high forecasts had overestimated the length of time during which the cartel persisted. New fining guidelines, which started to bite Nov/07, now tie cartel penalties awarded by the Commission more closely to the scale of an infringement. In broad terms, fines will be based on up to 30% of a company's annual sales to the manipulated market, multiplied by the number of years of cartel involvement & then subjected to various other factors & adjustments. In this case, the price-rigging alleged by the Commission had persisted for barely a year. Had it run on for any significant length of time, the penalties could have been extremely high. The Brussels authorities hope the implications of this new regime will serve as a warning to companies tempted to breach antitrust rules. "There should be a real call to change attitudes," Neelie Kroes, EU competition commissioner, told a clutch of businessmen and MEPs at a think-tank dinner recently. And the message, she also suggested, was getting through: "CEOs are now asking how they can address these problems - that is what I'm looking for." But, while no one seeks to defend cartel behaviour, competition specialists do query whether the ever-mounting penalties are blurring the boundaries between civil and criminal law. The Commission and its competition directorate, they point out, are administrative bodies, working under a civil law regime. However, the total sum raised from antitrust fines has jumped from less than Ç700m in 2005 to Ç1.8bn in 2006 and more than Ç3.3bn in 2007. With more cartel investigations pending there are concerns over whether escalating penalties are pushing the fining system into quasi-criminal territory - and whether this demands a higher standard of proof and transparency. "When fines get so high, they are clearly of a punitive nature," says Alec Burnside, at Linklaters' Brussels office. In such a situation, lawyers argue, it should become incumbent on the Commission to make its decision-making more open - for example, detailing precisely how penalties have been calculated. A second concern is whether penalties at this sort of level could affect a company's willingness to participate in a particular market - and so prove counterproductive. Commission fines cannot top 10 per cent of a company's total annual turnover, but competition specialists claim that if fines regularly settle at that sort of level there may be consequences for corporate business structures, particularly if companies also face private damages actions. "I know that's of some concern inside the Commission," claims one lawyer. Commission officials counter that such considerations would be taken into account when fines were set. The increased fines may place Europe's top courts under pressure. One of the most significant checks on the Commission's fining decisions is companies' right to appeal - in this case, to the Luxembourg-based Court of First Instance. Kyriakos Fountoukakos, at Herbert Smith, the law firm, points out that the CFI has unlimited jurisdiction to adjust Commission-imposed fines. "It may well decide to exercise [this power] in a more interventionist way." This though raises questions about how the higher fining regime may fit with the Commission's proposed "direct settlement" arrangements. The arrangements, which are under consultation, envisage that companies could reduce their penalties in exchange for acknowledging their cartel involvement. The Commission hopes this will help free its resources. The question is whether, faced with the possibility of large fines, some companies will feel obliged to take this option, under which they may effectively (although not formally) surrender appeal rights.
