OFT's guidance as to the
appropriate amount of a
penalty
Summary of responses to the OFT's consultation
September 2012
OFT423resp
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CONTENTS
Chapter/Annexe
Page
1 Introduction
2
2 Approach to setting penalties
5
3 Starting point (current Step 1)
6
4 Adjustments for duration (current Step 2)
22
5 Adjustments for specific deterrence and proportionality
(revised approach to current Step 3)
25
6 Adjustment for aggravating and mitigating factors (current Step 4)
36
7 Other issues
48
ANNEXE A - List of respondents to the consultation
60
1
INTRODUCTION
1.1
The Office of Fair Trading (OFT) may impose financial penalties on
undertakings that infringe the prohibitions against anti-competitive
agreements and abuse of a dominant position contained in the
Competition Act 1998 (CA98) and in the equivalent European Union
competition provisions in Articles 101 and 102 of the Treaty on the
Functioning of the European Union (TFEU).
1.2
Under section 38(1) of the CA98, the OFT is obliged to publish
guidance as to the appropriate amount of any such penalty and to
consult on proposed alterations to the guidance. The Secretary of State
for Business, Innovation and Skills must approve the OFT's revised
guidance before it is published.
1.3
The current guidance is contained in OFT423, OFT's guidance as to the
appropriate amount of a penalty, published in December 2004 (the
Current Guidance). The Current Guidance sets out a five-step procedure
designed to achieve the twin policy objectives of imposing financial
penalties that (i) reflect the seriousness of the infringement and (ii)
ensure that the threat of penalties will deter undertakings from engaging
in anti-competitive practices.
1.4
On 26 October 2011, following a review of the Current Guidance, the
OFT published a consultation document which set out a number of
areas in which the OFT considered the Current Guidance should be
revised as well the OFT’s rationale for the proposed changes (the
Consultation Document). The Consultation Document included a draft
revised version of the Current Guidance setting out the changes
proposed (the Draft Revised Guidance). 1
1.5
The proposed changes in the Draft Revised Guidance were designed to
ensure that the OFT is able to set fines that are sufficient to deter
companies from engaging in anti-competitive activity, but which are also
fair and proportionate. The proposed changes took into account the
experience the OFT has gained in applying the Current Guidance since
its introduction in 2004, as well as reflecting accumulated learning from
1
See www.oft.gov.uk/OFTwork/consultations/penalties-guidance.
OFT423resp | 2
judgments of the Competition Appeal Tribunal (CAT) and the Court of
Appeal on appeal.
1.6
1.7
Specifically, the OFT asked for views on its proposals to change the
five-step penalty calculation procedure set out in the Current Guidance,
in particular views on the following key proposals:
•
Proposals to clarify certain aspects of the way the OFT sets the
starting point for penalties.
•
A proposal to increase the maximum starting point for penalties to
30 per cent of relevant turnover to provide greater scope to reflect
the gravity of competition infringements faced in practice. Such a
move would also bring the OFT in line with the approach of the
European Commission and several other competition authorities and
would take account of a suggestion by the CAT in a recent
judgment.
•
Clarifications and additions to aggravating and mitigating factors,
including clarification of the OFT's policy on the circumstances in
which a party's competition law compliance activities may be
treated as a mitigating factor.
•
A clearer proportionality assessment, to ensure that, in a given case,
the result of the higher maximum starting point does not lead to
disproportionate or excessive fines (whilst the overall statutory cap
of 10 per cent of a company's global turnover remains unchanged).
As part of this consultation, the OFT held a discussion event on 24
November 2011 with interested external parties covering a number of
the key proposals in the Draft Revised Guidance (the November 2011
discussion event). 2 Where relevant, the OFT has included in this
2
It should be noted that, in parallel to this consultation on the Draft Revised Guidance, the OFT
consulted on proposals to amend its guidance on the handling of applications for leniency and
no-action letters in civil cartel cases under the CA98 and criminal cartel cases under the
Enterprise Act 2002. The discussion event also covered a number of the key proposals in the
OFT’s review of its leniency guidance. Under the OFT's leniency programme, undertakings may
obtain immunity from or a reduction in penalty for admitting their involvement in cartel activity
to the OFT and cooperating with the OFT's investigation.
OFT423resp | 3
document views expressed by attendees at this event. The consultation
period on the Draft Revised Guidance ended on 26 January 2012.
1.8
The OFT received a total of 25 written responses to the consultation
(including one confidential response). 3 The OFT has considered
respondents’ views carefully. This document sets out a summary of the
responses and the OFT's decisions on the changes proposed in the
consultation having taken account of the responses.
1.9
The OFT has made a number of amendments to the Draft Revised
Guidance in line with the decisions on the consultation proposals that
are described below. On 27 June 2012, the OFT submitted final draft
guidance (Final Draft Guidance) to the Secretary of State for approval,
in accordance with section 38(4) of the CA98.
1.10
Following approval of the Final Draft Guidance by the Secretary of State
on 10 August 2012, new penalties guidance was published and came
into force on 10 September 2012.
3
The respondents to the Consultation who agreed to be identified and for their responses to be
published are listed at Annexe A. Their responses will be available on the OFT’s website.
OFT423resp | 4
2
APPROACH TO SETTING PENALTIES
2.1
The OFT asked for views on whether it should retain the detailed 'stepbased' approach to calculating penalties contained in the Current
Guidance, or whether it might be better to move to a system under
which it would consider all the circumstances of the case 'in the round'
in order to determine the appropriate amount of any penalty.
Question 1
Do you agree that the OFT should retain a step-based approach to calculating
penalties rather than moving to an 'in the round' approach?
Respondent's views
2.2
Most respondents, including legal practitioners, economic consultants
and academics agreed with the retention of the step-based approach.
2.3
These respondents considered that having a reasonably systematic
framework was good for transparency and accountability. Many
respondents also considered that a systematic framework should also
increase the predictability of the level of the fine, which, in turn, plays a
role in deterrence. Some respondents considered that it would also
serve as a means of facilitating consistency of approach across different
cases. A number of respondents noted also that a pure ‘in the round’
approach would lead to possible arbitrariness.
2.4
Some respondents called for even more detailed and prescriptive
guidance, although a majority of respondents were content with the
current level of detail.
OFT's views
2.5
Having noted the general support expressed for a step-based approach
to calculating penalties, the OFT has decided to retain it.
2.6
The OFT agrees, to a large extent, with the benefits of such an
approach that were highlighted by respondents to the consultation.
Moreover, the OFT considers that a step-based, relatively detailed
penalty setting system can contribute to achieving behavioural change
through sending signals about how an authority will treat different anticompetitive practices.
OFT423resp | 5
3
STARTING POINT (CURRENT STEP 1)
3.1
The OFT asked a number of questions about proposed changes to the
way the OFT sets the starting point for calculating penalties. The views
of respondents on these and other issues in connection with the starting
point are set out below.
Increase to maximum starting point
Question 2
What are your views on the OFT’s proposed changes in relation to calculating
the starting point?
More specifically, the OFT would in particular welcome views on:
(i) whether it is appropriate to increase the maximum starting point to 30 per
cent of relevant turnover
[…] Please give reasons for your views.
Respondents’ views
3.2
Several respondents opposed increasing the maximum starting point to
30 per cent, either because they considered the case for increasing the
maximum starting point percentage in order to (among other things)
enhance deterrence and provide greater scope for the OFT to distinguish
between different types of infringement has not been made sufficiently
strongly by the OFT, or because they considered that an increased
maximum starting point would result in excessive fines. Some of these
respondents noted that unlike some other authorities, such as the
European Commission, the OFT has a range of tools to achieve
deterrence, so comparisons with other authorities that already use a
maximum starting point of 30 per cent are not apposite.
3.3
A number of respondents, on the other hand, supported increasing the
maximum starting point to 30 per cent. Amongst these respondents,
some noted that a greater starting point range allows a better reflection
of the relative seriousness of different infringements. A number of
respondents also supported the proposal on the basis that it would bring
the UK regime in line with others in Europe. One respondent considered
OFT423resp | 6
that a starting point higher than 30 per cent should be considered in
respect of infringements that suffered from low detection.
3.4
A small number of respondents opined that a maximum starting point
higher than 10 per cent but below 30 per cent would be more
appropriate.
3.5
Some respondents queried whether the increased maximum starting
point would likely lead to more cases where fines were around or over
the statutory penalty cap of 10 per cent of the worldwide turnover of
the undertaking in its last business year, notably in relation to single
product firms and firms operating in the UK only. One respondent
observed that it would be undesirable for penalties routinely to exceed
the statutory cap as it could lead to equal treatment problems (some
parties having their penalties effectively determined by the cap and
others not).
3.6
A number of respondents expressed concern over whether a 30 per
cent maximum starting point could lead to higher fines per se but
articulated neither explicit support for nor opposition to such an
increase.
OFT’s views
3.7
The OFT notes that the views of respondents were mixed and that a
wide range of comments were provided.
3.8
Having had regard to all the considerations expressed in response to the
consultation, the OFT has decided to maintain its proposal to increase
the maximum starting point to 30 per cent of turnover. The OFT notes
that several respondents supported this proposal explicitly while various
others were not, in principle, opposed to the proposal.
3.9
The change does not represent, as some respondents in opposition to
the proposal have suggested, an attempt by the OFT to increase
penalties per se. The key purpose of the change is to overcome the
shortcomings of having a maximum starting point of 10 per cent, which
in the OFT’s view is not sufficiently high to reflect the gravity, or
seriousness, of the range of competition infringements it faces (as, most
notably, a maximum of 10 per cent is not large enough in absolute
terms to capture the potential overcharge resulting from some types of
infringement) nor to distinguish properly between the seriousness of
OFT423resp | 7
different types of infringement. The OFT also considers that a maximum
10 per cent starting point may not be high enough to contribute to
achieving penalties that are sufficient to ensure deterrence. The OFT
notes that the CAT considered such a range might bring certain of the
potential benefits just described.
3.10
In addition, the OFT considers that the increased range will enable the
starting point to reflect more fully the seriousness of the infringement,
which will contribute to the deterrence of particular practices/types of
practices among undertakings generally (often referred to as general
deterrence). In other words, the wider range of starting points available
is sufficient in absolute terms to provide the OFT with scope both to
signal clearly to other undertakings the seriousness with which the OFT
views a particular practice and to signal that that type of infringement
will attract a substantial base fine. This should help to deter other
undertakings from engaging in such behaviour. The OFT considers that
this is appropriate because, at least to some extent, general deterrence
is related to the seriousness of the infringement, including for example
its actual or potential effect on competitors and third parties.
3.11
A number of responses are in line with the OFT’s view on this issue.
The OFT also notes that a higher maximum starting point is likely to
lead to fewer and smaller uplifts for specific deterrence in individual
cases, compared to some of the uplifts the OFT has made under step 3
of the Current Guidance for general and specific deterrence combined.
3.12
As regards respondents’ concerns that a higher maximum starting point
will lead to excessive fines, the OFT notes that while it will result in
higher penalties than could have been imposed at the end of step 2
under the Current Guidance on the same facts, it will not necessarily
lead to higher final penalties or to excessive penalties. At the new step
4, the OFT will consider carefully whether the penalty at the end of step
3 is disproportionate or excessive having regard to the undertaking's
size and financial position and other relevant circumstances of the case.
If it is, the penalty will be reduced to ensure that a fair and
proportionate penalty is imposed. 4
4
See paragraphs 5.18 to 5.33 regarding the proportionality assessment at step 4 of the Final
Draft Guidance.
OFT423resp | 8
3.13
The OFT notes the suggestion that the increased maximum starting
point might lead to more cases around or above the statutory penalty
cap of 10 per cent of worldwide turnover. However, in light of the
removal of the general deterrence element of uplifts that took place at
step 3 of the Current Guidance and the new proportionality assessment
at step 4, the OFT does not consider that there is a strong likelihood
that this will be the case. The implications for equal treatment of some
but not all companies involved in an infringement of competition law
having the statutory cap applied to them are considered below. 5
3.14
The OFT has considered the view of some respondents that
comparisons between the starting point used by other enforcement
authorities such as the European Commission and the OFT are not
apposite as the OFT has more enforcement tools at its disposal such as
director disqualification and the criminal cartel offence. However, the
OFT notes that these views do not appear to take into account the fact
that the European Commission generally applies an entry fee in addition
to the basic starting point, an approach which the OFT is not adopting. 6
Nor do they take into account that, unlike the financial penalties to
which the new maximum starting point would relate, the OFT’s
‘additional enforcement tools’ are aimed solely at individuals not the
infringing undertaking as such. Furthermore, financial penalties against
undertakings are applicable in a wider range of factual scenarios than
the tools applicable to individuals. The cartel offence applies only to
horizontal cartels and the director disqualification powers apply only to
directors of companies.
3.15
Finally, the OFT also notes that whilst the European Commission itself
does not have the power to impose individual sanctions, national
competition authorities may pursue individual sanctions in respect of the
same infringements for which the European Commission has imposed
penalties. So, for example, the OFT pursued criminal sanctions and
director disqualification orders against individuals involved in the
5
See paragraphs 5.18 to 5.33 below regarding the proportionality assessment at step 4 of the
Final Draft Guidance.
6
See paragraphs 3.43 and 3.44 below and paragraphs 5.21 and 5.22 of the Consultation
Document.
OFT423resp | 9
Commission’s Marine Hose decision. The view that the Commission’s
higher maximum starting point is not comparable to the situation in the
UK is not therefore, in the OFT’s view, compelling.
Minimum starting point for the most serious infringements of competition law
Question 2
[…] (ii) whether it would be appropriate for the OFT to use 25 per cent of
turnover as a minimum starting point for the most serious infringements of
competition law […]
Respondents’ views
3.16
A majority of respondents opposed using a minimum starting point of
25 per cent of the relevant turnover for the most serious infringements.
The three key arguments made by respondents are set out below.
3.17
First, some respondents argued that a minimum starting point would be
an unnecessary restriction of the OFT’s discretion to set an appropriate
starting point. According to these respondents, such a minimum level
may create a focal point for penalties rather than helping to ensure that
the whole starting point range is used. Some respondents also noted
that the continued application of the OFT’s decisional practice would
lead to using the upper end of the range, without the need for a fixed
minimum starting point.
3.18
Second, a number of respondents noted that, in any event, the
proposed level of 25 per cent would be too high a starting point for
many of the infringements to which it would apply. Adopting a 25 per
cent floor and 30 per cent ceiling for the most serious infringements
leaves little room for distinguishing the seriousness of infringements in
individual cases. Some of these respondents also noted that the
European Commission, which applies a maximum starting point of 30
per cent within its basic amount, has typically used a starting point for
cartels of between 15 and 20 per cent.
3.19
Third, a number of respondents expressed the view that having a
minimum starting point threshold would create significant uncertainty as
to which infringements would attract the use of such threshold.
Respondents’ greatest concerns were in relation to infringements of the
Chapter II/Article 102 prohibition, as they considered that in practice
OFT423resp | 10
distinguishing between serious and non-serious abuses of a dominant
position is generally a more involved and difficult exercise than it is in
relation to anti-competitive agreements. In view of the potential
uncertainty, respondents suggested that using a minimum threshold for
the most serious abuses of a dominant position could have the
unintended effect of deterring practices which do not amount to anticompetitive behaviour or could chill competition on the merits.
3.20
Only one respondent was in support of the 25 per cent minimum
starting point for the most serious infringements.
3.21
Several respondents suggested alternative approaches that the OFT
could take if it were to adopt a minimum starting point for the most
serious infringements of competition law, including the following:
3.22
•
Using merely an indicative minimum starting point percentage (for
example, the guidance could set out that the most serious
infringements will be ‘likely’ to attract penalties within the 25-30 per
cent range).
•
Using a percentage or turnover ‘at the higher end of the scale’,
thereby following an approach similar to that of the European
Commission guidelines.
•
Using a lower minimum starting point than 25 per cent, although
there was no unanimity amongst the respondents making this
suggestion as to what such a level should be (for example, some
suggested 15 per cent, others 20 per cent).
•
Treating as serious only those infringements where there is clear
evidence of significant consumer harm.
•
Reserving the use of the minimum starting point percentage for only
‘the most egregious hard core cartels’.
A number of respondents also suggested that, should the OFT establish
a minimum threshold for the most serious infringements, it should
provide more specific guidance as to the infringements it considers fall
into that category rather than simply referring to 'hardcore cartel
activity and serious abuses of a dominant position'. More generally, two
respondents proposed that the OFT set out in the guidance indicative
OFT423resp | 11
starting point percentages for each of the categories of infringements
that the OFT might investigate.
OFT’s views
3.23
The OFT is persuaded that a minimum starting percentage approach for
certain infringements may restrict the OFT’s flexibility, or discretion, to
set an appropriate penalty for different types of infringement and would
not help to ensure that the whole starting point range is used,
potentially creating an unhelpful focal point for penalties.
3.24
The OFT is also persuaded that in some individual cases a starting point
of 25 per cent of turnover could be too high for certain infringements to
which it applied.
3.25
On balance, taking into account respondents’ views, the OFT has
decided not to maintain its proposal for a minimum starting point of 25
per cent for hardcore cartels and serious abuses. The OFT considers
that it is appropriate to give some indication of how it would treat
serious infringements, however, as this would help to increase both
transparency and predictability and to enhance deterrence. The OFT has
decided, therefore, to indicate in the Final Draft Guidance that it will use
a starting point towards the upper end of the starting point range for the
most serious infringements of competition law, including hard core
cartel activity and the most serious abuses of a dominant position, but
without identifying any minimum percentage for particular types of
infringement. The OFT considers that this will provide an appropriate
degree of flexibility whilst increasing the transparency and predictability
of how a penalty will be calculated in those cases and sending a clear
deterrent signal.
3.26
The OFT understands the request by some respondents for more
specific guidance regarding what it considers to constitute hardcore
cartel activity and serious abuses of a dominant position in order to
assist parties to understand ex ante the starting point that might be
used in relation to certain types of infringement. However, the OFT
considers that it would be more appropriate to develop its approach and
provide further clarity through the application of the guidance in
individual cases, particularly as regards abuses of a dominant position
where the specific facts of individual cases may, to a greater extent
OFT423resp | 12
than in many cartel cases, suggest that the starting point should be at
the higher or lower end of the range.
Relevant turnover
Question 2
[…] (iii) whether the proposed maximum of 30 per cent of relevant turnover at
the starting point should apply to relevant market turnover or to turnover
directly or indirectly affected by the infringement […]
Respondents’ views
3.27
Of the respondents who responded to this particular question, a
majority supported the OFT proposal to continue using relevant market
turnover at step 1. Those respondents generally agreed with the OFT’s
view as set out in the Consultation Document that, given the flexibility
that the OFT has in determining the relevant market affected by the
infringement for penalty purposes, there is little practical difference
between relevant market turnover and turnover in the affected market.
3.28
However, a few respondents suggested that an 'affected turnover' or
‘value of sales’ approach would be more appropriate. Those
respondents noted that where the two measures can lead to different
results (for example, where a cartel affected only part of a market), the
turnover included at step 1 should match the likely effect of the
infringement. Amongst those respondents, some respondents
highlighted that single-product firms may be penalised disproportionately
under the ‘relevant market’ approach’.
OFT’s views
3.29
7
While the OFT acknowledges that in certain circumstances it is possible
that a strict application of a ‘relevant market turnover’ approach and an
‘affected turnover’ one may differ, the OFT considers that this is
unlikely to have a significant practical effect for the purposes of setting
penalties. More specifically, as set out in the Consultation Document, 7
the OFT considers that it is able to determine the turnover affected by
Paragraphs 5.19 and 5.20.
OFT423resp | 13
an infringement on a relatively broad basis for the purposes of setting
the starting point of a penalty, so long as it is 'satisfied, on a reasonable
and properly reasoned basis, of what is the relevant product market
affected by the infringement.' 8 Thus, whether the OFT applies a
relevant market approach or an affected turnover approach, it is unlikely
that in practice there would be a significant difference in the outcome in
many cases. The OFT therefore remains of the view that it is not
necessary or appropriate to change the Current Guidance in this regard.
Moreover, the OFT notes that in some cases it may not be necessary to
take a definitive view on the relevant market in order to determine the
relevant turnover for the purposes of setting the penalty starting point,
for example where there are two possible relevant market definitions
but the party’s turnover is the same whichever version is used.
3.30
The OFT notes the view of a few respondents that that an 'affected
turnover' or ‘value of sales’ approach would be more appropriate, for
example where a cartel affected only a part of a market. However, the
OFT considers that a relevant market approach is appropriate even in
such circumstances as, for example, an infringement will often have an
indirect effect beyond the specific part of the market it is applied to.
Also, the OFT considers that a relevant market approach is appropriate
in terms of ensuring that deterrent penalties can be set. Finally, the OFT
notes that it can, in exceptional cases where it is appropriate to do so,
take account of the fact that an infringement applied to only part of a
market or price in the proportionality assessment at step 4.
3.31
As regards respondents’ views on single-product firms, the OFT
considers that such issues can be considered to the extent necessary
and appropriate under the proportionality assessment at step 4. 9
Argos Ltd and Littlewoods Ltd v Office of Fair Trading and JJB Sports plc v Office of Fair
Trading [2006] EWCA Civ 1318; [2006] UKCLR 1135; (2006) 103(42) LSG 32; (2006) 150
SJLB 1391, at paragraphs 170 to 173.
8
9
See paragraphs 5.18 to 5.33 below regarding the proportionality assessment at step 4 of the
Final Draft Guidance.
OFT423resp | 14
Use of turnover at step 1
3.32
The OFT proposed to amend the Current Guidance to reflect the fact
that in certain exceptional circumstances it may be appropriate to use a
measure other than the turnover from the undertaking’s audited
accounts for the purposes of calculating the starting point of a penalty.
However, in general the OFT proposed to continue using published
turnover figures at step 1.
Respondents’ views
3.33
Whilst largely agreeing that the starting point for a penalty calculation
should continue to be based on turnover, respondents welcomed the
proposed addition to the Current Guidance that a different measure
might be appropriate in exceptional cases.
3.34
However, various respondents suggested that using a metric other than
published turnover should not be confined to exceptional cases, and the
OFT should be willing to use any reasonable basis of 'relevant turnover'
that the undertaking can demonstrate.
3.35
It was suggested in one of the responses that penalties should in
principle be related to the profits that firms obtain from the anticompetitive activities, not firms' turnover; a problem with using
turnover is that it incentivises firms to lower output and drive up prices.
Another respondent noted that a broad-brush assessment of whether a
market is characterised by low or high profit margins should form part
of the assessment of the appropriate percentage of turnover to use at
step 1, and that the point should be expressly included in the guidance.
OFT’s views
3.36
The OFT has decided to maintain the use of turnover reported in the
undertaking’s audited accounts for the calculation of the starting point
of a penalty.
3.37
The OFT considers that the use of figures other than reported turnover
should remain exceptional as the alternative approach would be
impractical and might in some situations reduce the deterrent effect of a
penalty. The OFT is not convinced by the suggestion that profit is a
better measure than turnover as the base from which a fine is
calculated. Standards for the reporting of turnover tend to be defined
OFT423resp | 15
more clearly, for example in international accounting standards, and
may be more easily understood than those for profitability which can be
reported in different ways (for example gross profit, net profit, profit
before tax, etc) and may raise issues such as allocation of costs. There
may also be issues around whether profit from the year before the
infringement ends would reflect the true harm of the cartel (as some
research suggests that authorities tend to discover 'dying' cartels where
profits are dwindling). On balance, the OFT has decided that it will
continue to use reported turnover as the base in its penalty calculations,
while taking note of profitability and other financial indicators where
relevant in particular circumstances of a case. Turnover is used as a
base for penalty setting by many other competition authorities, such as
the European Commission. The OFT considers that the burden is on
parties to infringements to demonstrate that there is an exceptional case
for departing from the standard approach in individual cases.
3.38
As regards assessing whether profit margins in an industry are high or
low when considering the appropriate percentage of turnover to use at
step 1, the OFT considers that this would be inappropriate. The starting
point percentage is intended to reflect the seriousness of the
infringement and, in the OFT’s view, profit margins are not relevant to
such an assessment. The OFT does not rule out that such figures may
be relevant to the proportionality assessment at step 4, however. The
OFT also notes that the use of profitability as a starting point may
penalise efficient firms to a relatively greater extent.
Year of turnover
3.39
The Draft Revised Guidance clarified explicitly that the term ‘last
business year’ at step 1 of the penalty calculation is the year before the
infringement ended. This is consistent with the CAT rulings in the CRF 10
and Construction 11 cases and reflects a change in approach which has
already been adopted by the OFT.
See Eden Brown Ltd and others v Office of Fair Trading [2011] CAT 8 (the Construction
Recruitment Forum or 'CRF' judgment).
11
See for example Kier Group plc and others v Office of Fair Trading [2011] CAT 3.
10
OFT423resp | 16
Respondents’ views
3.40
Most respondents who made observations on this issue agreed with the
OFT’s proposed approach. However, a few respondents noted that
whilst this was a good general approach, some flexibility may also be
required. According to these respondents, a one year 'snapshot' may,
for various reasons, be unrepresentative of an undertaking's economic
strength and the impact of its involvement in the infringement during
the time it took place. Examples provided by respondents included
situations where, because of long production lead times, there is a time
lag between setting a price and receiving the turnover to which that
price relates, as well as markets where turnover is highly variable over
different years, both absolutely and as between the undertakings
concerned.
OFT’s views
3.41
The OFT has not been persuaded that there is a sufficiently strong case
for changing its proposed approach. Accordingly, the OFT has decided
that it is appropriate to maintain the position in the Draft Revised
Guidance that ‘last business year’ at step 1 is the year before the
infringement ended.
3.42
The OFT notes the views of a few respondents that in particular
instances using the last year before the end of the infringement could
result in an disproportionately high or low penalty due to significant
variability of turnover between years. The OFT considers that in those
circumstances the penalty can in principle, and where appropriate, be
adjusted downwards (to ensure proportionality) or upwards (to achieve
specific deterrence) at step 4 of the Draft Revised Guidance.
Entry fee
Question 2
[…] (iv) whether including a separate ‘entry fee’ in the starting point, in addition
to a percentage of relevant turnover, would enhance deterrence and should
therefore be included in the Draft Revised Guidance […]
Respondents’ views
3.43
An overwhelming majority of respondents agreed with the OFT that
OFT423resp | 17
there is no need for an additional 'entry fee' of 15 to 25 per cent to be
added to the starting point to provide greater deterrence for the most
harmful and egregious forms of anti-competitive activity.
OFT's views
3.44
The OFT has therefore decided not to introduce an 'entry fee' in the
guidance.
Separation of general and specific deterrence
Question 3
Do you agree that the OFT should assess general and specific deterrence
separately, covering general deterrence at Step 1 and specific deterrence at
Step 4? In particular, what are your views on the proposal to make later
deterrence adjustments only where the OFT considers that a higher penalty is
necessary to achieve specific deterrence of the undertaking in question?
Please give reasons for your views.
Respondents' views
3.45
A large number of respondents agreed with the OFT’s proposal to
separate specific and general deterrence and address them at separate
steps. They also agreed that the OFT should increase the penalty for
specific deterrence only if in the circumstances an uplift is warranted.
3.46
These respondents noted that the penalty appropriate for general
deterrence is largely a reflection of the seriousness of the infringement.
Consideration of specific deterrence is different in nature as it addresses
the relevant undertaking’s particular circumstances rather than the
nature of the conduct addressed by the OFT in its decision. It seemed
therefore appropriate to these respondents that the OFT considers at a
separate stage whether a penalty should be increased to reflect the
need to deter the specific undertaking.
3.47
Three respondents welcomed in particular the increased transparency
that such separation would bring to the penalty calculation process,
allowing more focused thinking around the relative assessment of the
seriousness of different types of infringement at step 1 and a clear
presentation of whether specific deterrence uplifts are needed at step 4.
OFT423resp | 18
3.48
Some respondents nevertheless queried whether an assessment of
specific deterrence is likely to be necessary at all given the proposal of
the OFT to increase the maximum starting percentage of turnover used
at step 1. With a higher starting point at step 1 not only general
deterrence, but also a measure of specific deterrence, is achieved such
that uplifts for specific deterrence should be rare at step 4.
3.49
Other respondents questioned whether an assessment of specific
deterrence is necessary conceptually. The key point made was that if a
penalty is proportionate, in the round, it would ‘automatically’
incorporate specific deterrence. As expressed by one of these
respondents, the proportionality assessment should be made in light of
the OFT’s twin objectives of ensuring that penalties reflect both
deterrence and seriousness. As a consequence, a penalty may then be
reduced at step 4 if it is considered to be significantly more than is
necessary to achieve general and specific deterrence.
3.50
Only a minority of respondents thought that the OFT should continue
with the current approach of making adjustments for general and
specific deterrence at the same step. These respondents typically also
disagreed with the higher range for the starting point proposed at step 1
of the Draft Revised Guidance.
OFT's views
3.51
Having had regard to the broad support expressed by the consultation
respondents, the OFT has decided to maintain its proposal to (a)
address general deterrence at step 1 and specific deterrence at step 4
and (b) make deterrence adjustments at step 4 only where the OFT
considers that a higher penalty is necessary to achieve specific
deterrence.
3.52
The key practical difference to the current approach is that the OFT will
not usually increase a penalty for general deterrence purposes, as
general deterrence is considered to be achieved ‘automatically’ through
the assessment of the seriousness of the infringing conduct at step 1,
when the starting point of the penalty is determined. Furthermore,
because of the increase in the starting point range that can be used by
the OFT, the OFT also recognises that, under the new approach, it is
OFT423resp | 19
likely to impose fewer and smaller uplifts to achieve specific deterrence
in individual cases than it has done under the current approach.
3.53
The OFT notes the view of a few respondents that if each step of the
penalty calculation procedure applied is proportionate in the round, it
would ‘automatically’ incorporate specific deterrence. However, the
OFT remains of the view that in certain circumstances, for example
those set out in paragraphs 2.17 and 2.18 of the Draft Revised
Guidance, there might be a need for a penalty uplift to ensure that a
specific undertaking is deterred from infringing competition law in the
future. The need for such an uplift has been recognised by a majority of
respondents and is recognised in the recent Construction and CRF
judgments 12.
3.54
The OFT is also minded to retain the proposal to carry out a combined
assessment of the need for specific deterrence and proportionality at
the new step 4. A majority of respondents accepted that both issues
are connected and are based largely on the same indicators, including
those referring to the financial position of the infringing company. The
assessment of proportionality will primarily involve taking a ‘step back’
and considering whether a penalty at the proposed level is necessary
and proportionate to achieve its policy objectives, including
deterrence. 13
3.55
In practice, there are three potential outcomes at step 4: no adjustment
to the penalty reached at the end of step 3; an increase to the penalty
reached at the end of step 3 where that figure is considered too low to
achieve deterrence in view of the individual circumstances of the
infringing company and the increase does not make the penalty
excessive or disproportionate; or a reduction of the penalty reached at
the end of step 3 where that is necessary to ensure that the penalty is
not excessive or disproportionate. Specific deterrence and
proportionality will be considered in each of these scenarios. The OFT
therefore remains of the view that to separate the assessment of
12
See notes 10 and 11 above.
As suggested by the CAT in judgments in the Construction and CRF appeals. See notes 10
and 11 above.
13
OFT423resp | 20
specific deterrence and proportionality into different steps would be
artificial and may create unnecessary and undesirable duplication in the
penalty calculation process.
OFT423resp | 21
4
ADJUSTMENTS FOR DURATION (CURRENT STEP 2)
4.1
The Draft Revised Guidance stated that the figure at the end of step 1
will, as a general rule, be multiplied to take fully into account the
duration of the participation of each undertaking in the infringement,
with a minimum of one year. The Draft Revised Guidance also stated
that, for periods of an infringement longer than one year, duration will
be rounded up to the nearest quarter year.
Question 4
What are your views on the OFT’s proposed approach to determining the
duration of infringements?
Please give reasons for your views.
Respondents' views
4.2
Some respondents supported explicitly the OFT’s proposed approach to
multiplying the Step 1 relevant turnover in order fully to take into
account the duration of the infringement. There were also no concerns
expressed by respondents in relation to rounding duration up to the
nearest quarter beyond the first year (nor has any respondent argued in
favour of rounding up to the nearest half year or any other set duration
beyond the first year).
4.3
However, a number of respondents expressed concerns in relation to
the proposal to round up infringements of less than one year to one
year. Some of these respondents noted that this might create a perverse
incentive to continue cartels of short duration for longer than they
would have normally lasted. Some respondents suggested that the OFT
should round up durations less than a year to the nearest quarter year,
in line with its approach to rounding up durations beyond the first year,
while one respondent considered that any unfairness resulting from such
an approach could be addressed in the step 4 proportionality
assessment. Finally, one respondent suggested that instead of having a
separate step where the last business year turnover is multiplied to take
into account the duration of the infringement, the starting point should
be based on the total volume of sales affected by the infringement
throughout its entire duration. This would help reflect more precisely the
seriousness of the infringement.
OFT423resp | 22
OFT's views
4.4
The OFT has decided to maintain the general approach set out in the
Draft Revised Guidance of rounding up infringements lasting less than a
year to one year and any duration beyond the first year to the nearest
quarter year. The OFT notes that most respondents agreed with the
approach to rounding up duration beyond one year. As regards the
views of certain respondents that durations less than a year should not
be rounded up to a full year, the OFT remains of the view that not
rounding up duration in that way would result in a penalty figure at the
end of step 2 that did not reflect the potential harm resulting from the
infringement. The OFT has concluded that this approach to duration
represents a sufficiently workable approach that ensures fairness and
proportionality. In terms of the specific view that such an approach
might create perverse incentives to continue an infringement for longer
than would otherwise have been the case, the OFT considers that this
would also increase the risk of detection so this may not be a scenario
that arises in practice. The OFT also notes that it can, in exceptional
circumstances, decrease the starting point figure where the duration of
the infringement is less than one year or decrease the fine at step 4 if
the penalty were set at a disproportionate level.
4.5
The OFT notes the suggestion of substituting the current approach on
duration and relevant turnover with one where the actual value of sales
over the duration of the infringement is used and recognises that in
theory this may reflect more accurately the magnitude of the
involvement of an undertaking in the infringement. However, in the
OFT’s experience it is often difficult to find the necessary turnover
information for such an approach, particularly where infringements have
lasted for several years. Historic turnover information may not be
available at all. For this reason the OFT has decided not to adopt such
an approach. The OFT notes that its approach to duration is consistent
with that used by other competition agencies, including the European
Commission.
4.6
As regards the views of some respondents that the OFT could at step 4
reduce the penalty for infringements lasting less than a year, the OFT
considers that it is inappropriate to adopt a general approach of this
nature as it would negate the purpose of rounding up infringements of
less than a year duration to a full year in the first place. However, as
OFT423resp | 23
noted in the guidance, the OFT may consider such a reduction in
particular circumstances. 14
14
See paragraph 4.4 above.
OFT423resp | 24
5
ADJUSTMENTS FOR SPECIFIC DETERRENCE AND
PROPORTIONALITY (REVISED APPROACH TO CURRENT
STEP 3)
5.1
The consultation asked three questions about the proposals to change
the way the OFT considers adjustments for specific deterrence and
whether penalties are proportionate. The responses to those questions
are addressed in turn in this section.
Order of steps
Question 5
What are your views on the OFT's proposal to reverse the order of Steps 3 and
4 of the Current Guidance and apply aggravating and mitigating factors before
assessing whether adjustments for deterrence or proportionality are required?
Please give reasons for your views.
Respondents' views
5.2
Most respondents agreed with or were not opposed to the proposal to
reverse the order of current steps 3 and 4. However, a small number of
respondents objected to reversing steps 3 and 4 of the Current
Guidance. These respondents considered that the reversal might dilute
the impact of aggravating and mitigating factors, and could for example
reduce incentives arising from compliance discounts.
OFT's views
5.3
We have considered the comments in favour of and against reversing
the order of these steps and have decided to implement our proposal to
reverse their order. The OFT recognises that, if the order is reversed,
there is a risk that in certain circumstances the impact of the
adjustments for aggravation and mitigation may be diluted by the
adjustments for specific deterrence and proportionality. However, the
OFT also notes that, with a broader starting point range, uplifts for
specific deterrence at step 4 are likely to be fewer and smaller than at
step 3 under the Current Guidance, reducing the likelihood of a potential
significant dilution effect occurring in practice. When the proportionality
assessment takes place at step 4, this will take into account the
OFT423resp | 25
adjustments that have been made for aggravating and mitigating
factors, which the OFT considers will enable a better assessment of
whether the penalty proposed to be paid by the undertaking is
proportionate in the circumstances of the case. Furthermore, the current
approach to applying aggravating and mitigating factors after
adjustments for deterrence and proportionality may well result in
changes to the level of the penalty that is found to be appropriate in
order to achieve deterrence and to be proportionate under the revised
approach to the current step 3. On balance, the OFT has decided that it
is appropriate to reverse the order of steps 3 and 4 in the Current
Guidance as proposed.
Approach to specific deterrence
Question 6
Do you consider that the OFT's proposed approach to specific deterrence
adjustments is appropriate?
Please give reasons for your views.
Respondents' views
5.4
As noted above in relation to question 3, a majority of respondents
welcomed the OFT’s proposal to address specific and general
deterrence separately and impose uplifts at the new step 4 only if the
circumstances of the case warrant specific deterrence of the particular
undertaking. However, a few respondents opposed the possibility of
such uplifts at all given the increased starting point percentage range
proposed, or queried whether it was needed given that a penalty that is
proportionate in the round would by and of itself incorporate specific
deterrence. These arguments are discussed at paragraphs 3.45 to 3.55
above.
5.5
In response to the current question, most respondents agreed that there
might be a need for the OFT to make specific deterrence adjustments
having regard to an undertaking's particular circumstances. Some
respondents noted that the CAT underlined in the Construction appeals
that a large company may need to have its fine increased in order to
reflect its financial position and to achieve deterrence, including making
OFT423resp | 26
an impact at board level 15. However, a number of respondents
considered that a specific deterrence adjustment based on the size of
the company outside the relevant market may punish larger diversified
undertakings and risks introducing unequal treatment between
undertakings. Other respondents expressed the view that the CAT did
not sanction an approach whereby the OFT mechanistically adopts that
view in respect of each and every large company. Some respondents
argued that specific deterrence uplifts are not based on culpability so
should not be used. In particular, the turnover of the wider group to
which a company belongs should only be included where other
companies in the group were involved in the infringement or where the
parent company failed to promote compliance adequately within the
group.
5.6
One respondent considered that – in light of research suggesting that
large businesses paid as much attention to minimising costs and legal
liabilities (both small and large) and maximising profit as a smaller firm –
a large business would be equally deterred by a ‘small’ penalty based on
relevant market turnover as a ‘large’ penalty which took into account
turnover outside the relevant market. This respondent also suggested
that companies are likely to consider the impact of specific behaviour on
their reputations, with the result that a larger business might actually be
more responsive to fines than a smaller one because of the effect that
fines might have on the reputation of their other business. Other
respondents also noted that when considering the costs of an
infringement an undertaking would consider loss of reputation, but
noted that reputational cost would be difficult to estimate in practice.
More generally, a number of respondents noted that reputational
damage was an important factor contributing to the assessment of
specific deterrence, which limited or removed the need to increase
financial penalties at step 4 to achieve specific deterrence.
5.7
Several respondents commented on the OFT’s suggestion that
adjustments for specific deterrence could be made where the OFT had
evidence that the infringing company had made gains from the
infringement that had not already been captured by applying the
previous steps. Many of these respondents were sceptical about making
15
See Kier Group plc and others v Office of Fair Trading [2011] CAT 3, at [177].
OFT423resp | 27
such adjustments given, amongst other things, difficulties in calculating
cartel profits. Another argument advanced was that penalties based on
profits could punish more heavily efficient undertakings than less
efficient ones. A minority of respondents, however, argued that from an
economic point of view, the penalty should be related to the private
benefit obtained by the infringer in order to achieve deterrence.
However, some respondents agreed that it might be appropriate to
make specific deterrence adjustments where there is good evidence that
the undertaking had made gains from the infringement greater than the
level of penalty calculated at the end of step 3. That said, a number of
respondents and a few attendees at the November 2011 discussion
event noted that the OFT would need to take account of the CAT’s
view in Napp that such uplifts should only be made in clear cases. 16
5.8
A number of respondents disagreed with the OFT’s proposal to make
specific deterrence adjustments based on the facts at the time the
penalty is being imposed rather than at the time of the infringement.
This included concerns that companies may be punished for growth
achieved in the period leading to an infringement decision being taken.
5.9
One respondent suggested that a ceiling should be put in place in the
guidance in relation to any uplift for specific deterrence while another
respondent pointed out that there might be a risk of ‘double counting’
as the Draft Revised Guidance indicates that an upward adjustment may
be made at step 4 ‘for both general and specific deterrence’ in
exceptional cases. One respondent suggested that specific deterrence
could be an aggravating factor at step 3 instead of being part of step 4.
Finally, a number of respondents suggested that the OFT could provide
more detail on how it would assess whether uplifts for specific
deterrence are required.
OFT's views
5.10
The OFT notes the breadth of views expressed by respondents to the
consultation with regard to specific deterrence uplifts. As regards
requests for more detail on how the OFT will assess the need for such
See Napp Pharmaceutical Holdings Limited and Subsidiaries v Director General of Fair Trading
[2002] CAT 1, at [507]-[511].
16
OFT423resp | 28
uplifts, given the nature of these uplifts – which in the OFT’s view
require a careful case-by-case assessment – the OFT does not consider
it appropriate to give more detailed guidance as to how and in which
circumstances a penalty will be increased in individual cases to achieve
specific deterrence. The OFT therefore intends to retain flexibility to
take into account factors such as wider group turnover and evidence of
the gain made in connection with the infringement when considering
whether a specific deterrence uplift is appropriate in the circumstances
of the case.
5.11
The OFT has nevertheless noted the concerns of some of the
respondents with regard to the use of wider group turnover and the use
of estimates of gains and will bear them in mind as the OFT develops its
practice through individual decisions. The OFT also notes that, with a
wider starting point range resulting from increasing the maximum
starting point to 30 per cent, it expects to apply fewer and smaller
uplifts compared to the deterrence uplifts (for both general and specific
deterrence) it has made under the Current Guidance.
5.12
Specifically, the OFT notes that this point is transparent on the face of
the Final Draft Guidance, in which the OFT states that increases for
specific deterrence will generally be limited to situations in which an
undertaking has a significant proportion of its turnover beyond the
relevant market or where the OFT has evidence that the infringing
undertaking has made or is likely to make economic or financial benefit
from the infringement that is not captured by the penalty reached at the
end of step 3. As regards uplifts based on gains, the OFT will bear in
mind the CAT’s view in the Napp case that such uplifts should only be
made in clear cases.
5.13
Having given consideration to the suggestion of introducing a specific
ceiling for individual deterrence uplifts, the OFT has decided not to
adopt such a proposal, which may limit the effectiveness of having
specific deterrence uplifts and the flexibility with which it is meant to be
applied. The OFT is of the view that the statutory cap of 10 per cent of
total turnover at step 5 of the penalty calculation process provides
certainty to parties as to the maximum level of penalty that can be
imposed in individual cases.
5.14
The OFT is also of the view that the objective of achieving specific
deterrence would be compromised if specific deterrence was addressed
OFT423resp | 29
only in the context of step 3 for aggravating and mitigating factors
rather than in a separate step (and together with the ‘step back’
proportionality assessment).
5.15
Finally, the OFT notes that, having considered respondents’ views on
the point, it has clarified the Final Draft Guidance to recognise that
when considering uplifts at step 4 the OFT may also consider certain
indicators of size and financial position from the time the infringement
took place.
5.16
The OFT notes one respondent’s view that it would involve an element
of double counting to uplift for both general and specific deterrence in
certain cases. The OFT, however, considers that it is appropriate to be
able to uplift for both general and specific deterrence in the particular
circumstance noted in the guidance, that is where an undertaking’s
turnover is zero or very low. In those circumstances, the figure at the
end of step 3 will be zero or very low and the application of the starting
point percentage will have, in practice, been ineffective in achieving the
objective of general deterrence. The OFT considers that it is necessary
for it to be able to include an uplift for both general and specific
deterrence in those particular circumstances.
5.17
As regards respondents’ views on the account that should be taken of
reputational damage, while the OFT accepts that reputational damage
may in some cases be caused by undertakings being found to have
breached competition rules, it has concluded it would be almost
impossible to quantify meaningfully whether and to what extent
reputational damage might have been caused by an infringement
decision in a given case. The OFT has therefore not included this point
as a part of the specific deterrence assessment in the guidance.
Proportionality assessment
Question 7
Do you agree that the OFT should carry out an explicit proportionality
assessment as described? Also, do you agree that the assessment should be
carried out at the same Step as adjustments for specific deterrence rather than
as a separate Step at the end of the calculation procedure?
Please give reasons for your views.
OFT423resp | 30
Respondents' views
General remarks
5.18
The introduction of a specific 'step back' proportionality assessment,
which may lead to a penalty reduction, at the new step 4 was
welcomed as an important step by the majority of respondents as well
as attendees at the November 2011 discussion event. Only a small
number of respondents suggested that the proportionality assessment
should be conducted at a separate step.
5.19
Respondents in favour of assessing proportionality at a separate step
argued that assessing specific deterrence and proportionality in the
same step risks creating confusion, as proportionality takes into account
a wider set of factors than specific deterrence, including general
deterrence, culpability and the seriousness of the infringement.
5.20
A number of respondents raised concerns about whether and how the
OFT will carry out the step 4 proportionality assessment leading to a
penalty reduction in practice. These respondents asked that the OFT
provide more detail in the guidance on how it will carry out the
proportionality assessment. However, a few other respondents and
some attendees of the November 2011 discussion event agreed that it
would not be appropriate to have too much detail in the published
guidance given the need to carry out the proportionality assessment on
a case-by-case basis.
5.21
Some respondents noted that the factors that are relevant for the
assessment of proportionality at step 4 can and should be addressed
largely at other steps (for example, when considering the nature of an
infringement at step 1 or the role of the undertaking as an aggravating
or mitigating factor at step 3) and that, therefore, adjustments at step 4
should be exceptional. A few respondents suggested that proportionality
considerations should permeate all the penalty calculation steps, in
which case step 4 could be used as a final check to address anomalies
that cannot be accounted for earlier in the penalty calculation process.
5.22
Finally, some respondents suggested that the proportionality
assessment should be carried out at a ‘high’ or ‘independent’ enough
level within the OFT for there to be confidence that the particular case
is considered in a wider context and that there is a check on what these
OFT423resp | 31
respondents perceived to be the natural tendency of investigators to
view the infringement with which they are dealing as particularly
serious.
Approach to assessing proportionality
5.23
In addition to the above general remarks, various respondents made
suggestions in terms of the factors that the OFT should take into
account when assessing proportionality in individual cases.
5.24
One issue on which several respondents commented is equal treatment.
Some respondents suggested that, where there are multiple parties in a
CA98 investigation, the OFT guidance should make a specific reference
to the doctrine of equal treatment being part of the proportionality
assessment at the new step 4, which in the view of these respondents
may require comparisons between the penalties imposed on different
parties.
5.25
A few respondents suggested that the OFT should ensure that penalties
are reduced to an appropriate level in the event that a company is a
single product company. These respondents argued that these firms
were likely to receive a disproportionately high fine in relation to their
total turnover. One respondent also noted that as a result of the
increase of the maximum percentage of turnover to 30 per cent at step
1, smaller and single product firms might be more likely than bigger
companies to have a penalty determined by the statutory 10 per cent
cap at step 5. This respondent considered that this could lead to
excessive penalties for such smaller companies.
5.26
One respondent suggested that a penalty should be lower (or even zero)
where there is considerable uncertainty on the part of firms engaged in
the infringing activity as to whether it constitutes an infringement and if
the OFT perceives that, on average, the scale of harm caused by the
type of conduct under investigation is very slight. This respondent
thought that imposing a significant penalty in these situations could
create a real risk of deterring actions which are benign.
OFT's views
5.27
The OFT recognises that the assessment of specific deterrence and
proportionality are not the same; while there is some overlap between
the factors relevant to both these assessments, they will not necessarily
OFT423resp | 32
be precisely the same in a given case. However, in the OFT’s view,
none of the potential complexities amounts to a sufficient reason to
indicate that it is necessary to carry out specific deterrence and
proportionality assessments at different steps. On balance, therefore,
the OFT considers that it would be preferable and more efficient to carry
out the two assessments at the same step as there is some overlap
between the factors taken into account in each case; to separate them
into different steps may create a certain amount of duplication in the
penalty calculation process.
5.28
The OFT recognises that, as noted by some respondents, proportionality
is a consideration that should permeate all the penalty calculation steps
and notes that it will apply each step proportionately. However, the OFT
considers that such an approach is consistent with having a separate
step in the calculation process where, in light of the suggestion in some
of the CAT’s recent judgments, the OFT explicitly takes a 'step back'
and considers whether, in the round, a penalty at the proposed level is
necessary and proportionate to achieve its policy objectives.
5.29
For similar reasons to those outlined in relation to the assessment of
specific deterrence (see paragraph 5.10 above), notably the case
specific nature of the assessment of proportionality, the OFT does not
consider that it would be appropriate to provide more detailed guidance
as to how and in which circumstances a penalty will be reduced in
individual cases to ensure proportionality of the penalty. This would risk
the proportionality assessment becoming a mechanistic process. The
OFT considers that it is better to develop its approach on a case-by-case
basis through its decisional practice.
5.30
The OFT has had regard to the view of some respondents that the
principle of equal treatment should be part of the proportionality
assessment. The OFT notes that equal treatment is a general principle
of law rather than a principle specific to penalty setting, or to just one
part of the penalty-setting process, but recognises that, as a general
principle, it is one that must be observed in setting financial penalties.
The OFT has therefore noted in the Final Draft Guidance that when
applying the steps to individual undertakings in multi-party cases it will
observe the principle of equal treatment. However, in the OFT’s view,
observing the principle does not require a mathematical correlation
between the penalties ultimately imposed on different parties in an
OFT423resp | 33
investigation so that, for example, the final penalty on each undertaking
is the same proportion of the group’s turnover (which would be difficult
or impossible to achieve in practice and may not reflect adequately the
differential circumstances of each party to the case). Rather, it involves
primarily ensuring that a common framework or set of principles is
applied consistently to all parties and any departure from those
principles will be objectively justified. This is also reflected in the Final
Draft Guidance.
5.31
The OFT also notes that the nature of the equal treatment principle is
that parties will be treated equally throughout an investigation rather
than just in respect of their penalty calculation.
5.32
The OFT notes the concerns of a number of respondents in relation to
the varying impact that a penalty might have on different companies,
depending on their size and the breadth of their activities. In particular,
the OFT notes the views of a small number of respondents that an
increased maximum starting point percentage may affect single product
firms more than bigger ones in terms of the ratio between a penalty and
their total turnover or in terms of making their penalties more likely to
be at or over the statutory cap of 10 per cent of total turnover. The
OFT considers that it is unclear whether this is likely to occur in practice
and that, even if it did, it would not necessarily lead to concerns under
the principles of equal treatment or proportionality. However, to the
extent that such issues prove to be an issue in practice, they can in the
OFT’s view be considered on a case-by-case basis in the proportionality
assessment at step 4.
5.33
With regard to the possibility of reducing a penalty in situations where
there is considerable uncertainty on the part of firms engaged in the
infringing activity as to whether it constitutes an infringement, the OFT
notes that this will be addressed primarily through the application of
mitigating factors at the new step 3. A mitigating factor for situations
where there is genuine uncertainty on the part of the undertaking as to
whether the agreement or conduct constituted an infringement is
envisaged in the current Guidance and will be retained. In appropriate
circumstances, this factor could also be considered when assessing
proportionality at step 4.
5.34
The OFT notes the view of some respondents that penalties should be
assessed at a sufficiently ‘high’ or ‘independent’ level within the
OFT423resp | 34
organisation. The OFT agrees that decision-making in its competition
cases, including as regards penalties, is an important issue. In that
context, it is noted that the OFT is currently consulting on proposed
changes to its procedures in CA98 cases, including further
improvements to its decision-making structures. 17
17
Details on the consultation on CA98 investigation procedures are available on the OFT
website at www.oft.gov.uk/about-the-oft/legal-powers/legal/competition-act-1998/ca98procedures-guidance.
OFT423resp | 35
6
ADJUSTMENT FOR AGGRAVATING AND MITIGATING
FACTORS (CURRENT STEP 4)
6.1
The consultation proposed a number of clarifications and additions in
relation to certain aggravating and mitigating factors.
Question 8
What are your views on the OFT’s proposed revisions to the illustrative list of
aggravating and mitigating factors?
Please give reasons for your views.
PERSISTENT AND REPEATED UNREASONABLE BEHAVIOUR THAT DELAYS
THE OFT’S ENFORCEMENT ACTION AS AN AGGRAVATING FACTOR
Respondent's views
6.2
Many respondents expressed views on the OFT’s proposal to introduce
an illustrative aggravating factor for persistent and repeated
unreasonable behaviour that delays the OFT’s enforcement action. A
number of these respondents disagreed with the proposal to introduce
the aggravating factor, for a number of key reasons including the
following:
•
Unfairness may result as delays may sometimes be unavoidable
even where a party is using best efforts to meet deadlines.
•
The offence in section 42 of the CA98 for failing to comply with
the OFT’s formal investigation powers already addresses the OFT’s
concerns about delay.
•
It would be inappropriate or impermissible for the OFT to penalise
undertakings for conduct such as persistent delays without the
express support of Parliament. It is one thing to reduce penalties
for cooperation but another to increase them for lack of
cooperation.
•
The proposed legislative reforms to give the Competition and
Markets Authority powers to impose fines for failure to comply
with procedural obligations are a more appropriate way of dealing
with delay concerns.
OFT423resp | 36
•
6.3
The OFT should meet the aims of this factor through increasing
incentives to cooperate rather than by penalising undertakings
through higher penalties; it is inappropriate for the OFT to seek to
use fining policy to achieve an aim for which it is not intended.
Other respondents had no objection in principle to the proposed
aggravating factor but were concerned to ensure that the factor would
be applied carefully to ensure that there was no interference with
parties’ rights of defence. Both these respondents and the respondents
who disagreed with the introduction of the factor suggested a number
of protections or limitations that the OFT could put in place if it was
minded to introduce the aggravating factor. These included the
following key suggestions:
•
The factor should be applied exceptionally and only after
undertakings have been clearly warned that they face application
of this factor and given a chance to explain or remedy their
behaviour. Warnings should also be included in correspondence
and information requests.
•
The guidance should give examples of behaviour that would fall
within the scope of the factor and identify procedural steps the
OFT will take to ensure that the parties’ rights of defence are not
prejudiced.
•
Only bad faith or deliberate obstructive behaviour should be within
the aggravating factor. The guidance should be explicit that the
factor will not apply where the parties have bona fide endeavoured
to meet OFT deadlines but run into unforeseen difficulties.
•
The OFT must set reasonable deadlines and be prepared to grant
reasonable requests for extensions to deadlines; applications for
such extensions should not be viewed as delaying behaviour.
•
The aggravating factor should apply only to formal information
requests.
•
The guidance should be explicit that even vigorous exercise of
rights of defence (such as making challenges before the Procedural
Adjudicator or a court) would not fall within the aggravating factor.
OFT423resp | 37
•
Uplifts should only be included in the decision if approved formally
by the Procedural Adjudicator.
•
A corollary of the factor should be that penalty reductions will be
made for unreasonable case delays by the OFT.
OFT's views
6.4
The OFT has decided to proceed with the introduction of a new
illustrative aggravating factor for persistent and repeated unreasonable
behaviour that delays the OFT’s enforcement action. In the OFT’s view,
the factor will provide a strong disincentive for parties to engage in
unreasonable behaviour to delay the OFT’s investigation.
6.5
As regards the view expressed that it would be inappropriate to
introduce the aggravating factor because there already exist offences in
section 42 of the CA98 for failing to comply with formal information
requests, the OFT considers that the mere existence of section 42
which covers some but not all of the situations that the aggravating
factor is designed to address does not prevent the OFT from adopting
the aggravating factor proposed. The possibility of acquiring new
statutory powers which may address delays similarly does not in the
OFT’s view create a bar to introducing the new aggravating factor. If in
due course the Competition and Markets Authority receives such
powers, it may decide to review the necessity for and application of this
aggravating factor in the light of the impact of those powers.
6.6
The OFT notes the suggestion that it is not appropriate for it to
introduce the aggravating factor without the express will of Parliament
nor to treat delay as an aggravating factor (rather than simply not giving
a cooperation discount) in those circumstances. However, the OFT
considers that it has discretion under the CA98 to include an
aggravating factor such as the one proposed. Sections 38(1) and (1A)
of the CA98 oblige the OFT to publish guidance as to the appropriate
amount of a financial penalty and section 38(4) provides that the
Secretary of State must approve the guidance before it is published.
Subject to those mandatory parameters, however, the OFT considers
that it has significant discretion in establishing the content of the
guidance. In addition, the OFT considers that there is no general rule of
law which would, in principle, prevent the OFT adopting this
aggravating factor.
OFT423resp | 38
6.7
The OFT agrees with the respondents who commented that it will be
important to apply this aggravating factor carefully in order to avoid
prejudicing parties’ rights of defence. The OFT considers that there will
be a relatively high threshold for applying this factor and that, as a
result, its use will in practice be exceptional. The OFT has considered
the various safeguards that some respondents suggested might be put
in place to ensure that rights of defence are not prejudiced but has, on
balance, concluded that it is better to develop its approach to
appropriate safeguards on a case-by-case basis, developing its approach
through experience. Including such safeguards in guidance now, without
the benefit of experience, may establish practices that are inappropriate
or unwieldy. The OFT’s developing approach will be transparent to
parties and their advisors through the OFT’s decisional practice. In the
Final Draft Guidance, the OFT has, however, amended the text that was
contained in the Draft Revised Guidance to note explicitly that the OFT
will not treat the proper exercise of parties’ rights of defence as
unreasonable behaviour that could fall within the scope of the
aggravating factor.
RECIDIVISM AS AN AGGRAVATING FACTOR
Respondent’s views
6.8
The majority of respondents who expressed views on the OFT’s
proposals to clarify its approach to recidivism uplifts welcomed the
greater clarity and transparency on the OFT's approach to recidivism set
out in the Draft Revised Guidance. However, there were calls from a
significant number of respondents for changes to elements of the
proposal. Suggested changes included the following:
•
Only prior findings of infringement by UK authorities should be
taken into account. If other European authorities’ decisions were to
be taken into account, this should be only be the case where they
cover UK effects and where the relevant decisions are after
Modernisation in May 2004 (or the date of EU accession if later).
•
The guidance should specify what is meant by ‘same or similar
infringement’. One respondent considered that recidivism should
apply only to previous infringements committed by the same
business department or product line.
OFT423resp | 39
•
A 15-year period for identifying relevant prior infringement
decisions is too long; five to seven or 10 years would more closely
take into account the typical life cycle of businesses’ managing
bodies and better match the length of time the CA98 has been in
force. There may also be issues around parent/subsidiary liability
that would need to be resolved, for example where a group had
acquired a company with a prior infringement decision addressed
to it, when would this be taken into account in relation to a case
against the group company?
•
Only previous findings of infringement that precede the start of the
infringement at hand (or at least the OFT’s investigation into it)
should lead to an uplift. More specifically, parallel infringing activity
should not lead to an uplift as a business should be given a chance
to reform its behaviour following a previous infringement finding.
•
The guidance should identify the factors that will be relevant to
deciding the level of uplift.
•
The OFT should adopt a staggered approach (such as a 50 per cent
increase for one prior infringement, a 60 per cent increase for two
increases and so on) similar to the European Commission’s
decisional practice. Moreover, a maximum uplift of 100 per cent
for each prior infringement may be too high.
•
Previous infringements for which an undertaking received immunity
or leniency should not count for recidivism purposes in order to
preserve incentives to apply for leniency.
•
The new approach to recidivism should be applied only to those
infringements that begin after the New Guidance comes into force.
OFT's views
6.9
The OFT considers that it is appropriate to amend the approach to
recidivism in the Draft Revised Guidance in certain respects but to retain
the approach proposed in the Consultation Document in other respects.
6.10
First, the OFT considered whether it was appropriate to reduce the 15
year period for which prior infringement decisions would be taken into
account. However, on balance, it considered that an undertaking
repeating the same or a similar infringement up to 15 years after a prior
OFT423resp | 40
infringement decision may indicate that the prior decision did not
sufficiently deter the undertaking from breaching competition law in the
future and it is therefore appropriate to apply an uplift for recidivism in
order to further incentivise future behaviour change. That said, when
deciding whether and in what amount to uplift for a given prior
infringement, the OFT will take into account relevant circumstances,
including any evidence as to management changes.
6.11
As regards suggestions that businesses should be given a chance to
‘reform’ their behaviour following a previous infringement decision
before a new or continued infringement leads to a recidivism uplift, the
OFT agrees that should be the general rule. The Draft Revised Guidance
has therefore been amended to clarify that an uplift will generally be
made only where an undertaking begins or continues the same or a
similar infringement after a prior decision that it has infringed one of the
relevant provisions of the CA98 or the TFEU.
6.12
Second, the OFT agrees with respondents that it would be helpful for
the published guidance to provide further detail on which infringements
will be treated as ‘the same or similar’. The Final Draft Guidance
therefore sets out that it will be possible for the OFT to treat
infringements as the ‘same or similar’ where they fall under the same
provision of the CA98 or the equivalent provision of the TFEU. The OFT
recognises that it will not necessarily be appropriate to uplift for every
prior infringement that falls under the same UK prohibition or equivalent
European prohibition. Accordingly, the OFT does not rule out that in
some exceptional cases a narrower approach may be warranted where
an undertaking can provide strong evidence that this is the case.
6.13
In light of respondents’ views, the OFT has decided that, in addition to
prior infringement decisions taken by the OFT or a UK regulator, only
prior infringement decisions of the European Commission that cover an
infringement with a UK impact (for example through covering infringing
activity that took place in or was targeted at the UK) may lead to a
recidivism uplift.
6.14
As regards parent-subsidiary liability issues, the OFT considers that it
would be inappropriate, both for deterrence purposes and having regard
to the case law on parental liability, to have a general approach that
would rule out taking into account for recidivism purposes previous
infringements by different companies that form part of the same
OFT423resp | 41
undertaking. That said, the OFT would expect to consider such issues
as appropriate on a case-by-case basis.
6.15
The OFT has considered suggestions that the guidance should provide
more detail on how the recidivism uplift will be determined in a
particular case. However, the OFT considers that it would be more
appropriate to address these issues through its decisional practice as it
develops more experience of considering recidivism on a case-by-case
basis.
6.16
Finally, the OFT has considered whether prior infringements for which
undertakings had immunity or leniency status should be taken into
account for recidivism uplifts. The OFT has decided that, on balance, it
is appropriate for such prior infringements to count for the purposes of
recidivism uplifts in order to preserve incentives for undertakings who
benefit from leniency in one case to engage in competition law
compliance activities to avoid future infringements. The OFT considers
that there is unlikely to be a risk of chilling leniency incentives under the
OFT’s approach to recidivism since it is still open to undertakings who
have committed prior infringements to benefit from leniency in later
cases.
COMPLIANCE ACTIVITIES AS A MITIGATING FACTOR
Respondents' views
6.17
All respondents who expressed views on the OFT’s proposed treatment
of compliance activities welcomed clarification on the circumstances in
which such activities may merit reductions in penalty. However, a
number of respondents made additional suggestions. Key points made
by these respondents include the following:
•
The reference to the 'exceptional circumstances' in which having a
competition law compliance programme may constitute an
aggravating factor should be clarified to avoid chilling incentives to
engage in compliance activities.
•
The OFT should state that it will generally give compliance
discounts for compliance activities rather than having a neutral
starting point. In particular, the statement in the guidance that,
‘the mere existence of compliance activities will not be treated as
OFT423resp | 42
an aggravating or mitigating factor’ should not fail to recognise
that, for small undertakings, even modest formal compliance
activities may represent a substantial commitment to achieving
compliance.
•
The OFT should go further and indicate that it will generally give
discounts for compliance activities rather than having a ‘neutral’
starting point.
•
The level of discount that may be available for appropriate
compliance activities should be set out in the guidance. Moreover,
the potential reduction in fine should not be capped at 10 per cent
in all cases. For example, a higher discount might be merited where
a company genuinely has a compliance culture but a rogue
employee, in breach of clear internal compliance rules, is
responsible for an infringement.
OFT's views
6.18
The OFT has decided to take forward its proposal to clarify its approach
to compliance activities. In response to respondents’ views, the Final
Draft Guidance clarifies that the exceptional circumstances in which
compliance activities could be treated as an aggravating factor include
situations where compliance activities are used to conceal or facilitate
an infringement, or to mislead the OFT during its investigation. This
might involve, for example, creating false or deliberately misleading
notes of cartel conversations with competitors in any competitor
contact records required as part of the undertaking’s compliance
activities in order to create an impression that the discussions were
‘legitimate’.
6.19
As regards the suggestion that the OFT should adopt more than a
neutral starting point to compliance activities, the OFT remains of the
view that this is appropriate as the key reward of effective competition
law compliance is the avoidance of an infringement in the first place.
That said, the OFT recognises the importance of appropriate
encouragement of genuine compliance activities and in the Final Draft
Guidance has made it clearer that, notwithstanding the neutral starting
point, evidence of appropriate compliance activities will likely be treated
as a mitigating factor.
OFT423resp | 43
6.20
The OFT notes the specific concern expressed about whether it will
recognise modest compliance activities carried out by smaller
undertakings. As is clear from the OFT’s wider work on compliance, the
OFT considers that there is no ‘one size fits all’ approach to compliance.
Thus, where the OFT considers that the compliance activities were
appropriate for the business in question given the risks it had identified
and assessed, the fact that the compliance activities were modest in
scope will not prevent the OFT from granting a reduction. The OFT will
also take into account the action taken by the business to review its
compliance activities in light of the events that led to the investigation
at hand.
6.21
The OFT agrees with respondents that it may be helpful to note the
level of discount that may be available for appropriate compliance
activities and the Final Draft Guidance therefore notes, in line with other
materials on compliance published by the OFT, that a discount of up to
10 per cent may be available. The OFT has considered the views of
some respondents that the discount should not be capped at 10 per
cent, particularly in cases involving a so-called rogue employee.
However, as explained in the OFT’s wider compliance work, 18 the OFT
considers that it is inappropriate to grant discounts higher than 10 per
cent or to take a different approach to so-called rogue employees as this
risks undermining deterrence and creating incentives for businesses to
find a 'scapegoat' within the organisation to present as a ‘rogue’ in
order to obtain a discount from the penalty, rather than addressing the
underlying compliance issues.
COMPENSATION PAYMENTS AS A MITIGATING FACTOR
Question 9
Do you agree that the OFT should not include compensation payments in the
illustrative list of mitigating factors, whilst being prepared to consider
arguments in relation to specific cases?
Please give reasons for your views.
See OFT 1227, Drivers of Compliance and Non-compliance with Competition Law (May
2010).
18
OFT423resp | 44
Respondents' views
6.22
The OFT has received mixed views on its proposal not to include
compensation payments in the illustrative list of mitigating factors.
6.23
Several respondents agreed with the OFT’s proposal that the decision
on whether or not to treat compensation as a mitigating factor should
be considered on a case-by-case basis rather than being made an
illustrative mitigating factor. Key points made by these respondents
included:
6.24
•
It is not clear that appropriate cases could easily be identified and a
general approach of treating compensation as a mitigating factor
might create more complication and delay.
•
Having regard to the potential difficulties in terms of undermining
deterrence, the use of OFT resources in assessing whether
compensation was appropriate and timing issues, it is appropriate
to consider compensation as a mitigating factor exceptionally
rather than as a general approach.
•
Penalties guidance should set out criteria for the grant of a
discount in exceptional cases, for instance that a minimum
proportion of victims are compensated and any factors that would
preclude the granting of a discount (for example, mitigation for
compensation may not be appropriate for parties that have
instigated infringements, as this may undermine deterrence).
•
Further consideration of compensation as a mitigating factor could
take place as part of a wider debate on the increasing prevalence
of competition private actions and its relationship to public
enforcement in terms of sanctioning anti-competitive activity;
further consideration of the issue may also be necessary as a result
of the Government’s expected consultation on how to make the
competition private actions regime more effective.
On the other hand, the OFT notes that a large number of respondents
considered that compensation payments should be an illustrative
mitigating factor in the guidance. Key comments made by these
respondents included the following:
OFT423resp | 45
•
The practical difficulties identified by the OFT in the consultation
are not insurmountable; some respondents suggested possibilities
for addressing these concerns, including limiting discounts to
significantly less than ‘pound for pound’ compensation to avoid
undermining deterrence (some respondents suggested discounts in
the region of 10 per cent might be appropriate) and giving a
discount only for compensation already implemented at the time of
the decision (although a number of respondents noted the potential
for such an approach to lead to equal treatment issues).
•
Other jurisdictions (for instance the Netherlands) have a similar
mitigating factor.
•
Encouraging voluntary compensation by parties will benefit both
consumers and companies as voluntary compensation payments
are more effective than damages litigation.
•
Compensation may be particularly appropriate where, without
encouragement to provide redress for consumers through discounts
in penalties imposed by the OFT, victims would be unlikely to seek
or receive compensation (for example where the damage suffered
by an individual may be small compared to the costs of seeking
redress).
OFT's views
6.25
On balance, the OFT has decided not to include compensation payments
as an illustrative mitigating factor in the Final Draft Guidance. The OFT
recognises that making compensation payments an illustrative mitigating
factor might encourage those it is taking enforcement action against to
commit to providing redress but, in light of the practical difficulties the
OFT has identified, the OFT remains of the view that it is appropriate to
consider the effect of any compensation paid or offered by parties on a
case-by-case basis.
6.26
The OFT has considered suggestions that, even under such an
approach, it would be appropriate both to indicate in the penalties
guidance that the OFT would consider compensation as a possible
mitigating factor and to give some guidance on what such cases might
be. On balance, however, the OFT considers that it is more appropriate
to give any such indication or guidance with the benefit of greater
OFT423resp | 46
experience of when it might be appropriate to take compensation into
account.
6.27
Moreover, the OFT also notes that the Government has recently
launched a consultation on private actions relating to breaches of
competition law. 19 The consultation includes proposals for the OFT to
facilitate the provision of redress by undertakings it has made
infringement decisions against but recognises that payment of such
compensation should not necessarily lead to a reduction in the penalty
imposed by the OFT, which is consistent with the OFT’s approach to
compensation.
19
See www.bis.gov.uk/assets/biscore/consumer-issues/docs/p/12-742-private-actions-incompetition-law-consultation.
OFT423resp | 47
7
OTHER ISSUES
7.1
The consultation also requested views on a number of other specific
points in the Draft Revised Guidance.
Application of discounts for leniency and settlement (proposed new
step 6)
Question 10
Do you agree that it would be helpful to make the application of leniency and
settlement discounts a formal Step in the Draft Revised Guidance? Do you
agree that these reductions should be carried out after the Step 5 adjustment to
prevent the maximum penalty being exceeded and to avoid double jeopardy?
Please give reasons for your views.
Respondents’ views
7.2
All respondents who responded to this question welcomed the proposal
to clarify the application of leniency and settlement discounts and make
them a formal step in the guidance. All of those respondents also
agreed that the discounts should be applied after any step 5 adjustment
to prevent the maximum penalty being exceeded and to avoid double
jeopardy. One respondent suggested, in addition, that leniency and
settlement discounts should be applied after any reductions in penalty
made for financial hardship. Another respondent observed that it would
be helpful for the guidance to clarify the relationship between the
discounts available for cooperation as a mitigating factor and those
available for settlement.
OFT's views
7.3
Having considered the overwhelming support expressed for this
proposal, the OFT has decided to implement it. As regards the
suggestion that leniency and settlement discounts should be applied
after any financial hardship reductions, this point is discussed in the
section on financial hardship below. The OFT notes the request for
clarification on whether parties settling with the OFT could receive a
discount for cooperation as a mitigating factor. However, the OFT
considers the issue would be best addressed in a future review of the
OFT423resp | 48
OFT’s settlement policy. That said, the OFT does not in the meantime
rule out granting a discount for cooperation as a mitigating factor to a
party that has agreed to settle with the OFT.
Financial hardship
Question 11
Do you agree that the financial hardship assessment should be carried out at
the end of the calculation process?
Please give reasons for your views.
7.4
The consultation sought views on the OFT’s proposal in the Draft
Revised Guidance to assess financial hardship at the end of the
calculation process (after any adjustment to prevent the maximum cap
being exceeded), rather than at step 3 which has been the OFT’s
practice under Current Guidance.
Respondent's views
7.5
All but one of the respondents who expressed a view on where the
financial hardship assessment should take place agreed with the OFT’s
proposal. One respondent considered, however, that any financial
hardship discounts should be applied before leniency and settlement
discounts. This respondent considered that no real credit would be
obtained from leniency and settlement if a penalty would have been
reduced in any event owing to financial hardship.
7.6
Respondents also made a number of additional points. A small number
of respondents suggested that the OFT should provide more guidance
on its approach to financial hardship. In particular, one respondent
suggested that enhanced transparency on the way the OFT assesses
and grants financial hardship reductions would increase the perceived
legitimacy of such reductions and minimise the possibility of potentially
unmeritorious hardship claims being successful. The same respondent
also raised the possibility that financial hardship could be addressed
through state aid and that any reduction in fines for financial hardship
could be balanced by the use of competition disqualification orders
against the undertaking’s directors.
OFT423resp | 49
OFT's views
7.7
As regards carrying out the financial hardship assessment before
leniency and settlement discounts, the OFT considers it would be less
logical to do this as the key issue in a financial hardship assessment is
whether an undertaking can afford to pay the penalty that would have
been due but for a financial hardship discount. Although the OFT
recognises that, in cases where a leniency recipient also receives a
financial hardship discount, the effect of applying a financial hardship
discount after the leniency discount may be that the impact of the
leniency discount is reduced, the OFT considers it unlikely in practice
that a potential applicant will not apply for leniency on the basis that
they might, exceptionally, be able to obtain a financial hardship discount
in the future. Similar considerations apply to parties’ incentives to enter
into settlement agreements. Accordingly, the OFT has decided to retain
its proposal to assess financial hardship at the end of the calculation
process. The OFT will consider any specific issues in relation to leniency
or settlement discounts on a case-by-case basis. The OFT notes that
this approach is consistent with the European Commission’s decisional
practice.
7.8
As regards providing further details on how it will assess financial
hardship claims, the OFT notes that its experience of dealing with such
claims is developing and it is currently considering claims on a case-bycase basis. Therefore, the OFT does not consider that it would be
appropriate to provide a policy statement of its approach to assessing
financial hardship at this time. However, as the OFT’s experience
develops in this area it will consider whether it is appropriate to produce
separate guidance on its approach to assessing financial hardship
claims. Details of the approach that the OFT has taken in particular
cases may be of some assistance to businesses and their advisers and
this is available in certain of the OFT’s published decisions. See for
example the decision in the Construction case. 20
20
See www.oft.gov.uk/OFTwork/competition-act-andcartels/ca98/decisions/bid_rigging_construction. The OFT notes that the CAT’s judgments in
appeals in this case broadly supported the approach the OFT took to financial hardship in this
case. See for example GF Tomlinson Group Limited and Others v Office of Fair Trading [2011]
CAT 7.
OFT423resp | 50
Revision of Leniency part of the Current Guidance
7.9
Part 3 of the Current Guidance sets out the basics of the leniency policy
operated by the OFT. 21 Whereas no changes were proposed to the
basics of the OFT's leniency policy, the OFT in the Draft Revised
Guidance proposed minor amendments to this part of the Current
Guidance in order to:
•
Draw attention to the separate OFT guidance on the handling of
leniency applications ('the leniency guidance'). 22
•
Clarify the requirement for undertakings to accept that the
undertaking participated in 'cartel activity'. This change is consistent
with proposals in the context of the review of the OFT leniency
guidance 23 and aims to make clear that in order to benefit from
lenient treatment an undertaking must admit that it has breached the
law. Such a requirement reflects the current OFT practice and is not
a substantive change to the leniency policy.
•
Clarify the OFT's practice of rejecting applications which do not give
the OFT a sufficient basis for taking forward a credible investigation
(when an application is made before an investigation has
commenced) or which do not add significant value to the
investigation (when the investigation has commenced). We note that
these standards are also in line with leniency regimes in other
jurisdictions.
•
Give more visibility to the definition of cartel activity for the
purposes of the Draft Revised Guidance (the definition is set out in a
footnote in the Current Guidance).
21
Concurrently with the Draft Revised Guidance, the OFT consulted on OFT803con
Applications for leniency and no-action in cartel cases, draft guidance to replace the OFT’s
current leniency handling guidance, OFT803, Leniency and No-action. See
www.oft.gov.uk/shared_oft/consultations/oft803con.pdf
22
See footnote 21 above.
23
Ibid.
OFT423resp | 51
•
Make references where appropriate to reflect the fact that the OFT
may conduct an investigation under one or both of section 192 of
the Enterprise Act 2002 and section 25 of the CA98, and many of
the OFT's early stage cartel investigations are carried out in practice
with a view to civil and/or criminal enforcement.
Respondent’s views
7.10
Respondents did not directly comment on the proposed changes to Part
3 of the Current Guidance. Some respondents to the leniency
consultation 24 nevertheless expressed concern with the requirement that
an undertaking accept, as a condition of the grant of leniency, that it
participated in cartel activity. Some of these respondents considered,
for example, that this requirement could act as a disincentive to apply
for leniency and that it was ultimately for a court to decide on appeal
whether the activity amounted to a cartel infringement. Some of these
respondents also suggested that such a requirement would
disadvantage the leniency applicant in any corresponding civil
proceedings.
OFT’s views
7.11
The OFT is currently considering the responses to the leniency
consultation and a relevant summary of responses will be published in
due course. The OFT nevertheless notes that responses to that
consultation on the requirement to accept participation in cartel activity
directly relate to the Leniency part of the Penalties Guidance and will
therefore address them briefly here.
7.12
The OFT considers that it is appropriate to include, as a condition of the
grant of leniency, a requirement that an undertaking accept that it
participated in cartel activity. In the OFT’s view, doing so merely makes
more explicit the existing requirement that leniency applicants have a
‘genuine intention to confess’ to participation in cartel activity. 25 In the
event, the OFT takes the view that explicitly including this requirement
24
Ibid.
25
See for example, paragraph 3.1 of OFT803, Leniency and No-action.
OFT423resp | 52
in the penalties guidance does not represent a substantive change of the
OFT’s leniency policy in practice. Currently, at the stage of signing a
leniency agreement, the applicant formally accepts that the reported
activity amounts to an infringement. The OFT does not consider that
this practice has created a disincentive for leniency applications.
7.13
The OFT also notes that some of the drafting of the Leniency part of the
Draft Revised Guidance has been slightly amended in the Final Draft
Guidance (see, for example, paragraph 3.16 and 3.17 of the Final Draft
Guidance) for the sake of clarification. The amendments do not change
the substance of this part of the guidance.
General comments and transition to New Guidance
Question 12
Is the Draft Revised Guidance sufficiently clear to assist you in understanding
how the OFT will set financial penalties for relevant competition infringements?
Are there any specific areas in the scope of this document where you consider
further guidance would be useful? Please explain which areas and why.
Please give reasons for your views.
7.14
The consultation invited general comments on the Draft Revised
Guidance in Annexe D of the Consultation Document. The
overwhelming majority of respondents identified areas in which they
considered the OFT could clarify or improve the Draft Revised Guidance
in response to questions 1 to 11 above. However, a small number of
respondents made specific observations in response to this question.
Where these observations fell within subject areas that are covered
elsewhere in this Summary of Responses, the respondents’ views are
noted in that section. Accordingly, this section covers only those views
that are not dealt with elsewhere in the Summary of Responses
document.
Penalty calculations in Statements of Objections
Respondents’ views
7.15
Two respondents suggested that it would benefit both parties and the
OFT if Statements of Objections provided more details on proposed
penalties and their calculation. One respondent noted that such details
OFT423resp | 53
might include the essential facts and law the OFT proposed to use
under each step of the guidance and the relevant sales figures that
would be taken into account in the calculation. The OFT notes also that
a similar point was made by several commentators during the OFT’s
previous 2010 consultation on CA98 investigation procedures. 26
OFT's views
7.16
In light of the representations made on this issue, both in this
consultation and in the OFT’s previous 2010 consultation on CA98
investigation procedures, the OFT considers that it would be appropriate
to provide parties with more details of, and an opportunity to make
representations on, proposed penalties in advance of the final penalty
decision being taken. The OFT is taking forward work on this issue in
the context of its current consultation on CA98 investigation procedures
rather than as part of this review of the Current Guidance 27. The current
procedures consultation proposes the following in this respect:
‘2.44 The OFT has therefore decided to ensure that parties are provided
with an opportunity to comment in writing and orally on the key
elements of the draft penalty calculation (including the proposed
starting point percentage, the proposed relevant turnover figure to
be used, the proposed duration and, to the extent possible, the
facts that may give rise to aggravating and mitigating factors) in
advance of the penalty decision being taken. These details may be
included in the Statement of Objections with parties invited to
comment on them in their written representations and at the oral
hearing, or they may be included in a separate draft penalty
calculation statement with separate arrangements for written and
oral representations.’
See OFT 1263resp, Competition investigation procedures guidance – Summary of responses
to the OFT's consultation and OFT's conclusions and decision document (March 2011). This is
available on the OFT website at www.oft.gov.uk.
26
27
Details on the consultation on CA98 investigation procedures are available on the OFT
website at www.oft.gov.uk/about-the-oft/legal-powers/legal/competition-act-1998/ca98procedures-guidance.
OFT423resp | 54
Making the guidance binding on the CAT
Respondents’ views
7.17
One respondent noted that, as the CAT may depart from the OFT’s
guidance on appeal and set a penalty it considers proportionate and
reasonable, uncertainty about the difference between the OFT and CAT
approaches to penalty-setting will remain unless the OFT’s assessment
of proportionate and reasonable penalties is aligned with the CAT’s
approach. In this context, the respondent observed that the Government
might be encouraged to consider putting the setting of competition
penalties on a statutory basis and constraining departure by the CAT
from the guidance. Another respondent made a similar point, noting that
possible future legislation might provide for guidance to be issued by a
body akin to the Sentencing Council that produces guidance for criminal
sentencing. This would bind both the OFT and the CAT unless there
was good reason to depart from it, thereby reducing the uncertainty
that presently exists about the approach that the CAT will take to
penalties in any individual case, which was exemplified by the
somewhat different approaches adopted by each of the three
compositions of the CAT in the recent Construction appeals.
OFT's views
7.18
The OFT notes that in its published response to its consultation on the
antitrust regime, the Government has decided, ‘To legislate that
financial penalties should reflect the seriousness of the infringement and
the need to deter and that the Competition Appeal Tribunal (CAT) must
have regard to the statutory guidance on the appropriate amount of a
penalty.’ 28 The consideration of how this is best achieved through
legislation is outside the scope of this review of the OFT’s penalties
guidance.
Other points made by respondents
7.19
28
One respondent noted that it would be helpful for the OFT to provide
guidance on the process of settlement. Another respondent suggested
that the OFT consider adding to the Draft Revised Guidance some of the
See www.bis.gov.uk/Consultations/competition-regime-for-growth?cat=closedwithresponse.
OFT423resp | 55
explanation in the Consultation Document on particular calculation
steps. Examples given were relevant turnover in paragraphs 5.19 to
5.20 of the Consultation Document and uplifts for delay in paragraphs
5.35 to 5.38 of the Consultation Document (should the OFT proceed
with that aggravating factor). A further respondent noted that it would
be helpful for the OFT to include in the guidance worked examples of
how the OFT would set penalties, particularly for those who are not
legal practitioners.
OFT's views
7.20
As regards the request for further clarity on the process of settlement,
the OFT notes that the Draft Revised Guidance formalised the
application of settlement discounts as part of a new step 6 of the
guidance. The OFT notes also that certain common features of the
OFT’s approach to settlement (for example the need for an admission
and procedural cooperation) emerge from some of the OFT’s published
infringement decisions. 29 More generally, the OFT notes that the OFT’s
current consultation on CA98 investigation procedures 30 is considering
whether it would be worthwhile producing more guidance on the OFT's
settlement policy and procedures at the present time or whether this
should be left to a later date, for instance after the establishment of the
Competition and Markets Authority. A decision on this point will
therefore be taken in due course.
7.21
The OFT has considered whether, in relation to certain issues, it might
be helpful to include in the guidance some of the broader explanatory
material from the Consultation Document to which the Draft Revised
Guidance was attached. For the majority of matters covered in the Draft
Revised Guidance, the OFT considers that the level of detail does not
require additions. However, the OFT considers that it would be helpful
to make some minor additions to the Draft Revised Guidance, by way of
clarification, in relation to the two specific areas identified by one
respondent, namely the calculation of relevant turnover and uplifts for
See for example the OFT’s decision in the Gaviscon case:
www.oft.gov.uk/OFTwork/competition-act-and-cartels/ca98/decisions/reckitt-benckiser
29
30
See note 27 above.
OFT423resp | 56
persistent and repeated unreasonable behaviour that delays the OFT’s
enforcement action. As regards the suggestion that it would be helpful
to include worked examples in the guidance, the OFT considers that the
New Guidance, together with published OFT infringement decisions in
due course, will provide sufficient clarity on the way the OFT will set
penalties.
Question 13
Do you agree with the OFT’s proposed transitional arrangements?
Please give reasons for your views.
Transition to New Guidance
7.22
The consultation welcomed views on the OFT's proposal that the New
Guidance would apply only to those cases where a Statement of
Objections was issued after the New Guidance comes into force.
Respondents’ views
7.23
All respondents answering this question broadly supported the OFT’s
proposal to apply the New Guidance to cases where the Statement of
Objections had not been issued at the time the New Guidance comes
into force. A small number of respondents also expressed the view that,
where changes proposed in the Draft Revised Guidance reflect
clarifications made by CAT judgments (for example clarification of ‘last
business year’ at step 1 of the guidance), such changes should be
applied by the OFT immediately, before the New Guidance comes into
force. A few respondents considered that undertakings which infringed
competition law before the coming into force of the New Guidance
should not face penalties higher than they would have faced under the
Current Guidance at the time the infringing conduct took place.
OFT's views
7.24
The OFT has decided to implement the transitional arrangements
proposed in the consultation document. As regards the additional
suggestion that the OFT should implement immediately the proposed
changes that reflect clarifications provided in CAT judgments, the OFT
notes that it is already doing so in relation to two key issues. First, and
as noted in the Consultation Document, the OFT has already changed
OFT423resp | 57
its approach to ‘last business year’ at step 1 to reflect the clarification
in the CAT judgments in the CRF 31 and Construction 32 cases that this
should be interpreted as the year before the infringement ended.
Second, the OFT notes that it has also changed its approach under the
Current Guidance to reflect the CAT’s suggestion that the OFT should
more explicitly take a ‘step back’ to consider whether a proposed
penalty is disproportionate or excessive.
7.25
In terms of the views of a few respondents that penalties for
infringements that took place before the New Guidance comes into
force should not be higher than under the Current Guidance, the OFT
considers that it is necessary to ensure only that the maximum penalty
applicable under the New Guidance is not higher than that applicable
under the Current Guidance. This reflects the CAT’s judgment on this
issue in its judgment in the Tomlinson Construction appeal. 33 As the
statutory maximum penalty is the same under both the Current and the
New Guidance, the OFT has decided not to implement this suggestion.
7.26
Furthermore, the OFT considers that it would be helpful to clarify how
the transition from the Current Guidance to the New Guidance will work
in the event that a party enters into a settlement agreement with the
OFT while the Current Guidance is in force, but a Statement of
Objections is not issued until the New Guidance is in force. By way of
exception, the OFT’s position in the Final Draft Guidance that if, before
the New Guidance comes into force the OFT entered into a settlement
agreement with a party and agreed a financial penalty based on the
Current Guidance, the penalty for such a party will remain as calculated
under the Current Guidance even if the Statement of Objections in the
case is issued after the New Guidance comes into force. The OFT
considers that such an approach is reasonable and appropriate in order
to provide certainty to any parties that conclude a settlement agreement
with the OFT while the Current Guidance is in force.
31
The CRF judgment (see note 10 above).
32
See for example the Kier judgment in the Construction appeals, [2011] CAT 3.
See GF Tomlinson Group Limited and Others v Office of Fair Trading [2011] CAT 7, at [103][110].
33
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ANNEXES
OFT423resp | 59
ANNEXE A - LIST OF RESPONDENTS TO THE CONSULTATION
1.
Addleshaw Goddard
2.
Allen & Overy
3.
American Bar Association
4.
Ashurst
5.
Berwin Leighton Paisner
6.
Canon Europe
7.
Centre for Competition Policy (University of East Anglia)
8.
Charles Russell
9.
City of London Law Society (Competition Law Committee)
10.
Cleary Gottlieb Steen & Hamilton
11.
Clifford Chance
12.
Confederation of British Industry
13.
Eversheds
14.
Freshfields Bruckhaus Deringer
15.
Herbert Smith
16.
Hogan Lovells
17.
In-House Competition Lawyers Association
18.
International Chamber of Commerce
19.
The Joint Working Party of the Bars and Law Societies of the United
Kingdom on Competition Law
20.
Professor Yannis Katsoulacos (Athens University of Economics &
Business) and Professor David Ulph (University of St Andrews)
21.
Linklaters
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22.
Norton Rose
23.
Ofgem
24.
Pinsent Masons
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