The Supreme Court sets limits regarding fines for infringements for the Act on Defence of Competition

Written on 5 May 2015

The ruling issued by the Supreme Court on 29 January 2015 finally clarifies the limits to be applied to sanctions imposed for infringements for the Act on Defence of Competition: the percentages laid down in article 63 shall apply to the total turnover of the breaching entity, not only to the one made in the relevant market.

The judgment is to clarify the criteria for the interpretation and application of the sanctions regime with regard to competition infringements regulated in article 63 of the Act 15/2007, of 3 July, on Defence of Competition (“DCA“). The aforesaid Article establishes the fines for minor, serious and very serious infringements that the Spanish Commission on Markets and Competition (“CNMC“) may impose for infringing competition rules. We can recall that this controversial Article imposes a sanction of up to 1 per cent of the total turnover of the breaching company in the immediately preceding financial year in which the fine is imposed for minor infringements, up to 5 per cent for serious infringements, and up to 10 per cent for very serious infringements.

In this sense, the criteria used to calculate the fines by the now defunct Spanish Commission on Competition (currently CNMC) since 2009, when the Communication of 6 February on the Calculation of Sanctions was issued, has been declared contrary to the provisions set out in the DCA by the mentioned ruling of the Supreme Court. The judgment analyses two main issues: the limits and the criteria that shall be followed for the quantification of the fines held in article 63 and the turnover over which the corresponding fine shall be calculated. For the first issue, the Supreme Court has confirmed the interpretation held by the National High Court, and that of the CNMC in the latter, given that both their positions were opposing.

Regarding the first issue, and following an appeal lodged against a sanction imposed by the CNMC, on 24 June 2013 the National High Court issued a ruling that rectified the criteria that was being applied by the regulator with regards to the imposition of fines, such an approach that has been confirmed by the ruling issued by the Supreme Court on 29 January 2015. Since the moment the Communication was issued, the CNMC had applied the calculation methodology used in European community law, inspired by the Council Regulation (EC) Noº 1/2003, of 16 December 2002, which Article 23 regulates the guidelines for setting fines. Thus, the percentages set out to calculate the sanctions did not operate as a maximum limit, but they constituted, according to the ruling of the General Court of the European Union of 12 December 2012 (Case T 352/09, Novácke/Commission) a “levelling range”, which implies setting initially a basic amount of the sanction, without being subject to any scale in that first moment. So, following the Communication, the calculation was carried out attending to criteria such as the sales obtained by the breaching company, the period of time during which the infraction was committed and the affected markets and, then, the Commission applied this to, the resulting amount, a percentage between 10% and 30% of the turnover, depending on the gravity of the infringement. Then, the resulting amount was subject to adjustments depending on the existence of mitigating or aggravating circumstances. Finally, the CNMC applied the percentages held in article 63 as an element of moderation a posteriori.

The Supreme Court rejects such methodology and establishes that the percentages on the turnover of the company held in article 63 DCA are the maximum amount of fines, this is, the limit or cap according to which they should be calculated, setting the limits for the imposition of sanctions, not as a “levelling range”, but rather as the maximum amount of a scale of financial sanctions to which the fine has to be adapted. Henceforth, said calculation method cannot operate as an element of moderation a posteriori, but rather, in conformity with Spanish sanctioning law, a scale or interval of minimum and maximum values must be set, within which the punitive response has to be individualised. The Supreme Court also clarifies that, even though the national legislator is bound by the law of the European Union with regards to the conducts which are contrary to free competition, it is not with regards to the technique used to determine the fines, but the body that has the legislative authority is competent to determine the sanctions applicable in its territory. However, the CNMC is not a such competent legislative body and, therefore, the Supreme Court considers that the criterion applied by the CNMC is contrary to the system established in the DCA.

As to the second issue analysed in the ruling of 29 January 2015, that is, the turnover over which the corresponding fine shall be calculated, the Supreme Court has rejected the position maintained by the National High Court. This Court used to argue that the principle of proportionality, especially significant in sanctions, made the relevant figure to be the turnover of the affected market, excluding the revenues obtained in other markets or branches of activity of the sanctioned company. In this sense, the Supreme Court considers that the total turnover, literal wording of article 63 of the DCA, means the whole turnover of the infringing company, without excluding other markets which are not affected by the infringement. Therefore, the corresponding percentage must be applied to the full range of economic activities. In words of the Supreme Court, by mentioning the total turnover, the legislator has chosen to unify the concept so as to not distinguish between aggregated and disaggregated income by branches of activity of the company who has perpetrated the infringement. Nevertheless, being aware of the risk that this interpretation may imply for multiproduct companies, who will be affected to a greater extent, which could even encourage them to foster the creation of subsidiaries in order to decrease the business volume affected by the sanction, the Supreme Court highlights the importance of the principle of proportionality and the provision set down in article 64 of the DCA.

Respectively, this Article establishes the elements that have to be weighed up together in order to determine the final amount of the fine, as a reflection of the principle of proportionality, such as: the dimension and characteristics of the market affected by the infringement, the market share of the responsible company, the scope of the infringement, the duration of the infringement, the effect of the infringement on the rights and legitimate interests of consumers and users or on other economic operators, the illicit benefits obtained as a consequence of the infringement, and the mitigating and aggravating circumstances in relation to each responsible company.

Therefore, in order to determine the amount of the fine, the dimension of the market affected by the infringement has to be taken into account and, as for being able to impose proportional sanctions, the Supreme Court establishes the possibility of assessing the elements provided in Article 64 with the aim of setting sanctions that result effective, addressing a sufficiently deterrent level as for companies not to obtain economic benefits from the infringements that result greater than the costs of repressing them. This way, it is possible to align the needs for efficiency and deterrent capacity with the requirements resulting from the principle of proportionality.

Likewise, with attention to the impact that the calculation of the fine on the total turnover may have, together with the contradiction that the application of the principle of proportionality could eventually imply, the Supreme Court alludes to the legislator, the only competent one to assess and amend the inadequacies that exist in the aforementioned articles.

Finally, it is clear that the interpretation held by the Supreme Court determines the necessary amendment of the Communication, of 6 February 2009, on the Calculation of Sanctions, since it establishes a calculation methodology contrary to what is held in the judgment, with a rewording that must adhere to the limits set by the new doctrine of the Court dealing with the quantification of sanctions in terms of defence of competition.

This new doctrine of the Supreme Court also entails that the CNMC shall have to recalculate all the appealed fines where applicable (which will in turn open once again the possibility of appealing against the new quantification) affecting an important number of cases that are still pending a judgement in their respective extraordinary appeals.