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European anti-trust fines between predictability and unpredictability - the recent case of the detergent cartel

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Companies and the scientific community have long criticized the Commission for its unpredictability when it comes to the calculation of anti-trust fines. At last week’s International Conference on Competition in Berlin the current EU Commissioner for Competition Joaquin Almunia announced that he was committed to further increase the transparency of his agency’s methods of calculation. Despite the intended changes the recent fines levied against the three leading producers of detergents in Europe – Henkel, Unilever and Procter & Gamble – shows that the calculation of European anti-trust fines remains to a large degree unpredictable.

Companies and the scientific community have long criticised the Commission for its unpredictability when it comes to the calculation of anti-trust fines. At last week's International Conference on Competition in Berlin the current EU Commissioner for Competition Joaquin Almunia announced that he was committed to further increase the transparency of his agency's methods of calculation. Despite the intended changes, the recent fines levied against the three leading producers of detergents in Europe – Henkel, Unilever and Procter & Gamble – show that the calculation of European anti-trust fines remains to a large degree unpredictable.

The basic legal principles of the European Union, in particular the precept of nulla poena sine lege or no penalty without a law, require a certain degree of predictability. The steps announced by Mr Almunia will increase the transparency and predictability of the fines for the companies that are about to be punished for the infringement of European cartel-law. Information on the calculation, such as while it is being investigated. This information will make the upcoming fine more predictable for the individual company under investigation.

Nevertheless, the recent case of detergent producers has clearly shown that the Commission is far from being a predictable counterpart for companies.

Last week on Wednesday, the Commission fined the British-Dutch group Unilever and the American company Procter & Gamble for fixing the price of washing powder in over eight European countries for some three years. The German multinational Henkel, whose officials had revealed the cartel to the Commission in 2008, received immunity thanks to the European Leniency Program. Procter & Gamble will pay €211m and Unilever €104m after being rewarded with significant reductions of fines for their cooperation with the Commission.

The Commission calculated these fines according to its own guidelines.  According to EU laws, the Commission has a wide margin of appreciation in determining the method of calculation of fines as long as fines do not exceed 10% of the annual turnover of the company. The Commission has the freedom to issue and amend the guidelines within this wide margin. Indeed, the Commission amended the guidelines in 2006, making them much stricter and prescribing higher fines.  The possibility to amend the guidelines and the existing wide margin of appreciation clearly shows that the Commission's calculation of fines is still not predictable.

There is yet another more critical element that increases the unpredictability of fines. The detergent-cartel was active between 2002 and 2005 and thus before the 2006 guidelines entered into force. However, the Commission based the calculation of fines on the later guidelines. This means that new, stricter rules were applied retroactively.

While it is not possible to punish a delinquent according to laws that had not entered into effect at the time the crime was committed, should it be possible to calculate the fines for Proctor & Gamble and Unilever according to the later 2006 guidelines?

The European Court of Justice tends to say yes. It has argued in a similar case that every new, even stricter version of the guidelines can be applied retroactively because it is foreseeable if it stays within the margin given by the EU competition law. However, because the corresponding EU laws leave the Commission a very wide margin of appreciation, the ECJ will likely declare the retroactive application of the 2006 guidelines to be lawful. This leads to the conclusion that almost every amendment of the guidelines is foreseeable as long as it does not infringe the hard criteria of leading to fines above 10% of the yearly turnover.

The Commission does not want fines to be too predictable.  If companies can foresee fines, they are able to weigh these fines against the potential benefit from a cartel. The ECJ secures the Commission's unpredictability in this field. Some questions however remain unanswered: how much unpredictability is possible in a union of countries ruled by law? And should the protection of the Common Market and European consumers be carried out at the expense of the legal principles prevailing in the EU?

The abandonment of a retroactive application of the stricter 2006 guidelines does not imply impunity for cartel-law infringers but a fining according to those guidelines that had effect at the time the infringement took place. The ECJ has the chance to prohibit the retroactive application of the 2006 guidelines, as this issue was raised in now pending cases submitted in 2010 and 2011. It remains to be hoped that the ECJ will safeguard the law rather than a specific level of fines.

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Leonard Ghione

Leonard Ghione

Leonard Ghione holds a law degree with specialization in European and International law from the University of Freiburg, Germany and will pursue a Master of Arts in Law and Diplomacy at The Fletcher School, Tufts University starting in August 2011.