CNMC updates its guidelines on the method of setting fines

Law 15/2007, of July 3, for the Defense of Competition (Ley 15/2007, de 3 de julio, de Defensa de la Competencia, or “LDC”), grants the Spanish National Commission for Markets and Competition (Comisión Nacional de los Mercados y la Competencia, or “CNMC”) the authority to levy fines for breach of Spanish competition rules. In this context, the CNMC has reviewed and updated its methodological guidelines published back in 2018 regarding how fines are set. The aim of these updated guidelines is to make the setting of fines more transparent and to maintain the deterrent effect, while also taking into account the principle of proportionality.

The new guidelines (in Spanish) are available here.

Background

The Supreme Court, in its ruling of January 29, 2015 (ECLI:ES:TS:2015:112), annulled the methodology that the CNMC had been using since 2009 to calculate fines for infringements of the LDC. This inevitably forced the CNMC to revisit its methodology to adapt it (and make it compatible) to the criteria set out in that judgment.

Thus, the CNMC developed a new methodology for calculating fines in infringement proceedings. Such methodology was ultimately set out in its provisional guidelines published in 2018.

In short, under such methodology, the CNMC first sets out a percentage based on the seriousness of the infringement. It then applies such percentage to the total worldwide turnover of the infringing company in the financial year preceding the imposition of the fine. Finally, through the so-called “proportionality limit”, the CNMC verifies that the amount resulting from such calculation is compatible with the principle of proportionality. This is particularly relevant, inter alia, for multi-product or multi-service companies, since not all their total turnover necessarily derives from the activity affected by the relevant infringement.

Updating the guidelines

The review of the 2018 guidelines has not materially changed the methodology for setting fines. It does, however, introduce some nuances.

• According to the 2018 guidelines, the sanctioning percentage derives from a two-stage process: a general percentage is first determined on the basis of the nature of the relevant infringement (so that more serious conduct, such as cartel conduct, results in a higher percentage). That initial percentage is then individualized for each company according to its specific involvement in the conduct at stake and any other relevant circumstances.

The new guidelines depart from the previous two-stage process which contemplated an explicit distinction between a general and an individual sanctioning percentage. Instead, setting the relevant percentage now follows a more unified single approach, with the individualized allocation of the sanctioning percentage for each company based on the criteria set out in Article 64.1 of the LDC (assessing factors such as market share in the affected market, scope and duration of the infringement, illicit profits obtained, and any aggravating or mitigating circumstances).

This seemingly neutral change could prove to be highly significant, since setting the sanctioning percentage—and thus the discussion between the CNMC and the company—will be specifically based on the verification and the availability of evidence in support of the sanctioning parameters with respect to each company.

• The new guidelines also include a more detailed approach to the relevant parameters outlined in Article 64.1 of the LDC. The guidelines now specify certain aspects of the affected market that may lead to the application of a heightened sanctioning percentage. Such factors include whether the conduct has affected public procurement or the most vulnerable consumers sectors.

As regards the relevance of market shares, the new guidelines distinguish between: (i) collusive conduct, where the market share to be considered is that of all the infringing companies collectively; and (ii) abusive conduct LDC, where the relevant market share is that of the relevant dominant company.

• As regards the final proportionality check, the former guidelines focused on the proportionality limit. The new ones are aligned in this regard but also add a deterrent element. Accordingly, for this final check, the CNMC will estimate a reference value to assess both the proportionality and the deterrent effect of the fine.

To that end, the CNMC will take each company’s turnover in the affected market/s during the infringement period and apply a percentage linked to the relevant gross operating margin. The resulting figure will be multiplied by a factor between 1 and 6, which represents a relevant increment vis-à-vis the previous guidelines, where the maximum multiplier was 4. The specific multiplier will depend, among other factors, on the seriousness and complexity of the infringement, as well as the size of the infringing company and its ability to pay.

The comparison between the fine and the reference value for proportionality and deterrence purposes will determine whether the fine may be adjusted either upwards or downwards at a later stage.

Fines for individuals

The most significant novelty of the new guidelines is the inclusion of a new, standalone section specifically addressing fines for individuals. Article 63.2 of the LDC provides the possibility of imposing fines of up to €60,000 on “legal representatives [of the infringing company] or members of the management bodies who have taken part in the conduct.”

To set the fine, the CNMC will take into account, among other factors, the seriousness and duration of the conduct, the individuals’ hierarchical level within the business organization and the specific extent of their involvement.

Final considerations

This is not a revolution. Indeed, the CNMC has not significantly amended its rationale on how to determine fines. The new guidelines, however, will be useful for companies to anticipate the key consequences of infringements of the LDC by enhancing predictability and legal certainty. In addition, two further considerations are worth noting. First, the multiple references to the deterrent nature of fines, together with the increased multiplier used in calculating the reference value and the inclusion of a specific section on fines for individuals, reinforce the CNMC’s strict stance towards collusive conduct.

On the other hand, the more detailed and precise approach to the calculation method—based on a more individualized assessment of the circumstances of each company—will likely lead to more intense debate with counsel on the parameters underlying the calculation, as well as to the need for robust data and evidence on turnover, the duration and effects of the conduct or the relevant market share.