78/12    10 September 2012

The OFT has published new guidance on how it will set penalties for breaches of competition law. The guidance will allow the OFT to continue to set substantial penalties to deter anti-competitive activity while ensuring that penalties are proportionate in the specific circumstances of individual cases. 

As required by law, the guidance has been approved by the Secretary of State.

The OFT decided to update its guidance in the light of its experience of applying penalties and recent judgments of the Competition Appeal Tribunal and the Court of Appeal. The OFT has carried out a wide-ranging public consultation, involving lawyers, businesses and other interested parties, and drawing on international experience.

The new guidance sees the maximum starting point for penalty calculations increase to 30 per cent of relevant turnover, from 10 per cent. This change gives the OFT the ability to set penalties which better reflect the gravity of different types of infringements, in particular for the most serious breaches of competition law, such as hardcore cartel activity and serious abuses of a dominant position. It brings the OFT in line with the approach of the European Commission and many European competition authorities.

The guidance introduces a new step in the calculation of penalties. The OFT will consider specifically whether a penalty is proportionate 'in the round'.  Previously proportionality was considered when applying the other steps of the calculation. This change is intended to ensure that, overall, penalties are not disproportionate or excessive in the particular circumstances of the case.

Other changes to the guidance clarify or provide additional transparency about how penalties are calculated, including:

• Clarification that the turnover used for calculating the penalty starting point will be based on the last business year before the infringement ended.
• A new formal step at which leniency and settlement discounts are applied.
• Additional detail on the OFT's approach to awarding discounts for companies taking appropriate steps to comply with competition law. For example, in line with the suite of materials the OFT has published to assist businesses' efforts to comply with competition law, the guidance now notes that evidence of appropriate compliance activities both before and after an infringement could in principle warrant a modest reduction in penalty, depending on the facts of the case.

Jackie Holland, Senior Director of OFT's Policy Group, said:

'We now have a wider range of starting points for penalties, in order to reflect better the seriousness of different types of infringements and deter anti-competitive activities, while ensuring that penalties are fair and proportionate.

'The changes reflect our experience in applying the guidance in a series of cases, as well as recent court judgments. They also incorporate international best practice. We hope that they will give businesses and their advisors even greater clarity and transparency about our approach to setting penalties.

'We are grateful to everyone who engaged with us during the consultation process.'

Download the new guidance (pdf 403kb)

NOTES

1. The OFT is responsible for applying and enforcing the Chapter I and Chapter II prohibitions of the Competition Act 1998 (the CA98), which prohibit agreements preventing, restricting or distorting competition in the UK as well as certain anti-competitive conduct by undertakings holding a dominant position. The OFT also has powers to apply and enforce Articles 101 and 102 of the Treaty on the Functioning of the European Union (the TFEU), which are similar to the Chapter I and II prohibitions, but which apply to agreements or conduct which may affect trade between Member States of the European Union.
2. Under the CA98, the OFT, as well as the sector regulators with concurrent powers, may impose financial penalties on undertakings which have breached the Chapter I or Chapter II prohibitions of the CA98 or Articles 101 or 102 of the TFEU, up to a maximum of 10 per cent of their worldwide turnover. 
3. The CA98 requires the OFT to prepare and publish guidance as to the appropriate amount of any penalty under the CA98. The CA98 provides that prior to preparing or altering such guidance the OFT must consult such persons as it considers appropriate, including the sector regulators with concurrent powers. 
4. Guidance must be approved by the Secretary of State before it can be published. The obligation to prepare and publish guidance is on the OFT alone, but the OFT and the sector regulators with concurrent powers under the CA98 must have regard to the guidance when setting the level of a penalty for breaches of the CA98 or the TFEU. 
5. The Guidance sets out a six step procedure comprising a starting point based on an undertaking's relevant turnover followed by a number of adjustments. 'Relevant turnover' is the undertaking's turnover in the product and geographic market in which the infringement took place. Adjustments to the starting point are designed to reflect various factors that may be present in particular infringements including their duration, any aggravating or mitigating factors, deterrence and proportionality considerations and any reductions as a result of leniency or settlement. 
6. See a range of materials the OFT has published to assist businesses to achieve competition law compliance.