German Federal Cartel Office Sets Record Fine in Abuse Case

December 7, 2007

Germany’s competition authority, the "Federal Cartel Office", has imposed a fine totaling EUR 216 million in a recent case concerning the abuse of market dominance. This was the highest fine ever set for an abuse of market power in Germany. It was at the same time a clear sign that the Federal Cartel Office is firmly decided to make full and efficient use of the fining powers it possesses as a result of the 2005 amendment of the "Act against Competition Restraints", not only against cartels, but also for unilateral behavior.

The Case

Germany’s two major private television companies, RTL and Pro7/Sat1, had each independently offered rebates to advertising agencies that spent a major proportion of their advertising budget on commercials to air on these television stations (so-called "share of advertising rebates"). Through these rebates, advertising budgets were directed away from smaller television companies that could not afford to offer the same rebates as the two market leaders. Their combined market share on the German market for television advertising amounted to 80 % and the rebates effectively foreclosed competitors’ access to the television advertising market. 

The high market shares and the resulting foreclosure effects had a direct effect on the amount of the fine. Under the Federal Cartel Office’s fining guidelines, the position of the parties on the market and the effects of the infringing practice are taken into consideration in determining the fine. As a result, RTL Media Group was fined EUR 96 million and Pro7/Sat1 was fined EUR 120 million.

Remarkably, both companies announced on 5 October 2007, that they would accept the fines and not appeal. 

German Practice in Relation to Abuses of Market Power

The Federal Cartel Office’s decision practice with respect to abuses of market dominance has developed over the years. Initially, the Federal Cartel Office limited itself to issuing injunctions that prohibited the abuse. Although abuses of market dominance could be fined, this rarely happened in practice. In a 2003 case concerning predatory pricing of a drugstore, the Federal Cartel Office for the first time sanctioned an abuse by imposing fines, the amount of which was not disclosed. 

The 7th amendment to the German Antitrust Act, the "Act against Competition Restraints" that entered into force in July 2005, increased the Federal Cartel Office’s fining powers. Originally, the maximum fine was limited to three times the profit obtained through the violation. Since it is very difficult to establish such profit, the determining factor under the new law is not profit, but simply revenues: fines can be up to 10 % of the revenues of the last business year.

Under these new rules, the Federal Cartel Office fined in February 2007 another drugstore chain for predatory pricing with a fine of EUR 300,000. The gravity and the effects of this violation were less significant than in the present case. Nevertheless, the EUR 216 million fine sets a new standard. It is higher than the total of all fines imposed by the Federal Cartel Office in its 2005/2006 reporting year, which amounted to a total of EUR 168.4 million.

The Federal Cartel Office’s Fining Guidelines

By way of background, it is useful to briefly recall the Federal Cartel Office’s guidelines on the setting of fines that were published on 15 September 2006. As a general rule, the Federal Cartel Office first sets a "basic amount" of the fine and then adjusts it for purposes of deterrence or on grounds of aggravating or extenuating circumstances. 

The basic amount depends on the gravity and duration of the infringement. It may amount to up to 30 % of the turnover achieved through the infringement. As regards the gravity of the infringement the Office takes into account the nature of the infringement, its effects on the market, the market position of all participating undertakings, and the size and significance of the market affected.

For deterrent purposes the basic amount can be increased by up to 100 per cent. Aggravating circumstances include among other things deliberate intent, repetition of an infringement and a particularly active role in the infringement. Extenuating circumstances include among other things post-offence conduct (e.g. compensation for third parties’ financial losses) and a passive role in the infringement.

Comment

Rebates continue to loom large in European antitrust practice, both at national and at European level. Whilst the full details of the RTL – Pro7/Sat1 case still need to be made public, it is clear that companies with a dominant market position need to exercise considerable caution when granting rebates to their customers.