By Christine Dietz and Max Danzinger, Binder Grösswang
Gun jumping enforcement in Austria has reached an unprecedented level. In an astonishing landmark ruling, the Austrian Supreme Court raised the fine of EUR 1.5 million (set by the Austrian Cartel Court) for infringement of the prohibition to implement a notifiable transaction prior clearance in appeal proceedings to EUR 70 million – a staggering 47-fold (!) increase. This decision signals a decisive shift in the level of fines imposed for gun jumping but also more generally for competition law infringements in Austria.
47-fold increase despite several mitigating factors
The enormous increase of the fine by the Supreme Court is even more surprising as it did not relate to a clear-cut, blatant and intentional disregard of merger control rules. On the contrary, the REWE case presents quite the opposite with several factors typically considered mitigating in the long-standing fine practice of the competition authorities (including the courts) based on the statutory provisions of the Austrian Cartel Act:
- No intentional wrongdoing: The Supreme Court acknowledged that the infringement was negligent rather than wilful.
- No financial enrichment: No direct economic advantage was gained from the premature implementation of the concentration.
- Limited impact on competition: The concentration did not have a material impact on competition on the relevant local Austrian market and was therefore cleared unconditionally in Phase I following its retroactive filing.
- Cooperation: Once aware of the implementation being viewed as gun jumping by the authorities, REWE cooperated fully.
Despite these mitigating circumstances, the Supreme Court drastically increased the fine set by the Cartel Court. This of course raises important questions: If such a heavy fine is imposed in a case where several factors favoured the infringer, what fines are to be expected for more blatant cases of gun jumping let alone fines for long-lasting cartel infringements with (potentially) harmful effects on competition? And how will this decision impact the future settlement practice of the Federal Competition Authority (FCA) and the Federal Cartel Prosecutor (FCP), the two legal parties competent to apply for fines to the Cartel Court?
Details of the proceedings
In 2018, REWE entered into a long-term lease agreement for retail space in a shopping centre and started its operations without notifying the transaction to the Austrian competition authorities as it had taken the view that the transaction did not qualify as a concentration under Austrian merger control.
The FCA took note of the transaction and disagreed with REWE’s assessment: Despite the fact that the newly leased space required renovations as it had not been operated for a few months, REWE’s restart of the business had to be considered as taking over an established business (or at least a relevant part of it), rendering the transaction a notifiable concentration under merger control rules. Since the space had previously been operated as a grocery store, its market position, the businesses’ goodwill and customer base were transferred to REWE despite the interruption, especially considering that suitable real estate for supermarkets was a rare commodity.
In October 2021, the FCA therefore initiated proceedings against REWE and REWE subsequently filed a retroactive merger notification in August 2022, which was cleared after the statutory 4-week review period had lapsed without objections.
The separate proceedings for imposition of an appropriate fine by the Cartel Court continued after clearance of the transaction. The Cartel Court, while confirming the FCA’s qualification of the transaction as a notifiable concentration, dismissed the application for a fine since – in the Cartel Court’s view – such slight negligence would not merit a fine. On appeal, the Supreme Court referred the case back to the Cartel Court making clear that the circumstances for refraining from a fine were not met and ordering the Cartel Court to impose a fine (and not just a symbolic one) based on REWE’s overall turnover.
Very diverging views on appropriate amount of fine
Following the referral from the Supreme Court, the Cartel Court set the fine at EUR 1.5 million based on – what the Court believed to be – the requirements set out in the Supreme Court’s decision, quite an extraordinary increase considering the Cartel Court’s initial view that the facts of the case did not merit a fine at all!
The FCA and the FCP appealed this decision once again applying for an appropriate higher fine. In its appellate decision finally imposing the EUR 70 million fine, the Supreme Court cited a few aggravating factors, amongst which the economic strength of REWE with worldwide group turnover of EUR 92.3 billion in the relevant year, but at the same time also acknowledged the presence of several mitigating factors as already cited above. Emphasizing the need for a certain substantive amount in order to have a deterrent effect as well as consistency with European and other national competition law practices, the Supreme Court “landed” at the amount of EUR 70 million without any reasoning as to how it had determined the appropriateness of this precise amount.
Beyond REWE: A broader trend to higher fines
This ruling follows a pattern of increasingly strict enforcement by the Supreme Court which aims to turn the current rather lenient fine practice of the Austrian competition authorities upside down. A similar shift could already be seen in the recently decided Hygiene Austria case, where the Supreme Court also drastically raised the fine for gun jumping from EUR 5,000 to EUR 100,000, i.e. a 20-fold increase. This case was likewise not a candidate for strict enforcement, in particular because of the very short duration of infringement of only a few weeks and the very special circumstances of the case. In the Hygiene Austria decision, the Supreme Court also vehemently emphasized the need for deterrence and quite bluntly mentioned that the fine level established in past cases was insufficient and not a guideline it considered relevant.
The Supreme Court’s decisions are thus a strong signal to the Cartel Court but also and in particular to the FCA to move away from existing fine levels in gun jumping proceedings. Due to the fact that in almost all cases the offence as such, i.e. gun jumping, could not be disputed, the vast majority of those cases so far had been settled between the legal parties and the companies involved: The facts and the amount of the fine were agreed upon between the parties and then confirmed by the Cartel Court as under Austrian competition law, the Court is not competent to impose a higher fine than applied for by the legal parties FCA and FCP. Therefore, in settlement proceedings, the amount of the fine is in fact determined by the legal parties who orientate themselves on the existing case law (the benchmark ruling for gun jumping cases having been a Supreme Court decision of 2013 with a fine of EUR 100,000). Gun jumping fines thus ranged on average between EUR 50,000 and EUR 150,000.
As a settlement is of only limited added value in the mostly clear-cut gun jumping scenarios (as opposed to e.g. cartel cases with more complex facts and often difficult burdens of proof for the competition authorities with limited resources), it must be expected that the fine practice for gun jumping will change dramatically following the REWE decision.
Settlements are also popular in resale price maintenance cases and hard-core cartel proceedings, e.g. the (in)famous construction cartel in which a very large number of construction companies in all of Austria had been involved. The highest fine imposed on a single construction company so far for bid-rigging, price cartels and market allocations over a period of approx. 15 (!) years amounted to EUR 62.4 million. This amount now seems rather moderate compared to the REWE case when considering the respective infringements and their impact on competition.
Opinion and criticism – worrying lack of predictability
The Supreme Court decision has sparked heated debate within the legal community and has been heavily and rightly criticised:
The choice of case for a substantial change of the (gun jumping) fine practice is surprising. This was (even according to the Supreme Court) not a case of blatant disregard for merger control laws or an intentional effort to circumvent competition rules. Rather, REWE’s conduct was deemed negligent, with no evidence of intent or financial gain. Yet, the fine was increased to an unprecedented level the deciding factor apparently having been REWE’s substantial overall worldwide group turnover rather than the gravity of the offense itself.
The apparent weight that the Supreme Court attributed to the economic strength of the REWE group is in harsh contrast to both the established fine practice in the last decades as well as the statutory law which lists this factor as only one among several others to be considered in determining the appropriate fine.
“Deterrence” was the perceived goal, and is cited as a justification for the necessity of higher fines, but without a clear explanation of how they should be calculated. The Supreme Court listed the factors influencing the fine but gave absolutely no insight whatsoever into how the factors were weighed or what precise impact they had on the final calculation of the fine. The unsatisfactory ending of the Supreme Court decision reads as follows:
“The Supreme Court has already made it clear on several occasions that in order to effectively prevent antitrust violations, fines must be imposed on a scale as has long been the practice at EU level and in many Member States. Taking into account the assessment factors set out above, a fine of EUR 70 million should therefore be imposed.”
The interested reader of the decision is in the end left wondering how the Supreme Court arrived at the precise amount of EUR 70 million. The Supreme Court’s argument that the amount of the fine is sufficiently predictable within the given range set by the principles and guiding factors described in the Cartel Act is all but convincing which is clearly evidenced by the fines imposed on REWE in the present case, namely originally zero, then EUR 1.5 million and finally EUR 70 million, with a theoretically possible maximum amount of EUR 9.23 billion, i.e. 10% of the overall worldwide turnover of the REWE group!
Also, the reference to EU level and other EU Member States is somewhat hard to follow. While it is correct that the EU Commission has recently imposed higher fines for gun jumping than it used to, this practice is all but long-standing and the cases with higher fines can by no means be compared to the REWE case. The reference to other Member States is moot: Particularly Germany comes to mind, which has a much more lenient gun jumping fine practice than Austria.
The reference to the EU also does not quite add up with the fact that, unlike the EU, Austria lacks guidelines on how fines are calculated. The EU guidelines provide a structured methodology which makes the fine assessment by the EU Commission transparent and guarantees at least some degree of legal certainty.
All in all, the decision of the Supreme Court is somewhat erratic and does not provide any guidance both for companies as well as the competition authorities and the Cartel Court for calculating appropriate fines. Such guidance however would have been particularly important in a case where the Supreme Court imposes a fine 47 times higher than the Cartel Court (or 70 million times higher when compared to the first round of proceedings!) thereby wiping away the existing, long-standing and thus predictable fine practice.
Key takeaways for companies and legal practitioners
The stakes have risen substantially in Austria when it comes to (intentional or negligent) gun jumping and companies engaging in M&A should be aware of the risks, which due to Austria’s size and minor economic importance in many sectors sometimes pops up quite surprisingly as a relevant merger filing jurisdiction: Not only provides the Austrian regime for comparatively low filing thresholds and far-reaching turnover calculation methods, it also qualifies minority acquisitions above a certain % irrespective of control as concentrations, has a transaction value threshold and had a zero tolerance policy for gun jumping even before the REWE Supreme Court decision (mostly moderate fines, but almost no exceptions, no first-infringer bonus).
Following the new case law, in addition, the companies now await rather hefty fines also in settlement proceedings before the FCA and the FCP. The appetite for not settling or appealing against a fine to the Supreme Court is likely to be very limited which of course increases the bargaining power of the legal parties quite substantially.
Key takeaways are:
- Gun jumping is not a minor offense – the Supreme Court has made it clear that violating antitrust rules even only negligently should result in severe financial consequences in order to exert a sufficiently deterring effect.
- The financial strength of the companies concerned plays a very important role – according to the Supreme Court, fines should be tailored to ensure deterrence and thus be high for companies with substantial turnover.
- The relevant turnover that sets the maximum fine amount possible is the turnover of the last FY prior to the decision. It is not limited to related activities or Austria and includes the worldwide turnover of the group of companies of which the infringer is part.
- Companies should expect substantially higher fines also in settlement proceedings based on the REWE decision – not only for gun jumping, but generally also for other infringements of antitrust rules.
- Large, internationally active companies are expected to be aware of regulatory requirements. As again stressed by the Supreme Court in REWE, limited activities in Austria compared to the overall business will be no mitigating factor if the filing thresholds of the Austrian Cartel Act are exceeded.
Christine Dietz is a partner at Binder Grösswang’s antitrust department. Christine is the co-editor and co-author of the first stand-alone commentary on Austrian merger control.
Max Danzinger is attorney-at-law at Binder Grösswang’s antitrust department. Max has long-standing experience in merger control as well as fine proceedings.
Picture (for this post) by Andre Taissin on Unsplash
Antitrustpolitics.com 