Errors Don’t Unravel Fines in Cartel Case

(CN) - Companies that ran a cartel in the electronics insulation market still face millions in fines despite errors of European regulators and a lower court, Europe's highest court ruled Thursday.

In a series of rulings in 2007, the European Commission slapped $1 billion in fines on 20 Japanese and European companies for colluding to divide the worldwide market for gas-insulated switchgears, used to protect electronic switches from overheating.

Regulators found that the Japanese companies -- including Mitsubishi, Toshiba and Hitachi -- agreed to stay out of the European Union market while European companies Siemens, Areva and others pledged to do the same in Japan.

The General Court of the European Union reduced fines against Mitsubishi and Toshiba in 2011, finding the commission discriminated against the bigger Japanese firms by imposing heavier fines -- almost 30 percent of the $1 billion -- compared to their European co-conspirators.

Following the lower court rulings, the commission and a number of European companies lodged a flurry of appeals over questions of joint and several liability and calculation errors. On Thursday, the European Union's Court of Justice found that the general court made a mistake in allowing the commission, rather than a national court, to decide what portion of the fine each Siemens subsidiary owed.

"The duty to cooperate in good faith with the judicial authorities of the member states, by which the commission is bound under the EU constitution, applies in actions for indemnity before the national courts and tribunals, notwithstanding the fact that such actions are in principle to be decided on the basis of the national law applicable," the Luxembourg-based high court wrote.

"First, the commission's decision establishing joint and several liability for payment of a fine, in that it identifies the entities held so liable and determines the maximum amount that may be claimed from each of those entities by the commission, lays down the legal framework within which a ruling must be given on those actions. Second, the commission may have information that may be relevant for the purpose of determining the shares of those held jointly and severally liable.

"It follows that the General Court erred in law by finding that it is exclusively for the commission, in exercising its power to impose fines, 'to determine the respective shares of the various companies of the fines imposed on them jointly and severally, insofar as they formed part of the same undertaking, and that that task cannot be left to the national courts,'" the court continued.

Additionally, the lower court's doubling of a fine against two Siemens subsidiaries gave the commission more than it had asked for in light of a co-conspirator's decision to settle up rather than appeal, the court said.

In the case of the French companies Areva and Alstom, the commission illegally imposed -- and the General Court confirmed -- de facto joint and several liability on them through an Areva subsidiary.

Areva and Alstom have no corporate ties, but the commission apparently intended that the scheme would force one of them to cough up the full fine and then go after the other in a national court for reimbursement, according to the high court.

"Such a definition of joint and several liability is at odds with the principle that the penalty must be specific to the offender and the offense," the court wrote. "That definition enables the commission to require one of the parent companies to pay a fine punishing infringements for which, for another part of the infringement period, an undertaking of which it has never formed part is responsible, namely ... the undertaking to which the other parent company belongs, not a fine based on the share of joint and several liability attributable to the undertaking of which it formed part at the time the infringement was committed by that undertaking.

"Moreover, while the joint and several liability mechanism enables the commission to reduce the risk that one of the companies forming part of the same undertaking will be insolvent, which forms part of the objectives of ensuring that the commission operates effectively and of deterrence when dealing with infringements of the competition rules, that mechanism cannot be used to force one company to bear the risk of the insolvency of another company where those companies have never formed part of the same undertaking," the court continued.

In all, the companies and their subsidiaries will shell out more than $116 million for their roles in the cartel, the court concluded.

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