61980C0100
OPINION OF ADVOCATE GENERAL
SIR GORDON SLYNN
DELIVERED ON8 FEBRUARY 1983
My Lords,
Introductory
(a) The Decision
In these four cases, joined by Order dated 10 July 1981, the applicants ask the Court to annul, wholly or in part, Commission Decision No 80/256/EEC of 14 December 1979 (Official Journal 1980 L 60/21, hereinafter called “the Decision”) or at least to reduce the fines imposed thereby. In the Decision the Commission found two concerted practices contrary to Article 85 (1) of the EEC Treaty to have been established. The first was said to be a practice between the applicants in the first case, Musique Diffusion Française of Vélizy-Villacoublay (“MDF”), the applicants in the second case, C. Melchers and Co. of Bremen (“Melchers”) and the applicants in the third case, Pioneer Electronic (Europe) NV of Antwerp (“Pioneer”) consisting in the prevention, from the latter part of 1975 until February 1976, of imports of Pioneer equipment from the Federal Republic of Germany to France. The second concerted practice was said to have been one between MDF, Pioneer and the applicants in the fourth case, Pioneer High Fidelity (GB) Ltd (“Pioneer GB”) formerly known as Shriro (UK) Ltd of Iver, Buckinghamshire (“Shriro”), consisting in the prevention from the latter part of 1975 until the latter part of 1977 of imports from the United Kingdom to France. By the Decision the Commission imposed on MDF a fine of 850000 European units of account (or FF 4942597), on Pioneer a fine of 4350000 European units of account (or BFR 175476825), on Melchers a fine of 1450000 European units of account (or DM 3596667) and on Pioneer GB a fine of 300000 European units of account (or UKL 194925); and required the applicants to bring to an end forthwith the concerted practices “and all actions having as their object or effect the compartmentalization of national markets in the EEC”.
(b) The applicants
It is found in the Decision that Pioneer is a subsidiary of the Pioneer Electronic Corporation of Tokyo, one of the world's largest producers of high fidelity electro-acoustic sound recording equipment (“hi-fi”), and imports most of the products of that corporation sold in Europe. At the material time, Pioneer had independent sole distributors in seven Member States, including the Federal Republic of Germany, France and the United Kingdom. Melchers was the sole distributor in Germany, appointed by an agreement dated 18 July 1967 which, by contrast with an earlier agreement between Melchers and Pioneer, evinced an intention to comply with the principles contained in Commission Regulation No 67/67 of 22 March 1967 on the application of Article 85 (3) of the Treaty to certain categories of exclusive dealing agreements (Official Journal English Special Edition 1967, 10). From 1 January 1978 a new company was formed for the distribution of Pioneer products, owned as to 40% by Pioneer and 60% by Melchers. MDF acted as Pioneer's sole distributor in France but no written agreement had been concluded between those two parties. Shriro was appointed as Pioneer's sole distributor for the United Kingdom by letter dated 10 September 1969. Pioneer sent to Shriro two drafts for an exclusive distribution agreement, in September 1969 and in August 1976. These drafts contained terms apparently designed to restrict sales of Pioneer equipment by Shriro to purchasers in other States; but Shriro did not sign either draft. In December 1978 the whole share capital of Shriro was acquired by Pioneer and the English company changed its name to Pioneer GB.
The Commission in its initial statement of objections had assessed the market share for Pioneer products in France and the United Kingdom as being respectively 7-10%, 8-9% and in Germany to be smaller. MDF and Shriro put their share at about half the Commission's estimate. Whilst recognizing that it was not easy to define the hi-fi market precisely, the Commission in its Decision found that the share might be higher than its original estimate for France and the United Kingdom (11.5% and 10.5% respectively) but proceeded on the basis that it was not less than the original estimate for those two countries and 2% for Germany.
(c) The first alleged concerted practice
In concluding that there was a concerted practice between MDF, Melchers and Pioneer, the Commission relied on the following findings of fact. If adjustments are made for certain allowances, the cost of Pioneer products to each of the three distributors was substantially the same. Each was free to fix its own selling prices though Pioneer “showed considerable interest” in conditions and developments in the national markets including dealer and retail prices. The prices charged by MDF for the sale of Pioneer hi-fi equipment to the retail trade late in 1975 were appreciably higher than those charged by Melchers and Shriro. Those price differences made parallel importing an attractive proposition. They were explained only in part by MDF's policy of giving exceptional service, including prior quality control of the equipment, a five-year guarantee and the editing of a technical “Blue Book”. The Chairman of MDF, Mr Setton, stated that when parallel imports of Pioneer equipment to France began to arrive, he reduced his retail prices by ceasing to give a guarantee and full quality control. During 1976 changes in exchange rates made German prices less attractive to French purchasers but United Kingdom prices remained advantageous.
The source of some of the parallel imports was an undertaking called “Connexion” founded in 1975 by Mr B. Iffli, the owner of an electrical discount business in Metz, and his associates, with the object of pooling purchases of hi-fi equipment. Most of the Connexion group's purchases were made from exclusive distributors in France, but a considerable part were parallel imports made through a specially constituted company, Megaservice. In November 1975, three of the Connexion group's members, including Mr Iffli, were able to offer discounts of between 26 and 31% off the normal retail prices for items of Pioneer equipment, as a result of their parallel imports from suppliers in other Member States, including Euro-Electro SPRL of Brussels (“Euro-Electro”).
In or about November 1975 Mr Iffli sought to obtain supplies of Pioneer and other hi-fi equipment from Willi Jung KG of Saarbrücken (“Jung”), a company which had just been taken over by Otto Gruoner KG of Rommelshausen (“Gruoner”), a wholesaler to which Melchers had not previously made sales of Pioneer equipment. Mr Iffli, on 12 December 1975, had a meeting on the subject at Rommelshausen with Mr Weber, a director of Jung, and Gruoner's chief buyer, Mr Schreiber. Gruoner obtained a price list for Pioneer equipment from Melchers' representative in Karlsruhe, Mr Full, and transmitted those prices to Mr Iffli, who then placed two orders with Jung on 12 and 14 January 1976, for Pioneer equipment worth DM 950000, at prices “substantially below” those offered by MDF at the end of 1975 and “appreciably cheaper” than MDF's prices after the January 1976 reductions. Jung passed the order on to Gruoner. Mr Schreiber cut the order down to DM 550000 believing that the nature and size of the order would give the impression that the equipment was destined for France, and passed it on to Melchers where the order was received on 20 January 1976. Mr Iffli obtained a French licence for the import of Pioneer equipment from Germany by 22 January. Pioneer learned of this and told Melchers.
Between 20 and 23 January, 1976, Melchers checked its stocks, obtained commercial credit insurance to cover Gruoner's order for DM 200000 and confirmed Gruoner's order by telex, giving Gruoner the name of a forwarding agent.
On 19 and 20 January, however, Pioneer convened a meeting for European distributors of its products in Antwerp. It was held under the presidency of Mr Ito, Managing Director of Pioneer. Among those present were Messrs Setton, Todd (a director of Shriro) and Mackenthun (the head of Melchcr's hi-fi department). Pioneer had transmitted in advance to Melchers Mr Setton's complaint that parallel imports were ruining the French market. Mr Setton reiterated tiiat complaint at the meeting. On 27 January 1976, Melchers sent a telex to Mr Schreiber asking him to contact Mr Full. Instead he telephoned Melchers' sales director, Mr von Bonin, who told him that Melchers had learned through Pioneer in Antwerp of the import licence and refused to supply Jung unless they received assurances that the equipment would not be exported. On 28 January Mr Schreiber sent a telex to that effect to Mr Weber, who relayed the information to Mr Iffli by letter dated 29 January 1976. One of Mr Iff'i's associates, who was a joint founder of Connexion, Mr Debard, stated that at the end of January 1976, Mr Couadou, MDF's sales manager, told him “You will not have the goods”,
Mr Iffli complained both to Jung, threatening legal proceedings, and to Gruoner, stating inter alia that Pioneer products bearing Melchers' trade marks and imported through a Belgian wholesaler were available on the French market. (Some other equipment bought from Melchers had also been exported to France by EVB, a company in Stuttgart specializing in exports. This was done even though Mr Full had required EVB to confirm by telex to Melchers that the equipment was not destined for resale in the EEC.) These accusations were repeated at a meeting which was held at Rommelshausen (said to be on 17 February but in fact on 11 February 1976), on the initiative of Mr Schreiber and attended by Mr von Bonin, Mr Full and Mr Mackenthun. The response given by Melchers to that accusation at the meeting and repeated by telex to Mr Weber on 18 February 1976 was that it denied making exports itself and that “any such activity is expressly ruled out by the agreements between Pioneer Head Office in Antwerp and the national distributors... Melchers would be endangering its position if it did not keep the distribution channels for Pioneer equipment under control in such a way as to prevent large shipments from one country to another”. Mr If f li never obtained the goods he had ordered. Melchers later entered into a long-term arrangement with Gruoner, which became Melchers' largest single customer.
(d) The second alleged concerted practice
In concluding that there was a concerted practice between MDF, Pioneer and Shriro, the Commission relied on the following findings of fact. Early in December 1975, an urgent order for 50 Pioneer turntables was placed by a French undertaking, the Office pour le Développement de l'Acoustique Appliquée, Sari, Rungis (“ODA”) with Comet Radiovision Services Ltd of Hull (“Comet”), the United Kingdom's largest chain of discount warehouses and low-cost retail outlets for hi-fi equipment. Although the export manager of Comet did not know ODA, he dispatched the goods by air freight. At about the same time ODA placed another urgent order for 10 Pioneer turntables, but with the Audiotronic Group (“Audiotronic”) in the United Kingdom, which likewise dispatched those turntables by air freight. In fact, 95% of ODA's capital is owned by MDF and the rest by its chairman, Mr Setton. ODA placed the orders as test purchases to prove the existence of parallel imports. Mr Setton, who said that he was “absolutely opposed” to parallel imports, :brought to the meeting in Antwerp on 19 and 20 January 1976 evidence of the delivery of the turntables from England and showed that evidence to Pioneer representatives and to Mr Todd, a director of Shriro. Mr Todd told the Commission's inspectors that he and Mr Setton made a “gentleman's agreement” that Mr Todd would try to get his UK customers to refrain from exporting Pioneer equipment. The Commission found that this was agreed at the meeting in Antwerp.
On 28 January 1976, Mr Todd wrote to Mr D. Smith, then managing director of Audiotronic, stating that he had recently been “called to the Pioneer offices in Antwerp to discuss the complaint of their French distributor that Pioneer equipment was arriving into France from the UK”. He stated that in the past he had denied that allegation but on this occasion he had been confronted with proof. He said he was “well aware of the EEC rules regarding parallel imports” but found it distressing that Audiotronic had caused Mr Todd's principals to look upon him “with a certain amount of disfavour”. Mr Smith replied on 2 February 1976: “I have no evidence that we have ever exported any large quantities of Pioneer... Nevertheless, I will request that this practice is now stopped.”
On 29 January 1976, Mr Todd wrote to Mr J. Hollingberry, Chairman of Comet, again stating that he had been called to Antwerp to discuss the complaints made by MDF to Pioneer, about the importation of Pioneer equipment to France from the United Kingdom. He said that he had “rather had the ground cut from underneath my feet” when he was given proof of the supply of turntables by Comet to ODA. Mr Todd stated: “I am well aware of EEC rules regarding parallel exports but quite frankly at times I am more concerned with justice than the law itself... I wonder if I can call on you to ask your assistance to help prevent a dog-eat-dog situation developing.” Mr Hollingberry replied on 30 January 1976“to confirm in writing that my company will not deliberately export Pioneer products to trade customers outside the United Kingdom”. Mr Todd said that he wrote these letters in the hope of getting the importunate Mr Setton “off my back”.
The Commission was satisfied as a result of visits by its inspectors to Comet and to its main export customer, Euro-Electro, that Comet's export business of Pioneer equipment in trade quantities, which was substantial in the period between 19 December 1975 and 16 January 1976, was stopped as a result of the intervention of Slniro. It claims, furthermore, that according to a statement made by Audiotronic, Shriro made it difficult for them to export, and they could have done much more business had they been free to do so: Audiotronic received in March 1976 orders worth over UKL 150000 but satisfied only UKL 55000 of such orders.
The Commission considered that both concerted practices which had been established were sufficiently important to be in principle capable of affecting trade between Member States appreciably. Their intention and effect was to prevent exports to France in order to protect the high prices prevailing in the market there.
(e) Tòe complaint
The applicants challenge the Decision on grounds both of procedure and of substance and contend, in the alternative, that the fines imposed by the Commission are excessive and should be reduced.
Procedural issues
(a) General procedural objections
It was argued on behalf of MDF as its first procedural objection that in making the Decision the Commission acted as prosecutor and judge, in violation of Article 6 (1) of the European Convention on Human Rights. This ground is not limited to the way this particular case was dealt with: there is also the more sweeping claim that the Communities have violated the Convention by the very system they have set up for the investigation of alleged violations of Articles 85 and 86 of the Treaty and decisions thereon. The fundamental rights set out in that Convention have been long recognized as forming an integral part of the general principles of Community law, which no doubt mutatis mutandis must be observed in competition cases as well as in others. See Case 4/73 Noldv Commission [1974] ECR 491 at p. 507 and Case 136/79 National Panasonic (UK) Ltd v Commission [1980] ECR 2033 at p. 2057. It does not follow, however, that the Commission's functions in investigating such allegations in competition cases, under Council Regulation No 17 of 6 February 1962, Official Journal Special Edition 1959-62, p. 87, are subject to the provisions of Article 6 (1) of the European Convention. The procedure before the Commission in such cases is not judicial but administrative: Case 45/69 Boehringer Mannheim v Commission [1970] ECR 769 at p. 798. When discharging its functions in such cases, the Commission is not to be classed as a tribunal within the meaning of Article 6 of the European Convention: Joined Cases 209 to 215 and 218/78 Van Landewyck v Commission (“FEDETAB”) [1980] ECR 3125 at p. 3248. This does not mean that the Commission is exempt from the requirement to behave fairly: it does mean that there is no substance in the argument that the procedure in such cases fails to comply with Article 6 (1) of the European Convention.
MDF contended next that the Decision was discussed by the Advisory Committee on Restrictive Practices and Monopolies and that the advice of that committee was not communicated to it. This, according to MDF, constituted a breach of the rights of the defence. Pioneer also complained of the Commission's refusal to disclose to them the opinion of the Advisory Committee, contending (inter alia) that the prohibition on making such opinions public contained in Article 10 (6) of Regulation No 17 does not preclude the disclosure of those opinions to undertakings with a legitimate interest in seeing them. The policy of Article 10 (6) has been criticized by distinguished writers in articles cited by MDF and Pioneer; but this criticism does not mean that any procedure adopted in accordance with Article 10 (6) is void in law. Indeed the criticism appears in part to proceed upon the understanding that the prohibition on making the opinions public means that they are not to be disclosed even to interested parties.
The role of the committee is essentially advisory and in my view the Commission cannot rely in the Decision on factual material supplied to it by the committee which the parties have not had a chance to comment on. It may be that circumstances could arise in which fairness required that the parties should be asked to comment on material emanating from the committee but that does not mean that the report itself must be disclosed. In the present case the Decision does not purport to be based in any respect upon information supplied or allegations made by the Advisory Committee and nothing has been produced to show that it was.
No decision of this Court has been cited which supports the proposition advanced by MDF. In particular, it is not supported by Case 85/76 Hoffmann-La Roche v Commission [1979] ECR 461 at pp. 511-512 where the Court dealt with the Commission's obligation under Article 20 of Regulation No 17 to respect the confidentiality of information supplied to the Commission and did not touch upon Article 10, which establishes a method of liaison between the Commission and the authorities of the Member States.
On the contrary in FEDETAB at p. 3291, Mr Advocate General Reischl said “The opinion of the Advisory Committee pursuant to Article 10 of Regulation No 17 is intended only for the Commission and not for those affected. Accordingly without special reasons being shown, its production cannot be demanded even in Court proceedings, simply on the ground that only in such way is it possible for the Court to check whether the Advisory Committee was properly involved.”
The prohibition in Article 10 (6) “It shall not be made public”, in my view means that it is not to be disclosed as such. I do not consider, in the context of Regulation 17, that the prohibition on making public is limited to making public to everyone except the parties to proceedings before the Commission. Whatever views may be held about the policy of Article 10 (6), it does not seem to be that it can be maintained that in failing to produce the report to the parties in this case the Commission infringed an essential procedural requirement.
(b) Objections based on alleged failures to supply information
All of the applicants complain of the Commission's conduct in withholding materials which the applicants considered vital to their defence, until after the date of the Decision or even until an advanced stage in the proceedings before this Court. They maintain that this conduct amounts to an infringement of an essential procedural requirement which vitiates the Decision, either having regard to the overriding rights of the defence or by reference to Article 4 of Commission Regulation No 99/63 which provides that the Commission shall, in its decisions, deal only with those objections raised against undertakings in respect of which they have been afforded the opportunity of making known their views. Reliance is also placed on Article 190 of the EEC Treaty requiring reasons upon which a decision is based to be given.
The Commission's obligations in regard to the rights of the defence are referred to in Boehringer-Mannheim (at p. 795), Hoffmann-La Roche (at p. 512) and FEDETAB (at p. 3237).
The Commission must set forth clearly, but succinctly, in the statement of objections, the essential facts upon which it relies; and it must supply, in the course of the administrative procedure “the details necessary to the defence”. To these conditions the Court added a qualification in Hoffmann-La Roche (ECR 461 at p. 513): “if... irregularities have in fact been put right during the proceedings before the Court, they do not necessarily lead to the annulment of the contested decision in so far as remedying them at a later stage has not affected the right to be heard”. It is by these standards that the applicants' complaints must be. judged.
(i) The tables annexed to the defence
MDF and Pioneer complain that the Commission set out in several tables annexed to the defence allegations or information about differences between prices of Pioneer equipment in France, Germany and the United Kingdom, which ought properly to have been communicated in the statement of objections, or at any rate before the Decision. Both MDF and Pioneer add that certain of the tables annexed to the defence were materially different from, and inconsistent with, a table communicated to them with the statement of objections and that the figures relied on by the Commission are in any event either wrong or “fundamentally flawed” or have been used to reach conclusions which are unjustified. The former include (i) tables comparing the prices charged by MDF, Shriro and Melchers for the sale to the retail trade of certain models of Pioneer equipment at the material times, and those companies' gross profit margins in that trade; (ii) tables comparing the prices at which Melchers was said to have offered Pioneer equipment to Gruoner with the prices said to have been offered by Gruoner to If f li and MDF's list prices; and (iii) tables comparing retail prices for Pioneer products in the United Kingdom, France and Germany. To this was added, in the case of MDF, an extract from a French publication, Audio Magazine, dated February 1976, giving figures relating to the volume of the French hi-fi industry.
The conclusions which the Commission sought to draw from the tables annexed to the defence were foreshadowed, in broad terms, in the statement of objections, particularly in paragraphs I (B) (3), I (D) (1) and II (A) (3), where the Commission asserted that the prices paid by MDF, Melchers and Pioneer GB for the purchase of Pioneer equipment were broadly the same; that MDF's prices for Pioneer equipment were at the material time relatively higher than those charged by Melchers and Shriro; and that the Pioneer price list sent by Gruoner to Iffli in December 1975 proved attractive to Iffli (which was already offering for sale various items of Pioneer equipment at prices substantially lower than normal retail prices, as a result óf parallel imports): I cannot, therefore, accept that the Commission failed to set out succinctly in the statement of objections the essential facts on which it relied. It was not obliged at that stage to set out all the detailed material that it later provided in the tables.
The MDF percentage share of the total turnover in France of hi-fi equipment assessed by the Commission was attacked in the application on the basis of two studies called the BREF study and the SIERE study which put the total turnover higher than that taken by the Commission and therefore would lead to MDF's percentage share being lower. The extract from Audio Magazine contained a figure for the turnover of the French hi-fi market in 1975 which supported the figure taken by the Commission for the purpose of calculating Pioneer's market share in France, in order to determine whether any concerted practice, in which MDF might have been engaged, was capable of affecting trade between Member States, other than to an insignificant degree. It was produced by the Commission in its defence to answer the allegation made on the basis of the BREF report.
In paragraph I (a)(1) of the statement of objections, however, the Commission sets out an estimate of Pioneer's share in the French market; and in paragraph II (A) (4) it reiterates that Pioneer had a sizeable share of the market in high quality hi-fi equipment and that the high prices commanded in France were a considerable incentive to parallel imports. Once again, therefore, the essential facts on which the Commission relied are set out in the statement of objections.
What was argued on behalf of MDF and Pioneer was that they were taken by surprise by the way in which the figures were presented, for the tables were said to be misleading and did not compare like with like. They were not, however, produced in order to support the Commission's original contentions but to counter specific arguments advanced by MDF and Pioneer in their applications.
There is clearly in this case a considerable area of disagreement as to what should be considered as constituting the hi-fi market, as to what is the Pioneer share of that market, as to what is the national share of the particular individual distributor, as to the difference at various times between MDF's prices and the prices of the other distributors, as to the turnover in Pioneer and other products of the distributors, as to their total profits, as to the true percentage of the fines in relation to turnover. Figures and arguments have been put forward by the applicants, not just in the application and in the reply but in what I suppose can be called a “rebutter” of new grounds, in order to deal with these factual issues. The Commission has produced materials to reply to these specific contentions on which the applicants have had opportunity to comment, an opportunity which they have seized to the full.
The fact that it did so in the way it did does not in my view vitiate the initial procedure and the initial decision. The essential question is whether the Commission was entitled to conclude that there were these two concerted practices which had a significant effect on trade, and that the share of the market and the turnover justify the fines imposed.
(ii) The Mackintosh Report
MDF and Pioneer GB complain that for the purpose of analysing the market share of Pioneer equipment in 1976, the Commission relied on a report dated September 1979, compiled by Mackintosh Consultants Co. (hereinafter called “the Mackintosh Report”) which was not communicated to those applicants until after the date of the Decision.
In paragraph 1(A)(1) of the statement of objections, the Commission set out its assessment of Pioneer's share of the market in hi-fi equipment in France, Germany and the United Kingdom. The significance of that assessment was spelled out in paragraph 11(A) (4) of the statement, where the Commission maintained that a concerted practice relating to Pioneer equipment was apt to have an adverse effect on trade between Member States, basing this deduction on the finding that Pioneer had a sizeable market share for hi-fi equipment.
In its written reply dated 27 October 1978, Shriro argued that the Commission had exaggerated the importance of Pioneer in the United Kingdom market, since it had adopted an inapt and misleading definition of the hi-fi market. Basing its calculation on its own market definition, Shriro concluded that its own sales of Pioneer equipment accounted for less than half of the figure quoted in the statement of objections. Shriro expanded upon this argument at the oral hearing on 21 November 1978, when it argued that the Commission had not given global figures for the United Kingdom hi-fi market. Shriro produced three sources of statistics on that issue: a report by The Economist Intelligence Unit dated August 1975; one by Mintel Market Intelligence dated March 1976 and an extract from the Mackintosh Yearbook for 1978.
It was in response to these arguments that the Commission engaged Mackintosh Consultants Limited to produce a report giving (inter alia) global figures for the market in hi-fi equipment in specified European countries, including the United Kingdom, for the years 1976-79. The Commission found in the figures produced by that company confirmation that its assessment in the statement of objections of Pioneer's market share was not excessive. Indeed the Mackintosh Report would have supported a higher figure, namely 11.5% for France and 10.5% for the United Kingdom. The Commission did not invite the parties to comment on the Mackintosh Report but stated in the Decision (at paragraph 25 (3)) that it was disposed to stand by the claim it had made in the statement of objections. The Commission in fact disclosed part of the Mackintosh Report on 6 March 1980; and the rest on 26 and 27 January 1982.
It seems to me that the statement of objections did contain a summary of the essential facts said to be demonstrated in the Mackintosh Report. No criticism can be made of the Commission for engaging Mackintosh Consultants Limited, after the hearing, to produce a report, in the light of the arguments advanced by Shriro, to show whether the Commission's initial assessment was wrong. The question is whether it ought then to have given the parties the opportunity to comment on the report before making the Decision.
In my view, in the interests of good administration, the Commission should have done so. Despite that I do not consider that its failure to do so in this case constituted a procedural irregularity which should entail the annulment of the Decision.
Firstly, the Decision was not based on the figures given in the Mackintosh Report but on those given in the statements of objections (which were more favourable to MDF and to Pioneer). When making the Decision the Commission had at its disposal the comments of MDF and Pioneer on the statistics given in the statement of objections, together with those companies' assessments of their own market shares. I am not satisfied that there was anything new of substance which the parties could have said or which they were deprived of the opportunity to say.
Secondly, MDF's and Pioneer GB's own assessments of their shares of the market, although considerably lower than those of the Commission, are such as to show that each had upon any view more than a negligible share. In Case 5/69, Volk v Vervaecke, [1969] ECR 295 at p. 302, the Court ruled that an agreement falls outside the prohibition in Article 85 when it has only an insignificant effect on the market of the product in question; but in that case the market shares of the firm in question were only 0.5% and 0.2% in the two Member States concerned. Even taking into account all the factors put forward by MDF in the pleadings to show its percentage of what is claimed to be the right market, these figures are far removed from those claimed by MDF. Indeed, in their initial applications to the Court, MDF and Pioneer GB maintained that for the most material year (1976) they had shares, on the basis of the BREF report, of about 4.6% and 3.6% respectively, figures which were subsequently corrected to about 3.4% and 3.2% respectively. They are lower than the figure of 5% given in the Commission's notice on minor agreements of 27 May 1970 (Journal Officiel 1970 C 64/1, revised, 19 December 1977, Official Journal 1977 C 313/3) but for the reasons given by Mr Advocate General Warner in Case 19/77, Miller v Commission [1978] ECR 131 at pp. 158-9, the percentages specified in that notice are in no way binding on the Court and they must in any event be taken into consideration along with the production or turnover of the undertakings in absolute terms. If account is taken of these factors, it must be accepted that the sales of MDF and Pioneer GB constituted at the material time a not insignificant proportion of the market.
(iii) Mr Mason's statement
Pioneer GB and Pioneer complain that the Commission relied in the Decision on a written statement by Mr W. J. Mason, a director of Comet, which was said to show that Comet had been exporting hi-fi equipment to other European countries from December 1975, but the Commission disclosed to Shriro in October 1978 only part of that statement, the rest being blanked out on the ground that it contained confidential information. Shriro obtained from Comet in November 1978 the parts of the statement which had been blanked out, and took the view that those parts were not confidential but had come to the knowledge of Shriro too late for it to be the subject of any detailed challenge at the hearing.
It is not alleged that the Commission withheld from the statement of objections the essential facts said to be demonstrated therein. The statement of objections contains a sufficient summary of the allegations, based on the letter, on which the Commission relies (paragraph I (E)l thereof). What is said is that in blanking out those passages, the Commission deprived Pioneer and Pioneer GB (or Shriro) of details that they needed, at an appropriate stage in the administrative proceedings, for the passages blanked out included one in which Mr Mason stated that, since January 1976, Comet had been able to export Pioneer equipment only to a very limited extent “because of the combined effects of credit limits on our customers and available margins... though the company has now made it clear to Shriro (UK) Ltd it must be free to trade in accordance with EEC laws”. It was only at the time of the hearing before the Commission, or thereabouts, that Pioneer obtained from Comet the full text of Mr Mason's statement,
It is, in my view, regrettable that the Commission asserted the confidentiality of parts of the statement, which might be considered as useful to the applicants, without first enquiring of Comet whether that company had any objection to their disclosure; for evidently, the latter had no such objection. However, there is no reason whatever to conclude that the Commission was guilty of any bad faith in this matter, rather than of an excessive regard for the confidentiality of information, which it is in many circumstances bound to keep secret, in accordance with Article 20 of Regulation No 17. In the result, the two parties concerned were in a position to comment upon the full text of the statement at the hearing (indeed, Pioneer GB did so); and they had an opportunity to comment further in the period between the hearing and the date of the Decision. Accordingly, it seems to me that Pioneer and Pioneer GB were not, in the end, adversely affected by the Commission's conduct.
(iv) The inspectors' reports
Pioneer GB complains that it did not receive in advance of the Decision the report written by the Commission's inspectors after their visits to Comet, Euro-Electro and Audiotronic, nor the invoices on which the Commission relied in concluding that Audiotronic ceased to export after receiving Mr Todd's letter. Moreover, Pioneer GB complains that it was only on receiving the Decision that it learned that Audiotronic was alleged to have received in March 1976 orders worth over UKL 150000 for Pioneer equipment for export, but made sales worth only UKL 55 000.
Paragraph 50 of the Decision states, among other things, that
“it was established by visits of the Commission's inspectors to Comet and to its main export customer, Euro-Electro, that export business of Pioneer equipment in trade quantities was stopped as a result of the intervention of Shriro. This is also confirmed by the firm's records. Audiotronic in fact took over from Comet in supplying Euro-Electro, when Comet stopped exporting. Audiotronic received in March 1976 orders worth over UKL 150000, but achieved only UKL 55000. According to Audiotronic's statement, Shriro made it difficult for them and, had they been free to export, they could have done much more business”.
It is clear from this paragraph that the Commission considered that the information gleaned by the inspectors was material in establishing the effects of the alleged concerted practice. In these circumstances it would have been better if in this case the Commission had disclosed the inspectors' reports and the invoices at an early stage. In fact the relevant extracts from the inspectors' reports were supplied only on 6 March 1980, and Comet's invoices were made available for inspection only after the meeting at the Court on 3 December 1981.
It is, however, established that in Community law, a person challenging the validity of an administrative decision cannot rely on an irregularity in the procedure leading to that decision unless he can show at least a possibility that, but for the irregularity, the decision would have been materially different (the Opinion of Mr Advocate General Warner in Case 30/78, Distillers Company v Commission, [1980] ECR 2229 at p. 2290 and the competition cases cited there). Pioneer GB has not shown that the Decision would have been materially different if it had been given an opportunity to comment in advance upon the inspectors' reports and upon Comet's records, rather than on what is said in the statement of objections. One difference between the inspectors' reports and paragraph 50 of the Decision, to which the Court's attention has been specifically drawn, is that the inspectors have added to their final report a handwritten note to the effect that one Mr Keighley of Audiotronic did not put in writing his claim that Audiotronic could have done far more business in exports of Pioneer equipment if it had not been obliged to conceal its activities from Shriro and other distributors. Pioneer GB's ability to comment upon the handwritten note would not have affected the Decision. The disclosure of Comet's invoices during the course of the proceedings before this Court has enabled the parties to agree that the figure for Audiotronic's sales of Pioneer equipment in March 1976 ought to have been not UKL 55000 but UKL 59000. In the context, the amendment is not of crucial significance. Accordingly, the irregularity of which Pioneer GB complains is not such as to entail the annulment of the Decision.
(v) The calculation of the fine
Melchers complains that the Commission failed to disclose to it in the course of the administrative procedure the criteria on the basis of which it intended to calculate the fine, or the approximate amount of the fine that the Commission had in mind. It was only in the Commission's rejoinder that it revealed that it decided to impose fines approximately equivalent to 4% of the turnover of MDF and Pioneer Europe, 3% of the turnover of Shriro (or Pioneer GB) and 2.5% of the turnover of Melchers, even though earlier it had stressed that turnover was not the only basis for assessing the fine, but that it ought to be taken into account with other factors such as the gravity and duration of the infringement and the deliberateness or otherwise of the infringement. In the same rejoinder the Commission added that the fine on Melchers, at 2.5% of its turnover, is not much more than the fines, equivalent to approximately 2% of the turnover, imposed in previous cases.
I accept that the statement of objections is not necessarily vitiated because the Commission does not set out the general criteria it is using in assessing the amount of any fine (since in so far as they are not specified in the Regulations, they are indicated in the decisions of the Court) though it is desirable that it should do so briefly in order that the parties and the Court can see that proper considerations have been taken into account. I also accept the Commission's submission that it is inappropriate for the Commission to set out the precise amount of the fine that it may impose (since this would be to anticipate arguments yet to be advanced). Where, however, the Commission proposes to take account of a particular turnover in assessing a fine (as it appears to have done in this instance) it is in my view desirable that the Commission should disclose that fact to the parties, in order that they may ascertain that the correct turnover is being used as a basis for the calculation. This is particularly desirable where (as in this instance) the Commission itself takes the view that the amount of the fine is “the real issue in this case” and that amount is, in aggregate, substantially greater than the amount of any other fines imposed by the Commission.
So far as a statement of the general criteria is concerned, Melchers does not appear to have been placed at a disadvantage by the Commission's approach. Nothing said on behalf of Melchers leads me to conclude that the Commission would, if apprised of those arguments at an earlier stage, have adopted a different general approach. Moreover, the Court itself has ensured that the parties have had ample opportunities to comment upon the Commission's means of setting the amounts of the fines, and that is one of the major issues to be resolved by the Court on the substance of the case. Whether the Commission has erred in respect of the turnover it has taken I consider later in this opinion. For these reasons Ï take the view that the irregularity is not such as to warrant the annulment of the Decision.
Substantive issues
All four applicants challenge on its merits the Commission's finding, of fact and law, that they were engaged in concerted practices having the object or effect of distorting competition, contrary to Article 85 (1) of the EEC Treaty. For the purpose of considering that challenge, it is perhaps convenient to begin by setting out in outline principles of law governing the definition of a conceited practice and the method of proving the existence of such a practice; then to examine the evidence adduced in this case; and finally to deal with the points of law and fact that arise in making an assessment of the effects of the alleged concerted practices.
(a) Proof of the existence of a concerted practice
(i) The concept of a concerted practice
It is apparent from the wording of Article 85 (1) of the EEC Treaty, which prohibits both “agreements” and “concerted practices” having specified objects or effects, that the two concepts are distinct. This is so even though cases have arisen in which there have been elements of both an agreement and a concerted practice, and the Court has found it unnecessary to draw a distinction between them (as in FEDETAB).
By contrast with an agreement, a concerted practice is established if it is shown that there was “a form of cooperation between undertakings which, without having reached the stage where an agreement properly so-called has been concluded, knowingly substitutes practical cooperation for the risks of competition. By its very nature, then, a concerted practice does not have all the elements of a contract, but may arise inter alia out of coordination which becomes apparent from the behaviour of the participants”: Case 48/69 ICI v Commission [1972] ECR 619 at p. 655. Thus, coordination and cooperation may amount to a concerted practice even if it in no way entails “the working out of an actual plan”: Joined Cases 40 to 48, 50, 54 to 56, 111, 113 and 114/73 Suiker Unie and Others v Commission [1975] ECR 1663 at p. 1942.
As the Court said in Joined Cases 56 and 58/64, Consten and Grundig v Commission [1966] ECR 299 at p. 340:
“an agreement between producer and distributor which might tend to restore the national divisions in trade between Member States might be such as to frustrate the most fundamental objectives of the Community. The Treaty, whose preamble and content aim at abolishing the barriers between States, and which in several provisions gives evidence of a stern attitude with regard to their reappearance, could not allow undertakings to reconstruct such barriers. Article 85 (1) is designed to pursue this aim”.
The essential element in a concerted practice is thus the replacement of competitive risks by coordination or common intention. Therefore, the mere presence of the representative of one undertaking at a meeting at which others agree to distort competition within the common market does not by itself amount to the participation of the first undertaking in a concerted practice. But the representative's attendance at such a meeting may be taken as evidence that he was aware of the agreement; and in conjunction with other evidence of the conduct of the undertaking it may, in appropriate cases, be taken to indicate the existence of a common intention necessary to constitute a concerted practice.
A “gentlemen's agreement” may certainly constitute the basis of a concerted practice; but even if such an agreement is terminated, a concerted practice may continue to exist if there remains the necessary degree of cooperation between the parties: per Mr Advocate General Gand in Case 41/69 Chemiefarma v Commission [1970] ECR 661 at pp. 717-718. It follows a fortiori that if a gentlemen's agreement subsists, an undertaking which is not a party to that agreement may be said to engage in a concerted practice with them if it knowingly cooperates with them achieving the aims of the agreement.
(ii) Proof of a concerted practice
It is clear that a concerted practice may be established not only by direct evidence but also by circumstantial evidence. Direct evidence may be unlikely for a number of obvious reasons. It is clearly permissible to rely on presumptions and inferences from the primary facts, and this may be in large measure the crucial part of the assessment as to whether a concerted practice has been adopted (Suiker-Unie per Mr Advocate General Mayras at pp. 2113-4). As was said ín a well-known American case: “for the purpose of determining the existence of a conspiracy within the meaning of Section 1 of the Sherman Act, it is established as elementary that conspiracies are seldom capable of proof by direct testimony and can be inferred from the things actually done”(Eastern States Retail Lumber Dealers v US 234 US 600).
Once a finding has been made that a concerted practice exists, since it is the applicant who is claiming that the Commission's decision should' be annulled, the burden of proving the illegality of the decision falls, in general and in the first instance, upon the applicant. This follows from a principle of law recognized in all Member States, that the legal burden of proving the facts essential to an assertion normally lies on the party advancing it. This principle was applied to actions before this Court in competition cases by Mr Advocate General Warner in Joined Cases 6 and 7/73, Commercial Solvents v Commission [1974] ECR 223 at p. 269. In several of its judgment in competition cases, the Court appears to have accepted the applicability of this principle by stating that the applicant had failed to discharge the burden placed on him: Chemiefarma at p. 692; Suiker-Unie at pp. 1949 and 1950; Millerv Commission at p. 153.
On the other hand, the allegations of fact made by the Commission in its Decision must be such as to warrant the conclusion drawn from them. If they do not warrant that conclusion, the Decision may be annulled, even in the absence of any evidence adduced by the applicants: Suiker-Unie at pp. 1977 and 1991; Case 27/76, United Brands v Commission [1978] ECR 207 at p. 303. Moreover, although the burden of proof may fall upon the applicant to show that the Commission was not justified in reaching its decision, the former does not necessarily, in my view, have to go so far as to show that the Commission's decision was wrong. It may suffice if he can show that it was unsafe, or insufficiently proven. There must be material upon which the Commission can be satisfied reasonably that there was a concerted practice. It is for the Commission to obtain this material (see e.g. Mr Advocate General Mayras in the Suiker-Unie case at p. 2061). It seems to follow from the foregoing that when the Court itself hears evidence, in accordance with Article 47 of the Rules of Procedure, in the course of a judicial process which necessarily follows the administrative procedure, that evidence will be taken into account for the purpose only of determining whether the Commission was entitled to reach the decision at the time when it did so. Evidence coming to light during the procedure before the Court should not be taken into account, in support of the Commission's case, save to the extent that such evidence is directly related to allegations made by the Commission at the administrative stage (the opinion of Mr Advocate General Gand in Chemiefarma at p. 707).
(b) The evidence in this case
(i) The first alleged concerted practice
There is clear evidence that Mr Setton was bitterly opposed to parallel imports of Pioneer products to France, whether originating in England, Germany or elsewhere; that he made known these views to representatives of Pioneer and of Melchers, at the material time; and that he sought to enlist help in preventing parallel imports. Indeed, most of this was admitted by Mr Setton at the hearing before the Commission (paragraph 46 of the Decision). Mr Setton's reasons for opposing parallel imports are sufficiently clear: MDFs sales prices to the retail trade, exclusive of value-added tax, were in late 1975 substantially higher than those of Melchers or Shriro (ibid, paragraph 18). There has been much debate, in the written observations and at the hearings before the Commission and before this Court, about the extent of those price differences and the reasons for their existence. Although it appears to me that the Commission was substantially correct in asserting that the prices quoted by Mr Schreiber to Mr Iffli were 26% to 31% lower than MDF's prices for comparable goods, I consider it unnecessary to express a firm conclusion on the precise figures; for no evidence adduced by MDF warrants the conclusion that the differences between MDF's prices and those of Melchers were not such as to make parallel importing from Germany an attractive proposition in late 1975. Indeed, if it were not then an attractive proposition, it is difficult to see why Mr Setton should have been induced to complain to Pioneer about parallel imports from Germany, as he admits doing (paragraph 61 of the Decision, page 7 of MDF's application).
Plainly, the question of parallel imports was discussed at the meeting in Antwerp. As Mr Setton said, “Because of my insistence at that meeting in Antwerp the question of parallel imports was raised and became a long discussion because of my loud vehement voice”. It seems clear, also, that Mr Setton complained of parallel imports from Germany at that meeting. Mr Setton does not deny this, which is supported by the evidence of Mr Ito, as well as Mr Mackenthun. MDF and Pioneer deny that the meeting was called for the purpose of discussing parallel imports; but although the purpose of the meeting has been much debated, it seems to me that the initial reason for calling the meeting is not conclusive for the purpose of determining MDF's part in any concerted practice arising in connection with it. It is common ground that Mr Iffli did not obtain the Pioneer equipment which he had expected to acquire through Melchers, shortly after the meeting in Antwerp; and there is evidence in Mr Debard's statement of 28 June 1977 that Mr Couadou, MDF's sales manager, said to Mr Iffli's associate, Mr Debard, at the end of January 1976, “Vous n'aurez pas la marchandise”. Although this evidence is not necessary for the purpose of establishing MDF's part in any concerted practice, and it is denied by Mr Couadou himself, it seems plausible. Mr Weber, in his letter dated 29 January 1976, told Mr Iffli that the goods would not be supplied unless an undertaking not to export to France was given.
It is also clear that Melchers opposed the supply of Pioneer equipment for export to other EEC States, despite the apparent advantage to that firm, in the short term, in engaging in that trade. Melchers accepts that in about November 1975 it supplied Pioneer equipment to EVB, expressly on condition that it should not be resold in other EEC States. Melchers explains that this condition was imposed in order to prevent Melchers having to service the equipment abroad; but that explanation is not persuasive, since Melchers' contract with Pioneer imposed on the former the obligation to service its equipment in the Federal Republic of Germany only.
In the application made on Melchers' behalf it is stated (at page 20) that “Melchers, in its discussion with Gruoner, had made no secret about the fact that given the tight supply conditions, it wanted the bulk of the goods to stay in Germany”. In view of this statement, it is credible that Mr Schreiber (Gruoner's chief buyer) should have reduced substantially the order that he received from Mr Iffli, before transmitting it to Melchers, in order to conceal from the latter that the goods were intended for France.
Furthermore, Mr Schreiber's handwritten notes on the telex dated 6 February 1976 show that he knew of Melchers' desire to limit parallel imports. Dealing with the sale to EVB, Mr Schreiber wrote “Right. It was in November 1975, enormous trouble, so careful now”.
While admitting to this attitude, Melchers maintains that it did not refuse to supply goods required by Mr Iffli. It contends, first of all, that its exchange of telexes with Gruoner did not give rise to an “order”; and that at the material time, its stocks were too low to meet any order that might have been placed. Melchers characterizes the exchange of telexes as mere enquiries (application p. 13).
It seems to me that by the end of January 1976, Gruoner's dealings with Melchers had advanced beyond the stage of an enquiry. It is common ground that following a meeting between Mr Iffli, Mr Jung and Mr Schreiber on or about 12 December 1975, Mr Schreiber asked Melchers for a speedy quotation; he was referred to Mr Full, one of Melchers' representatives, and had negotiations with Mr Full until 30 December 1975. At the end of those discussions, Mr Schreiber sent price lists and other information to Mr Iffli. Mr Iffli sent two telexes to Gruoner placing orders; and on 20 January 1976 Gruoner sent its telex to Melchers. I cannot accept Melchers' contention that this telex was merely an enquiry, since it remained to settle prices and delivery terms. This argument, to my mind, ignores the context in which the telexes were sent and in particular the history of negotiations with Mr Full. The terms of the telex itself indicate that it was in the nature of an order. The affidavit sworn by Mr von Bonin, Melchers' sales director, shows that it was regarded as an order at the time. Indeed, on 22 January 1976 Melchers went so far as to seek commercial credit insurance for the items mentioned in Gruoner's telex and that insurance was confirmed in part on 27 January 1976. It is difficult to sec why this should have been done if Melchers did not at that stage seriously contemplate supplying Gruoner with the items listed in the telex.
Further evidence of Melchers' early intention to treat Gruoner's telex as an order, and if possible to fulfill it, is provided in the telex sent by Melchers' employee, Miss Hammer, to Gruoner on 23 January 1976, reading “Herewith we confirm your FS orders. The carrier who delivers the merchandise is the carrier Gildemeister”. I accept that Miss Hammer was a student aged 20, temporarily employed by Melchers, without commercial experience and on her second day of employment; and that she did not intend by sending the telex to conclude a contract on her own initiative. The question, however, is not whether Melchers and Gruoner concluded a binding contract, but whether it treated Gruoner's telex as a mere enquiry rather than an order. On that issue, Miss Hammer is silent; but her statement that she was an office aide, helping Melchers' permanent staff, is credible and makes it likely that in replying she did not act on her own initiative, but on advice or instructions. Moreover, the telex to which she replied had arrived two days before the beginning of Miss Hammer's employment, so that the permanent staff had had time to consider it. She may have had to discuss it with someone even to get the carrier's name.
Finally, it seems clear that Gruoner treated their own telex as an order and expected to receive the goods mentioned in them. Mr Schreiber stated at the hearing of witnesses before the Chamber (page 88) that on receiving Melchers' telex he “assumed the order had been accepted. If a forwarding agent is named, then one assumes that the order has been accepted”. Indeed, Mr Weber even wrote to Mr Iffli on 20 January 1976, stating that part of the order was already sent. Although it is clear that in doing so, Mr Weber acted prematurely (and, incidentally, appears to have made a mistake as to the location of the warehouse from which the goods were to be sent) it is no less clear that he, at least, considered it as good as done.
It is common ground that just at this time, the meeting in Antwerp took place. On 20 January 1976, the very day on which Mr Weber stated in his letter to Mr Iffli that his goods were ready, there was the discussion in Antwerp about parallel imports. It is also common ground that the goods were not supplied to Mr Gruoner and thence to Mr Iffli. The Commission does not contend, at this point, “post hoc ergo propter hoc”. It adduces evidence accepted by Melchers (at p. 27 of its application) that Pioneer learned of Gruoner's proposal to export the goods and informed Melchers accordingly and it relies on evidence of a conversation by telephone between Mr Schreiber and Mr von Bonin, on 27 January 1976.
According to a statement made by Mr Schreiber on 18 May 1977 (Melchers Case Reply Annex H) Mr von Bonin stated during that conversation that he had heard through Pioneer in Antwerp that Gruoner's order was to be exported and Melchers would not supply the goods unless given an assurance that they would not be exported. Mr von Bonin flatly denies this account of the conversation and insists that they merely spoke about the proposed meeting in Rommelshausen (statement of 5 September 1980: Melchers Case Reply, Annex 1-1 and Hearing of Witnesses). Mr Schreiber proved himself to be an unreliable witness and has changed his explanation more than once. Nevertheless, I consider that on this point and on this occasion the Commission was entitled to conclude that Mr Schreiber was telling the truth. I say that for three reasons. Firstly, Mr Schreiber's account of the conversation is confirmed in his own telex to Mr Weber dated 28 January 1976. On that date, the conversation must have been fresh in his mind; whereas Mr von Bonin's account was given much later. Secondly, Mr Schreiber's account is plausible, since Melchers had indeed learned of the proposal to export and had, in the case of EVB, imposed a condition against resale (albeit a condition designed to prevent carousel traffic). Thirdly, Mr Schreiber had at that time no interest in damaging Melchers; and that firm's contention that Mr Schreiber's statement of 18 May 1977 should be treated with reserve, on the ground that at that time Mr Iffli was threatening legal proceedings, in no way detracts from the probative value of the telex dated 28 January 1976, well before any proceedings were contemplated.
At first, Melchers explained its failure to supply Gruoner by contending that its stocks were not sufficient to meet the order (application, p. 9). Melchers argued that its stocks were at the material time sufficient for only one month's sales, instead of the normal two to three months, and Melchers could not rely on Pioneer's reserves held in Antwerp since these are normally sold “forward”. I find this explanation unconvincing. The figures given by Melchers seem to show that they had in stock by the end of January 1976, even if not earlier in that month, well over three quarters of the models ordered by Gruoner; and the rest could have been sent by 10 February. Even if it were true, as Melchers contends, that Melchers could meet only half of the order at once, the Commission had evidence that the remainder would have amounted to only 2.3% by value of Pioneer's stocks in Antwerp; and it lias not been contended that as much as 97 or 98% of those stocks are sold “forward”. Even if it had been impossible to obtain the stocks promptly, it would have been natural for Melchers to explain this fact to Gruoner, and offer delivery at the earliest practical date. This is particularly the case, given Melchers' own assertion (at page 17 of its application) that delays of three months in delivery are not unusual and its observation (at page 13 of the application) that Gruoner's telex was silent on the question of delivery dates. It has not been shown that it would have been impossible or difficult to get further supplies from the manufacturing company. If shortage of stocks had been the reason for Melchers' failure to meet the order, it would surely have said so to Gruoner at the time.
At a later stage in the procedure before this Court, Melchers offered a different reason for Gruoner's failure to supply the goods to Mr Iffli. Melchers produced a new statement, made by Mr Schreiber on 5 September 1980, in which he claims that in quoting prices to Mr Iffli on 30 December 1975, he made the mistake of deducting value-added tax from prices which were already net of that tax: he later discovered this error and made up the story about Melchers' refusal to supply the goods to Gruoner in order to conceal his mistake from Mr Iffli. I find this explanation unconvincing. If Mr Schreiber made such a mistake, it would have been an extraordinary error, given the fact that the tables used by Mr Schreiber carried a prominent notice to the effect that VAT was not included. Mr Schreiber claimed to have made this mistake for all the items quoted to Gruoner; but the Commission has demonstrated (rejoinder, p. 21) that there could have been no such mistake with loudspeakers. Mr Schreiber was unable to explain, at the hearing before the Chamber, how he could make this mistake with only some items and not with others. Nor did he explain how he could have reached the prices quoted to Gruoner by the erroneous deduction of value-added tax from the figures which Mr Schreiber claims to have been the correct ones. Melchers' counsel claimed to have found a formula which Mr Schreiber must have used, and which would have produced the prices quoted by Gruoner. But that formula would not have been the right one to use in order to deduct VAT at the current rate of 11%. Furthermore, the error does not explain Gruoner's inability to supply Mr Iffli. For even if that mistake had been made, and Gruoner. had to adjust its prices upwards, they would- -have remained substantially below MDF's prices and so Mr Iffli might still have been prepared to proceed with the transaction. There remained enough profit in it for him. There is no suggestion of renegotiation in Mr Schreiber's telex to Mr Iffli dated 20 February 1976, stating that the information given on 31 December 1975 was no longer valid “by reason of evolution of prices”.
There is further evidence of Melchers' involvement in a concerted practice to prevent parallel imports, in the accounts given of the meeting at Rommelshausen on 11 February 1976. It seems to be common ground that there was a discussion of parallel exports and imports on that occasion. This is the account given by Mr Schreiber and by Mr Schmidt of Gruoner; and in its reply to the statement of objections Melchers went so far as to admit that Mr Iffli's orders were discussed there (although this was denied both by Mr Schreiber and by Mr von Bonin at the hearing of witnesses). Mr Schreiber kept notes at the meeting and on 18 February 1976, he sent a telex to Mr Weber with a summary of the talks.
This read in part:
“Melchers firmly denies ever having made any exports itself. Any such activity is expressly ruled out by the agreements between Pioneer Head Office in. Antwerp and the national distributors. It is perfectly legitimate to divert goods traffic through Antwerp, and Melchers would be endangering its position if it did not keep the distribution channels for Pioneer equipment under control in such a way as to prevent large shipments from one country to another”.
This shows clearly that parallel imports were discussed at Rommelshausen.
Finally, Melchers observes that in May 1977 it offered to supply Pioneer equipment to Jung (a firm associated with Gruoner) without an express undertaking not to export being given. I cannot accept that the making of that offer in any way diminishes the probative value of the evidence that in January 1976 Melchers refused to supply similar equipment, at a lower price, to Gruoner, unless the latter undertook not to export it.
Pioneer's case is that it took no action at or as a result of the meeting in Antwerp, save to advise MDF to reduce its prices, and that there is no material upon which the Commission could find that Pioneer participated in a concerted practice. I do not accept this contention.
In the first place, there is much circumstantial evidence to show that Pioneer, in common with MDF and Melchers, was opposed to parallel importing. The first contract between Pioneer and Melchers actually provided for the prevention of parallel imports; the new agreement, apparently drafted in view of Commission Regulation No 67/67, permitted Melchers to sell goods to other countries in the EEC, but prohibited Melchers from soliciting for orders abroad and provided for Pioneer to take certain steps to protect Melchers against parallel imports. Although these contracts were drafted well in advance of 1976, there is no evidence to show that Pioneer ceased to be opposed in principle to parallel imports thereafter. On the contrary, the draft agreement sent by Pioneer to Shriro in August 1976 contained provisions designed to protect the distributor from parallel imports.
Pioneer received Mr Setton's complaints about parallel imports, made by telephone to Mr Ito towards the end of 1975, and transmitted those complaints to Melchers (Decision, para. 51). In January 1976 Pioneer convened the meeting in Antwerp and provided, in the person of Mr Ito, the chairman for the meeting where the question of parallel imports of Pioneer equipment was discussed. Melchers' representative, Mr Mackenthun, entered into the discussion by complaining of imports to Germany from Belgium. Pioneer kept no records whatever of that meeting. Even if it is accepted that this is not in itself sinister (for the reasons given by Pioneer at paragraph 16 of its defence) it seems to me that for the purpose of determining what transpired there, it is proper to attach particular probative value to the accounts or records that are contemporaneous or nearly contemporaneous with the meeting if they do not coincide with later protestations or explanations.
Shortly after the meeting Mr Schreiber sent his telex giving it as his impression of the meeting that parallel imports are ruled out by agreements between Pioneer and its distributors, adding that Melchers would be “endangering its position” if it did not prevent large parallel imports from taking place. Mr Todd, who was also at the meeting, wrote a letter on 29 January to the chairman of Comet stating that by selling Pioneer products to French purchasers, Comet had “been the cause of our principal's looking on us with a certain amount of disfavour”. In both that letter and in his letter to Audiotronic Mr Todd said that he had recently been called to Antwerp to discuss parallel imports. He can only have been called by Pioneer. Against this evidence, I find unconvincing Mr Collinot's (the Finance Director of MDF) claim that Pioneer refused to act on MDF's complaint. It seems clear that Pioneer had in the past refused to act: Mr Todd's letters say so. Equally, it seems that at the meeting in Antwerp, which Mr Collinot did not attend, both Mr Schreiber and Mr Todd gained the impression that Pioneer wished them to cease trade liable to give rise to parallel imports. It is, to my mind, unlikely that in the circumstances of the case both gained the wrong impression or both told the same lies independently. Pioneer's participation seems to me to have related to parallel imports both from Germany and the United Kingdom. Equally I do not accept MDF's argument that the fact that Mr Ito told Mr Setton to reduce his prices makes any finding of a concerted practice impossible. That seems to me a complete non-sequitur.
For these reasons, and despite all the arguments put forward to the contrary, I conclude that the applicants have failed to demonstrate that the evidence on which the Commission reached the Decision was not such as to warrant the conclusion that there was a concerted practice between MDF, Melchers and Pioneer. There was both “coordination” and “practical cooperation” which have been stressed in argument.
(ii) The second alleged concerted practice
There can be no doubt that Pioneer GB sought to prevent, in common with others, the import of Pioneer equipment from the United Kingdom to France. Mr Todd's letters to Mr Smith of Audiotronic and to Mr Hollingberry of Comet are the clearest evidence of a deliberate attempt to prevent parallel imports in disregard of European Community law. Mr Smith's and Mr Hollingberry's replies show their willingness to cooperate: their subsequent conduct is directly referable to the request. I reject totally the suggestion made by MDF in its application that Mr Todd's two letters taken alone cannot “seriously” be considered as the evidence of a coordinated practice. If that were accepted the Commission may as well abandon all attempts to show a concerted practice in the real world. Mr Todd himself admits that his attempts were made in pursuance of an agreement between himself and Mr Setton of MDF (Decision, paragraph 47). Mr Todd himself refers to this as a “gentlemen's agreement”. He has stressed that Mr Setton raised the subject vigorously when they met, even socially, and that his anxiety was to get Mr Setton off his back. Realistically this means to remove the cause for Mr Setton's complaints about parallel imports from the United Kingdom.
There is no doubt, either, that MDF participated in this agreement. Mr Setton admits making test purchases of Pioneer equipment in England, taking evidence of those purchases to Antwerp and raising the question at the meeting there.
The issue which has been strongly contested is the extent of Pioneer's involvement (if any) in the practice which followed the agreement between Messrs Setton and Todd. Mr Todd states that this agreement with Mr Setton was reached without pressure from Pioneer. If Pioneer's participation in the matter had been limited to convening the meeting at which the other parties reached an agreement, it might not have been sufficient to establish that it was engaged in a concerted practice. The evidence of Pioneer's involvement, however, is more substantial than that. Mr Todd himself speaks of Pioneer looking upon him with disfavour, by reason of his limited activity in the field of parallel imports. That comment appears plausible, in view of Pioneer's drafts for exclusive distribution agreements with Shriro and in view of the fact that MDF had no legal or economic power over Pioneer GB (or Shriro) and had sought to exercise influence over that firm by the intermediary of Pioneer. It was to Pioneer that Mr Setton made his complaints by telephone and at a meeting convened by Pioneer; and to Pioneer that MDF aimed those complaints in Antwerp. It is not reasonable to suppose, in all the circumstances, that Mr Setton would have done so, and done it consistently, if he had not gained the impression that there was an understanding or common intention, between his firm and Pioneer, such as would enable him to exert some pressure on Pioneer GB. Finally, my conclusion as to Pioneer's involvement in the first concerted practice reinforces its involvement in the second, since it is unlikely that it would have participated in arrangements designed to protect MDF against parallel imports from Germany but not those from the United Kingdom, particularly in view of the fact that the evidence brought by Mr Setton to the Antwerp meeting related to imports from England.
For these reasons I conclude that the applicants have failed to show that the Commission's finding, as to the existence of the second concerted practice, was not warranted by the evidence. There was here, too, the requisite “coordination” and “practical cooperation”.
(c) The duration of the concerted practices
The Commission maintains that the first concerted practice lasted from the latter part of 1975 until February 1976, and the second concerted practice from the latter part of 1975 until the latter part of 1977.
(i) The first concerted practice
It was argued on behalf of MDF and Pioneer that Mr Setton's complaints were merely unilateral acts, which could not give rise to any concerted practice. No such practice could have begun before the meeting in Antwerp on 19 and 20 January 1976 (MDF application, p. 38; Pioneer application, p. 50). It is, however, accepted that Pioneer was aware of Mr Setton's complaints towards the end of 1975; for Pioneer itself admits that Mr Setton spoke to Mr Ito on the subject in December 1975 (Pioneer application, p. 12). It seems clear, furthermore, that Pioneer transmitted, these complaints to Melchers before the Antwerp meeting. It was before the meeting in Antwerp that Mr Schreiber cut down Mr Iffli's order, to be transmitted to Melchers, in an attempt to conceal from Melchers that the goods were bound for France. There was reason to believe, even in advance of the meeting in Antwerp, that Melchers might react unfavourably to an order for France; for Melchers. had in its discussions with Gruoner made no secret about the fact that it wanted the bulk of the goods to stay in Germany (Melchers' application, p. 20). Moreover, Mr Schreiber knew of the episode with EVB, which occurred in November 1975 (as is demonstrated by his handwritten notes on a telex). For these reasons it seems to me that the Commission was entitled to conclude that the first concerted practice began late in 1975.
On the question of the end of the first concerted practice, the Commission is guarded. It maintains that:
“It has not been possible to determine whether this infringement continued after Melchers' refusal to execute Gruoner's order. Moreover, the evolution of prices in the Federal Republic of Germany during 1976 had reduced or even taken away any interest gained from parallel trading.” (Decision, para. 100).
On one view it can be said on this finding that the participation of Melchers was far less than two months but the shortness of Melchers' participation has been taken into account in the assessment of its fine. Even if the period is slightly overstated for this particular concerted practice between the three participants it does not seem to me that it affects the fine imposed on any of them.
(ii) The second concerted practice
It is clear from the material produced by Pioneer GB that Mr Todd was aware of Mr Setton's complaints about parallel imports, by the latter part of 1975 at the latest. This appears from Mr Todd's statement (para. 3, annex to application in Pioneer GB) and from his claim to have written his letters of 28 and 29 January 1976 only after sustained and repeated complaints by Mr Setton, made in a succession of meetings. In his letter to Mr Hollingberry dated 29 January, Mr Todd wrote that Mr Setton had been making his complaints “of recent months” and that he had in the past rejected similar allegations made against Pioneer GB (apparently at meetings convened by Pioneer). In his letter to Mr Smith, dated 28 January, he reminded the latter that he had previously advised Pioneer GB that Audiotronic was not exporting Pioneer goods, as had Pioneer Gß's other major dealers. Mr Todd would not have mentioned Audiotronic's previous assurances, unless Audiotronic had given such assurances, nor would they have been given or solicited if Pioneer GB were not previously concerned to obtain such assurance. For the reasons already given, the Commission was justified in concluding that Pioneer and MDF engaged in the attempt to prevent parallel imports to France by the end of 1975.
The Commission maintains that where, as in the present case, the parties have achieved a concerted practice to prevent parallel imports, that practice must be taken to continue until the parties decide to put an end to it or the need for the practice no longer exists. Pioneer, on the other hand, argues that a concerted practice continues only so long as the parties take steps to implement it (Mr Waelbroeck's letter to the Court, 5 March 1982). Pioneer GB contends that the Commission has not shown that Comet ceased to export, which it must do if a concerted practice is to be regarded as continuing. In my view, a concerted practice is capable of continuing in existence, even in the absence of active steps to implement it. Indeed, if the practice is sufficiently effective and widely known, it may require no action to secure its implementation. Cases may arise in which the absence of any evidence of measures taken to implement a concerted practice may suggest that the practice has come to an end. That, however, is a matter of evidence, which must depend upon the circumstances of the case. I accept that the Commission is correct (at least as a matter of general principle) in stating (at page 40 of its defence in Pioneer) that when the parties to a concerted practice have put an end to exports from particular suppliers, it is for them to prove, if they can, that they later delivered them to the supplier without imposing restrictions. It is perhaps of interest to observe the decision of the United States Court of Appeals in US v Stromberg and Others, 268 F 2d.256, in which it held that a conspiracy, once established, is presumed to continue until the contrary is shown.
Pioneer contended in the alternative that the differences in prices for Pioneer products in France on the one hand and in Germany and the United Kingdom on the other were insufficient after certain dates in 1976 to make parallel imports profitable. I am not satisfied that this was the case. The information given by Pioneer itself (reply p. 54) shows that between April and December 1976, Shriro's prices, expressed in European units of account, were lower than MDF's by amounts ranging from 19% to 40%. Even if account is taken of transport costs, that difference is sufficient to make parallel imports profitable (Commission's rejoinder, p. 16). Some of the arguments put forward under this heading again ignore the commercial reality that even if profits at home are higher, it may still be in the exporter's interests in the short and in the long term to sell abroad at a lower margin if he can obtain stocks for both. Pioneer emphasizes that the differences between German and French prices narrowed after April 1976. If this were the case it would not have a bearing upon the duration of the second, as distinct from the first, concerted practice. In any event, it is clear that the narrowing of prices was more marked in some products than in others. Since parallel importers are not obliged to import an entire range of products, the Commission is, in my view, entitled to point to the fact that if no account is taken of three particular products, the average difference in prices in Germany and France was in that month 131/3 %.
Even if Audiotronic supplied King Music and All-Wave NV, as MDF stresses, it does not mean that it has not reduced exports which it would otherwise have made.
For these reasons I am satisfied that the Commission was entitled to conclude, on the basis of the information before it, including the Pioneer price lists in the United Kingdom and France, that the second concerted practice continued until the latter part of 1977. If the true view were that the concerted practice ended earlier, it does not seem to me to have done so to such an extent as to affect the level of the fines imposed.
(d) The effects of the concerted practices
All four applicants contend that even if the Commission has established the existence of two concerted practices, it has failed to show that these were “practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market” (applications of MDF, pp. 10 and 19, Melchers, pp. 34 and 35, Pioneer, pp. 51 and 61 and Pioneer GB, pp. 25 and 31). For the purpose of considering those arguments, I shall assume that the Commission's obligation is to show both that a particular practice is liable to affect intra-Community trade and that it has the specified object or effect. I leave aside, therefore, the opinion found in the Commission's Decision in Pittsburgh Corning Europe
JO 1972, L 272/35, and in French Taiwanese Mushroom Packers
OJ 1975, L 29/26 that a practice having the object of harming competition may in certain circumstances be caught by Article 85 (1) even if it was not liable to affect intra-Community trade to a significant extent.
(i) Liability to affect trade between Member States
In paragraph 82 of the Decision the Commission stated its conclusion that the concerted practices in this case were“capable of appreciably affecting trade between Member States”, since the market shares of Pioneer products in France and the United Kingdom were of a sufficiently important size. Pioneer GB and MDF challenge this finding. They claim that the Commission defined the “hi-fi market” too narrowly, especially by excluding music centres from the definition, and overestimated the turnover of MDF and Pioneer GB especially, as the latter contend, by including turnover in such items as car radios. It is also said that the values in the Mackintosh Report are notional ex factory prices whereas those in the table in paragraph 25 2.3 of the Decision are “notional ex-exclusive distributor to retail trade prices”. On this basis they challenge the Commission's finding that Pioneer products had 7-10% of the French market in hi-fi and 8-9% of the British market.
These objections should not in my view prevail. In order to show that a concerted practice is liable to affect intra-Community trade, what is required is that the practice “may have an influence, direct or indirect, actual or potential, on the pattern of trade between Member States” and that such influence is not “insignificant”: Case 56/65 Société Technique Minière v Maschinenbau Ulm [1966] ECR 235 at p. 249; Volk v Vervaecke, loc. cit. Even if the assessments given by MDF and Pioneer GB of Pioneer's share in the French and British markets were accepted, the concerted practices in this case would still be liable to have a significant influence on that trade. It is right to have regard to the absolute figures involved, as well as of market shares. Even by the applicants' own estimates, MDF's turnover in hi-fi products in 1976 amounted to FF 50660000 and Pioneer GB's to UKL 4130000. A concerted practice by traders having that volume of business is in my opinion liable to have effects which are not insignificant. Moreover, even the relatively modest market shares claimed by MDF and Pioneer are, as stated above, such as to indicate that concerted practices involving those applicants were liable to have appreciable effects. This is particularly so where, as in the present case, the products in question have much the same share of the market as those of about a dozen competitors. The relevance of the market share, in this context, lies in determining whether an undertaking has a strong or a weak position, since agreements and concerted practices involving undertakings in relatively strong positions arc liable to have the most appreciable effects (see the Opinion of Mr Advocate General Gand in Volk v Vervaecke at pp. 305-6). Where the lion's share of the market is divided more or less evenly between a dozen or so enterprises, each of those enterprises is in a relatively strong position; whereas an enterprise having a similar market share in terms of percentage is in a relatively weak position if it is dwarfed by one or two major competitors.
For these reasons it is in my view unnecessary for the Court to express a conclusion upon the demarcation of the hi-fi market and the mid-fi or general audio markets, which may in any event be incapable of precise or universally acceptable definition; and it is unnecessary to scrutinize in detail the Commission's calculations on the turnover of MDF and Pioneer GB in 1976 or their criticisms of it for this purpose. It is sufficient to note that on the basis of any of the assessments presented to the Court, Pioneer's share of the markets in France and the United Kingdom was such that a concerted practice involving those applicants was capable of affecting trade between Member States to an appreciable degree.
(ii) Object or effect of distorting competition
For the purpose of establishing a breach of Article 85(1) in this case it is, in my opinion, strictly unnecessary for the Commission to show that the concerted practices actually had the effect of distorting competition. Article 85(1) uses the phrase “object or effect”; and it is clearly sufficient to establish that they had one or the other — they are “not cumulative but alternative requirements” : Société Technique Minière, loc. cit. p. 249. The practices in which the applicants are said to have engaged were essentially practices which had the object of distorting competition, by protecting the French market. The banning of exports in order to insulate a particular market has long been recognized as being one of the more important breaches of Article 85.
However, there is evidence that those practices had the intended effect. Mr Iffli did not receive his substantial order (which had already been reduced since Mr Schreiber expected that goods destined for France would not be supplied). There is no evidence to establish Pioneer's assertion that if the refusal to supply Mr Iffli was the result of a concerted practice, it was an isolated infringement. On the contrary, the Court has heard of only one offer after January 1976 to supply Pioneer products in Germany for the French market and that was in May 1977. MDF's prices, despite the modification of exchange rates, remained above Melchers' prices throughout 1976 for some Pioneer products and until various dates in the course of 1976 for other such products.
The evidence does not support the assertion that Mr Todd's letters to Comet and Audiotronic produced no effect. On the contrary, it appears that in consequence of Mr Todd's letter, Comet ceased exporting Pioneer equipment, save to a very small extent, while continuing to export other brands of hi-fi. This appears clearly from the information given by Mr Lightowler, Comet's sales manager, to the Commission's inspectors, recorded in notes taken verbatim and on the spot by the same inspectors. It was argued on behalf of Pioneer GB that the contraiy was shown by the passage in Mr Mason's letter, explaining that Comet had reduced its exports because of the “combined effects of credit limits on our customers and available margins”. It seems, however, from the context that in this passage Mr Mason was referring to the credit limits on UK customers and the margins applying in the United Kingdom, which were such as to prevent Comet from keeping stocks for casual exports. That passage does not substantiate the argument that Comet would not have supplied purchasers in other EEC States, by arrangement, in the absence of objection from Pioneer GB. The fact that some retail customers came from France to buy Comet goods in England, and that Comet sold some goods through the Channel Islands does not support the applicant's assertions. The Commission was clearly entitled on the evidence to conclude that Comet ceased to export to dealers. In the case of Audiotronic, its staff had reason to fear, as a result of the ţest purchases made through ODA, that its sales to France might be monitored by MDF. Audiotronic's chairman had thereafter undertaken to request that the practice of exporting Pioneer products to France be stopped. Even if the only effect of these episodes had been to divert Audiotronic's exports to Belgium, that would have been an effect caught by Article 85(1). It appears, however, that even sales to Belgium were inhibited; since Audiotronic was able to meet less than half of Euro-Electro's orders — UKL 59000 supplied against UKL 150000 ordered. Moreover there was evidence that Audiotronic's supplies, other than to its subsidiary, ceased in or about July 1976.
(iii) Alleged justifications for the practices
Melchers contends that the Commission failed to assess properly the effects of the first concerted practice, since it made no mention of the fact that by a series of Decisions made between 1976 and 1979, the Commission itself authorized the French authorities to withhold Community treatment in respect of hi-fi equipment originating in Japan and in free circulation in other Member States. Those Decisions, however, authorized quota restrictions on the importation to France of radio receivers made in Japan. Many of Gruoner's exports were not radio receivers and were therefore unaffected by the quotas. Moreover, the quota was finally set as 390000 items (as compared with the 2636 items ordered by Mr Schreiber). Within the limit imposed by the quota, therefore, there was ample scope for imports liable to be affected by the concerted practice in this case.
MDF contends that if it engaged in a concerted practice, its action was justified by a “state of necessity”, since it was imperative for MDF to defend itself against the parasitical trade of disloyal competitors in parallel imports and to
maintain its independence of Pioneer. The Court's decisions on the “state of necessity” do not establish, as I see it, a principle whereby a trader is entitled to act in a manner which would otherwise amount to a breach of Article 85 of the EEC Treaty, in order to protect itself against the damaging effects of competitors whose action is lawful. See Case 16/61 Acciaiere Fernere e Fonderie di Modena v High Authority [1962] ECR 289 and Joined Cases 154, 205, 206 and 226-228/78, 31, 39, 83 and 85/79 Ferriera Valsabbia and Others v Commission [1980] ECR 907. Even if, in theory, this defence is available, I am not satisfied on the evidence that it is substantiated. MDF itself asserts that it was told that the remedy was to lower prices.
The Fines
The Commission maintains that “the real issue in this case” is the amount of the fines. This was the first case in which the Commission imposed fines of 3-4% of the turnover of the undertakings in question. In the past, the fines had been within the range of 1-2%, in similar cases. The Commission explained at the hearing that it is now applying a new policy in respect of fines. That policy, which entails higher fines, has been applied, it is said, by the Commission, though not accepted by the applicants, in all cases subsequent to the present one. For this reason, the Commission regards this as a “crucial test case for the competition policy of the Community”.
(a) The change of policy
Melchers, Pioneer and Pioneer GB complain that the fines in this case are of unprecedented severity (applications, pp. 41, 67 and 39 respectively). Two of those applicants contend that in imposing such fines the Commission infringed the principle of equality of treatment; no advance notice was given of the new policy, and in earlier decisions the Commission imposed lower fines on undertakings found to have committed similar infringements to those involved in this case, at a similar point in time. The application of the new policy in this case was said to be “retroactive” and “discriminatory”.
There is, of course, in this case no question of a change in the law. The actions in which the undertakings engaged amounted to infringements of Community law at the time when they were done; and at that time were liable to attract fines of up to 10% of the relevant turnover or one million European units of account, whichever was the greater. The extent of the Commission's powers remained the same throughout. I do not accept the apparent argument that a person or company which engaged in an offence or infringement cannot be subjected to greater penalties than were imposed in the past, or at any rate cannot be so subjected unless notice of an intention to increase the tariff of penalties has been given before the infringing acts are done. Any such rule would encourage the assessment of whether it was financially worthwhile to break the law, a policy which should be discouraged. It would, moreover, have the practical effect that, since the detection and proof of the infringements of Article 85 can take a long time in the nature of things, the Commission might be inhibited from increasing the fines in some cases for years, by when the new tariff again might be inappropriate, and it might find itself in any one year having to impose fines of widely different amounts for the same kind of infringement, depending on when the infringement was committed. The Commission, which has the duty under Article 155 of the EEC Treaty to ensure that the provisions of that Treaty are applied, must be entitled to take into account, when imposing fines under Article 15 (2) of Regulation No 17, the extent to which undertakings in the Community in general may need to be deterred, at the material time, from acting in infringement of Articles 85 and 86. If particular practices become prevalent, heavier fines may need to be imposed forthwith in order to discourage them. Likewise, the Commission is entitled to take into account the fact that the consequences of a breach of Article 85 or Article 86 may be more serious now that economic integration is more advanced than it was in the early days of the Community; and that undertakings acting in breach of those Articles are no longer able to claim that Community law is a new legal system, to which industry has to adjust.
On the other hand, although I accept the Commission's arguments in principle, it seems to me that when increasing the fines some regard should be had to the level of fines imposed in the past, and it becomes particularly important to consider the gravity and duration of the infringement and its effects as well as the turnover. A blatant deliberate and wideranging infringement might well justify the maximum penalty without prior warning. Traders have sufficient warning of the scale by the provision of the regulation that 10% of turnover may be imposed. The Commission recognizes that the present cases are not in that category. Taking the facts as a whole, however, it seems to me that the fines, viewed in terms of money rather than as percentages of turnover, are, having regard to, but not limited by, the Commission's previous practice, greater than was justified, particularly in the case of Pioneer; and this is so even though an increase in fines for punitive reasons is justified.
(b) The Kawasaki case
Melchers and Pioneer contend that the fines imposed in this case are significantly higher than those imposed against Kawasaki (Official Journal L 16/9, 23. 1. 1979). Although that Decision was relatively recent, it arose from facts materially different from those in the present case. In particular, those who were prevented from exporting from the United Kingdom in the Kawasaki case were retailers, each of whom was in a position to export only a few motorcycles, whereas in the present case the exporters were wholesalers dealing in large quantities; and the differences between British and continental prices were much greater in the present case than in Kawasaki. I am not satisfied, therefore, that the differences between this case and Kawasaki are such as to disclose unlawful discrimination. Moreover, as this Court observed in Joined Cases 32/78 and 36-82/78, BMW v Commission [1979] ECR 2435 at p. 2482, “the fact that in similar previous cases the Commission did not consider that there was reason to impose fines... cannot deprive it of such a power expressly granted to it... where the conditions required for the exercise thereof are satisfied”.
(c) National law
Melchers argues that the maximum fines specified in Article 15 of Regulation No 17 are significantly greater than those specified in certain national laws, including those of the United States. From this observation it appears to deduce the conclusion that the Commission should exercise particular discretion before applying fines of such magnitude. It must be remembered, however, that the fine is the only device available to the Commission to secure observance of Community rules, whereas several of the national systems to which Melchers refers provide for the enforcement of antitrust law by means of actions for damages by private litigants (who may receive triple damages under the Sherman Act in the United States). In several other such systems, antitrust laws may be enforced by imprisonment.
Whilst, therefore, accepting that the fines imposed should not be seen to be unreasonable or unfair in all the circumstances, I do not consider that the national laws relied on assist the parties' arguments in this case.
(d) Article 15 (í) of Regulation No 17
Melchers contends that the fine imposed on it violates Article 15 (5) of Regulation No 17 in that it punishes conduct conforming with contractual commitments entered into by Melchers and properly notified to the Commission (application, page 42). The only contractual commitment, notified to the Commission, on which Melchers relies for the purpose of justifying its conduct is the obligation to supply the German market. For the reasons already given, however, I am not satisfied that the infringements involved in this case were consequential upon the need to supply the German market; they flowed from a desire to protect the French market.
(e) Separate fines
Pioneer argues that by imposing a single fine for two infringements the Commission deprived it of the right to know the exact amount of the fine imposed in respect of each. It contends (application, p. 44) that this amounts to a breach of an essential procedural requirement. It is, however, artificial to draw so sharp a distinction between the two infringements in this case, since both occurred simultaneously in an apparent attempt to protect the same market; both appear to have been initiated by MDF and in each case two of the three parties to the concerted practice were identical. Moreover, the Court's judgments illustrate the fact that it is permissible to impose a single fine for distinct but related infringements — see Case 27/76 United Brands v Commission [1978] ECR 207 and Joined Cases 6 and 7/73 Commercial Solvents [1974] ECR 223. I would reject this argument.
(f) Vicarious liability
Melchers argues that any infringement of Community law for which that company is responsible cannot be characterized as “deliberate” or “intentional”, since the actions alleged to connect Melchers with a concerted practice were undertaken by Messrs Mackenthun and von Bonin, who were mere employees. Melchers is a limited partnership (Kommanditgesellschaft) and there was no evidence that the general partners knew of the acts of Messrs Mackenthun and von Bonin. The question before this Court is not, however, whether those employees had the power to enter into obligations binding upon Melchers (a question which might need to be determined in accordance with German law) but whether the Commission was entitled to conclude that Melchers in fact engaged in a concerted practice. I can find no authority at all for the proposition that an undertaking cannot enter into a concerted practice by means of actions undertaken by employees — least of all, actions by senior employees such as the head of a hi-fi department and a sales director (see Thiesing-Schröter and Humbaum, Les ententes et les positions dominantes dans le droit de la CEE, 1977 at pp. 554-555).
(g) Turnover
It was argued on behalf of Melchers that the fine imposed on that company exceeded the maximum permitted by Article 15 (2) of Regulation No 17, since the word “turnover” in that Article must be taken to mean the turnover for the sector directly involved in the alleged infringement. Pioneer and MDF also claimed that the Commission shodd have assessed the fine by reference to their trade in hi-fi products only, excluding trade in such goods as motor car radios and cassettes. In my view, that argument was put too high.
Article 15 (2) of Regulation No 17 authorizes the Commission to impose “fines of from 1000 to 1000000 units of account or a sum in excess thereof but not exceeding 10% of the turnover in the preceding business year of each of the undertakings participating in the infringement”. Nothing in this language suggests that the word “turnover” means anything other than the global turnover of the undertaking. That Article establishes the limit of the Commission's power; and in setting the maximum fine it appears to establish in rough terms a correlation between the penalty and the ability of the undertaking to bear it.
If, as is contended, the term “turnover” means the turnover limited to a particular sector, some extraordinary consequences would ensue. It would mean that where a very large conglomerate with diversified interests engages in a very serious infringement of Community law in one of the sectors in which it is engaged, the Commission would lack the power to impose a fine of sufficient size to amount to a real deterrent. Moreover, where an undertaking has ceased to trade in the sector directly involved in the infringement, no fine could be assessed by reference to “the turnover in the preceding business year”. Melchers argues that in such a case the fine could be assessed by reference to the turnover in the last year during which the undertaking traded in the relevant sector; but this would entail a clear departure from the language used in the regulation.
Nevertheless, a difficulty arises in this case since the Commission states that it has used the turnover of the companies as a basis for calculating the amount of the fine to be imposed. It decided to impose fines on the four undertakings approximately equivalent to specified percentages of their respective turnovers, in accordance with the Commission's assessment of their degrees of culpability. If the Commission proceeds on this basis it should, in my view, take into account the extent to which the undertaking's activities are diversified. This must be so, since an infringement committed by an undertaking in only a small sector of its activities is, in ordinary circumstances, less grave than one committed in the whole of its activities.
Trade in hi-fi equipment has never accounted for more than 10% of Melcher's turnover; and the other activities in which that company is engaged are remote from the audio market. It is otherwise with MDF, Pioneer and Pioneer GB, which, although engaging in trade in radio cassettes and other items outside the hi-fi market, are very much less diversified. In relating the four undertakings' degrees of culpability to their turnovers, the Commission used a calculation that left out of account the fact that in the case of Melchers alone most of the turnover was wholly unaffected by the infringement. In my view, this was a material omission and Melchers' fine should be reduced accordingly.
The same reasoning applies to the argument that the Commission erred in basing the fine on Pioneer's global turnover, rather than its turnover, in the markets in question (namely France, the United Kingdom and the Federal Republic of Germany). For the reasons given, I take the view that the Commission has the power under Article 15 (2) of Regulation No 17 to impose fines up to 10% of an undertaking's global turnover; where, however, the Commission uses turnover as a basis for calculating the amount of the fine, it should take account of the extent to which the turnover represents trade in markets unaffected by the infringement. The Commission has failed to take this element into account in the present case and Pioneer's fine should be reduced accordingly. The reduction will, however, be proportionately less great than in the case of Melchers. For, although the available figures do not permit precise comparison, it seems clear that sales in France, the United Kingdom and Germany account for a significantly greater proportion of Pioneer's total trade than sales in Pioneer products, as a proportion of Melchers' total trade.
Pioneer argues that the Commission ought to have used as its basis for calculating the fine the turnover in the year preceding the infringement. In the context of Article 15 (2) of Regulation No 17 the reference to “the preceding business year” seems to me to denote the year preceding that in which the fine is imposed and not the year preceding the infringement. Otherwise where an infringement covers several years the calculation becomes unduly complicated, and the reference to the turnover in the year before the first of such years may give a wholly inappropriate result, upwards or downwards. In the alternative, Pioneer contends that the Commission ought to have taken into account the same time period for assessing the turnover of the various undertakings having participated in the infringements. Instead, the Commission used the latest available accounts, which were for the calendar year 1978, in the case of three of the applicants, and for the accounting year to 30 September 1979, in the case of Pioneer. “Preceding business year” does in my view justify taking the accounting year adopted by the company so that strictly the Commission was entitled to take the periods which it took. On the other hand I think it was appropriate here to have regard to the fact that the calendar year 1978 was taken for all the other companies as their business year and that Pioneer's turnover both for the business year ending on 30 September 1978 and the calendar year ending 1978 was significantly lower than in the business accounting year ending on 30 September 1979. The Commission did not have regard to this as far as I can see and I would allow for that in assessing the fine.
It seems to me that the fine imposed on MDF should also be reduced by reason of an error made in connection with that company's turnover which is in no way the fault of the Commission. For the purpose of assessing the fine, the Commission requested MDF to disclose its turnover for the years 1976, 1977 and 1978. In error, MDF entered its turnover for the year 1977 under the heading of 1978 and vice versa. The Commission appears to have arrived at its fine of 850000 European units of account by applying to the 1977 figures the multiplier of 4%. In its written observations in the other three cases, the Commission specifically refers to the figure of 4% as representing the means of calculating MDF's fine. In these circumstances, I find unconvincing the Commission's argument that the fine on MDF was assessed at the rate of 4.32% of the turnover (a rough approximation of 4o/o). Irrespective of other considerations, therefore, I would reduce MDF's fine by 50000 European units of account, so as to make it a closer approximation of 4% of the turnover in the relevant year.
(b) Remaining issues
MDF contends that the fines imposed upon it are of a confiscatory nature and threaten the company with bankruptcy. The Court has shown a reluctance in the past to reduce fines on similar grounds
Miller v Commission at p. 131; Joined Cases 2-10/63 San Michele v High Authority [1963] ECR at p. 696; Case 21/64 Dalmas v High Authority [1965] ECR at p. 228. I consider that the Commission is right in saying that MDF overstates the possible effect of the fine on its continued ability to trade in the light of the material before the Court. Moreover, MDF was the initiator and beneficiary of both concerted practices and it is the potential purchasers in its territory who suffer from the concerted practice. Nevertheless, it is right (and consonant with the policy of Article 15 (2) of Regulation No 17) in fixing the fine to have regard to the ability of undertakings to pay them. In that connection, it seems established that the fine fixed by the Commission exceeds MDF's working capital; the accounts presented to the Court by MDF disclose a high proportion of short-term loans; and unlike the other undertakings in this case, MDF remains independent. These factors in my view indicate some reduction in the fine.
Pioneer maintains that it did not enter into a concerted practice “intentionally”; and observes that in its statement of objections the Commission merely charged Pioneer with acting “intentionally or at least negligently”. Clearly, the Commission adopted that phrase from Article 15 (2) of Regulation No 17. I find it difficult to see how Pioneer could be said to have engaged negligently in a concerted practice, which entails the forming of a common intent as was established here. The substance of the allegation against Pioneer is that it entered into the practice deliberately. Pioneer argues that it was involved in the concerted practices only by organizing a meeting where parallel imports were discussed, and therefore it could not have known that its conduct was illegal. For the reasons given, I do not accept that Pioneer's part in the concerted practices was so limited. Moreover, ignorance of the law neither excuses an infringement nor converts an intentional infringement into a negligent one. It remains the case, however, that Pioneer did not obtain any direct profit from the higher prices charged in France although obviously it benefited in the long term if its distributors in France could be kept happy. Indeed, it considered MDF's selling prices too high (see Mr Setton's letter to Mr Ito dated 19 June 1978, Annex 5 to reply). Melchers and Pioneer GB also obtained no direct financial benefit from the practices in which they were engaged — indeed both could lose trade, however small the profit margins, so long as they could obtain enough items to supply both home and export customers, and the figures put forward to suggest that further exports could not have been worthwhile are unconvincing. In the case of Pioneer GB it is apparent that Mr Todd acted in response to Mr Setton's persistent complaints.
This circumstance warrants, in my view, some reduction in the fines imposed on Pioneer, Melchers and Pioneer GB. In the last-mentioned case, however, the reduction will be moderate, since Mr Todd's letters to Comet and Audiotronic demonstrate a hostile attitude, on the part of Pioneer GB's director, to the company's obligations under Community law.
In considering the fines to be imposed in this case I take no account of the fact that the Commission refrained from requiring the applicants to provide bank guarantees pending the determination of the appeals. That decision entailed the consequence that the applicants benefited from the use of the money or interest on the amount of the fines during the course of litigation, which has proved to be protracted. That decision was, however, made freely by the Commission; and I see no reason to increase the fines at this stage, by reason of the fact that the Commission decided at an earlier stage to forgo a right which it might have asserted.
This Opinion is already long. Nevertheless I am aware that in the thousand or so pages of written pleadings and the voluminous annexes and in the transcripts of the hearing there are many other arguments of detail, and the replies, thereto, to which I have not expressly referred. I do not consider that these affect the overall conclusion to which I have come, or that it would really assist to deal with them individually, and, inevitably, at length.
At the end of the day the assessment of the appropriate fine is a matter of judgment and balance rather than of calculation. It would be wrong to “tinker” with the fines imposed if the conclusions to which I had come suggested minor changes. In the light of the relevant considerations referred to by the regulation, and by the Court (e.g. duration and gravity of infringement, the intent, the respective participation and financial standing of the parties) and of the factors to which I have referred it seems to me that the fines ought to be varied. After long consideration in the light of all that has been submitted it seems to me that the fines should be reduced to the following amounts:
MDF 600000 European units of account
Melchers 500000 EUA
Pioneer 2250000 EUA
Pioneer GB 200000 EUA
Otherwise the Commission's order should stand.
As to costs, the Commission has in my view succeeded as to the claim for annulment on the ground that there was no breach of Article 85. In the ordinary way it should be awarded its costs of that issue. On the other hand the applicants have on my conclusions succeeded in their claim that the fines should be reduced even if not as radically as they claimed. Looking at the issues and the extent to which each side has succeeded as a whole it seems to me that the just and convenient order would be that the Commission should bear its own costs and pay one fifth of the applicants' costs.