This appeal to the European Court of justice (ECJ) concerns the propriety of fines imposed upon various makers of graphite electrodes in the world market for running a cartel in this product in violation of the European Community laws and regulations dealing with competition.
On appeal from an adverse ruling by the Court of First Instance (CFI) in reviewing a Decision of the EC Commission, the main appellant is Showa Denko KK (SDK), established in Tokyo (Japan), other parties to the proceedings below were, inter alios, Graffech International Ltd., (formerly UCAR International Inc.), a Delaware corporation, and the Carbide/Graphite Group Inc., incorporated in Pennsylvania.
Steel companies use graphite electrodes mainly to make steel in electric are furnaces. Graphite is a crystalline form of carbon. Electric arc furnace steelmaking is basically a recycling process; it converts scrap steel into new steel; it differs from the traditional blast furnace plus oxygen process of producing steel from iron ore. A typical arc furnace uses nine electrodes, joined in columns of three, to melt scrap steel. So intense is the melting process, that it uses up an electrode in about eight hours. There are no product substitutes for graphite electrodes in this process.
About 85% of the demand for graphite electrodes depends on the quantity of steel produced in electric arc furnaces. In 1998, for example, world crude steel production was 900 million short tons, of which 315 million short tons (or about 35%) came out of electric arc furnaces.
During the 1980s, technological improvements brought about a substantial drop in the consumption of electrodes per ton of steel produced. This decline caused the restructuring of the world electrodes industry, and the closing of a number of factories.
In 2001, nine Western producers supplied the European market with graphite electrodes. On June 5, 1997, the EC Commission officials, relying on Article 14(3) of Council Regulation No 17, carried out simultaneous and unannounced investigations at the premises of certain graphite electrode producers. On the same date, Federal Bureau of Investigation (FBI) agents executed judicial search warrants at the U.S. premises of a number of producers.
These investigations led the U.S. to bring criminal proceedings for conspiracy against SDK and others. All the accused pleaded guilty to the charges and agreed to pay fines; for SDK, the fine amounted to $32.5 million. A class of carbon electrodes buyers filed civil actions in the U.S. courts against SDK claiming treble damages. In June 1998, steel buyers filed civil proceedings in Canada against SDK based on conspiracy allegations.
The EC Commission sent a statement of objections to the companies concerned in January 2000. The administrative procedure culminated in the adoption, on July 18, 2001, of the contested Decision. It found that the applicant undertakings are involved, on a worldwide scale, in price fixing and also in sharing the national and regional markets in electrodes according to the "home producer" principle. SDK, for instance, was responsible for Japan and for certain sectors of the Far East. Applicants then went to the CFI which ruled against them.
On further appeal, SDK argued to the ECJ that the CFI had committed legal error when it ruled that the Commission (1) could rely upon worldwide turnover to calculate the basic fine and the deterrence multiplier and, (2) did not have to take into account the fact that criminal proceedings in the United States, Canada and Japan had already imposed fines on it for the same behavior.
According to the appellant, if worldwide turnover was relevant for deterrence, the Commission and the CFI had erred in declining to take into account the fines which appellant has to pay in non-member states in setting the amount of the additional EC fine necessary to achieve adequate deterrence.
Since deterrence turns on the worldwide cost of the illegal conduct, SDK contended, it should take into account not only the fines imposed in the European Economic Area (EEA), but also fines imposed by non-member states. Otherwise, the CFI would be double-counting fines and that makes the worldwide fines disproportionate to any reasonable deterrent effect. Appellant also relied on the time-honored principle of non bis in idem.
The ECJ disagrees with SDK's contentions. "It should be noted, first of all, that the principle of non bis in idem, also enshrined in Article 4 of Protocol No 7 to the European Convention for the Protection of Human Rights and Fundamental Freedoms, [E.T S. 117] (ECPHR) constitutes a fundamental principle of Community law the observance of which is guaranteed by the judicature." [Cites]. [1501
Article 4 provides in relevant part as follows: "Right not to be tried or punished twice. No one shall be liable to be tried or punished again in criminal proceedings under the jurisdiction of the same State for an offence for which he has already been finally acquitted or convicted in accordance with the law and penal procedure of that State..... No derogation from this Article shall be made under Article 15 of the [ECPHR]."
"With regard to examining the substance of the plea regarding infringement of that principle, it should also be noted, ... that the Court of justice has not yet decided the question whether the Commission is required to set offa penalty imposed by the authorities of a non-member State where the facts with which the Commission and those authorities charge an undertaking are the same, but it has made the identical nature of the facts alleged by the Commission and the authorities of a nonmember State a precondition of doing so."
"As regards the scope of application of the principle of non bis in idem in situations in which the authorities of a non-member State have taken action pursuant to their power to impose penalties in the field of competition law applicable in that State, it should be borne in mind that the context of the cartel at issue is an international one, characterised in particular by actions of legal systems of non-member States [taken] within their respective territories.
"In that regard, the exercise of powers by the authorities of those States responsible for protecting free competition under their territorial jurisdiction meets requirements specific to those States. The elements forming the basis of other States' legal systems in the field of competition not only include specific aims and objectives but also result in the adoption of specific substantive rules and a wide variety of legal consequences, whether administrative, criminal or civil, when the authorities of those States have established that there have been infringements of the applicable competition rules."
"On the other hand, the legal situation is completely different where an undertaking is caught exclusively--in competition matters--by the application of Community law and the law of one or more Member States on competition, that is to say, where a cartel is confined exclusively to the territorial scope of application of the legal system of the European Community."
"It follows that, when the Commission imposes sanctions on the unlawful conduct of an undertaking, even conduct originating in an international cartel, it seeks to safeguard the free competition within the common market which constitutes a fundamental objective of the Community under Article 3(1)(g) EC. On account of the specific nature of the legal interests protected at Community level, the Commission' s assessments pursuant to its relevant powers may diverge considerably from those by authorities of non-member States."
"Accordingly, the [CFI] was fully entitled to hold ... that the principle of non bis in idem does not apply to situations in which the legal systems and competition authorities of non-member States intervene within their own jurisdiction. Moreover, the [CFI] was also fully entitled to hold that there is no other principle of law obliging the Commission to take account of proceedings and penalties to which the appellant has been subject in nonmember States."
"[Moreover] there is no principle of public international law that prevents the public authorities, including the courts, of different States from trying and convicting the same natural or legal person on the basis of the same facts as those for which that person has already been tried in another State. In addition, there is no public international law convention under which the Commission could be obliged, upon setting a fine under Article 15(2) of Regulation No 17, to take account of fines imposed by the authorities of non-member States pursuant to their competition law powers."
"It should be added that the agreements between the European Communities and the Government of the United States of America of 23 September 1991 and 4 June 1998 on the application of positive comity principles in the enforcement of their competition laws [see 1998 International Law Update 62] are confined to practical procedural questions like the exchange of information and cooperation between competition authorities and are not in the least related to the offsetting or taking into account of penalties imposed by one of the parties to those agreements."
"Finally, as regards failure by the [CFI] to have regard to the principles of proportionality and equity, pleaded in the alternative by the appellant, it should be observed that any consideration concerning the existence of fines imposed by the authorities of a non-member State can be taken into account only under the Commission's discretion in setting fines for infringements of Community competition law. Accordingly, although it cannot be ruled out that the Commission may take into account fines imposed previously by the authorities of non-member States, it cannot be required to do so." [[paragraph] [paragraph] 51-60]
CITATION: Showa Denko KK v. EC Commission,  ECR 00; Case C-289104 P (Eur. Ct. Just. [2d Ch. J June 29, 2006).