Tuesday, June 25, 2024

EU must pay interest on annulled Deutsche Telekom fine, ECJ rules 

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The European Court of Justice has ended the European Commission’s fight to avoid paying default interest to Deutsche Telekom on a partially annulled antitrust fine, in a ruling that could leave the agency open to further liability in pending court challenges.

The EU’s top court today dismissed the agency’s challenge against an EU General Court judgment in 2022 ordering it to pay the German telco €1.75 million in interest. 

The agency claimed it was not required to pay interest on the excess penalty amount the company had provisionally paid.

But the ECJ ruled today that the commission must pay interest on fines it has unduly imposed in competition cases and which it has provisionally collected to ensure companies are compensated at a standard rate for loss of enjoyment of the amount in question.

Today’s judgment may incur a higher price tag for the agency, as several pending cases before the EU courts involve similar disputes – most notably in Intel, where the company has claimed that the agency owes it €593 million in default interest after the ECJ overturned its €1.06 billion antitrust fine.

Several airlines are also challenging the commission in its air cargo cartel case for either failing to pay default interest or paying the incorrect amount, seeking in excess of €170 million in total.

The enforcer jointly fined Deutsche Telekom and its subsidiary Slovak Telekom €39 million in 2014 for refusing to grant rivals access to local subscriber lines and imposing a margin squeeze between retail and wholesale broadband access markets for five years. 

The commission also imposed an additional €31 million penalty on the parent company for recidivism, having previously sanctioned the company €12.6 million in 2003 for operating a margin squeeze in German broadband markets.

The General Court upheld the commission’s decision to sanction Slovak Telekom and its parent company in 2018 – but reduced the latter’s recidivism fine to €19 million.

The following year, the commission denied Deutsche Telekom’s request for default interest on the excess penalty amount.

Advocate general Anthony Collins boosted the agency’s case last year, recommending that the commission pay default interest only if it missed the deadline to compensate Deutsche Telekom.

However in today’s ruling, the ECJ said that under settled case law, the payment of interest “constitutes a measure giving effect to a judgment annulling a measure” within the meaning of Article 266 of the Treaty on the Functioning of the European Union, which requires EU institutions to take all necessary steps to comply with EU court rulings.

That is because it aims to “compensate at a standard rate for the loss of enjoyment of the monies owed” – as well as to encourage the debtor to comply with the ruling as quickly as possible, the court noted.

This principle was also affirmed in Printeos, the ECJ noted.

The commission argued that the deterrent effect of fines could be undermined if the agency was required to pay interest from the date of provisional collection of the sanctions, which would be disproportionate and could result in the enforcer paying interest that amounts to more than half of the fine itself.

The court said, however, that the commission cannot rely on an act that has been declared unlawful for the purposes of deterrence. This means that deterrence cannot be invoked in the case of penalties that have been annulled or reduced by an EU court.

The commission also argued that the General Court wrongly applied a modified version of the European Central Bank refinancing rate to determine total interest, but the ECJ found the decision was not unreasonable or disproportionate.

Time for “necessary adjustments”?

“This is an important loss for the European Commission,” said Quinn Emanuel Urquhart & Sullivan partner Trevor Soames in Brussels, who alongside counsel Zena Prodromou is advising Air Canada in its dispute with the agency over interest repayments.

The figures in Deutsche Telekom and Printeos are relatively small compared to other fines imposed by the agency and subsequently quashed, Soames noted – such as the €1.06 billion on Intel and the combined penalties in Air Cargo.

Today’s decision could result in “significant financial liability” for the agency and no doubt, multiple efforts by companies who have had fines annulled or reduced to recover interest in a way specified by the courts,” he said.

Soames also noted that it “seems quite possible” that the agency may seek to amend legislation to remove or minimise its liability for future cases – the commission’s proposal to revise Regulation 1/2003 could provide such an avenue, for instance.

The impact of the judgment on future cases could be lessened if the commission moved to amend regulation to stipulate a lower interest rate, said Christian von Köckritz, a partner at Gleiss Lutz in Brussels who was counsel to Deutsche Telekom. 

He noted that the ECJ judgment mentions this possibility, stating that it is up to the agency or the EU legislature to “make the necessary adjustments” should the enforcer “consider that the current regulatory provisions do not adequately take into account a situation such as that giving rise to the present case.”

Stéphane Dionnet, a partner at McDermott Will & Emery in Brussels, noted that the ruling carries a “major financial risk” for the commission, questioning whether this may cause the agency to refrain from imposing large penalties in future. 

Peter Camesasca, a partner at Peter Camesasca Advocaat BVBA in Brussels, noted the agency’s potential liability in future cases given the “billions at stake” in court challenges involving large digital platforms, as well as the enforcer’s state aid tax cases and possible future Digital Markets Act decisions.

Christopher Cook, a partner at Cleary Gottlieb Steen & Hamilton in Brussels, said that the court’s intention is “not to punish the commission or remove any ill-gotten gain the commission may have earned, but to put Deutsche Telekom in the position it would have been in had the fine not been wrongly imposed.”

The same approach will likely be applied to other cases where the agency’s fines have been provisionally paid and subsequently reduced on appeal, he noted.

A commission spokesperson said the enforcer will “carefully study the judgment and assess its implications.”

Counsel to Deutsche Telekom

Gleiss Lutz

Partners Ulrich Soltész and Christian Von Köckritz in Brussels, assisted by associate partner Philipp Lohs

Counsel to the European Commission

Commission Legal Service 

Daniel Calleja-Crespo, Nicholas Khan KC, Bernd Martenczuk, Pierpaolo Rossi and Liane Wildpanner in Brussels

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