[No. 57] Damages Actions for Breach of the EC Antitrust Rules

The European Commission recently issued a Proposal for a Counsel Directive on rules governing damages actions for infringements of Articles 81 and 82 EC (The proposal is not yet published). The proposed Directive is the result of a lengthy process of reports and consultations with as starting point the Ashurst report (2004). According to this study there are some bottlenecks in the law of the European member states which make it difficult to claim for cartel damages. This would be the reason that in Europe, contrary to the USA, there is little private enforcement of competition law (see also the report from Houthoff at the request of the Ministry of Economic Affairs). In response to the Ashurst Report the European Commission published a Green paper (2005) in which it suggested various options to take away (potential) obstacles for private enforcement. After a consultation round the Green Paper was followed by a White Paper (2008) with more definite proposals. Now – after another consultation round – there (finally) is the Directive proposal.

The objective of the Directive is to:

"Ensure, through the introduction of a set of rules designed to address the most important obstacles currently standing in the way of effective reparation, that all victims are in a position to obtain full compensation of the damage caused by an infringement of the EC competition rules."

And is designed to:

"Establish common minimum guarantees on antitrust damages actions, thereby creating a more level playing field for undertakings and consumers, which in turn enhances predictability and legal certainty and reduces forum shopping. "

Dutch law seems to be largely in line with the Directive proposal although some adjustments will be necessary (e.g. with respect to limitation periods, group actions including the possibility of damage claims and, not unimportantly, the passing-on presumption). It remains to be seen whether the Directive will lead to more private enforcement. From a Dutch law perspective the Directive at first sight does not really seem to provide for more options to claim for damages than the already existing law. However, the Directive -- which still needs to be approved -- may be an incentive for claimants to start a procedure. Furthermore it may be possible that national courts will feel obliged to apply a more flexible aproach regarding (the proof of) cartel damages. Ultimately the implications of the proposed Directive will very much depend on the interpretation of the Directive by the ECJ.

Below the fold I discuss the various Directive provisions as proposed by the European Commission.

The Directive provides for provisions on various topics, including:

Right to damages

First of all it is important to note that the Directive takes a compensatory approach:

 "its aim is to allow those who have suffered damage caused by an infringement of the EC competition rules to recuperate that loss from the undertaking(s) which infringed the law."

The full compensation includes compensation for actual loss (damnum emergens), loss of profit (lucrum cessans) and payment of interest. In fact this is a codification of case law of the ECJ. The Commission decided not to introduce punitive damages, such as double or treble damages (as was suggested in the Green Paper).

Collective redress

The Directive provides for opt-in group actions. The national court must treat such a group action as one single action (instead of a bundle of individual actions). Other injured parties are allowed to join a group action (provided that this does not impair the sound administration of justice). In addition to these group actions the Directive introduces actions by so-called "qualified entities" (e.g. consumer authorities) which can bring actions for damages on behalf of injured parties. The qualified entities have to be designated by the State.

Disclosure of evidence

The directive provides for a disclosure obligation where the requesting party has:

1. shown that the evidence is relevant to substantiate its claim;
2. specified the requested evidence (no fishing expeditions);
3. shown that it is unable to produce the evidence itself

No disclosure may be ordered to the extent that it would be disproportionate (this depends on the value of claim, the likelihood of the infringement, the costs of disclosure, etc). Furthermore national courts may not order the disclosure of corporate statements or settlement submissions. This has to do with the fact that private enforcement may not hinder the rather succesful system of leniency applications on which basis a lot of cartels are detected by the competition authorities. Disclosure is neither allowed if this would undermine an ongoing investigation by a competition authority.

Passing-on defence

There has been a discussion in legal literature whether or not European (competition) law stands in the way of a passing-on defence. This is the defence of a cartel member that the claimant passed-on the whole or part of the overcharge imposed upon him. If for example producer A is participating in a cartel and sells products (for too high prices) to retailer B, B has not suffered damage in the event B passed on the higher prices to consumer C. It is consumer C who suffered the cartel damage (I abstract from a possible loss of sales for B as result of the cartel). 

Nonetheless the Directive allows -- and even obliges -- the courts to ensure that the passing-on defence is possible. The reason is to avoid that the claimant would be unjustly enriched (in our example B would receive compensation from cartel member A on top of the higher prices he received from consumer C). However: the cartel member will have to prove the passing-on of the overcharges.

Passing-on presumption

In practice most of the times the direct purchaser will be in best position to prove his ‘damage’ but very often this ‘damage’ has been passed on to purchasers lower in the supply chain (indirect purchasers; e.g. consumers). By contrast the indirect purchasers often suffered damages but in most cases are in a more difficult position to prove their damage. In order to avoid this catch 22 situation the Directive provides for the assumption that the overcharges have been passed on to the indirect purchasers if:

1. the defendant was a cartel member;
2. the cartel resulted in an overcharge for the customers of defendant; and
3. the claimant has purchased the goods that were subject of the cartel (or goods that are derived from or contain the goods that were subject of the cartel)

The cartel member is allowed to rebut this passing-on presumption.

Effects of national decisions

Final infringement decisions of national competition authorities (and review courts) are binding to the national courts deciding on the damage claims. The rationale is that it would be inefficient to re-litigate the infringement question. However, it is always possible for a court to ask the ECJ preliminary questions (e.g. when the court has questions as to the lawfulness of the decision of the competition authority)

Fault

The Directive does not prohibit a national fault requirement but once a cartel has been proven, the cartel member is liable for damages unless he shows that he could not reasonably have been aware that his conduct distorted competition.

Limitation periods

The Directive provides for a limitation period which starts to run after an injured party has knowledge (or should have knowledge) of the cartel as well as the harm the cartel suffered to him. It is not allowed that a limitation period starts to run before the day on which a continuous or repeated infringement ceases. Furthermore, If an infringement was found by a competition authority or a court, a injured party can bring an action for damages during a period of at least two years after the infringement decision has become final.

Comments

[Karen Jeanneret-Druckman, legal advisor, Swiss Institute of Comparative Law]

Is there a way to access or obtain a copy of the proposed Directive?

Thank you in advance

[Andreas Goetze]

I would also be interested in a copy because I am writing a llm thesis on this subject. Is there a possibility to get access to the proposal for this directive? Thank you.

[Ruta Bulkaite]

I would also like to obtain copy or access to this proposal too. Would it be possible? Thank You in advance.

[Alberto Saavedra]

I am writing a dissertation concerning actions for damages.The deadline for its submission is the 27th of August.
Could you please send me a link or a copy of the Commission's Proposal and any related documents (policy documents, preamble, etc)?

Furthermore, I would like to know whether there is going to be more than one single legislative instrument. For example, some of the solutions could give a wide margin of discretion to Member States (e.g., rules on costs) or be recommendations for soft law instruments (calculation fo damages). Moreover, is the Commission only contemplating a Directive or also a Regulation?