Loss Suffered due to Infringements of Competition Law: New EU Law Directive Put into Practice

Tomáš Šlechta

 1. Introduction

In Europe, enforcement of competition law has traditionally been viewed as being within the domain of public law. As the new EU Directive[1] establishes an avenue for private enforcement, building on the existing case law[2] of the Court of Justice of the EU (the “Court”), it pursues the formidable ambition of reconciling the realms of public and private law. Although the Directive strives to ensure that everyone who has suffered harm due to an infringement of competition law can effectively claim full compensation, there remain some doubts relating to its effective implementation and practical viability. In order to assess how the Directive achieves its purpose, the article will consider selected aspects of the principle of full compensation with particular regard to indirect purchasers. Then it will consider the rules on disclosure of documents, and finally it will address the prospect of effective implementation against the backdrop of procedural autonomy of the EU Member States.

2. Full compensation

The Directive acknowledges two purposes: to enable victims of competition law infringements to obtain full compensation, and to foster undistorted competition within the internal market.[3] In line with the previous case law of the Court, Art. 3(2) stipulates that the right to full compensation covers compensation for actual loss, loss of profit and payment of interest.[4] At the same time, the principle of full compensation is limited as the Directive aims to avoid overcompensation.[5] The situation, however, becomes more complex as the right to claim damages is given to any natural or legal person who has suffered harm due to competition infringement, which implies emergence of different categories of claimants from different levels. Thus, not only direct purchasers, but also indirect purchasers or even consumers at the end of the supply chain are entitled to seek compensation. It follows that the more complex the supply chain is, the greater the number of potential claimants that can be expected. Although, theoretically, such a concept seems viable, damages actions from different levels are likely to challenge both the principle of full compensation and the principle of no overcompensation, since any harm caused further down the supply chain is likely to become scattered and difficult to prove.

2.1 Passing-on presumption

In order to ensure full compensation and to prevent overcompensation the Directive provides for rules concerning passing-on of overcharges, that is, a difference between the price actually paid and the price that would have prevailed in the absence of an infringement of competition.[6] A harm caused by cartels, typically overcharges, may be passed down the supply chain where it partially or entirely affects, not only direct, but also indirect purchasers (including consumers). However, the position of direct and indirect purchaser differs considerably. Whilst a direct purchaser, who deals with a cartelist without intermediary, is required to prove that an overcharge was passed on to him, an indirect purchaser is required to prove that the overcharge was passed on to him through one or more levels down the supply chain.[7] As the Directive recognizes that this may impose a significant hurdle, it enables the operation of a rebuttable presumption that the passing-on of an overcharge has occurred if an indirect purchaser is able to demonstrate that 1) a defendant has committed infringement of competition law, 2) that the infringement has resulted in an overcharge and 3) that the goods purchased were the object of the infringement.[8] This might be taken to indicate that the presumption alleviates the burden of proof and presumes causality that an overcharge has been passed on to indirect purchasers. But a particular area of difficulty still seems to arise with respect to indirect purchasers showing that the goods they purchased were the object of the infringement. The two first conditions are likely to be satisfied by adducing a decision of a competition authority. But it may be argued that given the existence of different levels of supply chain, the third condition renders the prospect of future effective application of the presumption uncertain.

2.2 Umbrella effect

It has been an established practice since Courage & Crehan that any individual shall have the right to claim damages for loss suffered by competition infringement.[9] Similarly, the Directive incorporates that broad conception of legal standing and stipulates that any person has the right to seek compensation irrespective of the existence of a direct contractual relationship with an infringing undertaking.[10] It follows implicitly that also indirect purchasers situated outside the vertical supply chain, but nevertheless affected by the cartel (“umbrella customers”), may bring private damages actions for competition infringement. This was clarified in Kone where the Court stated that damages claims are also permissible in situations where the goods were purchased from a non-cartel member whose pricing policy was affected by the existence of a cartel.[11] In other words, cartel members should not escape liability for loss caused by umbrella pricing where subsequent non-cartel members imposed higher prices than they would have charged in an effective competition. Nevertheless one important difference shall be emphasised at this point. The possibility of umbrella claims is established by the Court’s case-law, but the Directive itself does not introduce any equivalent presumption of passing-on in favour of umbrella customers.[12] It provides so only in respect of indirect purchasers in the vertical chain. Claimants from outside the vertical chain are therefore likely to face considerable difficulties in establishing a causal link and bringing a successful claim.

2.3 Passing-on defence

The flipside of facilitating damages claims down the supply chain is enabling the passing-on defence. Defendants may invoke a passing-on defence against damages claims if they prove that the claimant has further passed on the overcharge.[13] As a result, both direct and indirect purchasers shall be able to obtain compensation limited to the extent of the harm they have actually suffered. In this respect, some commentators cautiously argue that an effort to allocate overcharge at different levels of the supply chain reduces legal certainty.[14] Whilst this general contention is certainly true regarding the complexity of proving, there appears to be another issue that falls considerably short of being addressed by the Directive. Since Art. 13 recognises that a direct purchaser passes on the whole or part of the overcharge, there is no indication as to what happens if the direct purchaser passes on the overcharge to the indirect purchaser more than fully.[15] In such a case, the direct purchaser would multiply the harm caused by cartel and make it an indirect consequence of competition infringement.[16] Who is then to be liable for compensating the indirect purchaser is far from clear. Placing the burden on the infringer would explicitly contradict the Directive as the infringer would be obliged to compensate more harm than he had directly caused.[17] Similarly, claiming such compensation from the direct purchaser seems even less realistic as there is no competition infringement on his part.

3. Disclosure of evidence

Victims of competition infringement may not always be in possession of sufficient information as to the nature and extent of the harm. Although such information is often crucial to bringing a successful claim, an unrestricted access may stand in opposition to the interest of leniency towards applicants who may have legitimate expectations to keep certain documents undisclosed. Prioritizing the interest of private claimants would therefore jeopardize the willingness of cartel members to participate in the leniency policy, and vice versa. In this respect, the tension between private and public enforcement is obvious. This part will discuss how the Directive, differently from the Court’s jurisprudence, tries to reconcile the two systems by drawing a clear borderline.

3.1 Conditions and Restriction of Disclosure

In seeking a balance between the conflicting interests, national courts are given a central role.[18] As a general rule, a national court may order the defendant or a third party to disclose evidence in their control if the claimant has presented a reasoned justification containing reasonably available facts and evidence to support the plausibility of his claim.[19] Moreover, the request must describe the evidence as narrowly as possible[20] and the disclosure itself should be limited only to what is proportionate.[21] As regards disclosure of evidence included in the files of competition authorities, the Directive prescribes a stricter proportionality test requiring the request to be formulated specifically with regard to the nature, subject matter or contents of documents.[22]

Arguably, the Directive provides a balanced framework to ensure that private claimants are not given unlimited access. However, in contrast with the careful balancing of interest behind the other provisions of the Directive, Article 6(6) constitutes an absolute prohibition against ordering the disclosure of leniency statements and settlement submissions.  To ensure that the prohibition is effective, the Directive further stipulates that any such evidence, if obtained by a person through access to the file of a competition authority, must either be deemed inadmissible in the court proceedings or otherwise protected by national rules of procedure.[23]

3.2 More case-specific approach by the Court

The complete ban on access to leniency statements and settlement submissions seems to represent a fairly dramatic change in approach. Following the Court’s previous jurisprudence aimed on striking a balance between private and public interests, it was stated in Pfleiderer that it is necessary to weigh the respective interests on a case-by-case basis.[24] On another occasion, in Donau Chemie, the Court made a step forward when it ruled that the interests of effective leniency programmes cannot justify a refusal to grant private claimants access to leniency applications.[25] However, at the same time, the Court somewhat blurred the legal test by deciding that a non-disclosure may be justified if there is a risk that particular documents may undermine the public interest relating to the effectiveness of national leniency programmes.[26] A slightly different approach was adopted in a case concerning documents, including leniency applications, in the files of the European Commission. Even though the Court recognized that there is a presumption of an overriding public interest preventing access by private claimants, it also ruled that such access may be granted if the claimants are able to establish the necessity of such access or that the disclosure is not covered by the presumption.[27] Although the current position is not entirely free from doubt, it may be argued that the Court remained neutral and refused to draw a clear line between the interests of private claimants and the effectiveness of leniency programmes. In spite of some authors arguing that the strict prohibition under Article 6(6) represents a legislative correction of the Pfleiderer test[28], the Court generally seems to consider both objectives equally important. [29] This potentially implies that the Court could persist in its flexible approach according to which a specific decision will always be inferred from the factual background of each case.

Furthermore, there is also another line of the Court’s jurisprudence dealing with the protection of confidential information contained in the Commission’s decision. This development is inevitably linked to private damages claims and is likely to have impact on domestic disclosure procedures. In Pergan[30], it was established that claimants shall not be granted access to non-confidential versions of the Commission’s decisions on the basis of the principle of presumption of innocence. Such confidential information concerns information about alleged infringement which is not part of the operative binding decision. This approach was recently upheld in the UK case Emerald Supplies Limited v British Airways PLC where the Court of Appeal stated that, in relation to Pergan information, there is principally no basis for national courts to enable claimants wider access to information other than a party may obtain from the Commission.[31]

4. Prospect of effective implementation

Although ambitious in its purpose, the Directive does not introduce a high degree of harmonisation; it provides only partial rules which need to be further developed in national legal systems.

4.1 Disclosure of evidence between parties

As the vast majority of Member States do not have any specific procedure allowing national courts to order disclosure of evidence[32], special mentions should be made of practical implementation of disclosure of evidence between parties. Although Article 5(1) facilitates disclosure of evidence between parties in proceedings relating to an action for damages, it may be seen that Member States employ different means to achieve this. For example the Czech[33] and German[34] implementing proposals allow for disclosure of evidence in special proceedings prior to commencement of the proceedings concerning the action for damages. Conversely, the Slovak legislator limited the disclosure of evidence to the damages proceedings itself.[35] The former approach is said to remedy information asymmetry between parties, whereas the latter is seen as more suitable for ensuring limits of disclosure and preventing risk of abuses (in particular fishing expeditions).[36] While both approaches have their merits, it is clear that the rather general rules under the Directive leave the applicability to a large extent to national legislators. As some commentators logically argue, a considerable divergence is expected between those Member States with an extensive discovery tradition and those with more stringent conditions for access to evidence.[37]

4.2 Different standards of causality

The Directive falls short of regulating a number of issues such as quantification of harm, causal link and specification of interest. It merely provides that all national measures concerning aspects not dealt therein must observe the principles of effectiveness and equivalence.[38] But since these issues represent crucial elements of every damage claim, it may be argued that effective private enforcement of competition law will largely depend on the various complexities of national tort law systems. As indicated elsewhere, the test of causation is approached in very different ways since there are various doctrines of remoteness, foreseeability, directness and necessity among the Member States.[39] Although, in Kone the Court already had a chance to elaborate on an EU framework of causality, it did not follow the suggested approach by the Advocate General[40] and stated that it is for the domestic legal system of each Member State to lay down the detailed rules governing the application of the concept of causal link.[41]

 

5. Conclusion

 

This article selected several issues regarding the future of effective implementation of the Directive on private actions for antitrust damages. It shows that seeking damages for competition law infringement lies on the very crossroads between private and public law. On one hand, it facilitates private interest as it establishes a broad legal standing by allowing any natural or legal person to claim full compensation and thus opening gateways for a potentially broad classes of claimants. Yet, on the other hand, the pendulum seems to swing back as the Directive categorically excludes access of private claimants to leniency statements and settlement submissions. Although, in this respect the Directive somewhat departs from the Court’s previous jurisprudence, it recognizes the interest of public enforcement to be of equal importance. Since the Directive regulates only a limited number of issues, it leaves many important areas untouched and subject to national approaches. This is very likely to be reflected in differences among the Member States as they will strive to implement the Directive alongside their existing national rules on damages actions. Moreover, it might be expected that the Court will be called upon to interpret some of the provisions of the Directive and so will be allowed to fill the gaps that have not been harmonised. Therefore, it is still an open question whether the Directive will eventually increase and incentivise private damages actions within the EU. Thus far, it seems that it has at least contributed to enhanced cooperation between public and private enforcement of competition law.

 

Tomas Slechta graduated from the Law Faculty of the University of West Bohemia and currently works for the Department of Compatibility with EU Law under the Office of the Government of the Czech Republic. At present he studies in the Diploma in English and European Law Programme (University of Cambridge, British Law Centres).

 

 

[1] Directive 2014/104/EU of the European Parliament and of the Council of 26 November 2014 on certain rules governing actions for damages under national law for infringements of the competition law provisions of the Member States and of the European Union.

[2] The possibility of private damages actions for competition infringement was initially explored in the case C-453/99 Courage Ltd v Bernard Crehan and Bernard Crehan v Courage Ltd. It was also presupposed in Recital 7 of the Council Regulation 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty.

[3] Art. 1(1).

[4] Joined cases C-295/04 to 298/04 Vincenzo Manfredi and Others v Lloyd Adriatico Assicurazioni SpA and Others [2006] ECLI:EU:C:2006:461, paras 95, 100.

[5] Art. 3(3) explicitly prohibits punitive or multiple types of damages; Art. 12(2) requires Member States to ensure that compensation for actual loss at any level of the supply chain does not exceed the overcharge harm suffered at that level.

[6] Art. 12, Art. 2(20).

[7] Art. 14.

[8] Art. 14(2)a)b)c).

[9] Case C-453/99 Courage Ltd v Bernard Crehan and Bernard Crehan v Courage Ltd [2014] ECLI:EU:C:2001:465, para 26.

[10] Recital 13, Art. 3(1).

[11] Case C‑557/12 Kone AG and Others v ÖBB-Infrastruktur AG [2014] ECLI:EU:C:2014:1317, paras 33 – 34.

[12] Lianos, I. (2015). Causal Uncertainty and Damages Claims for the Infringement of Competition Law in Europe. 34(1) Yearbook of European Law, p. 217.

[13] Art. 13.

[14] Drexl, J. (2015). Consumer actions after the adoption of the EU Directive on damage claims for Competition law infringements. No. 15-10 Max Planck Institute for Innovation and Competition Research Paper, p. 33.

[15] It has been suggested that passing on may range from 0 % to 100 % and, theoretically, can even be greater than 100 %. See The European Commission (2016), Study on the Passing-On of Overcharges. RBB Economics, Cuatrecasas, Gonçalves Pereira. Brussels: Directorate-General for Competition, p. 181.

[16] De Sola Morales, J., Van der Veer, P. (2014). Cartel damages and more than “full pass-on”: who pays what? 35(4) E.C.L.R., p. 183.

[17] Art. 12(1)(2), Art. 15

[18] Editorial Comments. (2014). “One bird in the hand…” The Directive on damages actions for breach of the competition rules. 51 C.M.L.Rev, p. 1339.

[19] Art. 5(1).

[20] Art. 5(2).

[21] Art. 5(3).

[22] Art. 6(4).

[23] Art. 7(1).

[24] Case C‑360/09 Pfleiderer AG v Bundeskartellamt [2011] ECLI:EU:C:2011:389, paras 30 – 31.

[25] Case C‑536/11 Bundeswettbewerbsbehörde v Donau Chemie AG and Others [2013] ECLI:EU:C:2013:366, para 46.

[26] Ibid paras 48 – 49.

[27] Case C‑365/12 P European Commission v EnBW Energie Baden-Württemberg AG [2014] ECLI:EU:C:2014:112, paras 100, 107, 108, 117.

[28] Howard, A. (2015). Disclosure of Infringement Decisions in Competition Damages Proceedings: How the UK Courts Are Leading the Way Ahead of the Damages Directive. 6(4) JECLAP, p. 257.

[29] Albors-Llorens, A., Jones, A. (2016). The Images of the ‘Consumer’ in EU Competition Law. In: D. Leczykiewicz, S. Weatherhill (eds.), The Images of the Consumer in EU Law: Legislation, Free Movement and Competition Law. Oxford: Hart Publishing, p. 88.

[30] Case T-474/04 Pergan Hilfsstoffe für industrielle Prozesse GmbH v Commission [2007] ECLI:EU:T:2007:306, para 75-81.

[31] Emerald Supplies Ltd. & Others v British Airways and Others [2015] EWCA Civ 1024, para 68.

[32] Howard, A. (2015). Disclosure of Infringement Decisions in Competition Damages Proceedings: How the UK Courts Are Leading the Way Ahead of the Damages Directive. 6(4) JECLAP, p. 256.

[33] s. 10(1) of návrh zákona o náhradě škody v hospodářské soutěži a o změně zákona č. 143/2001 Sb., o ochraně hospodářské soutěže a o změně některých zákonů, ve znění pozdějších předpisů.

[34] s. 33g of Entwurf eines Neunten Gesetzes zur Änderung des Gesetzes gegen Wettbewerbsbeschränkungen (9. GWB-Novelle).

[35] s. 11(11) of zákon č. 350/2016 Z.z. o niektorých pravidlách uplatňovania nárokov na náhradu škody spôsobenej porušením práva hospodárskej súťaže a ktorým sa mení a dopĺňa zákon č. 136/2001 Z. z. o ochrane hospodárskej súťaže, v znení neskorších predpisov.

[36] Recital 23.

[37] Truli, E. (2016). Will Its Provisions Serve Its Goals? Directive 2014/104/EU on Certain Rules Governing Actions for Damages for Competition Law Infringements. 7(5) JECLAP, p. 303.

[38] Recital 11; also in joined Cases C-295/04 to 298/04 Vincenzo Manfredi and Others v Lloyd Adriatico Assicurazioni SpA and Others [2006] ECLI:EU:C:2006:461, paras 62, 77.

[39] Ashurst, Study on the conditions of claims for damages in case of infringement of EC competition rules, Comparative Report, 31 August 2004, pp. 72-74.

[40] Opinion of Advocate General Kokott in Case C-557/12 Kone AG and Others [2014] ECLI:EU:C:2014:45, points 31 et seq.

[41] Case C-557/12 Kone AG and Others [2014] ECLI:EU:C:2014:1317, para 32.