With the entry into force of the Seventh Amendment to the German Act against Restraints of Competition (ARC) on 1 July 2005, Germany is likely to emerge as an increasingly important forum for private follow-on damages actions. Following the decision of the Court of Justice of the European Communities (ECJ) of 20 June 2001 (Courage v Crehan, Case C – 453/99), the German legislature has amended the ARC with the specific intention to facilitate private antitrust enforcement. In addition, parties have the right to inspect the documents held by the Federal Cartel Office (Bundeskartellamt), German court proceedings are transparent, cost-effective and the duration of proceedings is relatively short. This chapter deals with private actions based on cartel infringements as well as anti-competitive behaviour by dominant undertakings or undertakings with superior market power as regards small and medium sized enterprises.
Formal Aspects Of Private Actions
Since EC rules neither provide for damages claims as such nor for the relevant procedural regulations for damages claims under articles 81 and 82 of the EC Treaty, national provisions apply to proceedings before national courts, including rules on the type of action and rules on jurisdiction.
According to section 87(1), sentence 1 of the ARC, regional courts (Landgerichte) have exclusive jurisdiction over civil actions based on national competition law or articles 81 and 82 of the EC Treaty, regardless of the amount in dispute. The federal states in Germany have been granted the authority to designate a single regional court in each district as a court of appeal entitled to decide exclusively on competition matters (section 89 of the ARC). Most of the federal states have exercised this authority. Within the regional courts, special chambers have been established to deal exclusively with competition matters. The parties may appeal a decision of a regional court to the courts of appeal. Again, the federal states in Germany may determine a single court of appeal in each federal state that has exclusive jurisdiction over competition matters. In addition, these courts of appeal have established specialist competition divisions. Both the regional courts and the appeal courts are trial courts, ie, courts to which the parties submit facts and before which the taking of evidence is possible. The decisions of the courts of appeal may be challenged before the German Federal Court of Justice if the court of appeal gives leave to do so. Appeals to the Federal Court of Justice may only be on points of law. If the court of appeal refuses leave to an appeal on points of law, this refusal may be challenged separately before the Federal Court of Justice.
Types Of Private Action
Action to refrain from a certain conduct
The party affected by the breach of competition law (the party concerned) may apply to the regional court for an order that the party in breach refrains from such conduct (section 33(1) of the ARC). This applies to actions based on national provisions and articles 81 or 82 of the EC Treaty. Applicants may also be associations with legal capacity representing professional interests (section 33(2) of the ARC). The party concerned has standing to sue and may require the party in breach to refrain from taking certain action even when there is only a threat that an infringement will take effect. Moreover, the party concerned may apply for interim measures. This is of particular importance in cases in which an undertaking abuses its dominant market position. The court may issue a preliminary injunction provided that the party affected by the ant-icompetitive behaviour is able to substantiate in a preliminary manner with evidence that the party in breach abused its dominant position and, in addition, that there is a particular urgency which requires interim measures. The injunction may be issued without an oral hearing. In practice, in urgent cases the injunction may even be issued on the same day as the application.
Action for damages
Damages claims may either be filed as an action for affirmative relief (Leistungsklage) or as an action for a declaratory judgment (Feststellungsklage). The action for affirmative relief may be the appropriate type of action if the plaintiff – at the time the claim is made – is able to calculate the exact amount of damages suffered as a result of the infringement. If the plaintiff is not able to determine the exact amount of loss suffered and the claim runs the risk of being barred on limitation grounds, German procedural law offers considerable flexibility, as the plaintiff may apply for a declaratory judgment with the opportunity to sue the defendant for the exact amount of money corresponding to the loss at a later date. Moreover, a declaratory judgment often forms the basis for a settlement.
Substance of a private action
A private action may be based on an infringement of European or national competition law. In addition to the rules laid down in articles 81 and 82 of the EC Treaty, the ARC contains even stricter rules on unilateral conduct for undertakings. According to these rules, the concept of dominance is extended to, for example, undertakings with superior market power. Undertakings with superior market power are undertakings on which small or medium-sized enterprises depend as suppliers or purchasers of goods or services in such a way that sufficient or reasonable possibilities of resorting to other undertakings do not exist.
Damage claims based on cartel infringements
A private action for damages against members of a cartel may be based on national competition law, section 33 (3) of the ARC in conjunction with section 1 of the ARC, or on European law, section 33 (3) of the ARC in conjunction with article 81 EC . In line with article 81 of the EC Treaty, section 1 of the ARC prohibits agreements between competing undertakings, decisions by associations of undertakings and concerted practices that have as their object or effect the prevention, restriction or distortion of competition. A damages claim also requires that the breach of competition law must have been committed intentionally or negligently (section 33(3), sengermany: private antitrust litigation 116 T he European Antitrust Review 2008 tence 1 of the ARC). However, there is only very limited scope for avoiding negligence. In particular, errors of law do not avoid negligence unless the defendant can rely on legal advice from a specialist external competition lawyer (Federal Supreme Court, 26 May 1981 – Ölbrenner II, WuW/E 1891, 1894).
Parties entitled to claim
According to section 33(1), sentence 1 of the ARC, the party entitled to claim is the party concerned. Sentence 3 of the same provision defines the notion of the ‘party concerned’ as the person who is affected by the breach as a competitor or as another market participant. There is no statutory limitation on the parties entitled to claim damages suffered as a consequence of a cartel infringement. According to the reasoning in the government’s draft bill, even end-users are considered to be included in this definition. Moreover, the reasoning in the government’s draft bill extends the notion of a party concerned, pointing out that an action for damages should not be excluded on the sole ground that the claimant participated in the infringement.
Party directly affected by the illegal behaviour
It is undisputed that the party concerned includes any person directly affected by the illegal behaviour, ie, undertakings which are either a direct supplier or a direct purchaser of the undertaking in breach.
Party indirectly affected by the illegal behaviour
However, it has not yet been decided by the courts whether the party concerned can also be a person indirectly affected by the illegal behaviour, for example, an end-distributor or even private consumers. In accordance with the ECJ’s decision in Courage v Crehan, in which there was a specific ruling that everybody is entitled to ask for compensation for damages incurred through anti-competitive behaviour, the German legislature intended to amend German law to reflect the ECJ ruling. In a judgment dated 13 July 2006 (case No. C-295/04, Rec. 63 – Manfredi), the ECJ expressly confirmed that everyone who establishes loss caused by anti-competitive behaviour is entitled to damages. Against this background, German courts are very likely to accept a damages claim submitted by any person who establishes loss and an infringement of competition law being the cause thereof. Considering that the passing on defence is only admissible under very limited circumstances in Germany, claims submitted by indirect purchasers should usually be accepted by German courts as well. However, in order for an indirect purchaser to demonstrate loss caused by anti-competitive behaviour he must establish that the direct purchaser passed the excessive prices on to him. Moreover, regarding the end-user as a potential indirect purchaser, it is unlikely that such actions for damages by end-users will become relevant in practice, given the lack of availability of class actions. However, despite the lack of class action law suits in German law, end-users as well as smaller companies might submit damages claims via third parties. In relation to a cement cartel, where the German Federal Cartel Office (FCO) imposed fines of approximately €660 million in April 2003, the Regional Court of Düsseldorf, on 21 February 2007, admitted a damages claim which was submitted by Cartel Damages Claim SA (CDC), a company established under Belgian law. CDC has bought the claims of various companies relying on the argument that the price for cement as purchased from the members of the cement cartel was anti-competitive and therefore too high. As there is no legal basis for class-action lawsuits in relation to private antitrust claims in Germany, the cartel victims assigned their individual claims to CDC for payment of €100 and a certain amount of the proceeds which will be obtained through the court proceedings. CDC now enforces the respective claims on its own behalf.
Determination Of Damages
The basic principle in the German Civil Code (Bürgerliches Gesetzbuch, BGB) The calculation of damages suffered by the claimant is primarily based on section 249 of the BGB. According to this provision, damages are calculated on the basis of the difference between the financial position of the claimant after the injury occurred and the financial position that the claimant would have been if the injury had not occurred (Differenzhypothese). The financial status of the affected party has to be considered as a whole, and therefore not only its losses in income and wasted investment have to be taken into account, but also any benefits received as a consequence of the anti-competitive behaviour (Vorteilsausgleichung, for the details on this please see the comments on the passing-on defence below).
Excessive purchase prices and loss of profit
In applying the principle as described above, loss may result in two ways. First, the purchaser of goods or services may have been charged higher prices on the basis of the cartel agreement than would have been the case if the cartel agreement had not existed. Secondly, the purchaser may suffer lost profits in circumstances where demand is reduced as a result of higher prices. The argument in this regard is that there had been lower prices, the purchaser could have sold greater quantities, achieved higher margins and thus realised more profit. Establishing excessive prices and loss of profits, especially by reference to the competitive price that would have been set by the market, is difficult. However, the plaintiff may apply for access to records according to section 406 lit (e) of the German Code of Criminal Procedure. As this right to access records may only be enforced by qualified German lawyers, the protection of business secrets is less stringent than it would be if private persons could claim such access to records. The specific aim of this right to access records is to enable victims of criminal and administrative offences to gain clarity on loss in order to substantiate potential damages claims. In addition, to compensate for potential difficulties in obtaining sufficient evidence, the legislature introduced an alleviation of proof in section 33(3), sentence 3 of the ARC by referring to section 287 of the German Civil Code of Procedure (Zivilprozessordnung, ZPO). Section 287 of the ZPO provides a general alleviation of proof entitling the judge to estimate the level of damages on the basis of certain facts. In addition to referring to section 287 of the ZPO, section 33(3) of the ARC clarifies that, in determining the extent of damage, the profit achieved by the defendant as a consequence of the infringement may be taken into account.
Against this background, the question arises as to whether a member of a cartel may defend itself by arguing that the claimant passed on higher prices to its own customers, and therefore the anti-competitive behaviour did not damage the claimant’s financial situation (the ‘passing-on defence’). Before the entry into force of the Seventh Amendment to the ARC, the German courts decided that the passing-on defence was admissible. Consequently, an action for damages in such cases was not well founded. However, despite being dismissed at first instance, all or at least most of the cases have been settled in the meantime. There was only one decision of a German court ruling that the defendant could not raise the passing-on defence and that, therefore, the action for damages was successful (Regional Court Dortmund, Decision of 1 April 2004, 13 O 55/02 Kart; the decision has not become final and absolute). In light of these conflicting decisions, the legislature decided to clarify the position so that the defendant may only defend itself germany: private antitrust litigation www.GlobalCompetitionReview.com 117 with the argument that the claimant passed on the excessive prices to its own customers under very limited circumstances. In section 33(3) of the ARC, a new sentence was introduced: "If a product or a service has been purchased at an excessive price, the damage is not excluded because the good or service has been resold" – ie, a passing on defence is not excluded as such. The reasoning in the government’s bill expressly states that the calculation of damages rather has to be based on the principle of Vorteilsausgleichung ("adjustment of damages by benefits received"). As a result, this leads to a reversal of the burden of proof, ie, the party in breach of competition law has to establish that the purchaser of goods or services managed to reduce its loss by passing on the excessive prices to its own customers. In addition, even if the defendant is able to demonstrate that the purchaser passed on the excessive purchase price, the passing-on defence is not available if it leads to an unjustified benefit for the defendant. This is, in particular, the case if the indirect purchasers who actually suffered the loss from a large group of individual potential claimants (eg, end-users or many small distributors), which makes it very unlikely that the damages will be claimed at all since class actions are not available in Germany.
Skimming off additional proceeds
As regards administrative sanctions, the FCO may not only impose fines against the party in breach, but can also order the party in breach to pay an amount equivalent to the additional proceeds earned as a result of the infringement to the state (section 34(1) of the ARC). However, the FCO may not order the payment of the additional proceeds if they have already been paid out as the result of an award of damages in the context of civil court proceedings. If the additional proceeds have already been paid to the FCO and the party in breach is subsequently obliged to pay damages in a private action, the FCO must refund these additional proceeds to the party in breach. As a result, the party in breach is only required to reimburse the profits that it gained as a result of the anti-competitive behaviour once. Associations with legal capacity may also ask for payment of sums corresponding to the additional proceeds (section 34a(1) of the ARC).
Final and absolute decisions taken by the FCO, the European Commission or by competition authorities of other member states have a binding effect on the German civil courts, (section 33(4) of the ARC). The intention of this provision is to facilitate private follow-on actions, as national courts will not take further evidence on the competition law infringement after a final and absolute formal decision has been made by a cartel authority. As section 33(4) of the ARC aims to facilitate private follow on claims, the binding effect is limited to actions for compensation of loss. For this reason, the binding effect of section 33(4) of the ARC does not apply to other legal disputes in which the establishment of an anti-competitive infringement is relevant, for example, to proceedings in which the plaintiff claims the invalidity of a certain agreement based on breach of competition law. However, in this regard the national courts will have to take into account the binding effect as established by article 16(1) of Regulation 1/2003 in relation to decisions of the European Commission. According to this provision, national courts ruling on agreements, decisions or practices under article 81 or article 82 of the EC Treaty, which are already subject to a decision of the European Commission, cannot take a decision running counter to the Commission decision. Finally, the wording of section 33(4) of the ARC indicates that civil courts are only bound by a positive finding of an infringement. Should the competition authority not make a finding of an anti-competitive infringement, the party concerned may prove the existence of an infringement within the context of a civil claim. However, in practice, it will be difficult to establish the existence of an infringement if the FCO – after hearing the evidence – decided not to make a finding of illegal behaviour.
Suspension of the statute of limitation
According to section 33(5) of the ARC, the statute of limitation is suspended as soon as the FCO institutes proceedings based on an infringement of the ARC or articles 81 and 82 of the EC Treaty. The same applies if the European Commission or the competition authority of another member state initiates proceedings based on articles 81 or 82 of the EC Treaty. The relevant respective suspension expires six months after termination of those proceedings. The following two issues have to be considered. First, it is unclear whether proceedings initiated by foreign courts acting as competition authorities also suspend the statute of limitation. Secondly, it has not yet been decided how the suspension period has to be calculated if several competition authorities initiate proceedings simultaneously. The suspension of the statute of limitation might commence with the institution of the first proceedings. If so, the suspension of the statute of limitation would then end six months after the decision of this competition authority becomes final and absolute. However, the wording of section 33(5) of the ARC is not entirely clear in this regard. Therefore, it could be argued that the suspension of the statute of limitations only ends six months after the closing of the final set of proceedings.
To avoid a compensation of the loss incurred being partially devalued, the party in breach of competition law is obliged to pay interest on pecuniary damages (section 33(3), sentence 4 of the ARC). Interest starts to be calculated from the date the loss arose. The obligation to pay interest is particularly important in relation to follow-on actions when the plaintiff waits until the competition authority renders a decision. Affected parties carrying on business, ie, in cases where consumers are not involved, may ask for the higher interest rate of sections 291 and 288(1) of the BGB, which is 5 per cent above the European Central Bank’s base rate.
Claims against dominant undertakings or undertakings with superior market power
In line with article 82 of the EC Treaty, undertakings holding a dominant market position must not abuse their dominant position (section 19(1) of the ARC). The notion of dominance within the ARC essentially follows the principles as set out by European competition law. An abuse exists, inter alia, if a dominant undertaking refuses to allow another undertaking access to its own networks or other infrastructure facilities in return for adequate remuneration. Moreover, it is prohibited for dominant undertakings to discriminate against or hinder another undertaking in an unfair manner (section 20(1) of the ARC). However, other than on the basis of article 82 of the EC Treaty, the prohibitions laid down in section 20(1) of the ARC also apply to undertakings with superior market power (section 20(2) of the ARC). Undertakings that abuse their dominant position may be sued by an affected party to refrain from such conduct. The affected party may also demand compensation for the loss suffered (section 33(1), sentence 1 of the ARC). Compensation may, inter alia, consist of pecuniary damages. germany: private antitrust litigation 118 T he European Antitrust Review 2008
Claims based on a violation of the boycott prohibition
A further special provision in German antitrust law is section 21(1) of the ARC, which prohibits undertakings from requesting another undertaking to refuse to sell or purchase goods or services to or from third companies with the intention of unfairly harming certain undertakings. The undertaking that is the object of such conduct may ask the party in breach to refrain from such conduct. Moreover, the party affected may apply for damages to compensate the loss suffered as a consequence of the anti-competitive behaviour. The possibility for injured parties to bring private actions for damages before German courts has been significantly enhanced by recent German legislation. The group of parties entitled to take action principally entails all parties that have suffered loss resulting from the infringement. Under certain circumstances, even indirectly affected parties, such as end-consumers, may claim damages. However, an indirectly affected party is only likely to be successful in asking for damages if the party can establish that the direct purchaser passed on the excessive prices. Regarding the passing-on defence, German legislation has clarified that the party in breach has to bear the burden of proof for the fact that the purchaser of goods or services reduced its loss by passing on excessive prices to its own customers. Even if the purchaser were found to have passed on the excessive prices to customers, the passing-on defence is not accepted if the passing-on argument would benefit the defendant in an unjustified manner. An important consequence of the strong position of potential follow-on claims is that cartel members, when applying for leniency, must now carefully balance the advantage of immunity from fines against the risk of follow-on damages actions taken by third parties (see the chapter on Cartel Regulation in Germany). Third parties may base their private follow-on actions on a decision of a competition authority and thus benefit from the existence of an infringement decision. Moreover, due to the binding effect of decisions of competition authorities, undertakings are practically forced to appeal these decisions. In future, it can therefore be expected that almost any decision based on articles 81 and 82 of the EC Treaty or on German national competition law, which could serve as the basis for a follow-on action, will be challenged. Private antitrust actions may also be based on article 82 of the EC Treaty and corresponding German provisions on abuse of dominance. Dominant undertakings and undertakings with superior market power may be sued to stop certain conduct and to obtain damages. Finally, because of the general transparency, cost-effectiveness and short duration of German court proceedings, and considering that the parties may enforce a far-reaching right to access FCO records via qualified German lawyers, Germany might well emerge as an increasingly important forum for private follow-on claims.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.