European Union: Competition News - July / August 2012

Last Updated: 6 August 2012
Article by Emmanuelle van den Broucke, Christoph Herrmann and Daniel Vasbeck

Passing on extra costs to customers: an effective defence in actions seeking damages for anti-competitive practices

At the high point of the discussions about the European project to harmonize the rules of antitrust class actions, a May 15, 2012 judgment of the French Supreme Court has just ruled on one of the most controversial aspects of private litigation in the area of cartel infringements: can an undertaking which was the victim of a cartel involving an increase in its suppliers' prices obtain compensation for these extra costs without having to prove that it did not itself pass them on to its own customers?

In this case, several undertakings, one of which was Ajinomoto, were sanctioned by the European Commission in 2000 for participating in agreements on lysine prices and sales volumes in Europe. Two French cooperatives which had bought lysine during the period of the practices summoned their direct supplier of lysine, which had bought from Ajinomoto, and Ajinomoto itself, asserting that the effect of the agreement had been to increase the price of lysine and therefore they had suffered harm for which they were seeking compensation.

Given that requests for compensation for anti-competitive practices, even when sanctioned under European law, have to meet the conditions of the domestic law, the French Supreme Court ruled that on the basis of Articles 1315 and 1382 of the Civil Code, the victim of an agreement which is the claimant in an action for damages has to prove both the principle and the amount of the harm it suffered. It therefore has to demonstrate that the effects of the price increase resulting from the agreement had not been passed on to its customers, insofar as, according to the findings of the judge of the merits which were reiterated in the judgment, "passing on costs is the usual and normal commercial practice". However, in this case, the appeal court had ruled that the claimants' statements, namely that passing on the increases was unrealizable as the downstream market was so competitive, were not sufficiently substantiated by the concrete evidence demonstrating it.

This judgment is consistent with a ruling of June 15, 2010, according to which a victim (whether direct or indirect) of an unlawful agreement cannot claim compensation for extra costs if they were passed on to its own customers, since awarding damages for anti-competitive practices must not lead to undue enrichment.

The May 15, 2012 judgment could very well be a stumbling block to the ambitions of the Commission and the Competition Authority to encourage civil litigation in cases of unlawful agreements, particularly so-called follow-on actions founded on decisions made by competition authorities in this respect. The need to prove that costs were not passed on had no effect considerably reduces the chances of success of direct victims' legal actions. It is the end consumer who, at the end of the chain, is the best placed to complain about higher prices resulting from a cartel, but in practice that does not happen since a consumer's individual harm is slight compared to the cost of a legal proceeding... hence the current debates about the need for class actions.

Commitments procedure: the Competition Authority intends to give itself room to manoeuvre

On July 5, 2012, the Competition Authority terminated the procedure brought against certain banks, which had agreed together on the rate of interbank commissions applied to non-cash means of payment, when it accepted the commitments proposed by the banks. It was the opportunity for the Authority to provide some interesting insights into the cases where it may accept commitments, rather than go the whole length of a legal proceeding, and decide to qualify and sanction the practices.

In this case, the practices could have been qualified as a horizontal agreement and had in some cases been going on since the 1960s. The question then arose of whether, as the complainants (FCD and ADUMPE) queried, these competition concerns were so serious that they could not be addressed in a commitment procedure.

Referring to its procedural notice of March 2, 2009, the Authority first recalled the essential conditions of the commitment procedure: the competition concerns must still be current, there must be a way of remedying them in the long term by positive measures and resorting to the procedure must be appropriate given the circumstances of the case.

The Authority then added further clarifications. First, engaging in this procedure is not on the cards in the presence of a cartel (secret anticompetitive agreement), which was already evident from the text of the notice. Then, it is not "in principle" appropriate where the practices are likely to be particularly serious or have already had a significant effect on competition. Finally, it may be relevant to resort to this procedure in a case "where it might be appropriate for the Authority to privilege an objective of maintaining or voluntarily re-establishing competition".

In this case the Authority considered the use of the commitments procedure to be appropriate since the commitments, made by players representing the greater part of the market, essentially aimed to abolish the main commissions in issue over several years before the abolition became legally mandatory and to contribute to ensuring a quick and lasting return to a real competitive environment.

The Authority has therefore demonstrated its intention to grant itself every latitude when assessing the complaints it receives to decide, case by case and using the criteria described in the notice, whether the commitment procedure is relevant.

A statement made in the context of a leniency application must be corroborated by other coherent pieces of evidence

A question which frequently arises in cartel cases concerns the level of evidence and the probative value of the evidence required to establish the cartel's existence when the investigation was initiated following an application for leniency.

In a judgment of June 27, 2012 concerning cartels on the zip fastener market, the General Court of the European Union found that, even though the probative value of the information provided by undertakings seeking to benefit from the leniency programme is not called into question, the statements made must be assessed with caution and in principle be corroborated by other evidence.

This judgment is in line with a consistent body of case law of the General Court, which has already ruled that a statement made by an undertaking facing charges, which is contested by the other undertakings involved, is not per se sufficient proof of the infringement's existence and must be substantiated by additional evidence.

An application for leniency should not be taken at face value, since the undertaking making it might play down the extent of its own contribution and maximize that of others.

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.

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