Keywords: EU, antitrust, damages actions, competition law infringements
Damages Actions for EU Antitrust Law Infringements in Force
On 10 November 2014 the governments of the 28 EU Member States approved a new law that aims at facilitating claims for damages by victims of antitrust infringements in Europe. The new law entered into was adopted on 4 December 2014.1 The law, which takes the form of an EU Directive, was previously prepared by the European Commission ("Commission") and agreed with the European Parliament. It seeks to harmonize the relevant laws across the EU by setting the procedural framework under which damages actions for competition law breaches can be brought in any of the EU Member States ("Directive"). The Member States will be granted a two year deadline, starting from the publication of the Directive in the Official Journal of the EU, within which they will have to transpose its provisions into their national legal systems.
The Directive is the culmination of a long process that was triggered by a seminal judgment rendered by the European Court of Justice ("ECJ") in 2001. In Courage and Crehan2, the ECJ ruled that the right to seek compensation for loss caused by infringements of the competition law rules is open to any individual. Such compensation is foreseen for all antitrust infringements, i.e. both for abusive conduct by dominant companies and for cartel-like behavior.
Historically, damages actions for antitrust infringements in the EU were few in number. Competition law enforcement had traditionally been considered as an administrative task and the fines imposed by the competent authorities (which were amongst the highest in the world) were the only deterrent for companies. Additionally, diverse legal systems across the EU (e.g. common law vs. civil law systems), and a lack of knowledge on the part of claimants of their rights, all contributed to a lack of cases. More recently, actions for damages have increased but they still constitute a minority, with only 25% of antitrust infringements found by the Commission being followed by actions for damages.
The Commission considered that the introduction of private damages actions would complement its enforcement powers against illegal antitrust conduct; adding an additional and important level of deterrence. However, its plan to encourage such actions was met with resistance because of the complexity of the task, in particular, the need to harmonize very different legal systems in the 28 Member States, to deal with process issues such as limitation periods and the quantification of the harm caused by the contested antitrust conduct. At the same time, the Commission needed to ensure that a regime for damages actions did not undermine the effectiveness of existing tools in the fight against cartels, such as the Commission's program to incentivize cooperation (that is the leniency program that avoids or reduces fines for companies cooperating with the Commission), which could be compromised by rules allowing plaintiffs to access such sensitive documents (so-called discovery rules). The Directive appears, at least at first sight, to have a common thread amongst these divergent legal practices. The key provisions of the new law are listed below.
The Directive provides for full compensation for the actual harm suffered by the claimant. It explicitly rules out overcompensation whether by means of punitive, multiple or other types of damages.3
Easier Access to Evidence
The Directive provides that national courts will have the power to order defendants or third parties to disclose evidence containing confidential information where they consider it relevant to the action for damages brought before them. Such disclosure can occur upon request of the claimant and will be granted if it is justified and proportionate taking into account the legitimate interests of all parties involved and of third parties.4 National courts shall have effective measures at their disposal to protect confidential information.
National courts will also have the power to impose penalties on parties and on their legal representatives in the event that they fail or refuse to comply with a disclosure order or if they destroy relevant evidence.5
Currently, disclosure rules in litigation vary greatly across the EU, with the UK being recognized as the jurisdiction with the most generous disclosure regime (though still not as generous as the US). This asymmetry of access to information at best leads to forum shopping and at worst discourages potential claimants from bringing an action. The Directive provides for easier access to evidence and aims at ensuring consistent disclosure rights across the EU.
The only type of evidence under the Directive that enjoys unequivocal protection from disclosure concerns certain categories of document produced before the competent authorities, such as applications for leniency and settlement statements (i.e. short-form decisions on the basis of an agreement between the company and the authority). To date, the protection of such documents from access by claimants (disclosure) has been left to the discretion of the national judge who was expected
to conduct a balancing of interests exercise on a case-by-case basis prior to ordering disclosure of evidence. This situation created uncertainty as to the confidentiality of certain documents and raised fears that the disclosure policy could hamper the incentive of companies to submit leniency applications, and thereby jeopardizing a very successful tool to detect cartels and to punish cartel members. The Directive provides a solution to this issue by declaring that such documents are not disclosable.
Effect of National Decisions
The Directive recognizes that any individual will be able to establish an infringement of competition law based on the final decision of any EU national competition authority (Commission decisions are already binging on national Courts). Moreover, a decision adopted by a national competition authority in one Member State shall constitute at least prima facie evidence of the infringement before national courts of any other Member State. As a result, it will be easier for potential claimants to provide, prima facie, evidence to build their case.6
The Directive provides that the period of time within which victims must bring a damages action will be at least five years from the moment that the claimant knows or can reasonably be deemed to have known of the infringement and of the harm which it has suffered.7
The limitation periods will also be suspended for the duration of any consensual dispute resolution process entered into between the parties to a damages action.8
It follows from the above that it will take several years before a company that is involved in an antitrust infringement will know with certainty which claims it will have to deal with. In addition, any defending company will have to gather and maintain exonerating evidence in detail for use it its defense for several years after the events giving rise to the claim.
Joint and several liability
The Directive provides that cartel members will be jointly and severally liable for the harm caused by the illegal conduct of a cartel. This means that each cartel member is bound to compensate for the total loss suffered by a claimant until the latter is fully compensated.9
The Directive provides for two exceptions to this rule: the first concerns small companies who under certain conditions will be liable only for their own direct and indirect purchasers. The second concerns companies whose leniency applications have been accepted (so-called immunity recipients): they will be liable only to their direct and indirect purchasers or providers. Immunity recipients will be liable to other claimants only if the claimants have been unable to obtain full compensation from the other cartel members.
The Directive further provides that each cartel member will be able to recover a contribution from any other cartel member for the amount paid in damages. The amount of the contribution will be based on the relative responsibility of the contributing party for the harm caused by the infringement of competition law. Again, the contribution allocated to immunity recipients will not exceed the amount of the harm caused to its own direct or indirect purchasers or suppliers.
The complexity of this provision lies in the methodology to be used to calculate the contribution of each infringer. The Directive does not provide any guidance as to how this quantification will be made and thus it remains to be seen how this element will evolve in practice.
The Directive provides that the defendant in an action for damages will be allowed to defend itself against a claim by arguing that the claimant passed on the whole or part of the overcharge resulting from the infringement of competition law to its customers or suppliers.10 The burden of proving that the overcharge was passed on will rest upon the defendant, who may, in turn require disclosure from the claimant or from third parties of evidence of "passing on". However, if the claimant is an indirect purchaser, it shall bear the onus of proving that the overcharge was passed on to it.
The passing on defense can lead to overcompensation (for example, a situation where the direct purchaser is found not to have passed on the overcharge while, in practice, indirect purchasers (the direct purchaser's customers) have incurred the overcharge). The Directive calls for the Member States to put in place appropriate procedural rules to avoid such situations, without however providing any detailed guidance.
Quantification of harm
The Directive favors potential claimants by establishing a rebuttable presumption that cartel infringements cause harm. It also provides that where the quantification of the harm suffered by a claimant is practically impossible or excessively difficult, the national courts will be able to estimate the amount of such harm.11
However, although this provision alleviates claimants from the burden of quantifying the harm that they have suffered, the Directive does not contain any guidance for national courts as to how to quantify the harm in question. In this regard, the Commission has published a separate Communication for the quantification of damages in antitrust infringement cases which is expected to be used as guidance.12
Private enforcement of competition law is still a relatively nascent area of EU and national law. The Directive aims at helping potential claimants to bring cases. Moreover, the Commission is encouraging collective actions for damages with a view to helping particular small and medium-sized companies and individuals with low value damage claims. To this end, the Commission has published a non-binding recommendation which complements the Directive.13
As indicated above, there have already been a number of private damages actions introduced in recent years in the EU and in particular in jurisdictions which are considered to be claimant friendly, such as the UK. The levels of damages have not to date been material, when, for example, compared to those typically awarded in US proceedings (where treble and punitive damages exist). However, the prospect of substantial damages is reflected in the willingness of companies to settle proceedings rather than to full trial. In addition, the inconvenience caused by resource intensive litigation and the reputational damage that accompanies it should not be underestimated.
1. Directive of the European Parliament and of the Council 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. Judgment of the Court of 20 September 2001 in Case C-453/99, Courage Ltd v Bernard Crehan and Bernard Crehan v Courage Ltd and Others.
3. Directive, Article 3.
4. Idem, Article 5.
5. Idem, Article 7.
6. Directive, Article 9.
7. Directive, Article 10.
8. Directive, Article 18.
9. Directive, Article 11.
10. Directive, Articles 12 et seq.
11. Directive, Article 17.
12. Communication from the Commission on quantifying harm in actions for damages based on breaches of Article 101 or 102 of the Treaty on the Functioning of the European Union. OJ C(2013) 3440, 11.6.2013.
Originally published 9 December 2014
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