White Paper on Damages Actions for Breach of the EC antitrust rules

On 2 April 2008 the Commission published a White Paper on Damages Actions for Breach of the EC antitrust rules. COM (2008) 165. It is accompanied by a more detailed Commission Staff Working Paper on Damages Actions for Breach of the EC antitrust rules SEC (2008) 404 and an Impact Assessment Report SEC(2008) 405. All three documents are available at: http://ec.europa.eu/comm/competition/antitrust/actionsdamages/documents.html).

It begins by recalling the findings of the 2005 Green Paper that the dearth of private litigation is caused by ‘legal and procedural hurdles’ in Member States and that the primary objective of the White Paper is to lower these hurdles, guided by three principles: full compensation (inherently this leads to greater deterrence); that the legal framework should be based on a genuinely European approach, so the proposals are ‘balanced measures that are rooted in European legal culture and traditions’; and to preserve strong public enforcement so that damages actions complement public enforcement. A brief comment on these three principles is warranted before considering the proposals. The first one confirms the views of some scholars that the action for damage is premised primarily upon the principle of corrective justice and not on optimal deterrence. This means that preference is given to allow as many claims as possible rather than restricting claims to those plaintiffs whose lawsuits are most likely to deter future anticompetitive conduct. The second is designed to allay fears of a US-style approach so there are no proposals for punitive damages, class actions, contingency fees or other procedures that would jar with established civil law cultures. The third is a recognition that that too much private enforcement can undermine the Commission’s leniency programme: if a firm applies for leniency but is then liable to pay considerable sums in damages, it may decide to keep its involvement in cartels secret.

Turning to the detail, the White Paper addresses the following issues:

1. Indirect purchasers have standing to seek damages because this is now part of the acquis communautaire, following Manfredi. It means that for example, in a cartel in the cement market where a building company buys from the cartel and passes some of the price increase to the buyer of the buildings, the latter as an indirect purchaser is entitled to damages. No legislative measure on this point seems to be envisaged.
2. Collective redress should be facilitated because often the harm is diffuse (as in Manfredi, several hundred people are victims of a cartel but each loss is relatively small). Two mechanisms are proposed: (i) representative actions brought by qualified entities (e.g. consumer associations) and (ii) opt-in collective actions whereby plaintiffs can decide to combine their claims in one single action.
3. To facilitate access to evidence national courts should be empowered to order the defendant to disclose certain evidence (only when specific conditions are met, e.g. the inability to secure the evidence by other means, that specific categories of evidence are identified and that the disclosure is relevant to the case, necessary and proportionate). This should be coupled with penalties if the defendant refuses to comply, including the option to draw adverse inferences from the refusal.
4. National courts should be bound by findings of any national competition authority in the European Competition Network. This would allow a follow-on claim for example in a Slovenian court after the UK competition authority reached a final decision.
5. A defendant should be liable for damages unless he proves that the breach was caused by a ‘genuinely excusable error.’ An error is excusable if ‘a reasonable person applying a high standard of care could not have been aware that the conduct restricted competition.’ This is designed to harmonise different approaches in Member States as to the presence of a fault requirement and is said to be in line with the principle of effectiveness.
6. Codification of the scope of damages is recommended, to clarify that damages can be claimed for: (i) actual loss, and (ii) loss of profits resulting from any reduction in sales. Further a soft law instrument is proposed with ‘pragmatic guidance’ to quantify damages with simplified rules on estimating loss.
7. In claims by direct purchasers, the defendant should benefit from the passing-on defence so that a claimant who has bought goods from a cartel at a higher price but has mitigated this loss by passing the excess price to downstream buyers would see his damages claim reduced, otherwise he would be unjustly enriched. (So for example if the cartel causes the price to rise by €2 and the claimant resells the goods to the indirect purchaser at a price that is €1 higher than before the cartel, he has passed on half of the overcharge, so damages would be €1, not €2.). But the burden of proof is on defendant to show that claimant has passed on (some of) the overcharge, which seems a tricky burden to satisfy.
   To facilitate claims by indirect purchasers, these ‘should be able to reply on a rebuttable presumption that the illegal overcharge was passed on to them in their entirety.’ (page 8) On the example above therefore the indirect purchaser is entitled to make a claim of €2 even if only a €1 overcharge was passed on to it. This is justified by indicating that indirect purchasers would otherwise find it too hard to prove the existence and extent of the passing on, but it is not particularly fair to ask the defendant to show how much of the higher costs were absorbed by the direct purchaser, so this proposal seems to lead to over compensation of indirect purchasers.
8. There are two proposals on limitation periods. The most significant is that in cases where anticompetitive activity is subject to public enforcement, a new limitation period of at least two years starts once the competition authority’s infringement decision becomes final. The second is that a limitation period in other instances should not begin to run before the day on which the infringement ceases (even in cases of continuous or repeated infringement) and not before the victim can reasonably be expected to have knowledge of the infringement and of the harm it caused. The duration of this limitation period is not harmonised.
9. Member States should reconsider their cost allocation rules to ensure that these do not put off meritorious cases, settlements should be considered, as well as limits on court fees, and cost orders that do not always make the losing party bear all the costs of the winning party.
10. To safeguard the attraction of leniency programmes: the confession made should not be disclosed before or after the adoption of a decision to ensure that the information supplied to the competition authority is as complete as possible, and the Commission considers that those who receive immunity should only face claims from direct and indirect contractual partners, so that by reducing the financial impact of damages claims leniency applications continue to be made. Two comments are warranted on the second proposal: first this qualifies the ECJ case law giving anyone a right to damages in all cases, second given that the defendant is liable to both direct and indirect purchasers (and so merely avoids claims by competitors) it is hard to see that this proposal actually reduces the amount of damages that the defendant would pay.

It will have become apparent that the White Paper is not a blueprint for a single legislative instrument: some of the proposals are recommendations for Member State action (on costs), some are suggestions for soft law instruments (on calculating damages) and some for discrete legislative tools whether directives (on representative actions) or Regulations (on the function of the passing on defence and the fault requirement). (On this, see also A.P. Kmoninos ‘Enter the White Paper for Damages Actions: A First Selective Appraisal’ (4 April 2008) available at http://www.globalcompetitionpolicy.org/)

The Commissioner for competition, Neelie Kroes said that ‘[t]he suggestions in this White Paper are about justice for consumers and businesses, who lose billions of euros each and every year as a result of companies breaking EU antitrust rules. These people have a right to compensation through an effective system that complements public enforcement, whilst avoiding the potential excesses of the US system.’ While the proposals seem well designed to achieve this, from the perspective of tort law, seeing rules designed to facilitate claims by victims of economic losses over other tort victims cannot be justified so easily (e.g. the difficulties faced by victims of asbestos exposure). What makes antitrust victims so deserving? The Commission’s justification seems to be that the estimated cost to antitrust victims ranges between €25 to €69 billion, and that ‘EU-wide infringements are becoming more and more frequent.’However this second finding is troubling: given that Regulation 1/2003 was designed to strengthen antitrust enforcement, has there been a failure of public enforcement? And if so might resources not be best allocated at that end?