The EU directive on antitrust damages actions: A plaintiffs’ boost for antitrust damages litiga-tion?
By Michael J.R. Kremer and Anna-Maria Quinke
Clifford Chance, Düsseldorf
On November 10, 2014, the European Council approved the final text of the Directive 2014/104/EU 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 (Directive). This adoption marks the end of a long legislative procedure that was initiated with the much-awaited European Commission proposal of June 11, 2013. The Directive aims to facilitate and harmonize antitrust damages actions in Member States and optimize the interplay between private and public enforcement of competition law. The text of the Directive was published in the Official Journal of the European Union on December 5, 2014 and entered into force. The Member States have until late 2016 to introduce relevant national legislation to implement the provisions of the Directive into national law.
Several years ago, parallel to the initiation of the debate regarding a more detailed and balanced legislation of antitrust damages litigation, both public and private enforcement of competition law had become even more prominent in some of the Member States in the European Union. The European Commission and the National Competition Authorities (NCAs) impose increasing administrative fines on cartelists. In 2014, in Germany alone, the NCA issued administrative fines in excess of €1 billion. The strict public enforcement along with public attention and press coverage also had a remarkable effect on the private enforcement side. A changed awareness with respect to the commercial relevance paired with an aggressive plaintiffs’ bar, “joint plaintiffs groups” and litigation funding have led to an increasing number of high-profile follow-on damages lawsuits. For example, Deutsche Bahn recently joined forces with the German companies of Bosch, Continental and Kühne+Nagel in the air cargo cartel litigation claiming some €3 billion from a group of thirteen international airlines.
From a plaintiff’s standpoint, the jurisdictions of Germany, the UK and The Netherlands are most favorable for antitrust damages actions and thus the vast majority of antitrust damages claims are filed there. The Directive aims to introduce the “advantages” in procedural and substantive law of these jurisdictions as standard for all Member States. The Directive therefore provides for an array of (mainly procedural) tools to facilitate the private enforcement of antitrust damages claims, such as rules on burden of proof, binding effect of decisions of the NCA, presumption of incurrence of damages, extended period of statute of limitation. But apart from these “plaintiff-friendly” provisions, the Directive also upholds the protection of information provided by a cartelist as part of the leniency program before the NCA or the European Commission. Cartel participants are faced with the increasing risk that confidential documents included in the file of the competition authority may be disclosed in the civil litigation proceedings as a consequence of claimants’ requests of disclose the investigation file of the prosecution. The Directive therefore seeks to balance the relation between public and private enforcement without jeopardizing the effectiveness of leniency programs as an important cornerstone for the public enforcement by allowing disclosure to a certain (considerably broader) extent, yet prohibiting the disclosure of leniency statements and settlement submissions.
The Directive’s scope is not limited to damage claims in connection with cartels. Its provisions will also impact damages actions resulting from abuse of dominance, such as claims under Article 102 of the Treaty on the Functioning of the European Union (TFEU), for example. Yet, most of the Directive’s provisions apply to cartel damages actions. Therefore, this article addresses and comments on the main provisions of the Directive and their expected impact on cartel damages actions in Germany.
Key concepts and provisions of the Directive
In most of the Member States of the European Union, private enforcement of competition laws has been the exception rather than the rule due to major obstacles in the respective national laws, especially relating to the gathering of evidence, substantiation of damages and burden of proof. Aiming to ease these obstacles, the Directive provides a set of substantive and procedural standards and concepts such as inter alia harmonized rules on (1) binding effect of national infringement decisions, (2) disclosure of evidence, (3) limitation periods, (4) limits on the liability of immunity recipients and small or medium-sized companies, (5) passing-on defense, (6) joint and several liability of antitrust infringers and (7) reputable presumptions in connection with the incurrence of damages.
While the need of legislative implementation in Germany is limited compared to other Member States as the existing substantive and procedural laws reflect most of the Directive’s provisions, some of the changes will impact the approach to litigation by plaintiffs as well as the courts’ practice in handling follow-on damage claims.
Right to full compensation (articles 3 and 4 of the Directive)
Articles 3 and 4 of the Directive set the core principle that drives the other provisions of the Directive: any natural or legal person who has suffered a loss due to an infringement of competition law shall be entitled to full compensation. This principle had been established as case law by the European Court of Justice several years ago and is the primary basis for any right to seek compensation for an antitrust infringement. In its Manfredi decision, the European Court of Justice ruled that the effectiveness of Article 101 of the TFEU (and Article 102 of the TFEU) would be jeopardized “if it were not open to any individual to claim damages for loss caused to him by a contract or by conduct liable to restrict or distort competition.” Therefore, the main objective of the Directive is to introduce laws and concepts that allow those who have incurred damages as a consequence of an antitrust infringement to recover actual losses, lost profits and payment of interest. This principle—though already established under Sec. 33 para 3 of the German Law on Restrictions of Competition (“GWB”)—will certainly change thelegal framework in some of the Member States but also change the approach of plaintiffs to antitrust litigation.
Rules on disclosure of evidence (articles 5 through 8 of the Directive)
In general, a plaintiff must substantiate and prove the prerequisites of his alleged claim. Due to the nature of the cartel, such as the secrecy of the anticompetitive agreements, cartel meetings and pricing discussions, for example, the availability of evidence and the question of disclosure are at the heart of any follow-on damages litigation. So far, the plaintiffs’ entitlement to disclosure is very limited. Under the German Code of Civil Procedure, a plaintiff may seek disclosure only under narrow prerequisites, for example, when the plaintiff can—interalia—identify a specific document and its relevance for the lawsuit, an undertaking almost impossible due to the above described particularities of a cartel.
The Directive introduces—in the case of the German Code of Civil Procedure—expands the availability of discovery to the plaintiffs. The national courts are to be empowered to order both respondents and third parties to disclose relevant information or documents in their possession or control. The requirement of specification of the documents by the plaintiff is relaxed as the requested documents have to be “described as precisely and narrowly as possible on the basis of information reasonably available”. The entitlement to disclosure also includes the possibility to request access to information contained in the file of the European Commission and the NCAs. Despite this allowance of a broader access to information and documents, the concept is still far different from any common law discovery proceedings. Before granting any request for disclosure, the national court have to assess the relevance and proportionality of the request in view of the facts that are to be proven but also the interests of respondents with respect to confidentiality or business secrets. Hence, disclosure may only be granted if the respective documents are relevant, the request proportionate and reasonable for the substantiation of the claim and if no superior interests on respondent’s side exist.
Importantly, though, the Directive also clarifies that the leniency programs of the European Commission and the NCAs shall not be undermined. If an antitrust infringer who cooperates with the authorities by disclosing otherwise secret information about the cartel and confidential information about the business would have to expect that this information will be used against him by plaintiffs as well, he may second guess cooperation which would then impede the public enforcement of competition law. Consequently, the disclosure of leniency statements and settlement submissions is explicitly and without limitation excluded. Other information and submissions prepared by the parties or the NCA in the course of the cartel proceedings are only protected from disclosure until the NCA has closed its proceedings.
Binding effect of the NCA’s final decisions (article 9 of the Directive)
One of the reasons for choosing Germany as jurisdiction for the follow-on damages litigation has been the binding effect of final NCA’s decision confirming an infringement of national or EU competition law. This binding effect lifts a considerable part of the burden of proof for the plaintiffs, at least as far as proving liability is concerned (the NCA or European Commission decision do not make any binding determination on the quantum of potential damages).
The Directive therefore provides that final NCA’s decisions on an antitrust infringement (for example, of the German Cartel Office) are binding for the German courts, for instance, a general binding effect is introduced for NCA decisions in the court of the same jurisdiction. The Directive, though, goes one step farther stipulating also that final decisions from other Member States will carry a prima facie evidence for the infringement of competition law. Hence, these rules complement the binding effect of final decisions of the European Commission under Art. 16 para. 1 VO 1/2003.
Consequently, the introduction of a general binding effect will be of considerable impact in making litigation of infringements of competition law more attractive in the other Member States as well. The changes though do not level the playing field in determining “preferred jurisdictions” for plaintiffs. In Germany, Sec. 33 para 4 GWB provides that NCA’s decision of other Member States even constitute full proof for an infringement of competition law.
Limits on the liability of immunity recipients and small and medium-sized companies (article 11 of the Directive)
Cartel participants are liable for damages as joint and several debtors which is one of the reason for many multi-party lawsuits in follow-on damages litigations. In conversion of the intention to strengthen and protect the leniency programs described above, the Directive implements important limitations to joint and several liability: leniency applicants who have cooperated and been granted immunity from administrative fines are only liable to their direct and indirect purchasers. Hence, assuming that those leniency applicants who received full immunity often seek settlements with their customers, follow-on damages litigation may even be fully avoided (with minor exceptions). The legislature’s reasoning is to make the leniency program even more attractive and therefore strengthen the public enforcement of competition law. A further exemption is for small or medium-sized companies who only were minor contributors and participants to the cartel as the risk of their insolvency as a consequence of fines and damage claims could have the unintended effect of limiting competition rather than promoting fair competition.
Passing-on defense – the proper plaintiff vs. the proper respondent (articles 12 to 15 of the Directive)
A characteristic of many cartels is that the goods subject to the cartel are “passed on” to another manufacturing stage and ultimately to the customer. Who in that case is entitled to claim the cartel surcharge and who is not?
For the direct purchaser of cartelized goods the Directive aims to ensure full recovery of damages, but also excludes “over-compensation”. Only the actual loss, such as cartel overcharge incurred at each manufacturing stage or level of the supply, for example, may be recovered at that respective level. A respondent is therefore entitled to invoke the passingon defense arguing that the plaintiff as the direct purchaser has passed the cartel overcharge on (in whole or in part) to its own customers. The burden of proof rests with the respondent.
Contrary to the direct purchaser, the indirect purchaser bears the burden of proof that and to what extent the cartel over-charge has been passed on to him. Due to the various and individual market circumstances, it becomes more difficult for the indirect purchaser to prove that the cartel over-charge (or part of the cartel overcharge) has been passed on to him, the farther he is down the supply chain. Therefore, the Directive provides a rebuttable presumption that a surcharge has been passed on to an indirect purchaser who can show that: (1) the respondent infringed competition law; (2) the infringement resulted in an overcharge for the direct purchaser; and (3) the indirect purchaser purchased the goods or services that were the subject of the cartelized goods or services.
Presumption of incurrence of damages (article 17 of the Directive)
The determination of damages, for example, whether damages have been caused at all and—if so—to what extent, poses one of the many challenges for plaintiffs but also courts in follow-on damage litigations. The Directive aims to ease this challenge by establishing a rebuttable presumption that cartel infringements did cause damages that may then be recovered by the plaintiff. This presumption has not yet been established by case law in the highest courts in Germany and will certainly take away one of the major defenses of cartelists in litigation. Furthermore, the Directive provides that national courts shall have the option to estimate the amount of damages in instances where it is practically impossible or excessively difficult to specifically quantify the precise damages incurred. In Germany, the option of the civil court to estimate the amount of damage is already established in Sec. 287 of the German Civil Procedure Code and is certainly one of the reasons that made Germany a “preferred jurisdiction” in the past.
Summary and outlook
The Directive is a significant step towards the harmonization of the Member States’ substantive and procedural rules of private antitrust damages litigation.The existing differences between the rules in the Members States governing actions for damages of European or national competition law will be largely reduced. The Directive creates the necessary conditions to harmonize the procedural infrastructure for antitrust damages actions in the Member States.
Furthermore, the Directive will close or at least ease the ongoing controversial debate about the disclosure of the leniency submissions by prohibiting the disclosure of the leniency statements and thus reinforcing the effectiveness of early applications under leniency programs.
With regard to Germany, the implementation of the Directive’s provisions will require significant changes in procedural and substantive law. That said, the new provisions might increase the number of antitrust damage claims. The presumption that cartel infringements have caused damages relieves plaintiffs
of the burden of proof that losses were suffered as a consequence of the cartel. The new provisions could therefore move the main debate before court to the quantum of damages, yet the Directive does not give any guidance on determining the quantum of damages.
If harmonizing was the aim of the Directive, the implementation of the Directive’s provisions certainly will create a comparable minimum level of substantive and procedural rules in the Member States. It is unlikely, though, that these changes will distract plaintiffs from the established jurisdictions of Germany, the UK or The Netherlands. While follow-on damages litigation may become more of a focus in other Member
States as well, the established jurisdictions are likely to see a further increase of litigation of cross-jurisdictional cartel claims where plaintiffs will seek to take advantage of the Directive’s changes.