Will the number of private actions for antitrust damages increase? Be prepared

19.02.2015 Will the number of private actions for antitrust damages increase? Be prepared

Andra Rubene, Lina Darulienė, Rene Frolov, Māra Stabulniece

I Why?

The Directive wants to make it easier for customers (e.g. buyers and consumers) to claim damages from undertakings that have been found to have broken competition rules, e.g. from cartelists that have fixed prices or from dominant companies who have charged excessive prices. As of today, enforcement action vis-à-vis anti-competitive behaviour is taken mostly by public authorities (European Commission and national competition authorities), rather than the private parties who have overpaid, lost revenues etc. The Directive aims to increase the role of consumers and market players in disciplining “would be wrongdoers” by making it easier for them to claim damages from such “would be wrongdoers”.The “Directive 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” (2014/104/EU; the “Directive”) was signed into law on 26 November 2014.

The right to claim damages for breach of European Union (the “EU”) and national competition laws has been recognized for several decades by the case-law of the Court of Justice of the EU. However, due to different reasons – mostly because of the lack of harmonized and efficiency based rules across the EU Member States – antitrust damages actions overall have been very rare so far. Such actions were mainly initiated only in a few Member States where the procedural rules are perceived to be more favourable to claimants, such as the UK, Germany or the Netherlands. Only 25% of the EU competition law infringements found by the European Commission in 2008-2014 have been followed up by civil actions for damages. Most of these actions were brought by large businesses which can bear the costs.

 The Directive is expected to boost the number of antitrust damages claims across Europe. While the Directive is primarily aimed to indemnification of violations of the EU competition law, there is sufficient ground to believe that the Directive will also impact the number of damages claims based on breach of national competition laws, e.g. those of Estonia, Latvia or Lithuania respectively.

II When?

Member States must make sure that their national law complies with the Directive by 27 December 2016 at the latest. Such new national rules which implement the Directive will apply in full to all damages actions which are brought after 27 December 2016 and in part to those actions which are brought after 26 December 2014, but before 27 December 2016. This rule applies vis-à-vis all competition law infringements, including those which have been committed before the adoption of the Directive.

But, even before transposition into national law, the Directive will probably serve as an important tool for interpretation of existing procedural and substantial rules in antitrust litigation proceedings before national courts.

While the Directive leaves some discretion to the Member States regarding its implementation, most of the rules contained in the Directive give a clear indication of the expected legal framework across the Member States.

Thus, market players should, already today, prepare against possible antitrust damages claims and do so by considering and observing the rules and principles explained herein. 

III Who may bring a claim against whom?

Any legal entity or private individual who has suffered harm through an infringement of the EU competition law (or national law if applied in the same case) may bring an action for damages, including injured persons who themselves purchased goods or services from the infringer (direct purchasers) or the purchasers further down the supply chain (indirect purchasers).

It is worth mentioning here that the so-called collective redress mechanism was left out of the Directive after pressure by the EU Parliament. Current EU law provides for the possibility of pursuing collective actions for injunctions in the field of consumer law, but the national legal systems vary considerably with regard to financial markets, competition law, environmental protection etc. However, the European Commission has, in 11 June 2013, issued a Recommendation “on common principles for injunctive and compensatory collective redress mechanisms in Member States concerning violations of rights granted under EU law”. It asks all EU Member States to introduce collective redress mechanisms to facilitate the enforcement of the rights that all EU citizens have under EU law – including the right to compensation for antitrust harm, by the end of July 2015.

An action for damages may be brought against the undertaking, or association of undertakings, which has committed the infringement of the EU competition law (or national law if applied in the same case).

Example: the European Commission recently found that Lutèce, Prochamp and Bonduelle participated in a cartel to coordinate prices and allocate customers of canned mushrooms in Europe for more than a year and, imposed fines totalling € 32,225,000. Lutèce was not fined as it benefited from immunity under the European Commission's leniency programme for revealing the cartel. The violation lasted from 1 September 2010 until 22 December 2011 (Lutèce) or 28 February 2012 (Prochamp and Bonduelle). Accordingly, any retailer which purchased canned mushrooms from Lutèce, Prochamp or Bonduelle during this time may claim damages from Lutèce, Prochamp and/or Bonduelle.

IV For what?

Generally, three conditions must be established (proven) for a national court across the EU to be able to award (antitrust) damages: 1) competition law infringement; 2) the amount of damages suffered by a claimant; 3) a causal link between the competition law violation and the damages suffered.

According to the Directive, potential claimants will be able to rely not only on final decisions adopted by the EU institutions (as has been the case so far), but also on final infringement decision adopted by their national competition authorities, i.e. an infringement decision that cannot or may no longer be appealed by ordinary means, i.e. one that is final. Accordingly, the Directive considerably eases the claimant’s burden of proof by releasing him from the obligation to prove an infringement of competition law in full or in part, depending on which national competition authority took the decision and where the action for damages is brought. We’ll explain.

An infringement of the EU competition law (or national law if applied in the same case) found by a final decision of a national competition authority (e.g. the Latvian Competition Council) will be deemed to be irrefutably established for the purposes of an action for damages brought before a national court in the same Member State (e.g. in a Latvian court).

If a violation of competition law is established by a final decision in one Member State (e.g. the Estonian Competition Authority) and the case is brought before a court in another Member State (e.g. in Latvia) then the final decision of this national competition authority shall serve as at least prima facie evidence that an infringement of competition law has occurred. The precise effect of such decision will be determined by each Member State in process of implementing the Directive. For instance, Austria has already decided that infringement decisions by competition authorities of other Member States will be binding on the Austrian civil courts.

Furthermore, the Directive establishes a presumption that, in case of a cartel infringement (e.g. price fixing by competitors), such an infringement has caused harm and a defendant must provide evidence to rebut such presumption.

Damages to be awarded (if proven) include actual loss, loss of profit as well as payment of interest.

The claim can be brought against wrongdoers jointly and severally. In other word, the full amount of loss and damages may be claimed from one undertaking (certain exceptions to this principle apply to leniency applicants and small and medium size enterprises; see below).

A defendant may use a so-called passing-on defence and prove that the plaintiff passed on the entire or part of the overcharge resulting from the infringement to its own customers and has subsequently suffered no loss which to claim from the defendant. However, the possibility of invoking a passing-on defence is very likely to cause significant problems if both the direct and indirect purchasers bring a claim, but do so in different Member States. If so, then which court would be entitled to decide whether an overcharge has been passed-on or not?

Example: a retailer who suffered losses as a result of the cartel agreement among Lutèce, Prochamp and Bonduelle may decide to claim full compensation of its damages from Prochamp, even if it has purchased canned mushrooms only from Bonduelle. Bonduelle may be able to prove that the retailer has raised shelf prices of the canned mushrooms and has thus passed on the price increase of the cartelists to its customers.

Leniency applicants (immunity recipients) are jointly liable only towards their direct or indirect purchasers or providers and to other injured parties only where full compensation cannot be obtained from the other infringing undertakings. This type of liability should be considered carefully by all undertakings before they apply for leniency.

V How will the evidence be collected?

Another important, yet controversial, novelty within the Directive is easier access to relevant evidence. On the basis of reasoned justification the court may order any third party (including competition authority) to produce the necessary evidence. This right is expected to raise complex issues, for all parties involved, as regards to which evidence may be requested, to what extent it should be provided or may be withheld, whether or not a particular piece of evidence is necessary to prove a particular claim (e.g. a request might be solely “fishing expedition”, i.e. an intention to get access confidential information not related to claim), etc.

VI When to submit the claim?

The time limit within which an action for damages can be brought shall be decided by and defined in the law of each individual Member State.

But, all Member States must ensure that the limitation period is at least 5 years from the termination of the infringement and the moment a victim has the possibility to discover that it suffered harm from an infringement and identify the infringing undertaking.

The limitation period is suspended if a competition authority starts proceedings. Therefore, victims may decide to wait until the public proceedings are over before they bring a claim.

Accordingly, any anticompetitive behaviour today may lead to antitrust damages claims in the near future in accordance with the rules and principles set out in the Directive (and national laws after its transposition).

Example: retailer who purchased canned mushrooms from Lutèce, Prochamp and Bonduelle may bring an action against Lutèce, Prochamp and Bonduelle within 5 years from the moment when it has become aware or can be reasonably expected to have known that the infringement by a particular undertaking had been committed and that it had caused harm to the retailer. In practice this will probably be the moment when an infringement decision is made public by a competition authority.

VII Where to submit the claim?

First of all, the Directive promotes “consensual dispute resolution”, i.e. any mechanisms enabling the parties to reach an out-of-court resolution on compensation of antitrust harm (arbitration, mediation or conciliation). Use of this type of dispute resolution may bring certain benefits to the infringer. For instance, this instrument might be used in order to escape joint and several liability for full amount of damages suffered by a particular claimant. It might also serve as mitigating factor in setting the fine for the respective infringer by a competition authority.

If an injured person, nevertheless, decides to bring an action before a court then it may trigger a complicated assessment as to, in which Member State the claim may be brought. Several jurisdictions might be applicable. The Directive does not preclude “forum shopping” in order to choose the most favourable Member State (or several of them) as regards the procedural rules and other conditions related to the claim.

Generally, the jurisdiction is determined in accordance with Brussels I Regulation and Lugano Convention. Accordingly, depending on the facts of each particular case damages action (based on infringement decision adopted by the European Commission or a national competition authority) may be brought in different Member States.

Example: Bonduelle can be sued either in a Member State where it has been established or where the harmful event occurred (i.e. either in the Member State where the payment for particular goods was made or in the Member State where the competition was distorted). However, if a claimant has suffered damage in more than one Member State, the Member State where Bonduelle is established most probably should be preferred in order to request full compensation at one court, rather than claiming certain amount of compensation in different Member States.

VIII Which law applies?

The applicable law shall be determined in accordance with the provisions of the Rome II Regulation. 

Under the Rome II Regulation, the law applicable to a non-contractual obligation arising out of a tort/delict shall be the law of the country in which the damage occurs (the Member State, where a retailer purchased the products) irrespective of the country in which the event giving rise to the damage has occurred and the country or countries in which indirect consequences of that event have occurred.

IX What will be the impact on national regulations and practice in Baltic states?

Read in the full version of the newsletter

X How to avoid risks of an antitrust damages claim being failed against you or to take advantage of the new rules?

In the context of the above there are several steps that may and should be taken by any company in order to prevent a risk of being held liable for damages caused to the market, as well as take advantage of the recent and forthcoming legal developments.

  1. Avoidance of non-compliance with competition rules that may be achieved by compliance assessment of certain behaviour (including contracts concluded and information exchangewith other market participants directly and through trade associations), internal competition compliance audits, competition training in form of presentations, fake dawn-raids (where attorneys are simulating competition authority’s dawn-raid at company’s premises, including interviews with employees, review of documents, detecting problematic correspondence) etc.
  2. Assessment of the existing and potential claims against the company or by the company. Although the Directive has to be implemented by 27 December 2016 at the latest, it already has indirect effect and rights to claim damages exist already now. Such assessment would include, in particular, identification of the most appropriate jurisdiction for damages actions (the Directive will not completely end the “forum shopping” across the EU).
  3. Evaluation of risks in relation to use of leniency application (if such application is considered by the company).
  4. Before disclosure of any information to court hearing a damages claim, an assessment of compatibility of the request with the rules governing disclosure of evidence should be done.