Somewhat overshadowed by media attention surrounding the repercussions of the Brexit vote and subsequent impact on the United Kingdom’s laws and economy, the landscape of Europe’s competition law regime is undergoing a notable change this year, as well. By December 27, 2016, each EU member state is required to implement the European Union’s Damages Directive (2014/104/EU) – meaning that each state must offer a mechanism to facilitate private enforcement of damages claims for the infringement of competition rules.
This summer, member states such as Germany, Spain and others have unveiled proposals that call for amending current competition acts to comply with the Directive’s conditions. Final parliamentary votes are expected this fall – in advance of the late December deadline –after draft legislation has been published and commented g(upon in each jurisdiction
I. Considerable Changes
The changes imposed by the Directive are significant, as it is designed to use national courts to help victims of anticompetitive conduct and cartel behavior obtain damages for losses suffered. The Directive, which entered into force on December 25, 2014 after more than a decade of debate and negotiation, thus promotes a less fragmented standard for private antitrust damages actions across all member states. Indeed, the implementation of the Directive is likely to lead to a surge in private actions brought in national courts.
Although the European Commission has an active competition authority which regulates anticompetitive conduct and punishes cartel behavior, it is not conventional practice for European consumers to bring follow-on claims for damages as a result of the Commission’s findings of infringement. While the United Kingdom, Germany, and the Netherlands are known as claimant-friendly jurisdictions, other member states have effectively blocked private claimants from bringing successful damages cases. The Damages Directive changes this by establishing specific minimum requirements that all member states must implement by the end of 2016. The requirements under the Directive include:
- Expanded access to evidence: all parties (including third parties) must comply with court orders mandating the disclosure of relevant evidence to the other side; the judge will be responsible for ensuring that evidence disclosure orders are proportionate and that confidential information is protected;
- Precedential effect of national infringement decisions: final decisions by national competition authorities determining that an antitrust violation occurred will become binding on the national courts in that member state and constitute full proof that the infringement happened – an expansion from the former regime whereby only European Commission antitrust rulings were given precedential effect;
- The right to full compensation: Member states now must ensure that any claimant harmed by a competition law infringement can claim and receive full compensation for the harm suffered;
- Longer limitations period: The statute of limitations will increase, allowing victims at least five years from the time that the infringing activity ended (and the claimant had the possibility to discover that they suffered harm) to bring damages claims;
- Indirect purchaser claims: The burden of proof will decrease, allowing indirect purchaser claimants to rely on the assumption that direct purchasers of price-fixed goods passed on the overcharge; and
- Quantification of harm: A rebuttable presumption that the infringement of antitrust law by cartelists caused harm to consumers will be established, and the presumption requires that national courts be able to estimate the amount of harm suffered. This presumption is a clear divergence from standard legal practice in some member states (especially in Nordic countries) where the burden previously had rested with the claimant to prove that damages were suffered. However, defendants have the right to refute the presumption by offering evidence that no damages were caused.
Notably, the Directive does not mandate that EU member states introduce class actions or other methods for collective redress of claims. However, in some jurisdictions such as Germany, existing case law permits injured parties to jointly bring actions by assigning their respective claims.
II. The Ongoing Process and Innovative Approaches by Member States
The implementation process for member states to incorporate the Directive into their legal systems is ongoing. Latvia already has partially adopted legislation. Legislative proposals are pending in the Netherlands (submitted to parliament on July 7, 2016), Luxembourg (submitted to parliament on July 5, 2016), and Finland (submitted to parliament on May 19, 2016). Spain has proposed a “first draft” of implementation measures, while at least eight other member states have held public consultation periods to receive comments and input.
The realization of the Directive will require many states to enact sizable amendments to their current competition law regimes. In a somewhat surprising twist, the proposals offered by some states have advanced the minimum standards mandated by the Directive. Member states thus seem to be using the Directive as a baseline while employing their discretion to propose new standards beyond simply replicating the Directive’s provisions into national law.
For example, in following the Directive’s requirements on the disclosure of evidence, Spain has proposed a completely revamped set of rules on access to evidence as part of an amended Civil Procedure Act. Therefore, in implementing the Directive, Spain is addressing more than antitrust cases – the new rules on disclosure would be applicable to all civil litigation.
On July 1, 2016, the German Federal Ministry of the Economy and Energy published a draft bill to amend Germany’s competition law act, which would serve to implement the Directive into German law. After a period of public comment, the Ministry expects Parliament to vote on the bill this fall before the December deadline. Although it is already considered a claimant-friendly jurisdiction, Germany’s proposal also creates a more vigorous discovery-like procedure. Under the draft law, the new Section 33g provides for widespread disclosure under German substantive law – a broader right than the Directive itself, which only mandates that states enable national courts to order disclosure in the courts’ discretion. Additionally, Section 33g (7) of the draft law requires the party requesting disclosure of documents to reimburse the other party for reasonable costs associated with producing the documents.
In Finland, the proposed law would enact tough standards for parental liability. Under the Finnish proposal, the purchaser of a business would be liable for antitrust violations associated with that business if the purchaser was, or should have been, aware of the infringements at the time of the purchase. This focus on parental liability exceeds the scope of the Directive, which is geared toward addressing measures to compensate victims of cartel behavior and does not mandate changes to parental liability laws. A similar emphasis on parental liability exists in Portugal’s initial legislative proposal, in which liability automatically would be extended to parent undertakings for antitrust infringements committed by subsidiaries. According to Article 3 of Portugal’s proposal, the parent and the subsidiary must form a single economic unit and the parent must have exercised significant influence over the subsidiary’s behavior and actions (referred to as “decisive influence”).
III. Impact on European Corporations
The UK, Germany, and the Netherlands had emerged as the main jurisdictions for claimants seeking to bring competition law claims, based on favorable laws for follow-on damages as well as experienced judiciaries familiar with private damages cases. The Directive, however, strives to allow victims of anticompetitive conduct to obtain damages in the national courts of any EU member state. It should remove the procedural obstacles that currently exist in some member states with less developed frameworks for private damages actions.
Corporations across Europe will have to closely observe how certain provisions in the Directive are adopted into national law. For example, the provisions on the disclosure of relevant evidence should lead all businesses to consider enacting document retention policies – and such policies may not currently be in place at certain businesses located in member states where robust discovery has not been a central feature of previous litigations.
It is an open question whether member states with less established competition regimes will become more feasible fora for antitrust damages claims after the implementation of the Directive – leading to a loss of business for the courts in the UK, Germany and the Netherlands. The implications of Brexit in the UK also may impact the UK’s leading role in the private damages regime. It remains to be seen if claimants will continue to engage in forum shopping once all member states have enacted the Directive’s minimum requirements. Corporate law departments are advised to follow the differing provisions proposed by some member states and track how national laws on private damages claims are transitioning as a result of the implementation of the Directive.