The European Commission (the “Commission”) recently published a package of proposals designed to transform private antitrust damages and collective (i.e. class) actions in Europe. According to a 2003 study ordered by the Commission, there was “total underdevelopment” in actions for damages for breach of EU competition law. The study’s findings prompted a response from the Commission, and the current proposals are the result of extensive consultation.
The package includes a proposed binding Directive on rules governing private antitrust litigation in the twenty-eight member countries of the European Union, a draft non-binding Recommendation encouraging EU member states to adopt collective redress actions, and a draft non-binding Communication and Practical Guide on the quantification of harm in antitrust infringement cases.
The proposals are intended to make it far easier for both direct and indirect victims of EU competition law violations (particularly consumers and SMEs) to effectively obtain compensation in all EU countries and thus may result in a significant increase in lawsuits seeking damages for alleged breaches of EU and national competition laws. The effect of the proposals would be magnified by the likely onset of class actions in competition cases across the EU if the Commission’s proposals on collective actions are adopted by most EU countries.
Agreement between the European Parliament and the Council of the EU on final texts for the drafts may still be several years away, with plenty of debate already surrounding key areas of the proposals, such as those concerning disclosure of evidence. In the meantime, the proposals might already influence interpretation and implementation of existing private remedy systems in some EU member states.
A summary of the draft Recommendations and draft proposed Directive are provided below. Although the draft proposals are likely to undergo significant changes before being finalized and adopted across the EU, the concepts and issues dealt with in those proposals will largely remain the same.
PROPOSED DIRECTIVE ON COMPETITION DAMAGES CLAIMS
The Commission’s proposed Directive seeks to ensure the effective enforcement of EU competition rules by (a) optimizing the interaction between public and private enforcement of competition law; and (b) ensuring the victims of infringements of EU competition rules can obtain full compensation for the actual harm they suffered. The main terms of the proposed Directive, which aim to fulfill those objectives, can be summarised as follows:-
Right to Full Compensation
The Directive reinforces the principle that anyone who has suffered harm as a result of national or EU competition law infringements is entitled to full compensation, including actual loss, loss of profit and interest. Significantly, the Commission considered but firmly rejected allowing punitive damages for violations of competition law.
Disclosure (i.e. Discovery) of Evidence
Some EU countries, most notably the United Kingdom, already have rigorous disclosure regimes in place. However, in many EU countries, claimants are faced with significant difficulties in obtaining evidence from allegedly infringing undertakings as mandatory disclosure is largely unavailable in civil law systems. The Directive would require a minimum level of disclosure of evidence in all EU countries, providing claimants with effective access to evidence to prove their claims for damages for violation of the EU competition rules. Although the proposed disclosure obligations are not as wide as the US discovery rules, they will make it easier for victims of EU competition law violations to formulate their claims.
Under the proposed Directive, to obtain disclosure, a claimant will need to show that the requested evidence is relevant to substantiate his or her claim for compensation. It will then be for the courts to ensure that any order for disclosure is proportionate.
To preserve the attraction of leniency programs, the proposed Directive introduces an absolute restriction on disclosure of leniency corporate statements and settlement submissions, which often contain admissions of guilt. Claimants may, however, obtain disclosure of other information prepared specifically for or by a competition authority, but only after the authority’s proceedings are finalized.
The proposed Directive provides that a claimant should have five years to bring a claim. It clarifies that this period begins to run from the time a continuous or repeated infringement ceases. Time will also only being to run once the claimant knew of, or could have been reasonably expected to know of, the infringing conduct.
The limitation period is to be suspended if a competition authority begins an investigation. This will give claimants the opportunity to view the outcome of the public proceedings prior to bringing their claims. The moratorium would end, at the earliest, one year after the infringement decision became final.
Presumption of Harm and Infringement
The proposed Directive introduces a rebuttable presumption that any cartel infringement will have caused harm. The presumption is based on the finding that more than 9 out of 10 cartels cause illegal overcharges. The proposed presumption places the burden of proof on the defendants, who should have in their possession the necessary evidence to rebut it.
The proposal will be welcome to claimants who face notorious difficulties in proving that a cartel in fact caused an overcharge. Quantification of harm will be left to national courts to determine. Separate guidance on quantification, by way of a draft Communication, is outlined below.
The proposed Directive also provides that any final decision of a national competition authority or national review court will be proof of infringement. This again reduces the evidential burden on victims to determine the issue of infringement where that issue has already been determined in another EU member state.
Joint and Several Liability
Where undertakings have infringed antitrust law through joint behavior, typically via a cartel, the proposed Directive will make them jointly and severally liable for the damage caused. This means that an injured party will be entitled to receive compensation from any of the joint-offenders until he/she has been fully compensated. Infringing undertakings may then recover contributions as between themselves, proportionate to their relative responsibility.
However, an immunity recipient under leniency programs will not be required to contribute any amount exceeding the harm caused to its own purchasers or providers, unless the claimants are unable to obtain full compensation from the other infringing parties. In introducing this caveat, the Commission hopes to maintain the attractiveness of leniency programs, whilst maintaining the victims’ right to full compensation.
To ensure that claimants are only compensated for actual loss, the proposed Directive recognises a passing-on defence: An undertaking subject to a private antitrust action may invoke the defence that the claimant ‘passed on’, and effectively offset, any alleged overcharge, by increasing their prices.
To successfully raise the defence, defendants would need to prove that the overcharge was passed on. However, if it is “legally impossible” for indirect purchasers (i.e. persons at the next level of the supply chain) to bring a damages claim, because of, for example, national laws regarding foreseeability and remoteness, the passing-on defence may not be invoked. The Commission foresees this qualification to the passing-on defence as a means of preventing infringing undertakings being unduly freed from liability for the harm caused to those indirect purchasers unable to make a claim. However, the qualification potentially opens the doors for unfair recovery by direct purchasers.
The formal unveiling of the proposed Directive does not necessarily mean it will be adopted in its current form; the European Parliament and the Council of the EU will now consider the proposals and have to agree on a final text. There is likely to be further lobbying before the proposal is finalized. Once the final text of the Directive has been agreed and adopted by the Parliament and Council, EU member states will have two years to implement the provisions of the Directive.
Noticeable omissions from the proposed Directive are provisions dealing with collective redress (i.e. procedural mechanisms which allow two or more parties with similar claims to be grouped in a single action); possibly due to reported fears of a move towards a “US-style” class action system and litigation culture.
Instead, the Commission published a draft Recommendation encouraging EU member states to adopt, within the next four years, collective redress systems for all instances of “mass harm”. The draft Recommendation therefore applies not only to EU competition violations, but will also have application elsewhere (such as consumer protection proceedings).
The draft Recommendation outlines a set of principles to be followed by EU member states when introducing systems of collective redress which are to be “fair, equitable, timely and not prohibitively expensive”. The terms of the principles can be summarised as follows:-
Standing to Bring Representative Actions
The Commission recommends that only public bodies or bodies authorized by EU member states should bring representative actions. Those bodies should be non-profit making organizations whose objectives are directly related to the EU rights the body seeks to protect. The bodies should also have sufficient capacity to represent multiple claimants.
Formation of the Claimant Group
As opposed to the opt-out system in effect in the US, the Commission recommends an “opt-in” approach to representative actions, whereby the claimant group consists only of persons who have given their express consent to joining the action and who are free to leave it at any time prior to final judgment.
The Commission recommends that national courts should evaluate cases at an early stage to decide whether the conditions for collective redress actions are met. Where such conditions are not met, or the claim is manifestly unfounded, it must be discontinued at the earliest possible stage.
The Commission further recommends that funding methods should not incentivize abusive or speculative claims and the claimant should disclose to the court, at the beginning of proceedings, its funding arrangements. Third party funders should be subject to certain conditions; for example, they should be prohibited from influencing procedural decisions, such as settlements, and should not be compensated on a contingency fee basis unless regulated by a public authority.
Costs of representative actions would follow the principle that the “loser” pays the legal costs of the successful party, which is currently in effect in some EU states (most notably the UK) but by no means all EU countries.
The Commission suggests that damages should only be compensatory in nature. Punitive damages (such as those advocated in the US), leading to the overcompensation of the claimant party, should not be awarded.
Alternative Dispute Resolution
Under the draft Recommendation, out of court settlements, both before and during the course of the litigation, should be encouraged by way of collective alternative dispute resolution systems. Engagement with such procedures should suspend any limitation periods applicable to the claim.
The Commission will assess the implementation of the principles set out above and consider if further steps are required to ensure its objectives regarding collective redress are fulfilled. The draft Recommendation is not binding on EU member states, so only time will tell to what extent collective redress mechanisms will be adopted throughout the EU, and in what form.
A recurring issue in antitrust litigation is the quantification of harm; it is a difficult and costly process, requiring an analysis of the comparative position of the loss actually incurred by the claimant and the loss which would have been incurred had the anti-competitive behavior not taken place. The Commission has produced a Communication along with a set of Practical Guidelines on quantifying harm in antitrust claims. Neither is binding on EU member states but instead aim to make the process of quantifying damages easier for litigants and national courts by providing a useful economic framework for determining damages in competition cases.
Companies operating within the EU, or whose global operations potentially affect third parties or consumers within the EU, will need to be aware of the changes represented by the above proposals. Although the proposed directive on damages in competition actions will not come into force immediately, its effect combined with the potential introduction of class-action type claims, demonstrates an increasing effort within the EU to put effective teeth into the enforcement of EU competition laws.