The German Federal Civil Court (BGH) has held that both direct and indirect purchasers may sue for antitrust damages, but defendants may raise the passing-on defense. Through the passing-on defense, defendants try to demonstrate that plaintiffs suffered no financial harm, as they passed on the overcharge to their own customers. The BGH's decision of 28 June 2011 could spark an increase in antitrust litigation in Germany, as it confirms that indirect purchasers have standing (an issue on which German courts disagreed in the past). The fact that the passing-on defense is now available to defendants is unlikely to deter litigious purchasers, as the key to making pass-on a successful defense is in the evidence, and Germany does not allow discovery.
Lower court decisions
The plaintiff in the underlying lawsuit is a printer business that bought carbonless paper at prices allegedly increased by coordination among paper producers. In 2001, the European Commission imposed fines of €313.7 million on producers of such paper for price-fixing and market-sharing agreements. The supplier of the printer business (a wholesaler) was a subsidiary of one of these cartel members. The printer business became insolvent and assigned its antitrust claims against the cartelists to the plaintiff, a German savings bank. The bank brought an action against the supplier for a relatively small amount, €224.000.
The court of first instance dismissed the claim. It found that customers of a subsidiary of a cartelist are indirect purchasers and that indirect purchasers may not claim antitrust damages in German courts. Additionally, the court suggested that the plaintiff failed to explain if and to what extent its supplier (the wholesaler) had passed on the higher prices the supplier paid when it purchased carbonless paper at inflated prices from its parent company, the producer and cartelist.
On appeal, the Higher Regional Court (OLG) of Karlsruhe confirmed that only direct purchasers have standing. The OLG's main argument was that allowing actions by indirect purchasers would make it necessary to also recognize the passing-on defense (which the OLG refused to do). Additionally, the OLG pointed out that German law does not currently have a satisfactory solution to the issue of how various purchasers at various levels of the distribution chain would need to redistribute the recovered damages among themselves.
However, the OLG made an exception, if the direct purchaser is a wholly-owned subsidiary of the cartelist. In these circumstances, the OLG rightfully assumed that the direct purchaser would be unlikely to enforce its claim for damages. On this basis, and given the evidence the plaintiff submitted, the court awarded damages in a total amount of €100,000.
Germany has seen a high level of antitrust litigation for damages for many years. One of the reasons is that the 2005 amendment to the German Act against Restraints of Competition (GWB) confirmed that any infringement of the German or EU antitrust rules may give rise to a claim for damages. In an attempt to deal with the issue of passing-on, the 2005 amendment incorporated the following sentence into the GWB:
If a product or service is purchased at an excessive price, damage shall not be excluded on account of the resale of the product or service.
Through this amendment, Parliament wanted to clarify that the harm occurs when the customer is overcharged, and that financial harm does not fall away solely because the purchaser resold the product. However, this does not rule out that there is not financial harm for other reasons. In exceptional cases, German civil law allows the judge to consider that the plaintiff has already received certain forms of recovery. The relevant criteria are based on equitable law and essentially rely on considerations of whether a damage award would be fair and appropriate.
Position of the Federal Cartel Office
The 2005 Amendment intentionally avoided the issue. Parliament wanted to leave the question to the courts. Most commentators agree that the passing-on defense can only be invoked in very narrow circumstances. The German Federal Cartel Office (FCO) echoed this position. In a 2005 working paper, the FCO argued that the conditions for invoking the defense should be narrowly defined such that
they will typically not be satisfied…[unless] the financial harm has indeed been passed on; this did not decrease the revenues of the customer; and passing on the harm has neither created a risk for the customer nor imposed an undue burden on it.
EU law is silent on the issue. Standing and available defenses relate to the laws of torts and the laws of procedures in civil matters. Both areas of the law are member state matters. The EU has not enacted any instrument which would harmonize these matters across member states for antitrust damages actions.
Nor have the European Courts decided on these issues. The European Court of Justice (ECJ) found that “any individual” who suffered harm by an antitrust infringement must be allowed to claim damages. However, the ECJ also found that the details and conditions are for the member states to define. By contrast, there is no shortage of working papers by the European Commission proposing that EU action is required. In particular, in its 2008 white paper, the Commission recommended that defendants should be allowed
to invoke the passing-on defense against a claim for compensation of the overcharge. The standard of proof for this defense should be not lower than the standard imposed on the claimant to prove the damage.
The BGH's Decision
The BGH has not published its decision yet. So far, only a press release is available. According to the press release, the BGH took the position that antitrust actions for damages must be permitted at any level of the distribution chain at which an infringement of the competition rules has resulted in financial harm. As a result, the BGH considers it necessary to allow that the passing-on defense is raised, as the cartelist would otherwise be liable to multiple damages awards.
As a result, the courts will have to develop mechanisms that avoid the complications that explain the rule, in jurisdictions like the United States, that indirect purchasers cannot recover damages. In U.S. federal practice, courts have limited the monetary claims of indirect purchasers to avoid duplicative exposure of defendants, avoid the difficulty of apportioning damages among direct and indirect purchasers, and promote private enforcement by reserving damages to direct purchasers. About half of the U.S. States allow indirect actions, where they have had to develop rules to avoid duplicative liability, apportion damages among different levels of distribution, and determine whether the injury claimed is too remote to collect damages. The German courts will have to address these issues in the future.
The details of the BGH's decision are unknown at this point. The BGH overturned certain aspects of the decision and referred the case back to the lower court, the Higher Regional Court (OLG) of Karlsruhe. It is yet to be seen how the OLG will apply the BGH's reasoning to the facts of the case.
In particular, it is not clear yet whether the BGH has defined, or the OLG will define, additional criteria that need to be satisfied for defendants to be able to invoke the defense. Once invoked, it is not clear which rules need to be satisfied to make the defense successful. Which party has the burden of proof, and are there exceptions? How detailed does the defendant's submission have to be, and which evidence is required?
Moreover, it should be noted that the BGH overturned the OLG Karlsruhe's decision only to the extent the OLG did not award damages. The OLG, however, awarded approximately 50% of the damages the plaintiff had requested. It did so on the basis of generic data regarding the value of commerce involved and in light of a relatively plaintiff-friendly interpretation of the relevant standards of proof. In this respect also, the BGH's decision signals that Germany will see even more antitrust litigation in the future than it does already now, and the odds look to be stacked in favor of the plaintiffs.
BGH's press release (in German) can be found here.