Negotiating teams representing the European Parliament, Council and Commission have reached agreement on the EU’s first-ever Directive governing actions for damages arising from infringements of competition law.
The law will bring about profound changes to the way competition law is enforced and litigated in the EU.
In June 2013, the European Commission published long-awaited proposals for a law governing how civil damages actions might be pursued by victims of competition law infringements. The right to compensation for breaches of competition law already exists in every EU Member State, though the Commission’s view is that this right has been excessively hard to enforce due to procedural, practical and substantive divergences between the Member States’ legal systems. The purpose of the proposal was to “harmonize” many of the features of the Member States’ systems, thereby facilitating competition damages actions.
The Commission’s proposal underwent considerable negotiation and discussion in both the European Parliament and Council, and a compromise text was eventually agreed by negotiating teams on March 18, 2014. This means that the agreed text will be put forward in time for adoption by the European Parliament on April 15, 2014, at its final session before the Parliament dissolves for elections. Once the Directive is also adopted by the Council and published, Member States will have two years to complete the necessary adjustments to their national laws. The new system will therefore come into effect at different times in different Member States, but should be fully operational by the end of 2016.
New litigation features in every Member State
The compromise text does not offer a fully formed compensation system. Instead, it seeks to align the Member States’ procedures on a number of key issues, which will – in theory – make it significantly easier for victims of infringements to pursue infringers, including in cross-border cases.
The text also instructs Member States on some fundamental questions regarding the interaction between public and private enforcement mechanisms. The overall goal is to facilitate compensation for victims without undermining incentives to cooperate with regulators, for example through volunteering evidence within leniency programs.
Ten of the key features which have been agreed, and will very likely be in the final adopted text, are:
Full compensation – The Directive will restate that victims of competition law infringements have the right to full compensation from an infringer where there is a causal relationship between the harm and the infringement. However, the Directive will also seek to prevent overcompensation, and will exclude the award of punitive and multiple damages.
Litigation disclosure between parties – The EU’s first ever litigation disclosure mechanism will be created. Until now, disclosure/discovery rules have been determined according to the legal traditions in the different Member States, and significant differences exist. The Directive will define a basic right for claimants to receive from defendants “reasonably available facts and evidence to support their claim”, and indicates the scope of this right, as well as some protections for defendants against excessively broad disclosure requests.
Disclosure of evidence included in the file of a competition authority – The Directive will seek to protect the attractiveness of leniency programs by limiting the risk that certain documents provided to regulators in the context of leniency applications might later be used in civil actions. However, this protection will apply to a very narrow category of documents, and in very narrow circumstances. In principle, all evidence on a competition authority’s file will eventually become accessible in civil actions unless it is falls within this very limited protection.
Joint and several liability – Co-infringers will be jointly and severally liable to all those harmed by their infringement. However, defendants who have received immunity from fines will be liable to compensate only their own direct/indirect purchasers, except where other co-infringers are unable to fully compensate the remaining claimants.
Member State decisions – Decisions taken by national competition authorities in one Member State will be usable as prima facie evidence that an infringement has occurred in damages actions in any other Member State.
The “passing-on” defense – The Directive will require all Member States to allow the passing on defense, thereby excluding compensation being paid to those that have passed on their loss to others, such as their own customers. The burden of proving that a pass-on has occurred will rest with the defendant.
Indirect purchasers – Claimants who have not purchased directly from infringers, but who nonetheless have suffered harm because overcharges were passed on to them by those who purchased from infringers, will have a right to compensation. The Directive will define when such claimants will be entitled to presume that an overcharge has been passed on to them.
Presumption of harm and burden of proof – In cartel cases, courts will apply an automatic presumption that a claimant has suffered harm. The burden will be on the defendant to prove otherwise.
Estimation of harm – To allow the speedier resolution of cases, the Directive will allow courts to estimate the level of harm in competition cases, instead of requiring fully evidenced harm in all cases.
Limitation periods – The Directive will align when limitation periods begin to run, and will require a limitation period of at least five years, and will also provide for a suspension of that period for the duration of any investigation and for at least one year thereafter.
Next steps and impact
While there remains a slim possibility of last-minute dissent at final adoption stage, it is now highly likely that the agreed text will be formally adopted. The Parliament’s vote on April 15, 2015 will be decisive. The EU has already witnessed a dramatic increase in follow-on damages claims in competition cases in recent years (in particular in the UK, the Netherlands and Germany). As the Directive is adopted and implemented in the Member States, a great many more can be expected.
In light of these and other developments, the risks to those caught up in competition investigations are changing rapidly. In addition to all the pre-existing risks of fines, criminal sanctions in some jurisdictions, and possible civil actions in the United States and elsewhere, the likelihood of civil actions in the EU is now high, and with the final approval of this Directive, will increase dramatically.